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Other countries Report of the executive board
“In Central and Eastern Europe, we now have businesses in five countries – Hungary, Poland, Slovakia, the Czech Republic and, most recently, Romania. In Asia, our operations in China are growing strongly and in 2008 we will launch new businesses in both Japan and India. Last year saw further strong growth from these emerging economies. Revenues, operating earnings before tax and value of new business all showed very solid gains. By 2010, we expect these new markets will contribute more than a third of AEGON’s new business.” OPERATING EARNINGS BEFORE TAX Operating earnings before tax from Other countries totaled EUR 142 million in 2007, an increase of EUR 81 million compared with 2006, primarily due to higher operating earnings from AEGON’s businesses in Central and Eastern Europe. Earnings from all regions, Central and Eastern Europe, Spain, Asia and AEGON’s 35% stake in French insurer La Mondiale Participations contributed to the increase. Life and protection Total operating earnings from life and protection amounted to EUR 53 million in 2007, up from EUR 24 million the previous year. This increase was mainly the result of higher earnings from both Central and Eastern Europe and Taiwan. In Taiwan, the improvement in operating earnings reflects strong investment performance and higher sales volumes.
Pensions and asset management AEGON Other countries’ operating earnings from pensions and asset management increased significantly in 2007, primarily as a result of the expenses related to the expansion of the Group’s pension business in Slovakia in 2006. Results in Poland also improved but were offset by start-up expenses of EUR 6 million related to AEGON’s new mandatory pension fund in Romania and the launch of new voluntary pension funds in the Czech Republic and Slovakia. General insurance AEGON Hungary, the only unit within Other countries to sell general insurance, reported favorable technical results in both household and motor insurance in 2007. Earnings in 2006 included a strengthening in claim reserves. Combined, these two factors resulted in an increase in operating earnings of EUR 10 million for the general insurance business in 2007. Associates AEGON’s share in the profit of associate companies increased by EUR 8 million (after tax) in 2007, split equally between the Group’s partnership with Spanish regional savings bank Caja de Ahorros del Mediterráneo (in which AEGON holds a 49.99% interest) and its 35% stake in La Mondiale Participations in France. Net operating earnings Net operating earnings from Other countries totaled EUR 60 million in 2007, a sharp increase from EUR 20 million the year before. Earnings for both 2006 and 2007 were impacted by a reduction in deferred tax assets in Taiwan. Net income Net income amounted to EUR 73 million, compared with EUR 36 million in 2006, due mainly to the increase in net operating earnings. The effective tax rate was 53% in 2007 down from 56% in 2006. Revenues Total revenues rose 25% to EUR 2.8 billion - a reflection of the growth in single premium sales and higher income from fees and commissions in Poland, as well as higher single premiums at Caja Navarra in Spain and higher premium and investment income in Taiwan. Commissions and expenses Commissions and expenses increased 9% to EUR 372 million. This increase was driven largely by growth in the underlying business, resulting in higher commissions and expenses. Production Life and protection New life sales in Other countries totaled EUR 353 million in 2007, an increase of 37% compared with the previous year. In Asia, new life sales in Taiwan rose 34% in 2007 to EUR 157 million, driven by strong sales of unit-linked products, which accounted for 58% of total new life sales. New life sales in China increased by EUR 5 million, driven mainly by unit-linked single premium sales through the bank channel. In Central and Eastern Europe, new life sales totaled EUR 126 million in 2007, a 54% increase from 2006. Sales of single premium life insurance increased by EUR 248 to EUR 687 million in 2007 compared with the previous year, thanks mainly to higher sales from bank partnerships in Poland, supported by strong equity markets. Recurring premium sales increased 51% to EUR 58 million, a result of various successful distribution initiatives in the broker channel and the tied agent network across the region, particularly in Poland. In 2007, new life sales in Spain increased to EUR 59 million, up from EUR 52 million in 2006, a year which included a large single premium group policy which was more than offset in 2007 by exceptionally high single premium bancassurance sales through AEGON’s joint venture with Caja Navarra. The partnership with Caja de Ahorros del Mediterráneo (CAM) saw a decrease of 31% in new life sales to EUR 116 million (on a 100% basis), while premium income from the partnership with CAM amounted to EUR 404 million (on a 100% basis) in 2007. The partnership with CAM is not consolidated in AEGON’s accounts. AEGON includes its share in the earnings from CAM in the line ‘share in net results of associates’. Pensions and asset management Pensions and asset management sales in Other countries amounted to EUR 579 million in 2007, up from EUR 361 million the previous year. This increase reflected the launch of a new variable annuity product in Taiwan, strong mutual fund sales in Hungary and the inclusion of the newly acquired Polish pension fund management company PTE AEGON Poland. By the end of 2007, the total number of pension fund participants in Central and Eastern Europe had increased to 1.3 million. General insurance General insurance new premium production increased by EUR 9 million to EUR 32 million in 2007, mainly the result of successful sales campaigns for motor and household insurance in Hungary.
Background AEGON OTHER COUNTRIES In the past few years, AEGON has significantly expanded its international presence outside its three main established markets of the United States, the Netherlands and the United Kingdom. AEGON is now present in more than twenty markets in total in the Americas, Europe, and in Asia. In particular, AEGON has seen strong growth in its businesses in Central and Eastern Europe, as well as in other new, emerging markets such as China and Taiwan. AEGON employs more than 3,800 people in its businesses in Central and Eastern Europe, Spain and Asia. Central and Eastern Europe AEGON first entered the Central and Eastern European market in 1992 when the Group bought a majority stake in Hungary’s former state-owned insurance company, Állami Biztosító. Hungary remains AEGON’s leading business in the region and a springboard for further expansion. Today, AEGON has operations in five Central and Eastern European countries: Hungary, Poland, the Czech Republic, Slovakia and Romania. Asia AEGON opened its first business in Asia in 1993 in Taiwan. Since then, the Group has expanded its operations in the region. AEGON has presence either directly or with joint venture partners in China, India, Japan and Taiwan. Western Europe (Spain and France) In addition to the United Kingdom and the Netherlands, AEGON has a presence in two other western European countries: Spain and France. In recent years, AEGON’s activities in Spain have grown rapidly, thanks in large part to distribution partnerships with four of the country’s leading savings banks. At the end of 2002, AEGON also agreed a partnership with mutual insurer La Mondiale, one of France’s leading insurance and pension companies. AEGON has a 35% interest in La Mondiale’s subsidiairy company La Mondiale Participations. Organizational structure AEGON’s international businesses operate through a number of subsidiaries and joint venture partnerships. These international businesses are referred to collectively as Other countries. AEGON’s main subsidiaries and affiliates are: Central and Eastern Europe
Asia
Western Europe
Sales and distribution: Central and Eastern Europe AEGON’s activities in Central and Eastern Europe operate through a number of different sales channels. These include tied agents, insurance brokers and, particularly in Poland and Romania, retail banks. Through tied agents, brokers and call centers, AEGON sells primarily life and non-life insurance and pensions. Banks and loan centers are used to sell mainly life insurance, mortgages, pensions and household insurance. Business overview: Central and Eastern Europe Life and protection AEGON companies in Central and Eastern Europe offer a range of life insurance and personal protection products. This range includes traditional life as well as unit-linked products. In recent years, sales of unit-linked products in the region have shown a considerably higher rate of growth than traditional general account products. Unit-linked products cover all types of life insurance, including pension, endowment and savings, while traditional life also includes group life and preferred life. From 2006, AEGON Hungary has been offering mortgages to retail customers. Home loans are Swiss franc denominated and provided by AEGON Mortgage Finance Company. AEGON is targeting a share of between 5% and 10% of the Hungarian mortgage market in terms of new sales. Individual savings and retirement AEGON companies in Central and Eastern Europe offer a variety of individual savings and retirement products. AEGON Hungary Investment Fund Management Company offers a range of mutual funds to retail investors. Besides this, AEGON Life Insurance Company offers unit-linked investment products in the Czech Republic. Pensions and asset management AEGON’s pension business in Central and Eastern Europe has experienced considerable growth in recent years. This is due mainly to the region’s strong economic growth and widespread reform of the pension system in many countries. In four of the five countries in which AEGON has businesses, AEGON has introduced mandatory pension plans: in Hungary, Slovakia, Poland and Romania. Additionally in three countries, AEGON has launched voluntary pension plans: in Hungary, Slovakia and the Czech Republic. In addition, AEGON provides a range of asset management services through AEGON Hungary Investment Fund Management Company. General insurance In addition to life insurance and pensions, AEGON Hungary also offers non-life cover. Generally, these are products and services inherited from Állami Biztosító, the former state-owned insurance company acquired by AEGON in 1992. In recent years, margins on household insurance in Hungary have been attractive. Moreover, household insurance provides considerable opportunities for cross-selling life insurance. Property and car insurance are also included in AEGON Hungary’s portfolio but neither are considered core businesses. Sales and distribution: Asia As elsewhere around the world, AEGON operates through a number of different sales channels in Asia. In Taiwan, AEGON has a network of more than 800 professional agents. In addition, AEGON Taiwan works through independent brokers and banks, and uses worksite and direct marketing to ensure customers are able to receive the financial products they want in a way that suits them best. Each of these channels provides products tailored to customers’ requirements and the market segments they serve. Similarly, in China, AEGON works through agents, independent brokers, banks and direct marketing to sell its products. Agents and brokers in China distribute mainly life insurance. With the boom in China’s stock market, variable life products have been the most important product for AEGON’s bank partners. Personal accident products are the main products sold through the direct marketing channel. Banks are becoming increasingly important in Asia as a means for distributing pensions, life insurance and other long-term savings and investment products. For this reason, AEGON has been striving in recent years to extend its bank distribution agreements in the region. AEGON’s bancassurance network in China now totals 800 outlets. AEGON has partnerships in place, for example, with many of China’s national banks, including:
Business Overview: Asia Life and protection AEGON provides a broad range of life insurance products through its businesses in both Taiwan and China. These include unit-linked and traditional life products, as well as endowment, term, health, group life, accident and annuities. Unit-linked products are now AEGON Taiwan’s top-selling product line after efforts were made in 2005 to improve the products and better adapt them to the needs of customers. These unit-linked products offer a wide variety of investment options. In China, AEGON-CNOOC launched its first variable life product in April 2007 to add to its range of universal and participating life products. Sales and distribution: Western Europe (Spain and France) AEGON Spain focuses primarily on retail customers. It offers both life insurance and accident and health cover. In particular, AEGON Spain offers pensions as well as both traditional life and unit-linked variable life products, a market traditionally dominated by the country’s retail banks. In France, AEGON works together with La Mondiale in a number of areas including pensions, asset management and distribution. Spain In Spain, some 70% of life insurance policies are sold through the country’s retail banks. For this reason, Spain in recent years has been an important part of AEGON’s efforts to expand its web of bank distribution partnerships. AEGON now has partnerships in place with four of Spain’s regional savings banks, giving access to nearly 1,800 branches across the country:
AEGON remains committed to further expanding its distribution network in Spain. The Group’s current partnerships distribute a combination of life insurance and pension products. AEGON also uses specialized agents and brokers to distribute its products, particularly individual life insurance, throughout urban and rural areas. France As part of AEGON’s partnership with La Mondiale the Group initially took a 20% stake in La Mondiale’s subsidiairy, La Mondiale Participations, increasing it later to 35%. In 2005, the AEGON Pension Network was launched in collaboration with La Mondiale, renamed AEGON Global Pensions at the beginning of 2008. AEGON’s partnership with La Mondiale gives the Group a foothold in Europe’s second largest insurance market. As in Spain, most life insurance in France – more than 60% – is sold via retail banks or La Poste, France’s national post office. In July 2007, La Mondiale and fellow insurer AG2R announced a merger. The merger – which won’t affect AEGON& rsquo;s partnership with La Mondiale – will create the country’s eighth largest life insurer, serving some 5.6 million customers. The new group was due to become operational at the start of 2008. |
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