Americas
Report of the Executive board
“We retain a very strong focus on cost control, risk management and profitability. That – along with ensuring a wide range of both products and distribution channels – has been one of the secrets of our success in the past few years.”
Operating earnings before tax
AEGON Americas reported operating earnings before tax of USD 2,876 million in 2007, an increase of 5% compared with the previous year, as a result of continued growth from most lines of business. Higher returns from hedge funds, as well as limited partnerships and convertible bond assets, also contributed significantly to the overall growth in earnings. There was, however, a decline in earnings from segregated funds in Canada and a significant decrease in the value of certain structured products.
Life and protection
Operating earnings before tax from AEGON Americas’ life and protection business rose 15% in 2007 to USD 1,326 million. This increase was due mainly to the continued growth of existing in-force business, an update of mortality assumptions and reserve adjustments in Canada. Assets held at fair value through profit or loss (hedge funds and limited partnerships) again exceeded long-term performance expectations, contributing USD 51 million, unchanged from 2006.
|
Income by product segment |
2007 |
2006 |
% |
2007 |
2006 |
% |
|
In USD million |
|
to |
In EUR million |
|
to |
|
|
Life and protection |
||||||
|
Life |
883 |
741 |
19 |
645 |
589 |
10 |
|
Accident and health |
443 |
417 |
6 |
324 |
331 |
(2) |
|
Individual savings and retirement |
||||||
|
Fixed annuities |
486 |
477 |
2 |
355 |
380 |
(7) |
|
Variable annuities |
205 |
266 |
(23) |
150 |
213 |
(30) |
|
Retail mutual funds |
22 |
5 |
16 |
4 |
||
|
Pensions and asset management |
188 |
139 |
35 |
138 |
111 |
24 |
|
Institutional products |
||||||
|
Institutional guaranteed products |
379 |
408 |
(7) |
277 |
325 |
(15) |
|
BOLI/COLI |
85 |
74 |
15 |
62 |
58 |
7 |
|
Reinsurance |
185 |
205 |
(10) |
135 |
163 |
(17) |
|
Operating earnings before tax |
2,876 |
2,732 |
5 |
2,102 |
2,174 |
(3) |
|
Gains/(losses) on investments |
376 |
(28) |
275 |
(22) |
||
|
Impairment charges |
(65) |
(15) |
(48) |
(12) |
||
|
Income before tax |
3,187 |
2,689 |
19 |
2,329 |
2,140 |
9 |
|
Income tax |
(1,003) |
(738) |
36 |
(733) |
(587) |
25 |
|
Minority interest |
0 |
0 |
0 |
0 |
||
|
Net income |
2,184 |
1,951 |
12 |
1,596 |
1,553 |
3 |
|
Net operating earnings |
2,098 |
1,978 |
6 |
1,533 |
1,574 |
(3) |
|
revenue generating investments |
326,216 |
287,099 |
14 |
221,599 |
217,995 |
2 |
Individual savings and retirement
Operating earnings before tax from AEGON Americas’ individual savings and retirement business declined by 5% in 2007 to USD 713 million mainly due to fluctuations in fair value items during the year. Underlying earnings, which exclude the effect of fair value items, increased 7% in 2007 to USD 674 million. Earnings from variable annuities fell by USD 61 million as a result of lower returns from segregated funds in Canada.
Pensions and asset management
AEGON Americas’ pensions and asset management business reported operating earnings before tax of USD 188 million in 2007, an increase of 35%, due mainly to positive net cash flows and favorable equity markets during the year.
Institutional products
Operating earnings before tax from institutional products decreased by 4% in 2007 to USD 464 million. During the year, the decrease in the value of certain structured products more than offset the solid underlying growth of the business and the inclusion for the first time of Clark Inc., a distributor of bank-owned and corporate-owned life insurance. Overall earnings in both 2007 and 2006 reflect the strong outperformance of AEGON hedge funds and other fair value investments.
Reinsurance
Operating earnings before tax from AEGON Americas’ reinsurance business fell by 10% in 2007 to USD 185 million. This decrease was primarily the result of a decision to strengthen reserves on a closed book of variable annuity guarantees by USD 25 million, combined with less favorable mortality results.
Long term return expectations for fair value assets in operating earnings
AEGON Americas holds certain fair value assets, which can have a notable impact on operating earnings. These assets, valued at approximately USD 4.5 billion, include certain hedge funds, real estate limited partnerships and convertible bonds. The valuation of these assets contributed USD 571 million to AEGON Americas’ operating earnings before tax in 2007, an increase from USD 524 million in 2006. The expected return before tax totaled USD 364 million, up from USD 260 million. The impact of these assets is particularly significant for the life, fixed annuity and institutional guaranteed products lines of business.
Net operating earnings
AEGON Americas’ net operating earnings totaled USD 2,098 million in 2007, an increase of 6% compared with the previous year. The effective tax rate on operating earnings declined from 28% in 2006 to 27% in 2007.
Net income
Net income, which includes both impairment charges and net gains or losses on investments, rose 12% in 2007 to USD 2,184 million. Net gains on investments amounted to USD 376 million, compared with losses in 2006 of USD 28 million.
Net impairment charges, which totaled USD 66 million in 2007, continue to run well below long-term expectations, but were less favorable than the USD 15 million reported for 2006. The effective tax rate on net income rose to 31% in 2007, up from 27% the previous year.
Revenues
AEGON Americas reported revenues in 2007 of USD 22.4 billion, an increase of 9% compared with 2006. Life insurance gross premiums rose 12% to USD 10.9 billion. Recurring premiums were up 5%, due mainly to growth in the reinsurance business. Single premiums, meanwhile, grew by 30% compared with 2006, as a result of higher terminal funding sales. At USD 2.5 billion, accident and health premiums were stable compared with 2006. Investment income rose 4%, thanks to an increase in short-term rates and changes in AEGON Americas’ asset mix, while fees and commissions were 18% higher, due principally to the inclusion for the first time of Clark Inc.
Commissions and expenses
AEGON Americas’ commissions and expenses decreased by 1% in 2007 to USD 4,569 million. Operating expenses were 9% higher at USD 2,124 million – a result of extra costs associated with the acquisition of Clark Inc. and the restructuring of AEGON Americas’ Kansas City-based life insurance operations.
|
Revenues |
2007 |
2006 |
% |
2007 |
2006 |
% |
|
In USD million |
In EUR million |
|||||
|
Total life insurance gross premiums |
10,885 |
9,687 |
12 |
7,955 |
7,709 |
3 |
|
Accident and health insurance |
2,529 |
2,490 |
2 |
1,848 |
1,981 |
(7) |
|
Total gross premiums |
13,414 |
12,177 |
10 |
9,803 |
9,690 |
1 |
|
Investment income |
7,486 |
7,185 |
4 |
5,471 |
5,718 |
(4) |
|
Fee and commission income |
1,445 |
1,220 |
18 |
1,056 |
971 |
9 |
|
Other revenues |
13 |
10 |
||||
|
Total revenues |
22,358 |
20,582 |
9 |
16,340 |
16,379 |
(0) |
|
Commissions and expenses |
4,569 |
4,614 |
(1) |
3,339 |
3,672 |
(9) |
|
Of which operating expenses |
2,124 |
1,956 |
9 |
1,552 |
1,557 |
(0) |
|
New life sales |
||||||
|
Life |
742 |
733 |
1 |
542 |
583 |
(7) |
|
BOLI/COLI |
207 |
201 |
3 |
151 |
160 |
(6) |
|
Reinsurance |
327 |
315 |
4 |
329 |
251 |
31 |
|
Total life production |
1,276 |
1,249 |
2 |
932 |
994 |
(6) |
|
New premium production accident and health |
898 |
954 |
(6) |
656 |
759 |
(14) |
|
Gross deposits (on and off balance sheet) |
||||||
|
Fixed annuities |
1,567 |
1,366 |
15 |
1,145 |
1,087 |
5 |
|
Variable annuities |
3,723 |
3,395 |
10 |
2,721 |
2,702 |
1 |
|
Pensions |
11,862 |
9,299 |
28 |
8,669 |
7,400 |
17 |
|
Institutional guaranteed products |
32,097 |
25,128 |
28 |
23,458 |
19,997 |
17 |
|
Reinsurance |
3 |
4 |
(25) |
2 |
3 |
(33) |
|
Retail mutual funds |
2,865 |
2,776 |
3 |
2,094 |
2,209 |
(5) |
|
Managed assets |
1,813 |
1,642 |
10 |
1,325 |
1,307 |
1 |
|
Total gross deposits |
53,930 |
43,510 |
24 |
39,414 |
34,705 |
14 |
|
Exchange rate Per 1 EUR |
Weighted average |
Year-end |
||
|
2007 |
2006 |
2007 |
2006 |
|
|
USD |
1.3683 |
1.2566 |
1.4721 |
1.3170 |
|
CAD |
1.4681 |
1.4236 |
1.4449 |
1.5281 |
Production
New life sales increased 1% in 2007 to USD 742 million. Production in 2006 included USD 50 million from an unassumed block of retail credit life insurance and USD 56 million in sales of investor-owned life insurance, discontinued in the third quarter. Excluding these items, retail life sales improved 18% in 2007.
Sales of accident and health cover fell USD 56 million in 2007, largely because of lower international sales from AEGON Americas’ direct marketing business.
Fixed annuity sales, meanwhile, were 15% higher at USD 1,567 million, as a result of a steepening in the yield curve that helped make annuity credit rates more attractive towards the end of the year. Variable annuity sales also rose, up 10% at USD 3,723 million thanks to an increase towards the end of the year in overall wholesale capacity and the launch of a new product ‘Income Select for Life’.
Pension deposits totaled USD 11,862 million in 2007, 28% higher than the previous year. The increase was due primarily to higher single premium group annuities production, growth in terminal funding sales and the inclusion of significant takeover amounts received in 2007 against sales made in 2006. Managed assets were 10% higher in 2007 at USD 1,813 million.
Sales of institutional guaranteed spread-based products totaled USD 13,892 million in 2007, an increase of 11% compared with the previous year. This increase was the result mainly of higher medium-term note sales. Production of synthetic GICs and other off-balance sheet items grew 44%, due to the inclusion of synthetic CDOs. BOLI-COLI standardized production was 3% higher in 2007 at USD 207 million. Reinsurance standardized life production was 4% higher in 2007 at USD 327 million.
Background AEGON AMERICAS
AEGON Americas comprises AEGON USA, AEGON Canada, AEGON Direct Marketing Services and Transamerica Reinsurance, as well as the Group’s joint venture in Mexico.
AEGON USA is one of the leading life insurance organizations in the United States. It has more than twenty million customers and employs over 14,000 people. AEGON USA companies can trace their roots back as far as the mid-nineteenth century. AEGON USA includes some of the best known names in the US insurance business, including Transamerica and Monumental Life. AEGON USA’s main offices are in Cedar Rapids, Iowa, and Baltimore, Maryland, but with many associate companies’ offices located throughout the United States.
Based in Toronto, AEGON Canada offers a range of insurance products and financial services, primarily through its Transamerica Life Canada subsidiary, first established in 1927.
In 2006, AEGON acquired a 49% interest in Seguros Argos, one of Mexico’s leading life insurance companies. As part of their joint venture, AEGON and Seguros Argos have set up a jointly-owned pension fund management company, Afore Argos.
Organizational structure
AEGON’s operating companies in the United States are grouped together under a single financial services holding company, AEGON US Holding. Business is conducted through subsidiaries of two companies: AEGON USA Inc. and Commonwealth General. AEGON has operating licenses in every US state, the District of Columbia, Puerto Rico, the Virgin Islands and Guam.
AEGON USA’s primary insurance subsidiaries include:
- Transamerica Life Insurance Company, Transamerica Occidental Life Insurance Company and Transamerica Financial Life Insurance Company
- Life Investors Insurance Company of America
- Monumental Life Insurance Company
- Stonebridge Life Insurance Company and Stonebridge Casualty Insurance Company
- Western Reserve Life Assurance Co. of Ohio
AEGON USA companies are present in five lines of business:
- Life and protection
- Individual savings and retirement
- Pensions and asset management
- Institutional
- Reinsurance
AEGON Canada’s main operating subsidiary is Transamerica Life Canada.
Sales and distribution
Like other AEGON companies around the world, AEGON USA uses a variety of distribution channels to ensure customers can access the Group’s products in a way that best suits them. AEGON USA’s main distribution channels include:
- Independent and career agents, financial planners and other registered representatives;
- Independent marketing organizations, banks, broker-dealers, consultants, wirehouses, affinity groups and other institutional partners.
AEGON USA also provides a range of products and services online and uses direct and worksite marketing. In addition, AEGON Canada also uses agencies owned by Transamerica Life Canada and operates through the World Financial Group, part of AEGON Americas.
Business overview United States
Life and protection
AEGON USA provides permanent life (or whole life), universal life, term life and variable universal life insurance and protection products. A number of the company’s subsidiaries also offer life insurance products tailored to specific segments of the US market. In 2007, life and protection accounted for more than 46% of AEGON America’s overall operating earnings before tax, making it the unit’s most important single line of business.
Individual savings and retirement
AEGON USA offers a wide range of savings and retirement products, including mutual funds, investment advice as well as fixed and variable annuities. In 2007, this business accounted for 25% of AEGON’s total operating earnings before tax.
Pensions and asset management
AEGON USA offers a variety of individual and group pensions, as well as retirement planning, investment, administration and technical services. Pension and pension-related products are generally offered through four subsidiaries: Diversified Investment Advisors, Transamerica Retirement Services, Transamerica Retirement Management and Transamerica Investment Management.
Institutional PRODUCTS
AEGON USA has a strong position in the US market for institutional products, providing a range of specialized financial products for banks as well as pension and investment funds. These products include traditional fixed rate guarantee investment contracts, or GICs, funding agreements and medium-term notes, as well as other management, administration and risk services. AEGON USA also provides structured products and bank-owned and corporate-owned life insurance.
Reinsurance
AEGON USA’s Transamerica Reinsurance unit has been providing reinsurance to the life insurance and financial services industry for the past thirty years. In the United States, Transamerica Reinsurance provides traditional reinsurance solutions for term, universal, variable universal and whole life mortality and morbidity risks. Transamerica Reinsurance also provides products and services to clients in Europe, the Asia-Pacific and Latin America.
Business overview Canada
Life and protection
Transamerica Life Canada, AEGON Canada’s principal operating unit, offers a variety of universal and traditional life insurance products, predominantly term and permanent life insurance, as well as accidental death and out-of-the-country medical cover, serving both individual and corporate customers.
Individual savings and retirement
AEGON Canada offers a range of segregated funds, mutual funds, guaranteed investment accounts, single premium annuities and leverage-lending programs. Some of these are offered through strategic alliances either with banks and trusts or with investment management companies.