AEB Aegon NV

THE HAGUE, The Netherlands, Feb. 17, 2017 Strong improvement in underlying earnings driven by the Americas

• Underlying earnings up to EUR 554 million driven by strong expense management, improved claims experience and higher interest rates
• Expense savings reached an annual run rate of EUR 110 million, significantly exceeding the 2016 target  
• Fair value items result of EUR (13) million as gains in the Netherlands from widening credit spreads and higher interest rates were offset by losses in the United States as a result of market volatility 
• Net income of EUR 470 million driven by strong underlying earnings and one-time tax benefits 
• Return on equity increases to 10.5%, and 9.1% excluding one-time tax benefits

Continued solid gross deposits; net outflows mostly from lower margin businesses

• Gross deposits of EUR 23 billion; net outflows of EUR 3.5 billion driven by outflows from Chinese money market funds and anticipated lapses on Mercer block 
• New life sales amount to EUR 240 million partly driven by shift to fee-based solutions in NL 
• Accident & health and general insurance sales down 5% to EUR 225 million following product exits in US 
• Market consistent value of new business of EUR 118 million benefiting from higher interest rates

Solvency II ratio benefits from market movements

• Solvency II ratio increases to an estimated 159% driven by favorable spread movements and higher interest rates  
• Capital generation of EUR 0.3 billion, excluding market impacts and one-time items of EUR 0.3 billion  
• Review of current 75% level of loss absorbing capacity of deferred taxes to be completed before the end of the second quarter of 2017  
• Holding excess capital increases to EUR 1.5 billion and gross leverage ratio to 29.9% as a result of senior debt issuance    
• Final 2016 dividend per share of EUR 0.13

Statement of Alex Wynaendts, CEO

"During 2016, we made good progress in the execution of our strategy by growing our business, realizing major expense savings and increasing our returns. At the same time, we continued to invest in our digital transformation and enhance the customer experience."

"I am especially pleased that we concluded the year with strong fourth quarter earnings, which increased as a result of successful expense reductions, improved claims experience and growth in fee-based revenues."

"Our group capital position remained stable throughout the year despite significant volatility in financial markets, political uncertainty and regulatory changes. In line with our target to return capital to shareholders, we are today announcing a final dividend of 13 cents per share. Looking ahead, I am confident that the actions we are taking as a management team will enable us to deliver on our promises to all stakeholders."

All comparisons in this release are against the fourth quarter of 2015, unless stated otherwise.

Strategic highlights

• Strategy update and financial targets reaffirmed at December investor conference
• Bancassurance partnership with Santander in Spain & Portugal extended
• Cofunds acquisition closed; making Aegon the leading UK platform
• Transamerica Ventures invests in German pension start-up fairr.de

Aegon's ambition
Aegon's ambition is to be a trusted partner for financial solutions at every stage of life, and to be recognized by its customers, business partners and society as a company that puts the interests of its customers first in everything it does. In addition, Aegon wants to be regarded by its employees as an employer of choice, engaging and enabling them to succeed. This ambition is supported by four strategic objectives embedded in all Aegon businesses: Optimized portfolio, Operational excellence, Customer loyalty, and Empowered employees.

Strategy update

In December 2016, Aegon provided the market with a strategy and progress update on the 2018 financial targets at its Analyst & Investor Conference in New York City. This included a number of significant measures tied to the previously announced 5-part plan to improve operational performance in the Americas, such as:

• Doubling the expense savings to be achieved from USD 150 million to USD 300 million by 2018   
• Further net reduction of >500 roles 
• First phase of location strategy implemented, resulting in the closure of 3 locations
• Strategic decision to close Affinity, Direct TV and Direct Mail channels resulting in USD 100 million of capital release over the next three years 
• Development of integrated Worksite offering to combine wealth, health & advice

With the planned operational performance improvements in the Americas, Aegon reaffirmed the company's target of a group return on equity of 10% by 2018. The target will further be supported by a Group-wide expense savings program of EUR 350 million by 2018 and by returning EUR 2.1 billion of capital to shareholders in the period 2016 to 2018.

Optimized portfolio

On December 28, 2016, Aegon and Banco Santander agreed to extend the scope of their bancassurance partnership in Spain by including health insurance. The joint venture partners have also agreed to accelerate the commercial development of certain insurance products in the coming months. Furthermore, Aegon and Banco Santander Totta agreed to strengthen their commitment through a more ambitious business plan in Portugal by expanding the distribution reach of their partnership. These agreements build on the successful development of the bancassurance partnership in Spain and Portugal in recent years.

On January 1, 2017, Aegon successfully closed the acquisition of Cofunds from Legal & General following regulatory approval. Cofunds and Aegon's platform businesses are highly complementary. With the transaction Aegon will have an additional 750,000 platform customers representing approximately GBP 75 billion assets under administration, bringing total customers to over 1 million on Aegon's platforms with more than GBP 100 billion assets under administration. The acquisition is expected to yield significant synergies from distribution, cost and capital perspectives.

Operational excellence

Effective January 1, 2017, Management Board member Marco Keim was given expanded responsibilities which now include oversight of the Netherlands, Central & Eastern Europe, and Spain & Portugal. In this expanded role he will focus his efforts on realizing significant revenue synergies through cross-border collaborations such as Aegon's Digital Center of Excellence. This will help Aegon adapt to fast moving changes in the industry by sharing knowledge and expertise on a variety of topics, including technology, control functions, human resources, multinational product offerings and digital solutions.

Transamerica Ventures, Aegon's venture capital fund made an investment in German pension start-up fairr.de, which is a digital pension provider with a direct sales model. Fairr.de has demonstrated rapid growth in Germany and presents an opportunity for Aegon's Dutch pension business to enter the market. Fairr.de offers third pillar private pension plans for employers, independent professions and the self-employed, while also offering corporate pension products to employers. Aegon's Dutch pension business is expected to contribute significant value to the partnership through its broad experience in the fields of corporate pension products, primarily company pension plans.

Customer loyalty

In the United States, Aegon's subsidiary Transamerica launched a new customer care cross-training program called the Learning Journey. Consistent with the company's strategic shift to One Transamerica, the program is reshaping the customer experience by cross-training call center representatives to handle and process questions on multiple product lines. This is a significant step in improving the customer experience as it will reduce the need to transfer customers from one representative to another depending on product type. Instead the training will allow for a single representative to serve the customers' needs, while developing a deeper and more meaningful relationship.

In November, Aegon the Netherlands surpassed more than 900,000 My Aegon accounts, which is an increase of more than 150,000 accounts in 2016. My Aegon is a website and mobile app that allows Aegon customers to have insights into their financial positions day and night. My Aegon provides customers with access to the necessary documentation digitally and at a moment's notice when and where they want it, reducing the need for physical mailings. Over 37% of all Aegon the Netherland's customers currently have a My Aegon account and have completed more than 130,000 transactions in 2016 contributing to the improved Net Promoter Scores seen throughout the year.

Empowered employees

For the second year in a row, Transamerica has achieved 90 out of 100 possible points in the Human Rights Campaign Foundation Corporate Equality Index. Businesses are scored on a range of policies that support LGBTQ employees, these include anti-discrimination protections, domestic partner benefits, diversity training and transgender-inclusive benefits. Transamerica's continued high score reflects the company's commitment to creating an inclusive work environment for all employees. Workplace equality continues to grow in importance to customers when choosing how their financial needs will be met and this ranking solidifies Transamerica is at the forefront of this evolution.

Aegon the Netherlands improved 10 spots to number 15 in the 2016 Best Employer Survey for companies with more than 1,000 employees. There were more than 200,000 employees across more than 300 organizations surveyed to derive the best employers to work for in the Netherlands. Aegon scored high on organizational pride, receiving praise for work, satisfaction with alignment of the organization and satisfaction with the type of work performed. Aegon's ambition is to further improve as an employer of choice and to enter the top 10 of the Best Employer Survey in the Netherlands.

Operational highlights

Underlying earnings before tax
Aegon's underlying earnings before tax in the fourth quarter of 2016 increased by 27% compared with the fourth quarter of 2015 to EUR 554 million. This increase was in part driven by expense reductions, an improvement in claims experience in the United States and positive adjustments to intangible assets related to higher interest rates. Favorable claims experience and one-time items totaled EUR 38 million in the fourth quarter of 2016.

Underlying earnings from the Americas increased to EUR 388 million as a result of EUR 31 million favorable morbidity experience and a positive adjustment to intangible assets from higher interest rates of EUR 18 million. These more than offset EUR 13 million adverse persistency in the life business and EUR 5 million one-time charges. Expense savings as a result of management actions offset an increase in variable expenses and the acquisition of Mercer's defined contribution business.

In Europe, underlying earnings increased to EUR 174 million. This was mainly driven by lower amortization of deferred policy acquisition costs (DPAC) in the United Kingdom following the write down of DPAC related to upgrading customers to the retirement platform in the fourth quarter of 2015. Earnings in the United Kingdom also benefited from increased fee income as well as EUR 8 million favorable claims experience and reserve releases, which more than offset margin pressure. Earnings from the other businesses in Europe were stable compared with the same quarter last year.

The result of Aegon's operations in Asia increased to EUR 13 million as a result of a positive impact of EUR 7 million from higher interest rates.

Underlying earnings from Aegon Asset Management declined slightly to EUR 35 million, mainly as a result of lower performance fees.

The result from the holding declined to a loss of EUR 57 million driven by EUR 8 million one-time charges from reserve adjustments and higher project-related expenses. The latter included expenses related to the implementation of a new global HR system.

Net income

Net income amounted to EUR 470 million as a result of strong underlying earnings and a favorable effective tax rate.

Fair value items
The loss from fair value items amounted to EUR 13 million. Gains in the Netherlands from positive real estate revaluations, widening credit spreads, and an interest rate mismatch on an IFRS basis were more than offset by losses in the United States. The latter was mostly driven by fair value items without an accounting match as a result of higher equity markets and interest rates following the US elections.

Realized gains on investments
Realized gains on investments of EUR 36 million were mostly the result of private equity divestments and normal trading activity in the Netherlands.

Impairment charges
Net impairments amounted to EUR 1 million, as recoveries on energy-related bonds in the United States were offset by an impairment in asset management.

Other charges
Other charges of EUR 38 million were mainly driven by the United States, which primarily related to restructuring charges. In Europe, other charges were driven by an adjustment of deferred policyholder acquisition costs related to Aegon's European variable annuities business and additions to a legal claims provision in Central & Eastern Europe (CEE), which were partly offset by model updates in the Netherlands.

Run-off businesses
The result from run-off businesses decreased to a loss of EUR 1 million due to a EUR (18) million adjustment to the intangible balances for the BOLI/COLI business.

Income tax
Income tax amounted to EUR 66 million in the fourth quarter as a result of one-time tax benefits in the United States and the United Kingdom. The effective tax rate for the quarter was 12% as a result.

Return on equity

Return on equity increased to 10.5% in the fourth quarter of 2016 driven by higher underlying earnings and the aforementioned tax benefits. Excluding these tax benefits Aegon's return on equity would have amounted to 9.1%.

Operating expenses

Operating expenses decreased by 2% compared with the fourth quarter of 2015 to EUR 978 million. Expense reductions as a result of management actions, lower restructuring charges, favorable currency movements, and non‑recurrence of last year's defined benefit charges more than offset an increase in year‑end variable personnel expenses and the acquisition of Mercer's defined contribution business.

Sales

Aegon's total sales declined by 6% to EUR 2.7 billion in the fourth quarter of 2016. This was mainly the result of lower gross deposits which were down 5% as a result of a decrease in asset management deposits from last year's exceptionally high level. Lower deposits from asset management more than offset increased deposits from Aegon's online bank Knab and higher retirement plan deposits in the United States. Net outflows amounted to EUR 3.5 billion and were mainly driven by outflows from low-margin money market funds in China and net outflows on the business acquired from Mercer. The latter is in line with the anticipated lapse behavior when acquiring a block of retirement business.

New life sales declined by 12% to EUR 240 million, partly driven by lower pension sales in the Netherlands as a result of a continued shift in demand from defined benefit to defined contribution solutions. In addition, universal life sales in the United States continue to be impacted by a decline in the recruitment of new agents. Furthermore, new premium production for accident & health and general insurance was down by 5% to EUR 225 million due to product exits in the United States.

Market consistent value of new business

The market consistent value of new business declined to EUR 118 million compared with the fourth quarter of 2015 due to a lower contribution from variable annuities in the United States as well as the divestment of the annuity portfolio and a change in product mix in the United Kingdom. As a result of higher interest rates, market consistent value of new business increased considerably compared with previous quarters in 2016.

Revenue-generating investments

Revenue-generating investments were up 3% during the fourth quarter of 2016 to EUR 743 billion as the appreciation of the US dollar and higher equity markets more than offset net outflows and the impact of higher interest rates on the value of fixed income investments.

Capital management
Shareholders' equity was stable compared with the end of the previous quarter at EUR 21 billion on December 31, 2016. Retained earnings, positive remeasurements of defined benefit plans and strengthening of the US dollar largely offset a lower revaluation reserve as a result of increased interest rates. Shareholders' equity, excluding revaluation reserves and defined benefit plan remeasurements, increased 7% to EUR 17.5 billion – or EUR 8.52 per common share – at the end of the fourth quarter. The main drivers of this increase were net income and favorable currency movements.

The gross leverage ratio increased 40 basis points to 29.9% in the fourth quarter, as the issuance of senior debt more than offsets the positive impact of this quarter's net income. On December 6, 2016, Aegon issued EUR 500 million senior unsecured notes with a coupon of 1%. The proceeds of these notes have been earmarked for the redemption of EUR 500 million 3% senior unsecured notes due in July 2017. Pro forma for this redemption, Aegon's gross financial leverage ratio reduced to 28.4%.

Holding excess capital increased to EUR 1.5 billion driven by the aforementioned issuance of senior notes. Excluding this item, holding excess capital decreased by EUR 0.1 billion to EUR 1.0 billion, as EUR 0.2 billon remittances from the units were offset by neutralization of the 2016 interim stock dividend, coupon payments and operating expenses.

Capital generation of the operating units excluding market impacts and one-time items amounted to EUR 0.3 billion in the fourth quarter of 2016. Market impacts in the quarter amounted to EUR 0.4 billion, mainly due to the positive impact of favorable credit spread movements on the Dutch mortgage portfolio and favorable market movements on the own employee pension plans in Aegon's main markets. One-time items totaled EUR (0.1) billion, and included higher capital requirements mainly as a result of a repositioning of Aegon the Netherlands' investment portfolio. Capital generation including market impacts and one‑time items amounted to EUR 0.6 billion for the quarter.

Aegon's Solvency II ratio increased to an estimated 159% during the fourth quarter as favorable market impacts more than offset one-time items in the operating units and the net effect from other items. Before the end of the second quarter of 2017, the assumptions underlying Aegon's factor for the loss absorbing capacity of deferred taxes (LAC-DT) of 75% will be reviewed following new guidance by the Dutch Central Bank issued early February 2017. The Dutch operating entities have remitted EUR 100 million to the local holding in the first quarter of 2017. Upstreaming of dividend from Aegon the Netherlands to the group is pending the aforementioned review.

The estimated local solvency ratios of Aegon's main units as of December 31, 2016 were:

•  440% RBC ratio in the United States
•  141% Solvency II ratio in the Netherlands
•  156% Solvency II ratio in the United Kingdom

On February 10, 2017, Standard & Poor's affirmed its 'AA-' ratings on Aegon's core operating entities, while revising their outlook on Aegon and its rated subsidiaries domiciled in the United States and the Netherlands from 'stable' to 'negative'.

Final dividend

At the Annual General Meeting of Shareholders on May 19, 2017, the Supervisory Board will, absent unforeseen circumstances, propose a final dividend for 2016 of EUR 0.13 per common share. If approved, and in combination with the interim dividend of EUR 0.13 per share paid over the first half of 2016, Aegon's total dividend over 2016 will amount to EUR 0.26 per common share. The final 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's Euronext-listed shares will be quoted ex-dividend on May 23, 2017, while its NYSE-listed shares will be quoted ex-dividend on May 22, 2017. The record date for both shares is May 24, 2017. The election period for shareholders will run from May 30 up to and including June 16, 2017. The stock fraction will be based on the average share price on Euronext Amsterdam from June 12 until June 16, 2017. The stock dividend ratio will be announced on June 20, 2017, and the dividend will be payable as of June 23, 2017.

Use this link for the full version of the press release.

Additional information

Presentation

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

Supplements

Aegon's Q4 2016 Financial Supplement and Condensed Consolidated Interim Financial Statements
are available on aegon.com.

Conference call including Q&A

9:00 a.m. CET

Audio webcast on aegon.com 

Dial-in numbers

United States: +1 719 457 2086
United Kingdom: +44 330 336 9411
The Netherlands: +31 20 721 9251

Passcode: 9768082

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

DISCLAIMERS

Cautionary note regarding non-IFRS measures

This document includes the following non-IFRS financial measures: underlying earnings before tax, income tax, income before tax, market consistent value of new business and return on equity. These non-IFRS 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, to the most comparable IFRS measure is provided in note 3 'Segment information' of Aegon's Condensed Consolidated Interim Financial Statements. Market consistent value of new business is not based on IFRS, which are used to report Aegon's primary financial statements and should not be viewed as a substitute for IFRS 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 measure and is calculated by dividing the net underlying earnings after cost of leverage by the average shareholders' equity excluding the preferred shares, the revaluation reserve and the reserves related to defined benefit plans. Aegon believes that these non-IFRS measures, together with the IFRS information, provide meaningful 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 Asia, 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, 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:

o   Changes in general economic conditions, particularly in the United States, the Netherlands and the United Kingdom;

o   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 private sector securities and the resulting decline in the value of sovereign exposure that Aegon holds;

o   Changes in the performance of Aegon's investment portfolio and decline in ratings of Aegon's counterparties;

o   Consequences of a potential (partial) break-up of the euro;

o   Consequences of the anticipated exit of the United Kingdom from the European Union;

o   The frequency and severity of insured loss events;

o   Changes affecting longevity, mortality, morbidity, persistence and other factors that may impact the profitability of Aegon's insurance products;

o   Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations;

o   Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels;

o   Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates;

o   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;

o   Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets;

o   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;

o   Regulatory changes relating to the pensions, investment, and insurance industries in the jurisdictions in which Aegon operates;

o   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);

o   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;

o   Acts of God, acts of terrorism, acts of war and pandemics;

o   Changes in the policies of central banks and/or governments;

o   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;

o   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 premium writings, policy retention, profitability and liquidity of its insurance subsidiaries;

o   The effect of the European Union's Solvency II requirements and other regulations in other jurisdictions affecting the capital Aegon is required to maintain;

o   Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business;

o   As Aegon's operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disrupt Aegon's business, damage its reputation and adversely affect its results of operations, financial condition and cash flows;

o   Customer responsiveness to both new products and distribution channels;

o   Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegon's products;

o   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 and shareholders' equity;

o   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;

o   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;

o   Catastrophic events, either manmade or by nature, could result in material losses and significantly interrupt Aegon's business;

o   Aegon's failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving and excess capital and leverage ratio management initiatives; and

o   This press release contains information that qualifies, or may qualify, as inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.

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.

Media relations
Debora de Laaf
+31 (0) 70 344 8730
gcc@aegon.com

Investor relations
Willem van den Berg
+31 (0) 70 344 8305
ir@aegon.com

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SOURCE Aegon N.V.