Aegon CEO Upbeat Despite Fourth-Quarter, Full-Year 2013 Declines in Net Income
February 21, 2014 by Fran Matso Lysiak
The HAGUE, Netherlands – Aegon N.V.’s fourth-quarter and full-year 2013 net income declined sharply but its chief executive officer says “solid results this quarter completed a good year for Aegon and provide clear evidence that we are delivering on our objective of growing our business profitability.”
Aegon N.V.’s fourth-quarter net income declined 60% to 174 million euros (US$238.8 million) on higher losses from fair value items. The fair value items amounted to a loss of 260 million euros, driven by macro hedges in the Americas and the guarantee portfolio in the Netherlands. Also, restructuring charges amounted to 34 million euros, mainly driven by the Americas and the United Kingdom.
Full-year net income dropped 46% to 849 million euros. But underlying earnings before tax for 2013 rose 5% to 1.9 billion euros, driven in part by business growth and higher equity markets in the fourth quarter.
In a statement, Alex Wynaendts, chief executive officer, also noted that Aegon achieved strong underlying earnings, sales and value of new business. “Net income was impacted by fair value losses, mostly related to hedges to protect our capital position,” he said. “Capital levels and cash flows remain strong, enabling us to continue to grow our business and enhance our ability to better serve our customers.”
Aegon’s life/health companies in the United States are referred to as Aegon USA Group, and include several Transamerica companies.
The loss on fair value hedges without an accounting match under IFRS was 123 million euros driven by a loss on its equity hedges in the Americas on the strong stock market performance in the fourth quarter. Fair value hedging with an accounting match, which include hedging its variable annuities with guaranteed minimum withdrawal benefits, and on guarantees provided in the Netherlands, contributed to a loss of 148 million euros, due in part, to the tightening of its own credit spread on valuation of liabilities.
“Notable actions this quarter included a second longevity transaction in the Netherlands to reduce risk, further enhancing our leadership in the Dutch pension market,” Wynaendts also said. “We also received further recognition for exceptional products and levels of service in our other key markets in the United States and the United Kingdom.”
On Jan. 22, Aegon said it announced changes to its accounting policies related to deferred policy acquisition costs and longevity reserves, which took effect on Jan. 1, 2014, and aim to improve the consistency, comparability and transparency of its financial results. The retrospective adoption of these accounting changes is expected to increase underlying earnings before tax by about 80 million euros in 2014. Aegon will publish its restated accounts in mid-April 2014.
However, to lessen the adverse effect of the changes on Aegon’s gross financial leverage ratio, the company has called for the redemption of US$550 million perpetual capital securities, effective March 15.
