Aegon reports first half 2020 results

Nachrichtenquelle: Business Wire (engl.)
13.08.2020, 07:30  |  282   |   |   

Regulatory News:

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 overview          

unaudited

             
EUR millions

Notes

First half
2020

First half
2019*

%

Second half
2019*

%

             
Underlying earnings before tax

1

   
Americas

             264

 

             577

 

    (54

)

             548

 

    (52

)

The Netherlands

             321

 

             328

 

      (2

)

             320

 

        -

 

United Kingdom

               81

 

               70

 

      17

 

               70

 

      17

 

International

               75

 

               71

 

       6

 

               73

 

       3

 

Asset Management

               71

 

               60

 

      17

 

               79

 

    (10

)

Holding and other activities  

           (112

)

             (98

)

    (14

)

           (129

)

      13

 

Underlying earnings before tax

           700

 

        1,008

 

   (31

)

           961

 

   (27

)

 

 

 

 

 

 

Fair value items

             680

 

           (394

)

n.m.

             168

 

n.m.

Realized gains / (losses) on investments

               16

 

             275

 

    (94

)

             131

 

    (88

)

Net impairments

           (194

)

             (39

)

n.m.

               17

 

n.m.

Other income / (charges)

        (1,071

)

             (93

)

n.m.

           (188

)

n.m.

Run-off businesses  

                4

 

                8

 

    (51

)

               15

 

    (73

)

Income before tax

           135

 

           765

 

   (82

)

        1,103

 

   (88

)

Income tax  

               68

 

           (148

)

n.m.

           (195

)

n.m.

Net income / (loss)

           202

 

           617

 

   (67

)

           908

 

   (78

)

   

 

 

 

 

 

Net income / (loss) attributable to:

 

 

 

 

 

Owners of Aegon N.V.

             202

 

             616

 

    (67

)

             908

 

    (78

)

Non-controlling interests

                1

 

                0

 

      48

 

               (0

)

n.m.

 

 

 

 

 

 

Net underlying earnings

           589

 

           831

 

   (29

)

           816

 

   (28

)

   

 

 

 

 

 

Return on equity

4

6.5

%

9.6

%

   (32

)

9.5

%

   (31

)

 

 

 

 

 

 

Commissions and expenses  

          3,378

 

          3,180

 

       6

 

          3,420

 

      (1

)

of which operating expenses

8

          1,986

 

          1,918

 

       4

 

          2,011

 

      (1

)

 

 

 

 

 

 

Gross deposits (on and off balance)

9

 

 

 

 

 

Americas

        22,485

 

        21,619

 

       4

 

        18,787

 

      20

 

The Netherlands

          7,580

 

          6,121

 

      24

 

          7,086

 

       7

 

United Kingdom

          7,295

 

          3,602

 

    103

 

          6,147

 

      19

 

International

             163

 

             182

 

    (10

)

             176

 

      (7

)

Asset Management  

        65,043

 

        33,481

 

      94

 

        47,459

 

      37

 

Total gross deposits  

    102,566

 

      65,005

 

     58

 

      79,655

 

     29

 

 

 

 

 

 

 

Net deposits (on and off balance)

9

 

 

 

 

 

Americas

        (2,333

)

        (3,471

)

      33

 

      (25,900

)

      91

 

The Netherlands

             691

 

             749

 

      (8

)

             696

 

      (1

)

United Kingdom

          2,054

 

        (2,766

)

n.m.

           (722

)

n.m.

International

               82

 

               62

 

      32

 

             (42

)

n.m.

Asset Management  

             395

 

          3,241

 

    (88

)

          3,600

 

    (89

)

Total net deposits excluding run-off businesses

           889

 

      (2,184

)

n.m.

    (22,367

)

n.m.

Run-off businesses  

               63

 

           (467

)

n.m.

           (112

)

n.m.

Total net deposits / (outflows)  

           952

 

      (2,651

)

n.m.

    (22,479

)

n.m.

   

 

 

 

 

 

New life sales

2, 9

 

 

 

 

 

Single premiums

             603

 

             705

 

    (14

)

             975

 

    (38

)

Recurring premiums annualized  

             319

 

             334

 

      (5

)

             358

 

    (11

)

Total recurring plus 1/10 single

           379

 

           405

 

     (6

)

           456

 

   (17

)

 

 

 

 

 

 

New life sales

2,9

 

 

 

 

 

Americas

             185

 

             200

 

      (8

)

             219

 

    (15

)

The Netherlands

               47

 

               52

 

    (10

)

               84

 

    (43

)

United Kingdom

               19

 

               21

 

      (9

)

               20

 

      (4

)

International  

             128

 

             131

 

      (3

)

             133

 

      (4

)

Total recurring plus 1/10 single

           379

 

           405

 

     (6

)

           456

 

   (17

)

 

 

 

 

 

 

New premium production accident and health insurance

             124

 

             117

 

       6

 

             113

 

      10

 

New premium production property & casualty insurance

               59

 

               65

 

      (9

)

               64

 

      (8

)

 

 

 

 

 

 

Market consistent value of new business

3

           107

 

           270

 

   (60

)

           194

 

   (45

)

* Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. For the amounts of the restatement, we refer to Aegon’s Condensed Consolidated Interim Financial Statements.                                                                                                                             
Revenue-generating investments & Employee numbers          
           
 

June 30,

Dec. 31,

 

June 30,

 

 

2020

2019

%

2019

%

Revenue-generating investments (total)

    883,129

    897,671

     (2

)

    871,648

       1

 

Investments general account

      159,530

      146,750

       9

 

      144,311

      11

 

Investments for account of policyholders

      212,926

      226,374

      (6

)

      213,137

        -

 

Off balance sheet investments third parties

      510,673

      524,547

      (3

)

      514,200

      (1

)

     
Employees 

      23,536

      23,757

     (1

)

      25,943

     (9

)

of which agents

          4,853

          4,852

        -

 

          6,878

    (29

)

of which Aegon's share of employees in joint ventures and associates

          4,906

          5,162

      (5

)

          7,070

    (31

)

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. This was largely the result of net deposits in the United Kingdom, driven by institutional platform inflows and increased retention, and in the Netherlands from net deposits at online bank Knab and at Aegon Cappital, the company’s Premium Pension Institute selling new-style defined contribution pension products. Asset Management saw a small external third-party net inflow, reflecting high inflows and outflows following volatile market circumstances due to the COVID-19 pandemic. This was partly offset by net outflows in Variable Annuity and Retirement Plans in the United States.

New life sales declined by 6% to EUR 379 million, due to decreases in all regions. In the Americas, lower Whole Life and Indexed Universal Life sales in the United States were only partly offset by higher sales in Brazil. The main driver for the sales decline in the Netherlands was lower individual life single premium production as Aegon exited that market in March. In the United Kingdom, Aegon saw lower Protection sales due to the COVID-19 pandemic lockdown. International’s sales declined, but remained level on a constant currency basis, as higher sales in China and Turkey were offset by lower sales in TLB.

New premium production for accident and health insurance increased by 6% to EUR 124 million, driven by higher voluntary benefit product sales in the United States through the workplace channel and higher disability sales in the Netherlands. This was partly offset by a decline in International due to the COVID-19 related lockdowns, mainly in Spain & Portugal and in Hungary. For property & casualty insurance, new premium production decreased by 9% to EUR 59 million, caused by International due to the COVID-19 pandemic related lockdowns, mainly in Spain & Portugal and in Hungary.

Market consistent value of new business
Market consistent value of new business (MCVNB) decreased by 60% to EUR 107 million, largely caused by Variable Annuities in the United States, reflecting the significant decline in interest rates, which led to negative margins.

Revenue-generating investments
Revenue-generating investments decreased by 2% during the first half of 2020 to EUR 883 billion. The favorable impact from lower interest rates on the general account bond portfolio and the investment of cash in bonds was more than offset by negative equity market impacts on investments for account of policyholders and off-balance sheet investments for third parties.

Shareholders’ equity
Shareholders’ equity increased by EUR 1.5 billion in the first half of 2020 to EUR 23.9 billion on June 30, 2020. This was driven by higher revaluation reserves, due to lower interest rates, and retained earnings that more than offset adverse currency movements. Shareholders’ equity excluding revaluation reserves remained stable at EUR 16.7 billion – or EUR 8.08 per common share – on June 30, 2020.

Gross financial leverage ratio
The gross financial leverage ratio improved by 20 basis points to 28.4% in the first half of 2020. Aegon intends to not refinance USD 500 million senior debt maturing in December 2020. This is expected to improve the gross financial leverage ratio by 1.4%-points based on the balance sheet per June 30, 2020.

Aegon has requested Fitch Ratings to simultaneously withdraw all its ratings on Aegon N.V., on all affiliated entities, and on debt instruments and debt programs of these entities with the exception of the SAECURE securitizations. The request is part of Aegon’s drive to reduce its expenses.

Holding excess cash
Aegon’s holding excess cash position increased from EUR 1,192 million to EUR 1,706 million during the first half of the year, which is above the target range of EUR 1.0 billion to EUR 1.5 billion, and reflects the decision to not pay a final 2019 dividend. The increase resulted from gross remittances from subsidiaries, which were partly offset by holding funding and operating expenses, and capital injection in subsidiaries.

The group received EUR 706 million gross remittances from subsidiaries, of which EUR 423 million came from the Americas, EUR 100 million from the Netherlands, EUR 157 million from International, mainly from the sale of Aegon’s joint ventures in Japan, and EUR 25 million from Blue Square Re, which is in wind-down. Transamerica will retain its remittance for the second half of this year, reflecting lower earnings and the uncertain economic outlook due to the COVID-19 pandemic.

Capital injections of EUR 26 million were primarily for investments in smaller businesses in International. The remaining cash outflows of EUR 167 million mainly related to Holding funding and operating expenses.

Capital generation
Capital generation after holding expenses amounted to EUR (443) million for the first half of 2020. Adverse market movements totaled EUR 1,568 million and were mainly driven by lower interest rates in the United States. One-time items amounted to EUR 658 million and included the positive effect of management actions in the United States: a refinement of the application of the new variable annuity framework and the restructuring of a captive reinsurance company. Normalized capital generation amounted to EUR 466 million, reflecting unfavorable mortality experience in the United States.

Capital ratios
Aegon’s Group Solvency II ratio decreased from 201% to 195% during the first half of 2020 as a result of adverse market movements triggered by the COVID-19 pandemic, mainly lower interest rates in the United States. The adverse market impacts and a slight negative impact from assumption changes more than offset the positive impact from normalized capital generation and management actions in the United States.

The estimated RBC ratio in the United States decreased to 407% on June 30, 2020, compared with 470% on December 31, 2019, and remained above the bottom-end of the target range of 350%. The severe economic disruption experienced as a result of the COVID-19 pandemic, led to significant negative market impacts.

Falling interest rates were the primary driver of the decrease in the RBC ratio. Furthermore, there was an adverse impact from falling equity markets, and limited negative impacts from widening credit spreads, defaults and rating migration. Favorable one-time items were mainly driven by a regulator-approved refinement in the application of the new variable annuity framework. By better allowing for the dynamic hedging program in place, a one-time capital gain was realized and volatility going forward will be reduced. Another positive item was the restructuring of a captive reinsurance company which will improve resilience of the RBC ratio to interest rate movements. These one-time benefits more than offset the slight adverse impact from assumption updates, mainly premium persistency and mortality, both relating to the Life business, as well as the announced settlement in the litigation case on monthly deduction rate adjustments on certain universal life insurance policies. Normalized capital generation, reflecting unfavorable mortality experience, contributed positively. The remittances from the United States in the first half of 2020 were largely paid by the US holding company. This is the normal mechanism Aegon uses for the first half year remittance to bridge the timing difference between US holding cash flows and the payment of dividends by the US life companies in the second half of the year. Had the US life companies paid these dividends directly, the RBC ratio would have been 386% instead of the reported 407%.

The estimated Solvency II ratio in the Netherlands increased to 191% on June 30, 2020, from 171% on December 31, 2019, and remained above the bottom-end of the target range of 155%. This was mainly the result of positive market variances, driven by the increase of the EIOPA volatility adjustment during the period. Other positive impacts from markets included the effect of lower interest rates due to an overhedged position on a Solvency II basis, and widening of credit spreads on the own employee pension scheme. The main negative market impacts were from widening mortgage, corporate bond, and sovereign bond credit spreads, which lowered asset values. The negative impact of lowering the ultimate forward rate by 15 basis points was more than offset by a number of smaller items. Normalized capital generation had a positive impact and more than offset the EUR 100 million remittance to the Group in the first quarter.

The estimated Solvency II ratio in the United Kingdom decreased to 154% on June 30, 2020, from 157% on December 31, 2019, and remained above the bottom-end of the target range of 145%. The decrease was caused by adverse market variances, driven mostly by lower interest rates. The adverse impact from markets more than offset the impact from normalized capital generation.

The Core Tier-1 ratio of Aegon Bank improved from 19.8% per December 31, 2019 to 21.5% on June 30, 2020. The main drivers for the increase were lower required capital caused by redemptions in the loan portfolio, combined with alignment of the basis adjustment to the overall mortgage portfolio. This was partially offset by the negative impact from spread widening on the debt security portfolio and increases in expected credit loss on unsecured loans.

On July 11, the Dutch Central Bank published industry-wide guidelines regarding the treatment of banks in Solvency II ratios. Consequently, Aegon will include Aegon Bank in the calculation of its Group Solvency II ratio, ultimately by the end of 2020. This presentational change has no impact on Aegon’s capital allocation decisions. The estimated negative impact of the change, based on Aegon's capital position per June 30, 2020, is approximately 2 percentage points on the Group Solvency II ratio.

Withdrawal of 2019-2021 financial targets
Aegon withdraws its 2019-2021 financial targets on the basis of the company’s results in the first half of 2020 and in light of the uncertain economic outlook due to the COVID-19 pandemic. The following targets and guidance are withdrawn:

  • Normalized capital generation of EUR 4.1 billion, cumulative over the period 2019-2021
  • Dividend pay-out ratio of 45-55% of normalized capital generation
  • Return on Equity of more than 10% on an annual basis
  • Gross remittances to the Holding of EUR 1.4 billion for 2020

New financial targets will be provided at Aegon’s Capital Markets Day on December 10, 2020.

2020 interim dividend
Aegon aims to pay out a sustainable dividend to allow equity investors to participate in Aegon’s performance, which can grow over time if Aegon’s performance so allows. Aegon decided to reduce the level of dividend due to headwinds from the COVID-19 pandemic and to strengthen the balance sheet. The 2020 interim dividend amounts to EUR 0.06 per common share. The interim dividend will be paid in cash or stock at the election of the shareholder. The value of the stock dividend will be approximately equal to the cash dividend. Aegon intends to neutralize the dilutive effect of the 2020 interim stock dividend in the fourth quarter of this year.

Aegon’s shares will be quoted ex-dividend on August 21, 2020. The record date is August 24, 2020. The election period for shareholders will run from August 26 up to and including September 11, 2020. The stock fraction will be based on the average share price on Euronext Amsterdam, using the high and low of each of the five trading days from September 7 through September 11, 2020. The stock dividend ratio will be announced on Aegon’s website on September 11, 2020 after business hours. The dividend will be payable as of September 18, 2020.

Aegon N.V.      

unaudited

Holding excess cash        
 

2020

2019

EUR millions

First half

Full Year

Second half

First half

Beginning of period 

       1,192

 

       1,274

 

         1,632

 

       1,274

 

     
Remittances received

           552

 

        1,234

 

             595

 

           639

 

Divestments

           153

 

           131

 

                 -

 

           131

 

Gross remittances

          706

 

       1,365

 

            595

 

          770

 

     
Capital injections

            (26

)

          (401

)

            (254

)

          (147

)

Acquisitions

                -

 

                -

 

                 -

 

                -

 

Net capital flows to the holding 

          680

 

          964

 

            342

 

          622

 

     
Funding and operating expenses

          (162

)

          (312

)

            (169

)

          (142

)

Dividends and share buybacks

                -

 

          (626

)

            (456

)

          (170

)

Leverage issuances / (redemptions)

                -

 

          (108

)

            (159

)

             51

 

Other

             (5

)

               0

 

                 3

 

             (3

)

Holding expenses and capital return

        (167

)

    (1,046

)

          (781

)

        (264

)

     
End of period 

       1,706

 

       1,192

 

         1,192

 

       1,632

 

Aegon N.V.      

unaudited

Capital ratios        
 

 

June 30,

Dec. 31,

June 30,

millions

Notes

2020

2019

2019

Eligible Own Funds  

        17,463

        18,470

        17,679

Consolidated Group SCR  

          8,933

          9,173

          8,996

Solvency II ratio

 10, 11

195%

201%

197%

         
Eligible Own Funds to meet MCR   

          7,239

          7,108

          6,296

         
Minimum Capital Requirement (MCR)  

          2,262

          2,244

          2,150

         
MCR ratio  

320%

317%

293%

         
United States - RBC ratio  

407%

470%

472%

The Netherlands - Solvency II ratio*  

191%

171%

152%

United Kingdom - Solvency II ratio  

154%

157%

165%

         
Core Tier-1 ratio Aegon Bank  

21.5%

19.8%

21.5%

* Please note that Aegon Bank is excluded in the Solvency II ratio of Aegon NL.

Additional information

For the full version of the press release please refer to the corporate website.

Presentation
The conference call presentation is available on aegon.com as of 7.30 a.m. CET.

Supplements
Aegon’s 1H 2020 Financial Supplement is available on aegon.com.

Conference call including Q&A
9:00 a.m. CET
Audio webcast on aegon.com

Dial-in numbers
United States: +1 720 543 0206
United Kingdom: +44 (0)330 336 9411
The Netherlands: +31 (0) 20 703 8261

Passcode: 1450240

Two hours after the conference call, a replay will be available on aegon.com.

Publication dates 2020 results
Second half year 2020 – February 11, 2021

About Aegon
Aegon’s roots go back more than 175 years – to the first half of the nineteenth century. Since then, Aegon has grown into an international company, with businesses in more than 20 countries in the Americas, Europe and Asia. Today, Aegon is one of the world’s leading financial services organizations, providing life insurance, pensions and asset management. Aegon’s purpose is to help people achieve a lifetime of financial security. More information on aegon.com/about.

Notes (1 of 2):
   

1)

  For segment reporting purposes underlying earnings before tax, net underlying earnings, commissions and expenses, operating expenses, income tax (including joint ventures (jv's) and associated companies), income before tax (including jv's and associated companies) and market consistent value of new business are calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s joint ventures and Aegon’s associates. Aegon believes that these non-IFRS measures provide meaningful information about the underlying results of Aegon's business, including insight into the financial measures that Aegon's senior management uses in managing the business. Among other things, Aegon's senior management is compensated based in part on Aegon's results against targets using the non-IFRS measures presented here. While other insurers in Aegon's peer group present substantially similar non-IFRS measures, the non-IFRS measures presented in this document may nevertheless differ from the non-IFRS measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards. Readers are cautioned to consider carefully the different ways in which Aegon and its peers present similar information before comparing them.
Aegon believes the non-IFRS measures shown herein, when read together with Aegon's reported IFRS financial statements, provide meaningful supplemental information for the investing public to evaluate Aegon’s business after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (i.e. companies can use different local GAAPs to measure the insurance contract liability) and that can make the comparability from period to period difficult.
 
  Aegon segment reporting is based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker. 
  The following table provides the reconciliation from the non-IFRS-EU measures underlying earnings before tax, income tax and income before tax to the most comparable IFRS-EU measure. 
Segment information            
  First half 2020 First half 2019
EUR millions Segment
total
Joint ventures
and associates
eliminations
Consolidated Segment
total
Joint ventures
and associates
eliminations
Consolidated
             
             
Net Underlying earnings

       589

 

         33

 

       623

 

       831

 

         47

 

       878

 

Tax on underlying earnings

      (110

)

          24

 

        (87

)

      (177

)

          20

 

      (156

)

Underlying earnings before tax

       700

 

         10

 

       710

 

   1,008

 

         26

 

   1,034

 

Fair value items

        680

 

        (30

)

        650

 

      (394

)

        (42

)

      (436

)

Realized gains / (losses) on investments

          16

 

          (5

)

          11

 

        275

 

          (1

)

        274

 

Impairment charges

      (209

)

            0

 

      (209

)

        (54

)

            0

 

        (53

)

Impairment reversals

          15

 

            -

 

          15

 

          15

 

            -

 

          15

 

Other income / (charges)

   (1,071

)

            1

 

   (1,070

)

        (93

)

          (0

)

        (93

)

Run-off businesses

            4

 

            -

 

            4

 

            8

 

            -

 

            8

 

Income / (loss) before tax

       135

 

      (24

)

       111

 

       765

 

      (16

)

       749

 

Income tax from certain proportionately consolidated joint ventures and associates included in income before tax

          24

 

        (24

)

            -

 

          16

 

        (16

)

            -

 

Income tax (expense) / benefit

          68

 

          24

 

          92

 

      (148

)

          16

 

      (132

)

Of which income tax from certain proportionately consolidated joint ventures and associates included in income before tax

        (24

)

          24

 

            -

 

        (16

)

          16

 

            -

 

Net income / (loss)

       202

 

            -

 

       202

 

       617

 

            -

 

       617

 

Segment information      
 

Second half 2019

EUR millions

Segment
total

Joint ventures
and associates
eliminations

Consolidated

       
       
Net Underlying earnings

            816

 

              48

 

            864

 

Tax on underlying earnings

           (145

)

               24

 

           (120

)

Underlying earnings before tax

            961

 

              24

 

            985

 

Fair value items

             168

 

             (46

)

             122

 

Realized gains / (losses) on investments

             131

 

               (2

)

             129

 

Impairment charges

             (41

)

                 0

 

             (50

)

Impairment reversals

               58

 

                 -

 

               58

 

Other income / (charges)

           (188

)

                 0

 

           (188

)

Run-off businesses

               15

 

                 -

 

               15

 

Income / (loss) before tax

        1,103

 

            (24

)

        1,079

 

Income tax from certain proportionately consolidated joint ventures and associates included in income before tax

               24

 

             (24

)

                 -

 

Income tax (expense) / benefit

           (195

)

               24

 

           (171

)

Of which income tax from certain proportionately consolidated joint ventures and associates included in income before tax

             (24

)

               24

 

                 -

 

Net income / (loss)

            908

 

                 -

 

            908

 

Notes (2 of 2):
   

2)

  New life sales is defined as new recurring premiums plus 1/10 of single premiums.

3)

  The present value, at point of sale, of all cashflows for new business written during the reporting period, calculated using approximate point of sale economics assumptions. Market consistent value of new business is calculated using a risk neutral approach, ignoring the investment returns expected to be earned in the future in excess of risk free rates (swap curves), with the exception of an allowance for liquidity premium. The Swap curve is extrapolated beyond the last liquid point to an ultimate forward rate. The market consistent value of new business is calculated on a post tax basis, after allowing for the time value financial options and guarantees, a market value margin for non-hedgeable non-financial risks and the costs of non-hedgeable stranded capital.

4)

  Return on equity is a ratio calculated by dividing the net underlying earnings after cost of leverage, by the average shareholders' equity excluding the revaluation reserve.

5)

  Included in Other income/(charges) are income/charges made to policyholders with respect to income tax in the United Kingdom.

6)

  Includes production on investment contracts without a discretionary participation feature of which the proceeds are not recognized as revenues but are directly added to Aegon's investment contract liabilities for UK.

7)

  APE = recurring premium + 1/10 single premium.

8)

  Reconciliation of operating expenses, used for segment reporting, to Aegon's IFRS based operating expenses.
 

First half
2020

First half
2019

     
Employee expenses

       1,038

        1,078

Administrative expenses

          822

           720

Operating expenses for IFRS reporting

     1,860

      1,798

Operating expenses related to jv's and associates

          126

           120

Operating expenses in earnings release

     1,986

      1,918

9)

  New life sales, gross deposits and net deposits data include results from Aegon’s joint ventures and Aegon’s associates consolidated on a proportionate basis.

10)

  The calculation of the Solvency II capital surplus and ratio are based on Solvency II requirements. For insurance entities in Solvency II equivalent regimes (United States, Bermuda and Brazil) local regulatory solvency measurements are used. Specifically, required capital for the regulated entities in the US is calculated as one and a half times (150%) the upper end of the Company Action Level range (200% of Authorized Control Level) as applied by the National Association of Insurance Commissioners in the US, while the own funds is calculated by applying a haircut to available capital under the local regulatory solvency measurement of one time (100%) the upper end of the Company Action Level range. For entities in financial sectors other than the insurance sector, the solvency requirements of the appropriate regulatory framework are taken into account in the group ratio. The group ratio does not include Aegon Bank N.V. As the UK With-Profit funds is ring fenced, no surplus is taken into account regarding the UK With-Profit funds for Aegon UK and Group numbers.

11)

  The solvency II capital ratio reflects Aegon’s interpretation of Solvency II requirements and are not final until filed with the regulators. The solvency II capital calculation is subject to supervisory review on an ongoing basis. 

12)

  The numbers in this release are unaudited.

Cautionary note regarding non-IFRS-EU measures
This document includes the following non-IFRS-EU financial measures: underlying earnings before tax, income tax, income before tax, market consistent value of new business and return on equity. These non-IFRS-EU measures are calculated by consolidating on a proportionate basis Aegon’s joint ventures and associated companies. The reconciliation of these measures, except for market consistent value of new business and return on equity, to the most comparable IFRS-EU measure is provided in the notes to this press release. Market consistent value of new business is not based on IFRS-EU, which are used to report Aegon’s primary financial statements and should not be viewed as a substitute for IFRS-EU financial measures. Aegon may define and calculate market consistent value of new business differently than other companies. Return on equity is a ratio using a non-IFRS-EU measure and is calculated by dividing the net underlying earnings after cost of leverage by the average shareholders’ equity adjusted for the revaluation reserve. Aegon believes that these non-IFRS-EU measures, together with the IFRS-EU information, provide meaningful supplemental information about the underlying operating results of Aegon’s business including insight into the financial measures that senior management uses in managing the business.

Local currencies and constant currency exchange rates
This document contains certain information about Aegon’s results, financial condition and revenue generating investments presented in USD for the Americas and in GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. Certain comparative information presented on a constant currency basis eliminates the effects of changes in currency exchange rates. None of this information is a substitute for or superior to financial information about Aegon presented in EUR, which is the currency of Aegon’s primary financial statements.

Forward-looking statements
The statements contained in this document that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. The following are words that identify such forward-looking statements: aim, believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, goal, should, would, could, is confident, will, and similar expressions as they relate to Aegon. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Aegon undertakes no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and uncertainties include but are not limited to the following:

  • Changes in general economic and/or governmental conditions, particularly in the United States, the Netherlands and the United Kingdom;
  • Changes in the performance of financial markets, including emerging markets, such as with regard to:
    • The frequency and severity of defaults by issuers in Aegon’s fixed income investment portfolios;
    • The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities Aegon holds; and
    • The effects of declining creditworthiness of certain public sector securities and the resulting decline in the value of government exposure that Aegon holds.
  • Changes in the performance of Aegon’s investment portfolio and decline in ratings of Aegon’s counterparties;
  • Lowering of one or more of Aegon’s debt ratings issued by recognized rating organizations and the adverse impact such action may have on Aegon’s ability to raise capital and on its liquidity and financial condition;
  • Lowering of one or more of insurer financial strength ratings of Aegon’s insurance subsidiaries and the adverse impact such action may have on the written premium, policy retention, profitability and liquidity of its insurance subsidiaries;
  • The effect of the European Union’s Solvency II requirements and other regulations in other jurisdictions affecting the capital Aegon is required to maintain;
  • Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels;
  • Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates;
  • Changes in the availability of, and costs associated with, liquidity sources such as bank and capital markets funding, as well as conditions in the credit markets in general such as changes in borrower and counterparty creditworthiness;
  • Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets;
  • Catastrophic events, either manmade or by nature, including by way of example acts of God, acts of terrorism, acts of war and pandemics, could result in material losses and significantly interrupt Aegon’s business;
  • The frequency and severity of insured loss events;
  • Changes affecting longevity, mortality, morbidity, persistence and other factors that may impact the profitability of Aegon’s insurance products;
  • Aegon’s projected results are highly sensitive to complex mathematical models of financial markets, mortality, longevity, and other dynamic systems subject to shocks and unpredictable volatility. Should assumptions to these models later prove incorrect, or should errors in those models escape the controls in place to detect them, future performance will vary from projected results;
  • Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations;
  • Changes in customer behavior and public opinion in general related to, among other things, the type of products Aegon sells, including legal, regulatory or commercial necessity to meet changing customer expectations;
  • Customer responsiveness to both new products and distribution channels;
  • As Aegon’s operations support complex transactions and are highly dependent on the proper functioning of information technology, operational risks such as system disruptions or failures, security or data privacy breaches, cyberattacks, human error, failure to safeguard personally identifiable information, changes in operational practices or inadequate controls including with respect to third parties with which we do business may disrupt Aegon’s business, damage its reputation and adversely affect its results of operations, financial condition and cash flows;
  • The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including Aegon’s ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions;
  • Aegon’s failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving and excess cash and leverage ratio management initiatives;
  • Changes in the policies of central banks and/or governments;
  • Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business;
  • Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegon’s products;
  • Consequences of an actual or potential break-up of the European monetary union in whole or in part, or the exit of the United Kingdom from the European Union and potential consequences if other European Union countries leave the European Union;
  • Changes in laws and regulations, particularly those affecting Aegon’s operations’ ability to hire and retain key personnel, taxation of Aegon companies, the products Aegon sells, and the attractiveness of certain products to its consumers;
  • Regulatory changes relating to the pensions, investment, and insurance industries in the jurisdictions in which Aegon operates;
  • Standard setting initiatives of supranational standard setting bodies such as the Financial Stability Board and the International Association of Insurance Supervisors or changes to such standards that may have an impact on regional (such as EU), national or US federal or state level financial regulation or the application thereof to Aegon, including the designation of Aegon by the Financial Stability Board as a Global Systemically Important Insurer (G-SII); and
  • Changes in accounting regulations and policies or a change by Aegon in applying such regulations and policies, voluntarily or otherwise, which may affect Aegon’s reported results, shareholders’ equity or regulatory capital adequacy levels.

This document contains information that qualifies, or may qualify, as inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation (596/2014). Further details of potential risks and uncertainties affecting Aegon are described in its filings with the Netherlands Authority for the Financial Markets and the US Securities and Exchange Commission, including the Annual Report. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, Aegon expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Aegon’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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