Business context and reporting period
Aegon N.V. filed its annual Form 20-F for the fiscal year ended December 31, 2019, prepared under IFRS as issued by the IASB. Although the request refers to 2019 Q4, this filing reports full-year results; the supplied text does not provide a clear standalone fourth-quarter financial summary. Aegon is a Netherlands-based global insurer, pensions and savings provider, and asset manager serving 29.9 million customers in more than 20 countries.
Financial performance and position
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Total revenue | EUR 28.197 billion | EUR 28.914 billion | Down 2.5% |
| Premium income | EUR 18.138 billion | EUR 19.316 billion | Down 6.1% |
| Underlying earnings before tax | EUR 1.973 billion | EUR 2.074 billion | Down 4.9%; management measure, not an IFRS line item |
| Net income | EUR 1.239 billion | EUR 711 million | Up 74.3% |
| Return on equity | 9.5% | 10.2% | Below the annual target of more than 10% |
| Gross deposits | EUR 144.660 billion | EUR 121.700 billion | Up 18.9% |
| Net deposits | EUR (25.130) billion | EUR (4.656) billion | Outflows widened substantially |
| New life sales | EUR 861 million | EUR 820 million | Up 5.0% |
| Operating cash flow | EUR 7.302 billion | EUR 517 million | Cash-flow movements include large insurance and investment liability changes |
| Cash and cash equivalents | EUR 12.263 billion | EUR 8.744 billion | At year-end |
| Borrowings, including subordinated debt and trust securities | EUR 11.650 billion | EUR 13.583 billion | Lower year over year |
| Shareholders’ equity | EUR 21.850 billion | EUR 19.200 billion | Higher, reflecting retained earnings and market-related revaluation changes |
Net income improved largely because 2018 included heavier restructuring, divestment and U.S. litigation charges, while 2019 included realized investment gains. In 2019, realized gains on investments were EUR 405 million and fair-value items were a loss of EUR 601 million. Other charges fell to EUR 281 million from EUR 875 million. Aegon reported total assets of EUR 440.348 billion, compared with EUR 392.633 billion in 2018.
Capital and liquidity
The estimated Group Solvency II ratio was 201% at year-end, down from 211% in 2018 and just above the stated 150%-200% target range. Own funds were EUR 18.470 billion and the Solvency Capital Requirement was EUR 9.173 billion. Holding excess cash was EUR 1.2 billion, within the EUR 1.0-1.5 billion target. The gross financial leverage ratio improved to 28.5% from 29.2%, within the 26%-30% target; fixed-charge coverage was 7.7x versus 8.2x. Aegon reported EUR 31.066 billion of readily saleable or redeemable general-account cash, money-market investments and government bonds, and EUR 3.403 billion of undrawn committed facilities.
Material changes versus the prior year
- Underlying earnings declined despite higher earnings in the Netherlands, UK and Asia; lower U.S. earnings, low interest rates, growth investment and higher holding interest expense weighed on results.
- U.S. retirement-plan outflows drove much of the increase in net outflows. Americas net outflows were EUR 29.371 billion, compared with EUR 14.734 billion in 2018; UK outflows were EUR 3.487 billion versus inflows of EUR 1.225 billion.
- Asset-management gross external flows rose 36% to EUR 80.939 billion, supported by the Chinese joint venture, while net third-party inflows eased 9% to EUR 6.841 billion.
- The Netherlands reported a EUR 741 million fair-value loss, including a liability adequacy test shortfall. Europe’s net income fell to EUR 197 million from EUR 743 million despite higher underlying earnings.
- Normalized capital generation after holding expenses increased 12% to EUR 1.567 billion. The Solvency II ratio nevertheless fell, as higher required capital and adverse market, model and assumption changes offset capital generation.
Outlook, management commentary, risks and unusual items
Aegon’s 2019-2021 targets included cumulative normalized capital generation after holding expenses of EUR 4.1 billion and a dividend payout ratio of 45%-55%. The 2019 payout ratio was 41%, below target, despite a two-cent increase in dividend per share. Management proposed a final 2019 dividend of EUR 0.16 per common share, taking the total to EUR 0.31, subject to shareholder approval and no further significant deterioration in market conditions.
Management cited persistent low interest rates as a headwind, particularly in the U.S. and Europe, and reported continued transformation and portfolio realignment. In 2020 Aegon planned to combine its Asian and Southern and Eastern European activities in Aegon International and to report Aegon Netherlands and Aegon UK separately. The company also announced CEO succession, with Lard Friese proposed to succeed Alex Wynaendts at the May 2020 AGM.
COVID-19 is a significant subsequent event discussed in the filing. As of the March 18, 2020 report date, Aegon said the effects on markets, underwriting, sales and financial performance could not yet be quantified. It highlighted sharp declines in interest rates and equity markets and widening credit spreads, and activated business continuity plans.
Other items for attention include the Netherlands LAT net deficit of EUR 1.7 billion after EUR 3.4 billion of shadow loss recognition; a potentially material Netherlands unit-linked claims exposure that the company said could not be reliably quantified; and ongoing U.S. litigation relating to monthly deduction rate increases on universal-life policies, including opt-out cases following the approved class settlement. Aegon also disclosed proceedings concerning Dutch unit-linked products and Polish unit-linked policy fees. It reported no material reinsurance recoverability problems, but disclosed that Scottish Re entered receivership and that a Pennsylvania regulator sought rehabilitation of SHIP; Aegon stated its relevant balances were below EUR 100 million for Scottish Re and that trust assets for SHIP were sufficient to cover its balance-sheet exposure.
In 2019 Aegon issued EUR 500 million of perpetual contingent convertible securities and USD 925 million of Tier 2 subordinated notes, while redeeming USD 1.5 billion of older perpetual securities. A voluntary accounting-policy change for the Netherlands LAT increased 2019 net income and equity by EUR 19 million. IFRS and IFRS-EU figures differ, including for portfolio hedge accounting; Aegon’s cited ROE uses IFRS-EU shareholders’ equity.
Most important facts for investors to verify
- Confirm the standalone Q4 results from the relevant quarterly release; this 20-F’s figures are annual and should not be treated as Q4-only results.
- Reconcile the EUR 1.973 billion underlying earnings measure to IFRS income before tax, and assess the contribution of realized gains, fair-value movements and other charges to reported net income.
- Track U.S. retirement-plan and UK platform flows, withdrawals and contract discontinuances, and whether new sales and deposits can reverse net outflows.
- Review the Netherlands LAT deficit, sensitivity to interest rates and spreads, and any developments in unit-linked product liabilities or litigation.
- Assess capital adequacy and dividend capacity against the Solvency II target, operating-unit restrictions, the proposed final dividend and the still-unquantified COVID-19 impact.