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The Hague, August 11, 2022 - Steady progress on transformation allows Aegon to increase its free cash flow outlook
Net loss of EUR 348 million due to one-time charges and a non-economic loss on interest rate hedges in the US
Operating result of EUR 538 million; a decrease of 11% on a constant currency basis compared with the second quarter of 2021. Benefits from expense savings, growth initiatives and favorable claims experience are more than offset by lower fees due to adverse market movements and lower investment income
The capital ratios of all three main units remain above their respective operating levels. Group Solvency II ratio increases to 214% driven by management actions and the benefit from model updates
Cash Capital at the Holding decreases only slightly to EUR 1.7 billion at June 30, 2022, despite the impact of the previously announced deleveraging and share buyback; third tranche buyback to commence in October 2022
2022 interim dividend increases by EUR 0.03 to EUR 0.11 per common share reflecting sustainable free cash flow growth
Aegon raises its 2022 guidance for operating capital generation from the units from around EUR 1.2 billion to around EUR 1.4 billion. Aegon also expects to achieve cumulative free cash flow over the period 2021 to 2023 of at least EUR 2.2 billion, well ahead of the EUR 1.4 to 1.6 billion target set at the 2020 Capital Markets Day
Statement of Lard Friese, CEO
“The first half year of 2022 was one of the most challenging periods for investors with equity markets experiencing their worst start of the year in over five decades. Volatility remained as central banks increased interest rates to curb rising inflation and the war in Ukraine continued. Against this challenging backdrop we performed well, a testament to the strength of our strategy.
Our second quarter operating result of EUR 538 million was strong, reflecting the receding impact of COVID-19 and the progress we are making on our operational improvement plan that helped offset the impact from lower equity markets. We have now executed 1,058 out of more than 1,200 initiatives as part of this plan. Expense initiatives resulted in a EUR 250 million reduction of annual addressable expenses. Across our three core markets, our Workplace Solutions businesses generated positive net deposits, supported by various growth initiatives and favorable labor market conditions. We also achieved growth in new life sales in the US, supported by a 12% increase in licensed life agents at WFG over the last year. Mortgage origination volumes in the Netherlands, net deposits in the Retail channel in the UK, and third-party net deposits in our asset management business were down versus last year, reflecting a challenging macro-economic outlook and rising interest rates.
Our net result was impacted by a one-time charge related to reinsurance rate increases in the US, contributing to the net loss of EUR 348 million for the quarter. Nonetheless, we remain on course to deliver on our objective of growing returns to shareholders. The actions we have taken to strengthen our capital position and improve our risk profile are paying off in the current market circumstances, with the capital position of our three main units remaining above their respective operating levels. The strength of our balance sheet and the sustainable growth in free cash flow are a solid basis to raise the interim dividend by 3 eurocents compared with last year to 11 eurocents per common share.
In the second quarter we also continued to make progress in our approach on sustainability. In the United States we introduced the Emergency Savings Account product enabling employers to help their employees save for unexpected events and improve their financial wellbeing. As part of our commitment to contribute to a climate neutral world, Aegon Asset Management partnered in the launch of a USD 600 million venture in the US to acquire value-add multifamily dwellings and transition them to low-carbon, energy efficient buildings. In the UK, we moved over GBP 3 billion of customers’ assets into strategies that consider ESG credentials, as part of the commitment to make our default pension funds in the UK carbon net-zero by 2050.
Looking ahead, considering the active management of our balance sheet and our overall transformation progress, we are comfortable increasing our expectations for cumulative free cash flow over the period 2021 to 2023 from EUR 1.4 to 1.6 billion to at least EUR 2.2 billion. We also raise our 2022 guidance for operating capital generation from the units from around EUR 1.2 billion to around EUR 1.4 billion.
While uncertainty in financial markets and economic outlook is expected to remain, we will continue to stand by our customers and help them navigate through challenging economic circumstances with our expertise and high level of service. I want to thank our colleagues for their continued dedication and I am confident that together we will deliver on our 2023 strategic and financial commitments.”
Note: All comparisons in this release are against 2Q 2021, unless stated otherwise. See page 7 of the full press release for key performance indicators.
Jan Willem Weidema
+31 (0) 6 22 88 99 25
+31 (0) 70 344 8028
The conference call presentation is available on aegon.com as of 7.30 a.m. CET.
Aegon’s 2Q 2022 Financial Supplement and other supplementary documents are available on aegon.com.
Conference call including Q&A
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Financial calendar 2022
Ex-dividend date interim dividend 2022 – August 23
Payment date interim dividend 2022 – September 21
Third quarter 2022 results – November 10
IFRS 9/17 Educational Webinar– December 14
Aegon is an integrated, diversified, international financial services group. The company offers investment, protection, and retirement solutions, with a strategic focus on three core markets (the United States, the United Kingdom, and the Netherlands), three growth markets (Spain & Portugal, Brazil, and China), and one global asset manager.
Aegon's purpose of Helping people live their best lives runs through all its activities. As a leading global investor and employer, the company seeks to have a positive impact by addressing critical environmental and societal issues, with a focus on climate change and inclusion & diversity.
Aegon is headquartered in The Hague, the Netherlands, and listed on Euronext Amsterdam and the New York Stock Exchange. More information can be found at aegon.com.
Cautionary note regarding non-EU-IFRS measures
This document includes the following non-EU-IFRS financial measures: operating result, income tax, result before tax, market consistent value of new business, return on equity and addressable expenses. These non-EU-IFRS 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 EU-IFRS measure is provided in the notes to this press release. Market consistent value of new business is not based on EU-IFRS, which are used to report Aegon’s primary financial statements and should not be viewed as a substitute for EU-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-EU-IFRS 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-EU-IFRS measures, together with the EU-IFRS 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 may contain information about financial prospects, economic conditions and trends and involve risks and uncertainties. In addition, any statements that refer to sustainability, environmental and social targets, commitments, goals, efforts and expectations and other events or circumstances that are partially dependent on future events are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Aegon undertakes no obligation, and expressly disclaims any duty, 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 and adversely 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:
Unexpected delays, difficulties, and expenses in executing against our environmental, climate, diversity and inclusion or other “ESG” targets, goals and commitments, and changes in laws or regulations affecting us, such as changes in data privacy, environmental, safety and health laws;
Changes in general economic and/or governmental conditions, particularly in the United States, the Netherlands and the United Kingdom;
Civil unrest, (geo-) political tensions, military action or other instability in a country or geographic region;
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;
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.