Aegon reports second quarter 2021 results
THE HAGUE, Amsterdam–(BUSINESS WIRE)–Steady progress on strategic priorities and financial targets supports increase in dividend
Net result of EUR 849 million in the second quarter of 2021 reflects strong operating result and fair value gains on investments from favorable market movements
All segments contribute to the increase of the operating result by 62% compared with the second quarter of 2020 to EUR 562 million, driven by expense savings, increased fees due to higher equity markets, and a normalization of claims experience in the United States
Cash Capital at Holding increases to EUR 1.4 billion, and remains in the upper half of Aegon’s operating range. Capital ratios of all three main units are above their respective operating levels; Group Solvency II ratio increases by 14%-points to 208%
In the US variable annuity business, Aegon launched a lump-sum buy-out program and will be expanding its dynamic hedging program to release capital and increase the predictability of capital generation
Interim dividend increases by EUR 0.02 to EUR 0.08 per common share to reflect steady progress made on our strategic priorities and financial targets
Statement of Lard Friese, CEO
“I am encouraged by the steady progress we have made on our strategic and financial transformation in the second quarter of 2021. Economic recovery – aided by increased vaccination rates – supported our results.
Increased fees due to favorable equity markets, the normalization of claims experience in the United States, and expense savings contributed to a 62% increase in our operating result to EUR 562 million. We have made good progress on the implementation of our expense savings program, resulting in a EUR 220 million reduction of annual addressable expenses through the second quarter. This strengthens our confidence in our ability to deliver on the targeted EUR 400 million expense saving by 2023.
By introducing innovative new products, expanding distribution, and enhancing customer service we are driving growth in our Strategic Asset category. We achieved double digit sales growth in US Life, delivered another quarter of strong sales in US Middle-Market Retirement Plans, and almost doubled the net deposits in our UK Workplace business. We continued our strong growth momentum in the Netherlands, with record-high levels of both mortgages under administration, and assets under administration in our new-style defined contribution pension business.
Aegon Asset Management also extended its growth track record of positive third-party net deposits, as strong demand for our solutions – both in our wholly-owned business and in our Chinese joint venture – continues. In our ESG portfolio, Aegon Asset Management and its partners have helped to fund investments in affordable and workforce housing units in the United States to better serve our local communities.
In July, we launched a program that offers certain variable annuity customers a lump-sum payment in return for surrendering their policies. The buyout program will reduce Transamerica’s financial market exposure, with the remaining legacy variable annuities portfolio to be dynamically hedged for equity and interest rate risk. This creates value by releasing capital at terms we believe are favorable compared to other alternatives, and increases the predictability of the capital that the business generates.
The progress we are making on our strategic priorities and financial targets provides us with the confidence to accelerate the increase in dividends, on our path to pay around 25 eurocents per common share by 2023. Therefore, we are announcing today an increase in our interim dividend by EUR 0.02 to EUR 0.08 per common share. Furthermore, the strength of our balance sheet also allows us to take another step towards achieving our deleveraging target by announcing the redemption of USD 250 million perpetual capital securities this year.
I would like to thank our 22,000 employees who, in the face of an ongoing pandemic and change, followed through on our strategic and operational plans in the second quarter.”
Strategic highlights – Focus. Execute. Deliver.
Key performance indicators
Addressable expenses *
Change compared to FY 2019
Americas Individual Solutions – Life, US
New business strain (USD million)
New life sales (USD million)
MCVNB (USD million) **
Americas Workplace Solutions – Retirement Plans Middle-Market
Net deposits (USD million)
Written sales (USD million)
Mortgage origination (EUR million)
Workplace Solutions net deposits (EUR million)
Net growth Knab customers (‘000s of customers)
Platform expenses / AuA
Annualized revenues gained/(lost) on net deposits (GBP million)
Workplace net deposits (GBP million)
Retail net deposits (GBP million)
Growth Markets (Spain & Portugal, China, Brazil)
New life sales (EUR million)
MCVNB (Life) (EUR million)
New premium production (P&C and A&H) (EUR million)
Asset Management – Global Platforms
Operating margin (%)
Net deposits (EUR million)
of which Third-party (EUR million)
Annualized revenues gained/(lost) (EUR million)
Americas – Variable Annuities
Capital generation (USD million)
Dynamic hedge effectiveness ratio (%) ***
Americas – Long-Term Care
Capital generation (USD million)
Actual to expected claim ratio (%) (IFRS)
NPV of rate increases approved since end-2020 (USD million)
The Netherlands – NL Life
Operating capital generation (EUR million)
Remittances to Aegon NL (EUR million)
Solvency II ratio (%)
* Trailing four quarters in constant currency, EUR million.
** MCVNB 1Q 2021 restated for methodology change for Indexed universal life (IUL) pricing model.
*** Updated definition of hedge effectiveness which now reflects the effectiveness per individual hedged risks, instead of the total.
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 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. A total of 528 initiatives have been executed between the launch of the operational improvement plan and the end of the second quarter 2021, of which 421 are related to expense savings.
Aegon is implementing an expense savings program aimed at reducing addressable expenses by EUR 400 million in 2023 compared with the base year 2019. Aegon has delivered on its ambition to achieve half of its expense reduction target by the end of 2021. In the trailing four quarters, Aegon has reduced addressable expenses by EUR 245 million compared with the base year 2019. Of this expense reduction, EUR 220 million was driven by expense savings initiatives. The remaining reduction in annual addressable expenses reflects expense benefits related to reduced activity in a COVID-19 environment net of expenses made for growth initiatives, which are aimed at improving customer service, enhancing user experience and developing new products. These growth initiatives contributed EUR 26 million to the operating result in the second quarter of 2021. The company will continue to execute the expense and growth initiatives at pace.
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 second quarter of 2021 amounted to USD 95 million, which represents an increase of 24% 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 increase in licensed agents at World Financial Group (WFG) and a higher market share in this distribution channel from the addition of a funeral planning benefit to Indexed Universal Life products for qualifying policyholders. Transamerica developed this new benefit to provide grieving beneficiaries valuable resources to help the insured person’s family plan end-of-life services. Furthermore, Whole Life Final Expense sales increased following enhancements made both to the product and the application process. In the second quarter of 2021, the market consistent value of new business for Life increased by 45% compared with the same period last year to USD 73 million. This was largely driven by higher sales, lower underwriting expenses, and a more favorable product mix.
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 four consecutive quarters of written sales of over USD 1 billion. Written sales were supported by Pooled Plan Arrangement contract wins. These multi-employer pension schemes are a strategic growth driver. Net deposits for the Middle-Market were positive at USD 324 million.
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 second quarter of 2021, the company originated EUR 2.9 billion of residential mortgages – of which two thirds were fee-based mortgages originated for third-party investors – and mortgages under administration reached a record EUR 58 billion. Aegon expects mortgage origination volumes to decrease in the second half of 2021, as spreads on mortgages have come down year-to-date.
Net deposits for the Workplace Solutions defined contribution products (PPI) in the Netherlands increased by 20% compared with the second quarter of 2020 to EUR 198 million. PPI assets under management surpassed the EUR 5 billion mark for the first time, underscoring Aegon’s leading position in this market.
Aegon is further developing its online bank Knab into a digital gateway for individual retirement solutions. In the second quarter of 2021, the online bank grew its customer base by over 5,000. To accelerate its strategy, Aegon has stopped offering savings products to customers of its original savings bank. These customers are being encouraged to either convert their accounts to Knab accounts or transfer their funds to another bank. Knab customers receive access to products, services and features that provide insight into daily banking matters and to products that help them accumulate wealth.
Aegon’s assets under administration in the United Kingdom reached GBP 200 billion for the first time, as it continues to increase scale in the UK pension and savings market. The growth in assets reflects strong markets, and benefits from a number of ongoing investments in the business. Aegon’s platform business in the United Kingdom – excluding the low-margin Institutional business – doubled its net deposits compared with the same quarter last year to GBP 1.0 billion, driven by the Workplace segment. This reflects Aegon’s ability to serve the needs of both middle-market employers and large corporates. This quarter’s net deposits in the United Kingdom included a significant Master Trust contract win, which underscores that Aegon is well positioned in this fast-growing market of multi-employer pension schemes. Aegon continues to invest in the overall Workplace proposition to give the business a distinctive position in the key area of member engagement. An example thereof is the acquisition of Pension Geeks, an award-winning business that specializes in connecting people with their finances through innovative engagement techniques, communication and events. This acquisition is expected to further improve the customer experience, make communications more personalized, and drive growth.
By profitably growing its platform business, and by reducing expenses, Aegon UK aims to mitigate the impact from the gradual run-off of its traditional product portfolio. The traditional product portfolio is the main driver behind annualized revenue lost on net deposits for the second quarter. Expense initiatives, as well as the favorable impact from market movements on assets have contributed to an improvement in efficiency, with platform expenses as a percentage of assets under administration decreasing by 5 basis points compared with the second quarter of last year to 21 basis points.
Financial Assets are blocks of business which have 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. To achieve this, Aegon is initially focusing on unilateral and bilateral actions before any third-party solutions would be taken into consideration. Unilateral actions are those that can be executed fully under Aegon’s control, while bilateral actions require the interaction and consideration of other stakeholders.
An example of such a bilateral action, is the lump-sum buy-out program that Transamerica launched in July 2021 for policyholders of Variable Annuities with guaranteed minimum income benefit (GMIB) riders, whose financial objectives may have changed since the issuance of their policies. Under the program, policyholders are being offered a lump-sum payment – exceeding the account value – in return for surrendering their Variable Annuity policy with GMIB riders, subject to certain conditions. The program will reduce hedge costs for the remaining Variable Annuities portfolio going forward and will reduce Transamerica’s economic exposure at a price that is more favorable than the price that Aegon believes would be possible to achieve in a transaction with a third party.
Aegon expects to expand the dynamic hedging program, covering the equity and interest rate risks of its US Variable Annuities block with guaranteed minimum withdrawal benefits (GMWB), to the entire Variable Annuities portfolio once the take-up rate of the lump-sum buy-out program becomes more clear. This expanded hedging program will include policies with guaranteed minimum death benefit riders (GMDB) and the remaining policies with GMIB riders, as of the start of the fourth quarter of 2021. This builds on the effective dynamic hedging program of the GMWB portfolio where the hedge effectiveness for the targeted risks was consistently above 95% over the last six quarters. Dynamic hedging stabilizes cash flows on an economic basis and reduces sensitivities to equity and interest rate risks. The operational preparations for the expansion of the dynamic hedge program were completed in the second quarter of 2021, and the existing macro hedges will be adjusted during the third quarter to smoothen the transition to dynamic hedging.
The combination of extending the dynamic hedge to the full portfolio of Variable Annuities together with the execution of the lump-sum buy-out program is expected to have up to 5%-points negative impact on the RBC ratio based on current market conditions. Dynamic hedging decreases available capital as a result of reflecting the hedge costs in the calculation of the reserves, which is largely offset by lower required capital as a result of holding higher reserves. On an ongoing basis, the expansion of the dynamic hedging program is expected to reduce operating capital generation by around USD 50 million per year. At the same time, Transamerica’s reduced exposure to equity and interest rate risks leads to more predictable capital generation over the lifetime of the variable annuity business, and increases the certainty of remittances. Expanding the Variable Annuity dynamic hedging program and executing the lump-sum buy-out program is expected to result in a USD 0.5 to 0.7 billion pre-tax, one-time loss to be reported in Other charges in the third quarter of 2021. This is mostly driven by a non-cash write-off of deferred acquisition costs.
After the full implementation of both programs in the second half of 2021, Aegon will consider further unilateral and bilateral actions to maximize the value of the variable annuity business. Aegon will also allocate internal resources to investigate its options regarding potential third‑party solutions. Aegon will update the market on its progress in the first half of 2022.
The primary management action regarding Transamerica’s Long-Term Care block is a multi-year rate increase program that has a value of USD 300 million. In the second quarter of 2021, the company obtained regulatory approvals for additional rate increases worth USD 64 million, bringing the value of approvals achieved year-to-date to USD 176 million. Furthermore, claims experience developed favorably for the Long-Term Care business with an actual-to-expected ratio of 52% for the second quarter of 2021 as a result of elevated claims terminations due to the impact of the COVID-19 pandemic, and a one-time reserve release. Adjusted for this reserve release, the actual-to-expected claims ratio amounted to 81%.
The dedicated team responsible for the Dutch Life business is actively managing risks and the capital position to enhance the consistency of remittances to the Group. The main legal entity of the Dutch Life business – Aegon Levensverzekering N.V. – implemented a quarterly remittance policy in the fourth quarter of 2020, and again remitted EUR 25 million in the second quarter of 2021. Its Solvency II ratio increased from 149% to 172% during the second quarter of 2021, which is above the operating level of 150%. The increase includes benefits from management actions, model updates and favorable market movements.
Growth Markets and Asset Management
In its growth markets – Brazil, Spain & Portugal and China – Aegon will continue to invest in profitable growth.
To align the organization to its strategy, Aegon’s Brazilian joint venture Mongeral Aegon Group (MAG) will become part of Aegon International, and will be reported as part of this segment from 2022 onwards. As a result, Aegon International will include all three growth markets. This will sharpen the focus on growth, and offer the necessary support to these important markets.
The market consistent value of new business (MCVNB) from life products in Aegon’s growth markets increased by 6% to EUR 17 million, mainly driven by higher new life sales in Brazil and Spain & Portugal. New premium production for property & casualty and accident & health insurance increased by 167% compared with the second quarter of 2020 to EUR 28 million as a result of new products launched in Spain & Portugal. Sales through Aegon’s bancassurance partners are benefitting from the redesign of the digital sales channels to accelerate the digital transformation in insurance distribution. The redesign includes easier customer access to these sales channels by upgrading websites, enhanced data analytics to better understand customer behavior and needs, and the introduction of monthly online sales campaigns. These actions supported a doubling of sales through the digital channels to over 15% of total production in June.
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 2.1 billion in the second quarter of 2021, driven by significant net deposits in various investment strategies on the Fixed Income platform. This builds on Aegon’s track record of positive third-party net deposits. Annualized revenues gained for the Global Platforms amounted to EUR 4 million for the quarter and reflect strong net deposits. The operating margin of the Global Platforms increased by 2 percentage points compared with the second quarter of 2020 to 13.6% as a result of higher revenues from net deposits, favorable market movements and origination fees in Aegon’s Real Assets business associated with responsible investment mandates in Workforce housing and Affordable housing. Aegon Asset Management is transitioning to a global operating platform to improve efficiency and customer experience. This will also significantly reduce technical complexity by bringing several different solutions to a single enterprise solution. As an important first step in this process, all front office and risk teams now have access to a shared risk management module Aladdin provided by BlackRock.
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.
Aegon has taken the decision to combine its programs for purchasing corporate insurance – such as management liability risks – and centralize all retained risks into one existing US-based carrier to achieve cost and capital efficiencies. As part of this process, Aegon will wind down its Irish corporate insurance entity. Over time, this is expected to result in a release of EUR 40 million of capital invested in this entity.
On April 27, 2021, Transamerica closed the sale of its portfolio of fintech and insurtech companies to a fund managed and advised by Swiss-based private equity firm Montana Capital Partners. The transaction had a positive impact of EUR 40 million on Cash Capital at the Holding in the second quarter of 2021.
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.
+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: +44 330 336 9125
The Netherlands: +31 20 703 8211
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