Aegon reports first half 2019 results
THE HAGUE, Netherlands–(BUSINESS WIRE)–Regulatory News:
Net income increases to EUR 618 million reflecting realized gains and lower other charges
● Underlying earnings decrease by 5% to EUR 1,010 million, reflecting lower fee income as a result of lower average asset balances in the US, and investments in the business to support growth
● Fair value losses of EUR 394 million, driven by a strengthening of insurance provisions in the Netherlands as a result of adverse credit spread movements
● Realized gains on investments of EUR 275 million, driven by the sale of bonds to optimize the investment portfolio in the Netherlands
● Other charges of EUR 93 million include EUR 64 million model & assumption changes, mainly in the US
● Return on equity declines to 9.6% due to lower net underlying earnings
Net outflows of EUR 2.7 billion despite higher gross deposits
● Net outflows of EUR 2.7 billion driven by contract discontinuances in US Retirement Plans as well as outflows in the US annuities businesses and on the UK institutional platform. These are partly offset by net inflows in Asset Management and the Netherlands
● New life sales decline by 4% to EUR 405 million
● Accident & health insurance sales down by 45% to EUR 117 million, as a result of the previously announced exit of certain product lines and lower voluntary benefits sales in the United States
● Property & casualty new premium production up by 7% to EUR 65 million
Increased interim dividend supported by strong capital position and normalized capital generation
● Interim 2019 dividend increases by 7% to EUR 0.15 per share
● Solvency II ratio of 197% at the top of the target zone; ratio decreases due to adverse market impacts
● Normalized capital generation after holding expenses of EUR 714 million. Capital generation of EUR (788) million, including adverse market impacts of EUR 1.4 billion and one-time items of EUR (114) million
● Market impacts are driven by adverse credit spread movements in the Netherlands, notably mortgage spreads, which increased to levels significantly above the long term average
● Holding excess cash increases to EUR 1.6 billion, reflecting EUR 765 million gross remittances from subsidiaries. Aegon the Netherlands retained its planned remittance over the first half of the year
● Gross financial leverage ratio amounts to 29.3% and remains in the 26 to 30% target range
Statement of Alex Wynaendts, CEO
“In a turbulent first half of 2019, market movements had a negative impact on the capital position in the Netherlands. We have, however, maintained a strong Group Solvency II ratio. Our hedging programs have effectively protected us against falling interest rates. In addition, we increased normalized capital generation and maintained a solid cash buffer. This allows us to raise our interim dividend by 7% to 15 eurocents per share.
Underlying earnings before tax were slightly lower as a result of outflows in our fee businesses in the United States and increased investments to support growth and improve customer experience. We are focused on expanding our customer base and strengthening customer retention. It is encouraging that new plan written sales in the US retirement business increased significantly and that gross deposits were up in most of our businesses.
We have made good progress in the execution of our strategy by driving efficiencies in those businesses we manage for value and allocating capital to those activities with the best growth prospects. We announced the sale of our joint ventures in Japan and completed the integration of Cofunds in the UK. Furthermore, we took the first steps in transferring the administration of back books in the UK and the Netherlands to modern platforms.”
Note: All comparisons in this release are against 1H 2018, unless stated otherwise
|EUR millions 13||Notes||First half 2019||First half 2018|
|Underlying earnings before tax|
|Holding and other|
|Underlying earnings before tax|
|Fair value items|
|Realized gains / (losses) on investments|
|Other income / (charges)|
|Income before tax|
|Net income / (loss)|
|Net income / (loss) attributable to:|
|Owners of Aegon N.V.|
|Net underlying earnings|
|Return on equity|
|Commissions and expenses|
|of which operating expenses|
|Gross deposits (on and off balance)*|
|Total gross deposits|
|Net deposits (on and off balance)*|
|Total net deposits excluding run-off businesses|
|Total net deposits / (outflows)|
|New life sales|
|Life single premiums|
|Life recurring premiums annualized|
|Total recurring plus 1/10 single|
|New life sales|
|Total recurring plus 1/10 single|
|New premium production accident and health insurance|
|New premium production property & casualty insurance|
|Market consistent value of new business|
|*Due to the announced divestment of Aegon’s 50% stake in the joint ventures with Sony Life, Net & Gross Deposits of Japan are no longer|
included in 1H 2019.
|Revenue-generating investments & Employee numbers|
|June 30,||Dec. 31,||June 30,|
|Revenue-generating investments (total)*|
|Investments general account|
|Investments for account of policyholders|
|Off balance sheet investments third parties|
|of which agents|
|of which Aegon’s share of employees in joint ventures and associates|
|*Due to the announced divestment of Aegon’s 50% stake in the joint ventures with Sony Life, Revenue Generating Investments of Japan are no|
longer included in 1H2019. Off-balance investments for Japan amount to USD 2.4 billion per June 30, 2019.
● Drive for Growth: Commercial momentum increases in the US; UK completes last part of Cofunds integration with Nationwide migration
● Scale-up for Future: Disciplined capital allocation with divestment of stake in Japanese joint ventures combined with continued investments in growth
● Manage for Value: Administration of defined benefit pension business in the Netherlands transferring to TKP to further optimize the business
Aegon’s purpose – to help people achieve a lifetime of financial security – forms the basis of the company’s strategy. The central focus of the strategy is to further transform Aegon from a product provider to a customer needs-driven company. This means serving diverse and evolving needs across the customer life cycle by being a trusted partner for financial solutions that are relevant, simple, rewarding, and convenient. Aegon aims to develop long-term customer relationships by providing guidance and advice, and identifying additional financial security needs at every stage of customers’ lives.
The company continues to simplify its business while pivoting to sustainable growth in sales and capital generation. By developing long-term relationships with Aegon’s large customer base, and further improving customer engagement, the company strives for profitable organic growth. Active and structured portfolio management enables Aegon to create value for all its stakeholders including shareholders, business partners and customers. Sustainably growing capital generation is the basis of being able to provide shareholders with attractive returns, now and in the future.
Aegon groups its businesses into three distinct categories – Drive for Growth, Scale-up for Future, and Manage for Value:
- The vast majority of Aegon’s investments are directed to multi-product, digitally‑enabled and relationship-based Drive for Growth businesses which are at the core of the strategy and will drive future capital generation.
- Scale-up for Future businesses are aimed at capturing meaningful new opportunities in a systematic way.
- Manage for Value category consists of at-scale businesses, which are mostly spread-based, single-product relationships which are managed for value while keeping customers’ interests at heart.
Aegon remains committed to doing business in a responsible way by contributing to smart financial planning, promoting healthy lifestyles, and providing relevant solutions at every stage of the lives of its customers. Furthermore, the company takes a thoughtful approach to secure retirement and healthy aging in society, and aims to make a lasting contribution to a healthy environment through investments and active ownership. By acting as a responsible business, Aegon invests, where it can, to bring social benefits and contribute to a healthier environment. To support this approach, Aegon is a signatory to a number of international agreements, including the Global Coalition on Aging and the UN Principles for both Sustainable Insurance and Responsible Investments.
In April 2019, Transamerica implemented changes to its organizational structure by establishing cohesive leadership for two distinct business lines: Workplace Solutions and Individual Solutions. Focusing on these business lines will further increase Transamerica’s responsiveness to customers and distribution partners, positioning it to improve retention and accelerate growth.
Written sales of Retirement Plans increased by 74% to USD 10 billion in the first half of 2019 versus the same period last year, as Transamerica recorded two sales in excess of USD 1.0 billion each in the large market, while sales of middle market plans also increased. Written sales usually translate into gross deposits after 6 to 18 months.
Enhancements to Transamerica’s variable annuity product suite have yielded positive results in the first half of this year, with gross deposits of Transamerica’s Retirement Income Choice product increasing 76% versus the same period last year. The positive momentum is also reflected in Transamerica’s share of the variable annuity market as measured by Morningstar data. Its market share has steadily increased to 3.5% in the first quarter of this year, up from 3.3% in the fourth quarter of 2018. Investing in wholesale relationships and launching new products through the TCS platform will create additional future growth opportunities.
In June 2019, Vanguard announced the strategic decision to exit the white label distribution and administration partnership with Transamerica by the end of this year. Vanguard sales were USD 0.4 billion in the first half of 2019. Although this will lead to lower sales in the short term, it provides an opportunity in the medium term to execute an alternative strategy to more widely distribute a white label product, as Vanguard’s was an exclusive distribution arrangement.
Aegon announced in March 2019 that it had entered into an agreement with Long Term Care Group (LTCG), an independent third-party administrator, to transfer the administration and claims management of its long term care insurance business line. The transaction will enable Transamerica to accelerate the expansion of its digital capabilities and the modernization of its Long Term Care insurance platform.
The partnership with Tata Consultancy Services (TCS), announced on January 11, 2018, aims to transform the administration of Transamerica’s insurance and annuities business lines. Transamerica’s focus on improving customer experience in a digitally enabled way is supplemented by this partnership as it benefits from the transformation and technology innovation capabilities of TCS. This has led to a 9 points increase in the transactional Net Promoter Score (tNPS) between the end of 2017 and the end of the first half of 2019 in the life and annuity business lines. The tNPS measures the level of customer satisfaction relating to their recent interaction with the company.
In Mexico, Transamerica took the strategic decision to wind down its joint venture with Akaan, as the business has not performed according to expectations. The joint venture started selling products in 2017 by offering a variety of mutual funds and investment solutions. This was an example of a Scale-up for the Future business, which are established to develop profitable businesses for the future. They are, however, measured against clear investment criteria, and if these are not met, initiatives are discontinued.
On July 1, 2019, Transamerica Advisors Life Insurance Company (TALIC) merged with Transamerica Life Insurance Company (TLIC). This is expected to generate approximately USD 0.2 billion of capital in the second half of 2019, as a result of diversification benefits.
In Europe, Aegon’s focus is on growing its modern digitally-enabled businesses organically and reinforcing its commitments to reallocate capital to future-proof businesses.
In the Netherlands, Aegon announced that it will operationally integrate Aegon Bank and Knab. The Aegon Bank brand has been successfully focusing on (bank) savings and investment products in recent years. Aegon’s fully digital bank Knab has grown significantly with a strong focus on customer experience in the past few years. By combining Aegon Bank and Knab, Aegon will strengthen its leading position as digital bank in the Dutch marketspace. Knab will be the leading brand for the bank going forward.
To further optimize the pension business, Aegon the Netherlands has started to transfer the administration of the defined benefit pension book to its TKP platform, expected to be completed by 2023. TKP is recognized as a leading and efficient administrator in the Dutch market. It is growing rapidly and had 3.7 million pension participants at the end of the first half of 2019. By transferring existing pension contracts onto the TKP platform, Aegon’s life business will be able to make its expense base more variable.
The combined benefit of these initiatives in the Netherlands are expected to lead to annual run-rate expense savings of approximately EUR 35 million by 2023. Total restructuring charges are estimated to be in a range around the total annual savings.
In the United Kingdom, the Cofunds integration was completed, as the assets under administration related to Nationwide were migrated onto Aegon’s platform. To date, Aegon has realized GBP 40 million in annualized expense savings from integrating the Cofunds business, a figure which will rise to GBP 60 million later this year, as legacy systems are decommissioned and an office is closed. Aegon UK offers personal and workplace pensions, investments, protection products and services. It is the leading platform provider in the United Kingdom with GBP 140 billion of assets under administration at the end of the first half of 2019.
In the United Kingdom, Aegon took the first steps in transferring the administration of the Existing Business to Atos. The partnership with Atos became effective on June 1, 2019, and included the transfer of approximately 800 Aegon employees to their new employer. This agreement will generate run-rate expense savings for Aegon of GBP 10 million initially, growing to GBP 30 million over time, as announced on November 20, 2018.
In Asia, Aegon allocates capital to digital business models in growing markets. In line with its strategy to focus on driving profitable sales growth and sustainably growing capital generation, Aegon announced an agreement to sell its 50% stake in the variable annuity joint ventures in Japan for cash proceeds of approximately EUR 130 million on May 17, 2019. The transaction agreements were signed on June 28, 2019. The divestment is subject to normal regulatory approvals and is expected to be completed by the end of 2019.
Aegon Life Insurance and MobiKwik, India’s second largest mobile wallet provider, have joined forces to launch a smart digital insurance product in India. This product, called the Aegon Life Group Term Plus Plan, offers both death and accidental disability benefits to customers on MobiKwik platforms. With this partnership, Aegon aims to expand its distribution reach while providing innovative insurance solutions to its customers.
Aegon has appointed a new CEO for Aegon Asset Management, Bas NieuweWeme. This appointment (effective per June 24, 2019) demonstrates Aegon’s continuing commitment to building a growing and sustainably profitable business. Bas NieuweWeme will bring a fresh perspective gained from having worked with leading global asset management firms, in the world’s largest markets.
Growing external third-party assets remains an important part of Aegon Asset Management’s strategy. The continuing strong external third-party net inflows of EUR 3.2 billion in the first half of 2019 reflect Aegon Asset Management’s competitive performance, together with management’s ability to leverage scale and capabilities from the general account and third-party affiliate businesses.
One of the key elements enabling Aegon Asset Management’s success in the long term is better proximity to customers in chosen markets. To build out the distribution strategy in China, an agreement was recently signed, supporting the development of a Wholly Foreign-Owned Enterprise (WFOE), a new type of investment entity that is fully foreign-owned. This will further deepen Aegon’s strategic relationship in the region. It will create the opportunity to sell offshore products into the Chinese market, complementing the current local joint ventures. It will also give access to the USD 2 trillion private fund market.
Responsible investing is another important element of Aegon Asset Management’s strategy. For the third consecutive year, Aegon Asset Management has scored the highest possible rating (A+) for strategy and governance of responsible investment activities in the annual assessment published by the Principles for Responsible Investment (PRI), the world’s leading authority in this field.
In the context of the creation of an alliance in the bancassurance sector, Groupe BPCE and La Banque Postale have agreed on the principles of an enhanced business partnership. Part of those principles includes the implementation of a project to merge their euro-fixed income investment activities, which are mainly insurance-related, into a common platform. Today, this has no influence on Aegon’s stake in La Banque Postale Asset Management. Aegon Asset Management will remain close to its respected partner throughout this process to work towards the optimal outcome in an environment that continues to focus on consolidation as a key driver for the creation of sustainable profitability.
Underlying earnings before tax
Aegon’s underlying earnings before tax decreased by 5% compared with the first half of 2018 to EUR 1,010 million. Excluding favorable currency movements, earnings decreased by 9%. This was largely the result of lower fee income from Retirement Plans and Variable Annuities in the US, as well as investments in the business to support growth and to improve customer experience. Furthermore, Asset Management recorded lower performance fees, while the loss in the Holding increased as more interest expenses were reported through the profit & loss account instead of directly through shareholders’ equity.
Underlying earnings from the Americas decreased by 4% to EUR 576 million. Excluding favorable currency effects, earnings declined by 11%, mainly caused by lower fee income in Retirement Plans and Variable Annuities from lower average asset balances. Furthermore, expenses increased as a result of investments to support growth and improve customer experience. This was partly offset by better claims experience in Life, higher earnings in Fixed Annuities and EUR 23 million higher one-time benefits in Accident & Health.
Underlying earnings before tax from Aegon’s operations in Europe increased by 1% to EUR 439 million. This was driven by higher investment results in the Netherlands, supported by a shift to higher-yielding assets, as well as higher Digital Solutions earnings in the UK, reflecting higher average asset balances. This was largely offset by lower earnings in Southern and Eastern Europe (SEE) caused by the loss of earnings due to the sale of the Czech and Slovak operations. Furthermore, non-life earnings in the Netherlands declined due to lower disability provision releases.
Aegon’s underlying earnings in Asia increased by 2% to EUR 32 million. Excluding favorable currency movements, earnings decreased by 5%, caused by the High-Net-Worth (HNW) business due to lower interest rates. This was largely offset by better results from the strategic partnerships in China, driven by business growth and favorable persistency, and in India, reflecting lower investment in new business in the traditional channel as the business pivots towards digital channels.
Underlying earnings before tax from Aegon Asset Management were down by 27% to EUR 60 million in the first half of 2019. This decrease was largely the result of lower performance fees in Aegon’s Chinese asset management joint venture Aegon Industrial Fund Management Company (AIFMC), which were exceptionally high last year. Furthermore, earnings in Europe declined, mainly due to outflows in the United Kingdom.
The result from the Holding declined to a loss of EUR 98 million, mainly as a result of interest expenses on USD 800 million Tier 2 securities issued in April 2018 to replace perpetual securities. Interest expenses for these Tier 2 securities are reported through the P&L, while the interest expenses for the perpetuals were recognized directly through equity.
Net income increased by 26% to EUR 618 million in the first half of 2019, driven by realized gains and lower other charges, partly offset by a higher loss on fair value items.
Fair value items
The loss from fair value items amounted to EUR 394 million.
Fair value losses in the Netherlands were EUR 459 million, caused by a EUR 1.4 billion strengthening of insurance provisions as result of a shortfall in the Liability Adequacy Test (LAT) driven by credit spread movements. The LAT assesses the adequacy of IFRS insurance liabilities by comparing them to their fair value. Aegon the Netherlands adjusts the outcome of the LAT for certain unrealized gains in the bond portfolio and the difference between the fair value and the book value of those assets measured at amortized cost, mainly residential mortgages. In the first half of 2019, mortgage spreads widened as consumer prices did not react to the drop in risk-free interest rates. This decreased the value of Aegon’s mortgage portfolio, while unrealized gains on the value of the bond portfolio reduced due to the sale of bonds to optimize the investment portfolio in the Netherlands.
+31 (0) 70 344 8821
Jan Willem Weidema
+31 (0) 70 344 8028
Conference call including Q&A (9:00 a.m. CET)
Audio webcast on aegon.com
United States: +1 720 543 0206
United Kingdom: +44 (0)330 336 9126
The Netherlands: +31 (0) 20 703 8211
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