THE HAGUE, Netherlands–(BUSINESS WIRE)–Aegon N.V. (Amsterdam:AGN) (NYSE:AEG):

Net income of EUR 202 million, reflecting one-time charge from assumption changes in the United States

• Underlying earnings before tax decrease by 31% to EUR 700 million caused by adverse mortality and impacts from lower interest rates in the United States. Resilient earnings from other units, supported by lower expenses
• Net income of EUR 202 million, down from EUR 617 million
• Fair value gains of EUR 680 million. Gain from reduction in the value of liabilities in the Netherlands as a result of wider credit spreads, partly offset by losses in the United States on fair value investments and unhedged risks
• Net impairments of EUR 194 million, mainly on the US bond portfolio and unsecured loans in the Netherlands
• Other charges of EUR 1,071 million, mainly as a result of assumption changes in the United States, reflecting lower interest rates and updated Life and Long-Term Care assumptions

Aegon withdraws financial targets and rebases interim dividend

• On the basis of the first half 2020 results and in light of the uncertain economic outlook, Aegon withdraws its 2019-2021 financial targets. New financial targets will be provided at a Capital Markets Day in December
• Solvency II ratio decreases from 201% at end of 2019 to 195% on June 30, 2020 due to adverse market impacts
• Normalized capital generation of EUR 466 million, reflecting adverse mortality experience in the United States
• Holding excess cash at EUR 1.7 billion reflects the decision to not pay a final 2019 dividend. Transamerica to retain its remittance for the second half of 2020. USD 500 million senior debt to be repaid from holding excess cash in December 2020 to facilitate deleveraging
• Interim dividend 2020 reduced to EUR 0.06 per share. Aegon anticipates that gross remittances after holding expenses will be sufficient to cover the rebased dividend, even in reasonable stress scenarios.

Net deposits of EUR 1 billion; life insurance sales decline

• Net deposits of EUR 1 billion, driven by the UK platform and the online bank in the Netherlands, partly offset by Variable Annuities and Retirement Plans net outflows in the United States
• New life sales decrease by 6% to EUR 379 million, reflecting the impact of COVID-19 lockdowns and the exit of the individual life market in the Netherlands
• Accident and health insurance sales are up by 6% to EUR 124 million, mainly driven by higher voluntary benefit sales in the United States and higher disability sales in the Netherlands

Statement of Lard Friese, CEO

“The first half of 2020 was challenging with underlying earnings for the Group declining by 31% to 700 million euros. Earnings from the United States were affected by lower interest rates and unfavorable mortality, which was in part driven by the COVID-19 virus. Earnings in our other businesses held up well, supported by lower expenses.

From an operational perspective, we have dealt well with the fallout of the pandemic. Our service to customers has continued at a high level as we adapted successfully to doing business virtually and supported our customers and business partners. I am proud of our employees who really delivered and have demonstrated their commitment to customer service in these extraordinary times.

Commercially the lockdowns have been a challenge, in particular for our agency sales channels. To serve our customers as best as we can, we are actively managing our product portfolio and increasingly doing business virtually. Digital business models – like our e-commerce partnership in China – are doing well in the current conditions. Our mortgage business in the Netherlands also continued to perform very well with a mortgage production of over 5 billion euro. In several of our deposit businesses, including the UK platform, we saw increased retention rates and in Asset Management we observed net inflows from third parties.

In the middle of the pandemic, I was appointed as CEO of Aegon. It is my ambition and that of my management team to transform Aegon into a more focused, high-performing group with a balanced portfolio of businesses that is generating reliable free cash flows and delivering sustainable and attractive shareholder returns. I realize this is not where the company is today and it will take time to get there.

We are focusing on four areas to achieve this ambition: strengthening the balance sheet, creating a more disciplined management culture, improving efficiency, and increasing our strategic focus. We have started to take actions along these lines and more will follow in the period ahead.

Aegon’s capital position is, overall, satisfactory, as demonstrated by our Solvency II and RBC ratios. However, significant uncertainty remains on the economic impact of the COVID-19 pandemic going forward. And we expect continued adverse mortality experience in the second half of 2020, as the number of daily infections in the US remains high. This contributed to our decision to let our US business retain their planned second half year remittance to the Group. In addition, we believe that our leverage and the volatility of our capital ratios are too high. We will therefore take action to strengthen the balance sheet, reduce leverage and improve the company’s risk profile to reduce volatility.

In this context, we announce several steps today. First, we will retain the final dividend for 2019. Second, we are rebasing the interim dividend from a level of 15 cents per share last year to 6 cents for 2020. We anticipate that this rebased dividend will be well covered by free cash flows, even in reasonable stress scenarios. Going forward, dividends and other means of capital return to our shareholders will be based on a regular assessment of the company’s financials, according to customary governance. Third, free cash flow in excess of what is needed to cover shareholder dividends and holding company expenses will, for the time being, be used to reduce leverage and strengthen the balance sheet. Fourth, we have implemented substantial updates for key assumptions in our US business as part of our annual assumption review process.

Rebasing shareholder dividends is not a decision we take lightly. We realize that this business should over time be able to produce more than this level of dividend by way of capital return, and we believe that it can. But for now, this is the right level of dividend which allows us to deal with deleveraging, reduce the risk profile of the company, and navigate through the COVID-19 pandemic. We are working on plans to improve the operating performance of the company and increase its free cash flows. Successful execution in the coming years will put the business in a place where it can produce higher levels of capital return from dividends and share buybacks.

I am confident that there is ample opportunity for Aegon to create value for its stakeholders as we have strong foundations to build on. Having said that, we currently operate in more than 20 countries and I believe we need to sharpen our strategic focus. This requires disciplined capital allocation and portfolio decisions by concentrating on those countries and business lines where Aegon can create most value. In addition, we need to build a high performance culture where underperformance will be addressed without delay, decisions will be taken timely, a sense of ownership throughout the organization will be fostered and complexity will be reduced to minimize the risk of negative surprises. We will attract new talent to the company to complement our existing internal talent pool. We also need to improve the operating performance and efficiency of the company.

We are working on our plans to transform Aegon. I am looking forward to update you on our plans – including our outlook for future dividends – and ambitions for the company during our Capital Markets Day on the 10th of December themed: “Focus. Execute. Deliver”.

Note: All comparisons in this release are against 1H 2019, unless stated otherwise

Financial highlights

Underlying earnings before tax

Aegon’s underlying earnings before tax decreased by 31% compared with the first half of 2019 to EUR 700 million. This was largely caused by lower earnings in the United States, which were only partly offset by higher earnings in the United Kingdom, International and Asset Management.

Underlying earnings before tax from the Americas decreased by 54% to EUR 264 million. This was largely caused by EUR 150 million adverse mortality experience in Life compared with EUR 52 million in the first half of 2019, due to large claims at older ages in universal life products and elevated claims in most other products. EUR 34 million of these claims can specifically be attributed to COVID-19 as a direct cause of death. Aegon believes part of the remaining adverse mortality experience is likely attributable to the pandemic as well. Life earnings were also affected by EUR 97 million unfavorable intangible adjustments from lower interest rates and asset portfolio changes, and EUR 16 million adverse persistency in Life. Furthermore, earnings declined in Retirement Plans and Variable Annuities due to net outflows and one-off expenses, while Fixed Annuities earnings declined due to lower investment income. This was only partly offset by better Accident & Health earnings, which benefitted from favorable morbidity experience of EUR 55 million, of which the closed block in Long-Term Care contributed EUR 32 million from increased claims terminations due to higher mortality.

Aegon’s underlying earnings before tax in the Netherlands decreased by 2% to EUR 321 million. This was driven by lower Life earnings, mainly reflecting the negative impact from a change in the treatment of longevity and mortality results in underlying earnings, as well as higher reinsurance costs following the longevity reinsurance transaction in December 2019. This was partly offset by lower operating expenses due to lower pension costs for own employees, and expense savings in the Service business.

Underlying earnings before tax from the United Kingdom increased by 17% to EUR 81 million, largely as a result of higher fee income due to the continued growth of platform assets, as well as better Protection earnings and expense savings.

International’s underlying earnings before tax increased by 6% to EUR 75 million, reflecting higher earnings in Spain & Portugal, driven by a better technical result due to fewer health insurance claims because of the lockdown related to the COVID-19 pandemic. The sale of the loss-making variable annuity joint ventures in Japan, which closed in January 2020, also contributed to the earnings increase. This was partly offset by lower earnings at TLB, Aegon’s high-net-worth business in Asia, mainly caused by less favorable mortality claims experience.

Underlying earnings before tax from Aegon Asset Management were up by 17% to EUR 71 million. This increase was the result of a strong performance in Aegon’s Chinese asset management joint venture Aegon Industrial Fund Management Company (AIFMC), more than offsetting an earnings decrease from Aegon’s Global Platforms.

The result from the Holding declined to a loss of EUR 112 million, reflecting a change in recognition of interest expenses as a result of refinancing activities. Interest expenses for the USD 925 million Tier 2 securities issued on October 16, 2019 are reported through the income statement, while the interest expenses for the USD 1 billion grandfathered Tier 1 perpetual capital securities redeemed on October 24, 2019 were recognized directly through equity, until the announcement of the redemption. This led to an unfavorable impact on underlying earnings of EUR 21 million, even though the refinancing resulted in EUR 15 million lower coupons on an annualized basis.

Net income

Net income decreased by 67% to EUR 202 million from EUR 617 million in the first half of last year, as higher Other charges, lower realized gains on investments and higher impairments were only partly offset by higher results on fair value items.

Fair value items

The gain from fair value items amounted to EUR 680 million in the first half of 2020.

In the Americas, fair value items amounted to a loss of EUR 760 million. This primarily reflected a loss on fair value investments and unhedged risks. Hedges were effective for the targeted risks. The loss on hedges without an accounting match was driven by the macro equity hedge net of reserve movements, as well as unhedged risks and unhedged volatility in the Indexed Universal Life hedge program. The loss on fair value hedges with an accounting match was mainly due to unhedged risks as a result of the significant decline in interest rates and increase in volatilities associated with the COVID-19 pandemic.

The fair value items in the Netherlands were a gain of EUR 1,380 million. This was the result of a EUR 401 million gain on the guarantee provision, mainly due to an increase of the own credit spread used to discount liabilities, and a EUR 961 million gain on interest rate hedges. This gain was driven by lower interest rates and was an offset against the negative impact of low interest rates on the LAT deficit. Despite the significant impact of lower interest rates, the LAT deficit increased by only EUR 44 million in the first half of 2020, as an increase in the illiquidity premium led to a significant decrease of the fair value of IFRS insurance liabilities.

Fair value gains in the United Kingdom totaled EUR 89 million, largely the result of gains on equity and interest rate hedges to protect the solvency position and fee income.

Realized gains on investments

Realized gains on investments amounted to EUR 16 million, reflecting normal trading activity.

Net impairments

Net impairments amounted to a loss of EUR 194 million. This was primarily caused by impairments in the Americas on bonds – mainly in the energy sector – and on the unsecured loan portfolio in the Netherlands.

Other charges

Other charges of EUR 1,071 million were largely caused by assumption changes.

Assumption updates in the Americas led to charges of EUR 834 million. This reflects a charge of EUR 477 million for the lowering of the long-term interest rate assumption from 4.25% to 2.75% and the corresponding adjustment of the separate account bond return assumptions. Non-economic assumption changes resulted in a charge of EUR 358 million, mainly related to Universal Life premium persistency and an increase of mortality rate assumptions, as well as a halving of the morbidity improvement assumption for Long-Term Care from 1.5% to 0.75% per year for the next 15 years. These assumption changes negatively impact underlying earnings by approximately EUR 18 million per quarter on a recurring basis.

Restructuring charges totaled EUR 118 million. The Netherlands incurred EUR 48 million restructuring charges for various initiatives to make the organization more efficient and effective, as well as expenses to ensure compliance with anti-money laundering regulation. In the United Kingdom, EUR 33 million restructuring charges were related to the agreement with Atos for administration services in the Existing Business, and for the Cofunds integration. The Americas reported EUR 31 million restructuring charges related to the operations administration partnerships with TCS and LTCG.

Other charges also included a EUR 53 million provision for a settlement of class action litigation related to monthly deduction rate adjustments on certain universal life policies in the United States, as well as EUR 61 million IFRS 9 / 17 project costs in the Holding. This was partly offset by a EUR 53 million gain on the sale of Aegon’s stake in joint ventures in Japan.

Income tax

Income tax was a benefit of EUR 68 million, while income before tax was EUR 135 million. The negative effective tax rate mainly reflects the tax benefit on the net loss in the United States, as well as a beneficial tax rate impact in the Netherlands following a substantial change in the deferred tax position as a result of market movements.

Return on equity

Return on equity decreased by 3.1%-points to 6.5%, mainly caused by lower net underlying earnings.

Operating expenses

Operating expenses increased by 4% to EUR 1,986 million, largely driven by higher IFRS 9 / 17 implementation expenses and increased restructuring expenses. Excluding these items, operating expenses were stable with an increase in expenses in the United States being offset by expense reductions in other units. Elevated expenses in the United States included EUR 13 million one-off expenses in Retirement Plans, investments in customer service and technology, and pre-agreed expense increases associated with the operations administration partnerships. These were partly offset by cost synergies in the United Kingdom and the benefit from lower pension costs in the Netherlands, as employees began accruing pension benefits in a defined contribution plan instead of the now closed defined benefit plan.

Sales

Gross deposits increased by 58% to EUR 103 billion. This growth can be largely attributed to Asset Management, where gross deposits almost doubled to EUR 65 billion. Aegon’s Chinese asset management joint venture, AIFMC, recorded a significant increase of gross deposits as a result of the success of new funds launched and inflows into existing funds. Furthermore, in the United Kingdom, gross deposits more than doubled to EUR 7.3 billion, largely reflecting higher institutional platform net inflows. Gross deposits in the Netherlands increased by 24% to EUR 7.6 billion, driven by higher savings deposits at online bank Knab. In the Americas, gross deposits rose by 4% to EUR 22.5 billion as a results of Mutual Funds deposits due to strong growth in wholesale and institutional channels.

Net deposits amounted to EUR 1 billion for the first half of 2020.

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 0206

United Kingdom: +44 (0)330 336 9411

The Netherlands: +31 (0) 20 703 8261

Passcode: 1450240

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