jos streppel, cfo...nov 13, 2008 · weathering the global financial crisis jos streppel, cfo...
TRANSCRIPT
Unlocking the global potential 1
Weathering the global financial crisis
Jos Streppel, CFO
Cheuvreux Conference – New York City – November 13, 2008
Unlocking the global potential 2
AEGON at a glance
o Focus on Life & Pensions
o 33,000 employees worldwide
o 40 million customers worldwide
o Revenues 9M08: EUR 8.1 billion
o EUR 350 billion in revenue generating investments
o Underlying earnings before tax 9M08 : EUR 1.8 billion
Unlocking the global potential 3
Focus on life & pensions
Underlying earnings before tax 9M08
99% of earnings generated by core businesses
� Life and protection
� Individual savings and retirement products
� Pensions and asset management
� Institutional products
� Life reinsurance
� Distribution & general insurance 45%
16%
18%
3% 1%
17%
Unlocking the global potential 4
Fundamentally attractive industry
Attractive prospects for life insurance and pension companies:
o Fundamental demographic and economic changes
... generating new customers and new needs…
… driving demand for financial solutions
o Opportunities arising from current market conditions
Unlocking the global potential 5
o Financial markets impacted Q3 earnings, but fundamentals remain intact
o Significant capital buffer to weather the storm
o Committed to maintain capital level equivalent to AA rating requirements
o Unrealized losses are not a proxy for impairments
o AEGON has ample liquidity
o Executing the right strategy
AEGON well positioned
Unlocking the global potential 6
3
1
3 strategic priorities to improve performance
2
Reallocate capital towards
businesses with higher
growth and return
prospects
Improve growth and returns
from existing businesses
Manage AEGON as an
international group
Geographic mix
2007 Target allocation
2012
New markets*
Western Europe
US
Global businesses
* New markets = Central & Eastern Europe, Asia and Latin America
Capital allocation
15-25%
40-50%
25-35%
10%
60%
30%
5-10%
Unlocking the global potential 7
5007(13)(32)(33)
(120)691
Q3 07 Americas The
Netherlands
United
Kingdom
Other countries Holding and
other
Q3 08
o Underlying earnings before tax in Q3 impacted by
– lower fees in US and UK
– reserve strengthening, mainly related to VA’s sold pre-2004 in US
– higher mortality charges in US life reinsurance
– provisioning in NL for unit linked policies and charge on a group of
pension contracts
Underlying earnings impacted by world financial markets turmoil
Underlying earnings before tax (EUR million)
(22)%7%
Underlying earnings development at constant currency
(18)%(39)%(31)%(17)%
Unlocking the global potential 8
Financial markets and impairments had a negative impact
(407)(47)
(384)500
(329)
14(5)
Underlying
earnings Q3 08
Fair value items
performance
Gain/(losses) on
investments
Impairment
charges
Other
income/(charges)
Income tax Net income Q3 08
o Net income in Q3 mainly impacted by underperformance of fair value items
and impairment charges
– Impairment charges mainly related to Lehman Brothers, Washington Mutual
(EUR336m) and US housing related asset-backed securities (EUR46m)
Underlying earnings to net income development in Q3 (EUR million)
Unlocking the global potential 9
Q3 07 Q3 08 Q3 07 Q3 08
Retail life salesAmericas(USD million)
o Total Q3 new life sales down 18% at constant currency
- Financial turmoil impacted sales of high net worth and middle market products in
the US
- Solid annuity and group pension sales in the UK, offset by individual pensions
- Lower group pension sales in NL due to financial turmoil
Q3 07 Q3 08
160192 303302 3972
New life sales
New life salesUnited Kingdom(GBP million)
New life salesThe Netherlands(EUR million)
-16%
+0%
-46%
Unlocking the global potential 10
Q3 07 Q3 08 Q3 07 Q3 08
o Total Q3 net deposits of EUR 1.7 billion
- Fixed annuities deposits in Americas: best quarter since 2003
- Variable annuities deposits in Americas relatively flat
- Strong increase in deposits in Other countries driven by retail mutual funds and
variable annuity sales in Asia
Q3 07 Q3 08
912934 1,811493 474204
Strong growth in net retail deposits
Variable annuitiesAmericas(USD million)
Fixed annuitiesAmericas(USD million)
Total gross depositsOther countries(EUR million)
-2%
+267%
+132%
Unlocking the global potential 11
o Significant risk reductions implemented
- Limited direct equity exposure
- Interest rate risks lowered
- Guarantees on products lowered
- Hedging of guarantees
- Asset and liability matching
o Disciplined liquidity management
o Strong global risk management organization
o Hedged USD cash flows to holding company
- Remainder of 2008 and 2009
- Putting a floor at present levels
- Full impact of USD strengthening
Proactive steps have been taken to improve capital efficiency
Unlocking the global potential 12
~89% of
common
shares
~11% of
common
shares
100% of
preferred
shares
AEGON secured additional core capital of EUR 3 billion
AEGON N.V.
Public Market Dutch StateVereniging AEGON
Capital facility
EUR 3 billion
Non-voting securities
EUR 3 billion
EUR
EU
R
Unlocking the global potential 13
Reinforced capital position
AEGON to reinforce capital buffer significantly above AA level requirements
Substantial buffer to protect against further market deterioration
EUR 8.5 billion
(205%)
Insurance Group Directive
(IGD) surplus capital
EUR 842 million
S&P risk-based insurance
capital model excess
capital in operating units
above AA level
September 30, 2008
EUR 5.0 billion
(160%)
EUR 312 million
June 30, 2008
74%Capital Base Ratio
(debt / equity ratio)71.5%
+ Underlying
earnings
- Market
movements
+ De-risking
+ Capital
releases
Expectedchanges in Q4
+ EUR 3 billion
Unlocking the global potential 14
Capital position after drawdown of additional capital
EUR 312 million
S&P risk-based insurance
capital model excess
capital in operating units
above AA level
Pro-formapost draw down
EUR 312 million
September 30, 2008
EUR 5.0 billion
(160%)
Insurance Group Directive
(IGD) surplus capital
EUR 8.0 billion
(195%)
o Insurance Group Directive surplus capital includes unrealized losses on bond portfolio
o Excluding unrealized losses IGD ratio would be ~225% and ~260% pro-forma
Capital buffer of EUR 3 billion will be initially held at holding level,
therefore not included in excess capital in operating units
Unlocking the global potential 15
o Lowering investment risk
– New money
– Existing portfolio
o Risk transfer through reinsurance
– Fixed annuities
– Non-life catastrophic risk
o Securitizations
Ongoing acceleration of de-risking and capital release
Capital preservation and risk mitigation actions important
to enhance capital buffer
Complete execution on identified capital preservation and risk mitigation
actions of EUR 600 - 800 million in Q4, including:
Unlocking the global potential 16
40%20%
Assumed equity market decline of40%20%
Assumed equity market decline of
Equity market sensitivity increased due to market deterioration
o Lower fees
o Reserve strengthening for VA guarantees (old book before 2004; new VA is delta hedged)
o DAC unlocking*
-700
-1,600
-900
-1,900
* Acceleration of amortization of deferred acquisition costs
o Direct exposure
o Reserve strengthening for guarantees
o Impact of first 20% decline can be absorbed by capital preservation actions
Estimated impact on earnings (12 month period, EUR million)
Estimated impact on capital (EUR million)
Based on equity markets as of September 30, 2008
� Direct
� Fees
� DAC� Guarantees
� Direct
� Fees
� Guarantees
Unlocking the global potential 17
Policyholder
account
35%
Off balance
sheet
28%
General
account
37%
Equities
20%
Indexed
Universal
Life
21%
Private
equity&
hedge funds
21%
Other
39%
Limited direct equity exposure
Total investments
EUR 351 billion
General account
EUR 132 billion
Shares
EUR 3.3 billion
Direct equity exposure limited
Bonds
70%
Loans
18%
Shares
2%
Real estate
2%
Other
8%
As of September 30, 2008
Unlocking the global potential 18
2%1%
Assumed*
interest rate decline of2%1%
Assumed*
interest rate decline of
Interest rate sensitivity
o Lower funding costs
o Higher capital gains
175
270
-250
-450
* Assumes a parallel shift in the yield curve
o Reserve strengthening for guarantees
Impact on earnings (12 month period, EUR million)
Impact on capital (EUR million)
Based on interest rates as of September 30, 2008
Unlocking the global potential 19
� December 31, 2005
0% 10% 20% 30% 40% 50%
IG Corporate & Preferred
Other
Hedge Funds
Private Equity & Real Estate
Common Equity
Convertible Bonds & Pref Stock
Commercial Mortgage Loans
Commercial MBS
MBS & CMO
ABS
Emerging Markets Debt
High Yield Corporate
Cash/Treasuries/Agency
Active management of US investment portfolio
� September 30, 2008
Shifts in US investment portfolioEUR 83.3 billion(*) as per September 30, 2008
o Increased Cash position
o IG Corporate bond actions:
– Reduced total exposure
– Increased diversification
– Increased exposure to non-cyclicals
– Upgraded rating distribution
* excludes policy loans
Unlocking the global potential 20
2002 2003 2004 2005 2006 2007 Q3 YTD
2008
2002 2003 2004 2005 2006 2007 Q3 YTD
2008
Significant shift into higher rated assets
� AA � BIG� BBB� A
Subprime in US investment portfolio
EUR 2.7 billion as per September 30, 2008
CMBS securities in US investment portfolio
EUR 5.9 billion as per September 30, 2008
o As stated in previous
presentations, AEGON USA has
restructured its asset portfolio
defensively in numerous ways:
– Reducing and upgrading
corporate exposures
– Reducing financial credit
exposures
– Selling most public common
equity exposures
– Upgrading CMBS and subprime
portfolios
– Increasing treasury and liquidity
balances
70% 49%70%74%73%65%40%
86%82%79%76%61%53%45%
� AAA
Unlocking the global potential 21
Reduced exposure to financials
o Actively reduced financial
sector exposure, esp. in 2007
and 2008
o Risk mitigation actions in the
corporate bond portfolio
Financials as % of general account
assets in US investment portfolio
EUR 11.2 billion as per September 30, 2008
2005 2006 2007 Q3 YTD
2008
14.6% 12.3%15.7%16.4%
Corporate high yield as % of general account assets
0%
1%
2%
3%
4%
5%
6%
2002 2003 2004 2005 2006 2007 Q3
YTD
2008� B � BB� CCC or less
Unlocking the global potential 22
44 4437
27
9
25
1 2 48
17
64
82
48
17
-6-2
2
54
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 YTD
2008
Credit losses in the Americas remain manageable
Credit losses in bps of assets (includes only bonds and mortgages)
o During Q3, impairments in the US totaled USD 540 million
o Products are priced for expected losses of 25 – 30 basis points
o Almost all fixed income instruments are held as Available For Sale securities and as such are only impaired through earnings if
1) we don't have the ability to hold, or
2) we intend to sell them, or
3) we expect to receive less than full principal and interest
average of 25 bps
since 1990
Unlocking the global potential 23
Impact of potential credit impairments manageable
Impact on IFRS net income Impact on available capital
Example:o 100 bps of losses on USD 120 billion of assets*
o 20% DAC offset(possible range 0% – 60%, depending on business line)
o 35% tax offset(depending on geography)
-624
-1.200
-445
240
336
Losses DAC offset Taxes
IFRS net
income
IFRS net
income
-780
-1.200
-550
420
Losses DAC offset Taxes
Impact on
available
capital
Impact on
available
capital
No DAC
offset
(USD million) (EUR million) (USD million) (EUR million)
* includes bonds and mortgages of US fixed income portfolio
Unlocking the global potential 24
Strong liquidity position
Assumptions:
o Extreme possibility of ‘frozen’ markets for years anticipated
o Impaired capital markets liquidity test assumes an extended period and normal liquidity only resuming in 2 years
Results:
o Our liquidity position remains very strong even ignoring contingent liquidity sources
o Under a conservative best estimate basis, AEGON has positive net inflows into 2010
0
20
40
60
80
7day 1mo 3mo 6mo 1yr 18mo 2yr
Liquidity management
(EUR billion)
� Available liquidity under stress scenario� Required liquidity under stress scenario
Stress scenario
This stress scenario assumes:
- severely impaired capital markets liquidity;
- a 3% immediate and permanent increase in interest rates;
- liabilities are assumed to withdraw at their earliest conceivable date.
Unlocking the global potential 25
Conclusions
o Financial markets impacted earnings, but fundamentals remain intact
o Significant capital buffer to weather the storm
o Committed to maintain capital level equivalent to AA rating requirements
o Unrealized losses are not a proxy for impairments
o AEGON has ample liquidity
Well positioned for the future
Unlocking the global potential 26
Q&A
Unlocking the global potential
Unlocking the global potential 27
CFOAEGON Q3 2009 resultsNovember 12, 2009
CEOAEGON Q2 2009 resultsAugust 13, 2009
MBAEGON Analyst and Investor Conference, New YorkJune 9 and 10, 2009
CFOAEGON Q1 2009 results and EV 2008May 14, 2009
SBAEGON Annual General MeetingApril 22, 2009
CEOAEGON Full year 2008 resultsMarch 12, 2009
CEOSociété Générale Conference, ParisDecember 4, 2008
CEOAEGON Analyst and Investor Day, LondonNovember 24, 2008
Upcoming events
Unlocking the global potential 28
Cautionary note regarding forward-looking statements
The statements contained in this presentation 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: believe, estimate, target, intend, may, expect, anticipate, predict,
project, counting on, plan, continue, want, forecast, should, would, is confident, will, and similar expressions as they relate to our company. These statements
are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. We undertake
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 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 our fixed income investment portfolios; and
- 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 we hold;
� The frequency and severity of insured loss events;
� Changes affecting mortality, morbidity and other factors that may impact the profitability of our insurance products;
� 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;
� Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets;
� Changes in laws and regulations, particularly those affecting our operations, the products we sell, and the attractiveness of certain products to our
consumers;
� Regulatory changes relating to the insurance industry in the jurisdictions in which we operate;
� Acts of God, acts of terrorism, acts of war and pandemics;
� Changes in the policies of central banks and/or governments;
� Litigation or regulatory action that could require us to pay significant damages or change the way we do business;
� Customer responsiveness to both new products and distribution channels;
� Competitive, legal, regulatory, or tax changes that affect the distribution cost of or demand for our products;
� Our failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving initiatives; and
� The impact our adoption of the International Financial Reporting Standards may have on our reported financial results and financial condition.
Cautionary note regarding Regulation G (non-GAAP measure)
This presentation includes non-GAAP financial measures: net underlying earnings, operating earnings before tax, value of new business and embedded
value. Value of new business and embedded value are not based on IFRS, which are used to prepare and report AEGON’s financial statements and should
not be viewed as a substitute for IFRS financial measures. AEGON believes the non-GAAP measures shown herein, together with GAAP information,
provides a meaningful measure for the investment community to evaluate AEGON’s business relative to the businesses of our peers.
Cautionary note regarding forward-looking statements
Unlocking the global potential 29
For questions please contact Investor Relations+31 70 344 8305
P.O. Box 852501 CB The HagueThe Netherlands
Unlocking the global potential