Dutch insurer Aegon NV (AEG) reported fourth quarter net income of €393 million (US$533 million), which came in substantially ahead of the net loss of €1.18 billion (US$1.60 billion) recorded in the year-ago quarter. The momentous swing was primarily due to improved earnings, realized gains on investments and lower impairments.
Aegon’s underlying earnings before tax amounted to €427 million for the reported quarter. These increased year-over-year with growth witnessed across the U.S., Netherlands and U.K. Operating expenses decreased by 11% year-over-year to €830 million as a result of significant cost savings and weakening of the U.S. dollar.
Results also benefited from Aegon’s cost-cutting initiatives. During 2009, the company realized cost reduction measures of €250 million, significantly ahead of the target of €150 million. Excluding the impact of restructuring charges, increased employee benefit expenses in the U.S. and currency movements, operating costs decreased in 2009 by 5% from 2008.
Additionally, Aegon’s total workforce declined 7% in 2009 to just over 25,000 employees, due mainly to restructuring in the U.S. and the U.K., as well as the sale of real estate brokerage activities in the Netherlands and life insurance operations in Taiwan.
Value of new business showed a substantial improvement across almost all countries compared with the prior quarter and amounted to €216 million. Revenue-generating investments rose to €361 billion at the end of Dec 2009, up 2% from the third quarter. The increase was mainly the result of a further rise in equity markets and a stronger U.S. dollar at the end of the reported quarter. Gross deposits totaled €5.9 billion while net deposits remained strong at €1.5 billion.
At Dec 31, 2009, core capital, excluding the revaluation reserves, amounted to €15.9 billion or 75% of the total capital base, well above Aegon’s self-imposed minimum target of 70%. The revaluation reserves amounted to a negative €1.7 billion, a marginal improvement from the prior quarter as the positive effects of tightening credit spreads were almost entirely offset by the impact of rising risk-free interest rates and realized gains.
At Dec 31, 2009, the Insurance Group Directive capital surplus totaled €6.7 billion, equivalent to a solvency ratio of 204%. Aegon’s internal rate of return was marked at 17.6%. These factors reflect a strong capital position.
Business Update
In Jan 2010, Aegon sold its funeral insurance business in the Netherlands for €212 million. The sale is expected to have a positive effect on Aegon’s excess capital position and is projected to result in a modest book gain in the first half of 2010.
As announced in Feb 2009, Aegon is running off its institutional spread-based business in the United States. The run-off will significantly reduce the company’s exposure to credit risk and help lessen overall sensitivity to fluctuations in financial markets.
From the first quarter of 2010, Aegon will adjust its segment reporting structure to reflect recent structural changes in its organization. Comparable full year 2008 and quarterly 2009 numbers will be published on Apr 12, 2010.
Aegon continues to work on its strategic priorities that are to reallocate capital toward business with higher growth and return prospects, to improve growth and returns from existing businesses and to reduce financial market risk.
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