Aegon Annual Report 2012

Annual Report 201223Results 2011 worldwideAegon’s 2011 underlying earnings before tax of EUR 1,522 millionand net income of EUR 872 million were impacted by considerablecharges, expenses related to the customer redress program inthe United Kingdom and business restructuring in its establishedmarkets. New life sales volumes were below those of 2010 as aresult of repricing of products, however, deposits continued to bestrong, particularly in the Americas. Aegon maintained a strongcapital position during the year and by completing the repurchaseof convertible core capital securities, the company has turned itsfocus on carrying out a strategy to deliver sustainable earningsgrowth with an improved risk-return profile.Net incomeNet income in 2011 of EUR 872 million was lower than netincome in 2010 (2010: EUR 1,760 million), primarily theresult of lower underlying earnings before tax, less gains oninvestments and a significant decline in results on fair value items.Underlying earnings before taxAegon’s underlying earnings before tax declined toEUR 1,522 million in 2011 from EUR 1,833 million in 2010.The decline compared to last year was mainly due to highercharges and expenses in the United Kingdom related to thecustomer redress program, higher provisioning for longevityin the Netherlands and the effects of lower interest rates andlower equity markets.Underlying earnings before tax in the Americas decreased 5% toUSD 1,771 million. Earnings from Life & Protection decreasedmainly as a result of unfavorable persistency and lower spreads.Individual Savings & Retirement earnings remained stable asincreased earnings from variable annuities and retail mutualfunds were offset by lower earnings from fixed annuities as theproduct is de-emphasized. Earnings from Employer Solutions &Pensions increased as a result of continued strong growth ofthe business.Underlying earnings from Aegon’s operations in the Netherlandsamounted to EUR 298 million, a decrease of 23% compared to2010. Additional provisioning for longevity of EUR 82 millionwas only partly offset by the positive impact of favorabletechnical results.In the United Kingdom, underlying earnings before tax declinedsignificantly to GBP 5 million. This was mainly due to chargesand expenses related to an ongoing program to correct historicalissues within customer policy records and the execution of thisprogram partly offset by the benefit of changes to employeebenefit plans. The sale of Guardian during the third quarter2011, and the subsequent loss of earnings, also contributed tothe decrease.In New Markets, Aegon reported underlying earnings beforetax of EUR 249 million, an increase of 2% compared to 2010.The increase is primarily the result of higher underlying earningsbefore tax from Aegon Asset Management.For Holding and other activities, underlying earnings beforetax amounted to a loss of EUR 303 million which is the resultof higher expenses related primarily to the preparation forimplementation of Solvency II, and higher funding costs.Fair value itemsIn 2011, fair value items recorded a loss of EUR 416 million.The significant decline compared to 2010 was driven mainly bylower results from fair value items in the Americas as Aegonlowered its interest rate assumptions which negatively impactedresults during the third quarter with EUR 168 million. In addition,lower interest rates, spread widening and volatile equity marketsalso negatively affected results on fair value items. Lessfavorable results on fair value movements in the Netherlandsalso contributed to the decline.Realized gains on investmentsIn 2011, realized gains on investments amounted toEUR 446 million and were the result of a decision to replaceequities by fixed income securities in the Netherlands, thedivestment of the life reinsurance activities in the Americas inaddition to normal trading in the investment portfolio.Impairment chargesImpairment charges improved from the 2010 levelof EUR 452 million and amounted to EUR 388 million in2011. In the United States, impairments were mostly linkedto residential mortgage-backed securities. Impairments inthe United Kingdom related primarily to exchange offers onspecific holdings of European banks and in Central & EasternEurope impairments were largely attributable to new legislationin Hungary, related to Swiss franc denominated mortgages,affecting the mortgage portfolio.Other chargesOther charges amounted to EUR 267 million, an improvementcompared to charges of EUR 309 million in 2010. In theAmericas, a charge of EUR 37 million related to increasedreserves in connection with the company’s use of the US SocialSecurity Administration’s death master-file. Restructuringcharges in the Netherlands related to a restructuring programto reduce operating expenses going forward amounted toEUR 92 million and a write-down of intangible assets relatedto the distribution businesses led to a charge of EUR 75 million.In the United Kingdom, restructuring charges amounted toEUR 86 million. In New Markets, charges of EUR 17 millionrelated to the Hungarian bank tax are included, offset by abenefit of EUR 37 million related to a settlement of legalclaims by Aegon Asset Management.