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The Hague, November 11, 2021 - Consistent execution on strategic initiatives; results impacted by adverse mortality experience
Net loss of EUR 60 million reflects a EUR 470 million one-time charge as a result of management actions to release capital and increase the predictability of capital generation from the US variable annuity business, in line with prior guidance
Operating result decreases by 16% compared with the third quarter of 2020 to EUR 443 million, as adverse claims experience in the US – with COVID-19 and a higher average claim size as the most important drivers – more than offsets increased fees from higher equity markets and the positive contribution from business growth
Cash Capital at Holding decreases to EUR 961 million, which reflects EUR 192 million dividends to shareholders and EUR 212 million deleveraging in this quarter
The capital ratios of all three main units remain above their respective operating levels; Group Solvency II ratio increases to 209%
Statement of Lard Friese, CEO
“In the third quarter of 2021, we continued to drive our transformation forward by delivering on our financial and strategic commitments. Performance improvements across most of our businesses, supported by the disciplined execution of our operational improvement plan, were offset by elevated mortality in the United States.
This quarter’s operating result reflects the benefit from addressable expense savings that we have achieved so far. We remain on track to deliver our target of EUR 400 million expense savings by 2023. To date, we have executed 684 out of 1,200 performance improvement initiatives, with expense initiatives representing the majority thereof. Benefits from implemented growth initiatives can be seen in the results from Strategic Assets and Growth Markets, and our Asset Management business extended its track record of over nine years of positive third-party net deposits.
We remain proactive in the management of our Financial Assets. In the third quarter, we launched the lump sum buy-out program for certain variable annuity policyholders. This was well received by customers, which can be seen by the 8% take-up rate as of the end of September. Moreover, since the end of the third quarter, the guarantees on the remaining variable annuity portfolio are being fully hedged against equity and interest rate risk, reducing our economic sensitivity to financial markets.
In our long-term care business, we have already achieved approval for more than USD 300 million worth of rate increases, and consequently, we have increased our expectations for the rate increase program to USD 450 million; underscoring our track record of actively managing this business. On top of that, we took a series of incremental management actions in the US and the Netherlands to improve our risk profile, maintain a strong balance sheet and increase the value of our portfolio.
While we are making good progress on our strategic and financial commitments, our US Life business experienced adverse mortality in part from the ongoing impact of COVID-19. We expect the impact from COVID-19 to abate over time. A higher average claim size also contributed to this quarter’s mortality experience. We are in the process of taking management actions to reduce the volatility in mortality experience in the United States.
Recognizing the role that Aegon plays within our broader society, we continue to progress with our approach to sustainability and responsible investing. Last week, we announced our Group-wide commitment to transitioning our general account to net-zero greenhouse gas emissions by 2050, with an intermediate goal set for 2025. Ahead of COP26, Aegon UK – in partnership with Aegon Asset Management – launched its innovative Global Sustainable Sovereign Bond Fund. The fund invests in those countries that are making the best progress towards the United Nations Sustainable Development Goals, and allows our workplace pensions customers to align their investment objectives with the goal of a fair and sustainable future.
And finally, as we look back at the third quarter, I also want to take a moment to recognize our 22,000 colleagues who are driving Aegon’s transformation. The pandemic has fundamentally changed the way in which we work and the way we interact with our stakeholders. And while the way we interact may have changed, our colleagues remain committed to transforming Aegon into a high-performance organization.”
Note: All comparisons in this release are against 3Q 2020, unless stated otherwise. See page 8 of this press release for a full financial overview.
Conference call including Q&A (9:00 a.m. CET)
Jan Willem Weidema
Audio webcast on aegon.com
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The conference call presentation is available on aegon.com as of 7.30 a.m. CET.
Aegon’s 3Q 2021 Financial Supplement and other supplementary documents are available on aegon.com.
Conference call including Q&A
The conference call starts at 9:00 a.m. CET, with an audio webcast on aegon.com. Two hours after the conference call, a replay will be available on aegon.com.
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Financial calendar 2021-2022
Fourth quarter 2021 results – February 9, 2022
First quarter 2022 results – May 12, 2022
Annual General Meeting – May 31, 2022
Second quarter 2022 results – August 11, 2022
Third quarter 2022 results – November 10, 2022
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 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.
Cautionary note regarding non-IFRS-EU measures
This document includes the following non-IFRS-EU financial measures: operating result, income tax, result before tax, market consistent value of new business, return on equity and addressable expenses. These non-IFRS-EU measures, except for addressable expenses, 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 operating result after tax less cost of leverage by the average shareholders’ equity excluding the revaluation reserve. Operating expenses are all expenses associated with selling and administrative activities (excluding commissions) after reallocation of claim handling expenses to benefits paid. This includes certain expenses recorded in other charges, including restructuring charges. Addressable expenses are expenses reflected in the operating result, excluding deferrable acquisition expenses, expenses in joint ventures and associates and expenses related to operations in CEE countries. Aegon believes that these non-IFRS-EU measures, together with the IFRS-EU information, provide meaningful supplemental information about the 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.
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 management initiatives related to cost savings, cash capital at Holding, gross financial leverage and free cash flow;
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.