Aegon reports first quarter 2021 results

THE HAGUE, Netherlands--(BUSINESS WIRE)--Strong progress on expense savings program and plans to improve risk profile

• Net result of EUR 386 million in the first quarter of 2021 reflects increased operating result and benign credit environment
• Operating result increases by 20% to EUR 431 million, mainly driven by expense savings and higher equity markets, partly offset by adverse claims experience in the United States mostly due to COVID-19
• Cash Capital at Holding amounts to EUR 1.2 billion, in the upper half of Aegon’s target range; capital ratios of all three main units are around or above their respective operating levels
• Free cash flow of EUR 75 million in the first quarter of 2021 compared with EUR 61 million in the first quarter of 2020
• Significantly reduced interest rate risk in the United States. On track to expand dynamic hedge to the US legacy variable annuity block in the second half of 2021

Statement of Lard Friese, CEO

“We have made early progress toward delivering on our strategic priorities, and I am encouraged to see this reflected in our first quarter results. Despite the pandemic, our employees remain committed to support our customers and business partners. I continue to be deeply impressed by the energy that they bring to transform Aegon into a more focused, high-performance company.

The first quarter of 2021 saw an increase in the operating result driven by improvements in the United States, the Netherlands and Asset Management. So far, we have reduced the addressable expense base across the Group by EUR 136 million and are on track to deliver half of our 2023 target of EUR 400 million expense savings by the end of 2021. Our balance sheet remains strong, with the capital ratios of all three main units and the Holding around or above their operating levels.

We have made solid progress on our plans to transform Aegon. During the first quarter, we further increased our strategic focus by divesting the Transamerica Ventures fund and closing the sale of Stonebridge.

In our Strategic Assets, we continue to invest in new products, product distribution and customer service. In the first quarter, we gained momentum from improved sales performance in each of our core markets. A prime example is in the US Individual Solutions business, where we grew the number of licensed agents in our main distribution channel by 18%, and saw increases in our market share there as a consequence of new product introductions.

We have also taken concrete actions to improve our risk profile, already executing on more than half of our plan to reduce interest rate risk in the United States. Furthermore, we took advantage of higher interest rates to implement a new interest rate hedge as an important step towards expanding the dynamic hedge to our legacy variable annuity block in the United States.

We have made steady progress managing our Financial Assets during the first quarter. In our US business, we reduced the sensitivity of our Variable Annuities business to interest rates, and so far have achieved one third of the targeted Long Term Care rate increases.

While ongoing global uncertainty remains, we've also begun to see the successful rollout of vaccination programs in most of the markets in which we operate, giving renewed hope to many, as we continue on the path out of the pandemic. Our hearts especially go out to our colleagues, customers, business partners and the broader communities in India and Brazil that are struggling with the devastating challenges of COVID-19. Looking to the future, I am confident in the strength of our business, our strategy, and the unwavering commitment of our employees to continue delivering on our plans.”

Note: All comparisons in this release are against 1Q 2020, unless stated otherwise. See page 7 of this press release for a full financial overview.

Strategic highlights

Aegon N.V.				unaudited
Strategic highlights - Focus. Execute. Deliver.
Key performance indicators
	Q1	Q1			Q4
	2021	2020	%		2020	%
Addressable expenses ¹	2,852	3,066	(7)		2,911	(2)
Change compared to FY 2019	(203)	10	n.m.		(144)	(41)
Strategic Assets
Americas Individual Solutions - Life, US
New business strain (USD million)	73	75	(2)		87	(16)
New life sales (USD million)	83	66	27		83	-
MCVNB (USD million)	68	37	83		60	13
Americas Workplace Solutions - Retirement Plans Middle-Market
Net deposits (USD million)	194	(63)	n.m.		(428)	n.m.
Written sales (USD million)	1,124	887	27		1,181	(5)
The Netherlands
Mortgage origination (EUR million)	3,031	2,540	19		2,835	7
Workplace Solutions net deposits (EUR million)	173	152	14		310	(44)
Net growth Knab customers ('000s of customers)	10.7	5.2	n.m.		8.2	30
United Kingdom
Platform expenses / AuA	22 bps	25 bps			23 bps
Annualized revenues gained/(lost) on net deposits (GBP million)	(2)	(2)	24		(4)	60
Workplace net deposits (GBP million)	295	410	(28)		(486)	n.m.
Retail net deposits (GBP million)	(42)	(262)	84		(310)	87
Growth Markets (Spain & Portugal, China, Brazil)
New life sales (EUR million)	65	70	(8)		45	42
MCVNB (Life) (EUR million)	32	26	21		32	(2)
New premium production (P&C and A&H) (EUR million)	29	20	46		28	3
Asset Management - Global Platforms
Operating margin (%)	12.6%	8.7%	45		16.2%	(22)
Net deposits (EUR million)	(592)	3,303	n.m.		4,763	n.m.
of which third party (EUR million)	138	(1,671)	n.m.		997	(86)
Annualized revenues gained/(lost) on net deposits (EUR million)	-	-	n.m.		2	n.m.
Financial Assets
Americas - Variable Annuities
Capital generation (USD million)	76	(1,649)	n.m.		567	(87)
Dynamic hedge effectiveness ratio (%)	98%	100%	(2)		98%	-
Americas - Long-Term Care
Capital generation (USD million)	79	24	n.m.		36	n.m.
Actual to expected claim ratio (%) (IFRS)	43%	85%	(50)		70%	(39)
NPV of rate increases approved since end-2020 (USD million)	112	n/a			n/a
The Netherlands - NL Life
Operating capital generation (EUR million)	27	46	(41)		13	n.m.
Remittances to Aegon NL (EUR million)	25	121	(79)		25	-
Solvency II ratio (%)	149%	231%	(36)		159%	(7)
1. Trailing four quarters in constant currency, EUR million.

Aegon’s strategy

Aegon is taking significant steps to transform the company in order to improve its performance and create value for its customers and shareholders. To ensure delivery against these objectives, a rigorous and granular operating plan has been developed across the Group. Aegon focuses on three core markets (the United States, the Netherlands, and the United Kingdom), three growth markets (Spain & Portugal, China, and Brazil) and one global asset manager. Aegon’s businesses within its core markets have been separated into Financial Assets and Strategic Assets. The aim is to release capital from Financial Assets and from businesses outside its core and growth markets, and re-allocate capital to growth opportunities in the Strategic Assets, growth markets and Asset Management. Throughout this transformation, the company aims to maintain a solid capital position in the business units and at the Holding. Through proactive risk management actions, Aegon is improving its risk profile and reducing the volatility of its capital ratios.

Operational improvement plan

Aegon has an ambitious plan comprised of more than 1,100 detailed initiatives designed to improve the operating performance of its business by reducing costs, expanding margins and growing profitably. In the trailing four quarters, expense savings initiatives have led to a reduction in addressable expenses by EUR 136 million compared with the addressable expenses in the base year 2019. A total of 418 initiatives have been executed between the launch of the operational improvement plan and the end of the first quarter 2021, of which 342 are related to expense savings. Based on the progress to date, Aegon remains on track to deliver half of the 2023 target of EUR 400 million reduction in addressable expenses by the end of 2021. Aegon is also starting to see the benefits from the growth initiatives, which are aimed at improving customer service, enhancing user experience and developing new products. The company will continue at pace in its execution of the expense and growth initiatives.

Strategic Assets

Strategic Assets are businesses with a greater potential for an attractive return on capital, and where Aegon is well positioned for growth. In these businesses, Aegon will invest in profitable growth by expanding its customer base and increasing its margins.

In the US Individual Solutions business, Transamerica’s aim is to achieve a top-5 position in Term Life, Whole Life Final Expense, and Indexed Universal Life through profitable sales growth. New life sales in the first quarter of 2021 amounted to USD 83 million, which represents an increase of 27% compared with the same period last year. This was mainly driven by an increase in new sales of Indexed Universal Life. Transamerica is benefiting from an 18% increase in licensed agents at World Financial Group (WFG) and a higher market share in this affiliate distribution channel from the addition of a funeral planning benefit to Indexed Universal Life products for qualifying life insurance policyholders. Transamerica developed this new benefit to provide grieving beneficiaries valuable resources in helping the insured person’s family plan end-of-life services. The market consistent value of new business for Life increased by 83% compared with the same period last year to USD 68 million in the first quarter of 2021. This was in part driven by a more favorable product mix resulting from the addition of the funeral planning benefit.

In the US Workplace Solutions business, Transamerica aims to compete as a top-5 player in new sales in the Middle‑Market segment of Retirement Plans. Momentum is building here with written sales of USD 1.1 billion in the first quarter of 2021, representing an increase of 27% compared with the same period last year. This increase was supported by contract wins in the Pooled Plan Arrangements, which is a strategic growth driver. Middle-Market net deposits in the first quarter amounted to USD 194 million, an improvement compared with USD 63 million net outflows in the same period last year. This improvement reflects increased customer deposits generated through existing advisors following targeted campaigns.

Aegon is the largest third-party mortgage originator in the Netherlands, benefiting from its scale, high service levels to intermediaries and customers, and diversified funding. In the first quarter of 2021, the company originated EUR 3.0 billion of residential mortgages, while further increasing its customer relational NPS scores. This volume was in part driven by the strong housing market and the increased demand for mortgage refinancing in light of the current interest rate environment. Two thirds thereof consisted of fee-based mortgages originated for third-party investors. On March 31, 2021, Aegon successfully priced a EUR 657 million residential mortgage-backed securitization to further diversify its mortgage funding. The transaction was oversubscribed three times by investors.

Net deposits for the Workplace Solutions defined contribution products (PPI) in the Netherlands increased by 14% to EUR 173 million in the first quarter of 2021. Aegon’s defined contribution offering is low-cost thanks to the scale of its administration subsidiary, TKP. Aegon expects its online bank Knab to continue its development into a digital gateway for individual retirement solutions. In the first quarter of 2021, the online bank grew its customer base by 11,000 and over 90% of all its customers are using the bank’s mobile app.

In the first quarter of 2021, Aegon’s business in the United Kingdom achieved record gross deposits across the business excluding the Institutional channel, with significant contributions from both the Workplace and Retail channels in the platform. Net deposits in Workplace remained positive at GBP 295 million. There have been a number of notable Workplace proposition enhancements in recent months, and downloads of Aegon’s Workplace app surpassed 20,000 following its recent launch. Net outflows in Retail amounted to GBP 42 million, which is a significant improvement compared with the first quarter of 2020. This resulted from platform proposition enhancements and strong investor sentiment. Aegon aims to mitigate the top-line impact from the gradual run-off of its traditional product portfolio – which is the driver behind annualized revenues lost for the first quarter – by profitably growing its platform business, and by reducing expenses. Expense initiatives and the favorable impact from market movements on assets have led to an improvement in efficiency with platform expenses over assets under administration decreasing by 3 basis points compared with the first quarter of last year to 22 basis points.

Financial Assets

Financial Assets are blocks of business which have closed or will be closed for new sales, and which are capital intensive with relatively low returns on capital employed. Aegon has established dedicated teams to manage these businesses, who are responsible for maximizing their value through disciplined risk management and capital management actions.

In December 2020, Aegon announced that Transamerica would stop selling variable annuities with significant interest rate sensitive living and death benefit riders, fixed index annuities, and stand-alone individual Long-Term Care. At the end of March 2021, Transamerica had closed the impacted annuity products to new sales and stopped accepting applications for individual standalone Long-Term Care policies. Transamerica will continue to serve the retirement needs of individuals with products like accumulation variable annuities with limited interest rate sensitivity. To this end the company recently launched the Transamerica Principal Optimizer^SM rider. This is a product that offers customers protection of their principal investment combined with the potential of investment growth.

In the first quarter of 2021, Transamerica continued its successful track record of dynamically hedging the in-force block of variable annuity business with guaranteed minimum withdrawal benefits (GMWB) for equity and interest rate risk, with a hedge effectiveness of 98%. The company expects to expand the dynamic hedge program to its legacy variable annuities block with income and death benefit riders in the second half of 2021.

The primary management action regarding Transamerica’s Long-Term Care block is a rate increase program with a value of USD 300 million. In the first quarter of 2021, the company obtained regulatory approvals for rate increases worth USD 112 million. Furthermore, claims experience developed favorably for the Long-Term Care business as a result of increased claims terminations due to the impact of the COVID-19 pandemic, leading to an actual to expected claims experience of 43% for the first quarter of 2021. As soon as the impacts of the COVID-19 pandemic subside, Aegon expects the number of new Long-Term Care claims to revert to normal levels.

The newly established team that is dedicated to managing the Dutch Life business is actively managing risks and the capital positions to enhance the consistency of remittances to the Group. The business implemented a quarterly remittance policy in the fourth quarter of 2020, and again remitted EUR 25 million in the first quarter of 2021. The Solvency II ratio of the Dutch Life business stood at 149% at the end of the first quarter, which is around the operating level of 150%.

Growth Markets and Asset Management

In its Growth Markets, Aegon will continue to invest in profitable growth. In the first quarter of 2021 the market consistent value of new business (MCVNB) from life products increased by 21% to EUR 32 million. This was mainly driven by a more favorable business mix in China. New premium production for property & casualty and accident & health insurance increased by EUR 9 million to EUR 29 million as a result of new products launched in Spain & Portugal.

Aegon Asset Management aims to significantly increase the operating margin of its Global Platforms by improving efficiency and driving growth. Third-party net deposits on the Global Platforms were EUR 0.1 billion in the first quarter of 2021, driven by strong net deposits on the Fixed income platform, and continues to build on Aegon’s track record of positive third-party net deposits. The operating margin of its Global Platforms increased by 4 percentage points compared with the first quarter of 2020. To reduce expenses and enhance the quality of customer service, Aegon Asset Management migrated the administration of its fiduciary business from a dedicated platform to existing systems used in other parts of its business.

Smaller, niche or sub-scale businesses

In small markets or markets where Aegon has sub-scale or niche positions, capital will be managed tightly with a bias to exit.

In January 2021, together with its joint venture partner, Aegon decided to cease funding of GoBear, a digital financial supermarket in Southeast Asia. Subsequently, GoBear’s brand and e-lending business have been sold to different strategic buyers so as to achieve a controlled and swift exit from the business. These transactions will not have a material impact on the company’s capital position and results.

On March 1, 2021, Aegon announced the completion of the sale of Stonebridge, a UK-based provider of accident insurance products, to Global Premium Holdings group, part of Embignell group. Proceeds of GBP 35 million were received in the second half of 2020 and GBP 23 million in the first quarter of 2021. The total proceeds are equal to one times Stonebridge's Solvency II Own Funds at year-end 2019.

On March 31, 2021, Transamerica announced that it had reached an agreement to sell its portfolio of fintech and insurtech companies to Swiss-based private equity firm Montana Capital Partners. Following the transaction, Transamerica will continue to work with the portfolio companies. The transaction closed on April 27, 2021 and will have a positive impact on Cash Capital at the Holding in the second quarter of 2021.

Aegon has taken note of an announcement issued by Vienna Insurance Group AG Wiener Versicherung Gruppe (VIG) on April 7, 2021. The announcement issued by VIG reads as follows: “Acquisition of the Aegon entities prevented by Hungary for the moment. VIENNA INSURANCE GROUP AG Wiener Versicherung Gruppe received a decree yesterday afternoon in which the Hungarian Ministry of the Interior announced that the intended acquisition by a foreign investor of the Aegon companies in Hungary is denied. As part of the approval process, Vienna Insurance Group has been in constructive talks with the responsible Hungarian Minister of Finance since January 2021. The decree is in contradiction with the course of the talks to date. Vienna Insurance Group expects that this issue will be resolved positively in the near future.” Aegon will continue to work with VIG to close the transaction.

Strengthening the balance sheet

Aegon aims to continue strengthening its balance sheet, and is taking proactive management actions to improve its risk profile and reduce the volatility of its capital ratios.

At the Capital Markets Day on December 10, 2020, Aegon announced its plans to reduce its economic interest rate exposure in the United States by one third to one half to lessen its dependency on financial markets and improve its risk profile. At the end of the first quarter of 2021, Aegon had already executed more than half of this plan through management actions, primarily by lengthening the duration of its asset portfolio. Furthermore, Aegon has taken advantage of higher interest rates in the United States by implementing a macro interest rate hedge in the second half of March 2021 at the prevailing interest rates. This hedge covers part of Aegon’s remaining economic interest rate exposure, representing approximately one third of the interest rate exposure associated with the legacy variable annuity block with income and death benefit riders. This measure will mitigate the potential capital impact from the expansion of Aegon’s dynamic hedge to the legacy variable annuity block, were interest rates to decline from those levels. Aegon is making good progress on the expansion of the dynamic hedge. At its second quarter 2021 results, Aegon will provide an update on the plans for implementation of the expansion of the dynamic hedge.

Financial highlights

Financial overview					unaudited
		Q1	Q1			Q4
EUR millions	Notes	2021	2020	%		2020	%
Americas		163	129	27		259	(37)
The Netherlands		184	154	19		168	10
United Kingdom		39	44	(11)		32	24
International		28	49	(42)		39	(28)
Asset Management		75	38	99		53	41
Holding and other activities		(59)	(56)	(5)		(71)	18
Operating result	1	431	358	20		479	(10)
Fair value items		3	1,377	(100)		(524)	n.m.
Realized gains / (losses) on investments		31	14	n.m.		76	(59)
Net impairments		16	(59)	n.m.		(23)	n.m.
Non-operating items		50	1,333	(96)		(471)	n.m.
Other income / (charges)		1	(162)	n.m.		368	(100)
Result before tax		482	1,529	(68)		376	28
Income tax		(96)	(258)	63		(105)	9
Net result		386	1,270	(70)		271	43
Net result attributable to:
Owners of Aegon N.V.		383	1,270	(70)		262	47
Non-controlling interests		3	-	n.m.		9	(68)
Operating result after tax		357	310	17		409	(13)
Return on equity	4	8.8%	6.9%	28		10.3%	(14)
Operating expenses	8	954	991	(4)		924	3
of which addressable expenses		691	790	(12)		711	(3)
Americas		11,013	12,402	(11)		7,772	42
The Netherlands		4,488	3,728	20		6,168	(27)
United Kingdom		4,061	2,994	36		174	n.m.
International		11	87	(87)		82	(86)
Asset Management		39,778	32,706	22		30,402	31
Total gross deposits	9	59,351	51,917	14		44,597	33
Americas		(3,609)	(1,514)	n.m.		(5,406)	33
The Netherlands		204	119	71		911	(78)
United Kingdom		686	(217)	n.m.		(4,149)	n.m.
International		6	38	(83)		38	(83)
Asset Management		3,119	613	n.m.		3,157	(1)
Total net deposits / (outflows)	9	407	(960)	n.m.		(5,449)	n.m.
Americas		98	88	11		97	1
The Netherlands		21	26	(21)		22	(4)
United Kingdom		8	12	(35)		7	10
International		54	81	(33)		52	4
New life sales (recurring plus 1/10 single)	2,9	181	208	(13)		178	2
New premium production accident & health insurance		55	74	(25)		31	80
New premium production property & casualty insurance		25	36	(30)		32	(21)
Market consistent value of new business	3	166	100	67		101	64
Note: In 2021, the result of Central & Eastern Europe has been reclassified from operating result to Other income following the announced divestment of the business.

Aegon N.V.		unaudited
Leverage
		Quarterly
	Q1	Q1	Q4
	2021	2020	2020
Gross financial leverage (EUR millions)	6,080	6,708	5,969
Gross financial leverage ratio (%)	26.7%	26.6%	27.9%

Aegon N.V.		unaudited
Cash Capital at Holding
		Quarterly
EUR millions	Q1	Q1	Q4
	2021	2020	2020
Beginning of period	1,149	1,192	1,555
Americas	17	16	29
The Netherlands	25	100	75
United Kingdom	49	-	-
International	24	-	29
Asset Management	-	-	14
Holding and other activities	-	-	20
Gross remittances	115	116	167
Funding and operating expenses	(41)	(56)	(105)
Free cash flow	75	61	61
Divestitures	21	153	-
Capital injections	(50)	(21)	(3)
Capital flows from / (to) shareholders	-	-	(59)
Net change in gross financial leverage	-	-	(411)
Other	(4)	(7)	7
End of period	1,191	1,379	1,149

Aegon N.V.			unaudited
Capital ratios
		March 31,	March 31,	Dec. 31,
	Notes	2021	2020	2020
US RBC Ratio		428%	376%	432%
NL Life Solvency II ratio		149%	231%	159%
Scottish Equitable plc (UK) Solvency II ratio		158%	151%	156%
Aegon Bank Core Tier-1 ratio
Eligible Own Funds		18,810	18,414	18,582
Consolidated Group SCR		9,676	8,858	9,473
Aegon N.V. Solvency II ratio	10, 11	194%	208%	196%
Eligible Own Funds to meet MCR		7,869	8,871	7,888
Minimum Capital Requirement (MCR)		2,274	2,138	2,326
Aegon N.V. MCR ratio		346%	415%	339%

Capital generation					unaudited
		Q1	Q1		Q4
EUR millions	Notes	2021	2020	%	2020	%
Earnings on in-force*		218	210	4	367	(41)
Release of required		239	259	(8)	227	5
New business strain		(234)	(230)	(2)	(212)	10
Operating capital generation*		223	238	(6)	381	(41)
One time items*		107	232	(54)	(115)	n.m.
Market impacts		(358)	343	n.m.	25	n.m.
Capital generation*		(28)	813	n.m.	291	n.m.
*Please note capital generation (earnings on in-force, operating capital generation, one-time items and capital generation) for 2020 has been restated to smooth the impact of the annual lowering of ultimate forward rate and Holding funding cost.

Capital generation					unaudited
		Q1	Q1		Q4
EUR millions	Notes	2021	2020	%	2020	%
Americas		115	175	(34)	251	(54)
The Netherlands*		37	58	(36)	28	32
United Kingdom		44	48	(7)	56	(22)
International		42	16	n.m.	72	(41)
Asset Management		49	18	n.m.	30	62
Holding and other activities*		(66)	(76)	(14)	(57)	15
Operating capital generation*		223	238	(6)	381	(41)
*Please note capital generation (earnings on in-force, operating capital generation, one-time items and capital generation) for 2020 has been restated to smooth the impact of the annual lowering of ultimate forward rate and Holding funding cost.

Operating result

Aegon’s operating result increased by 20% compared with the first quarter of 2020 to EUR 431 million. This was mainly driven by expense savings and the benefit from higher equity markets, which were only partly offset by adverse claims experience in the Americas, adverse currency movements and reclassifying the result of Central & Eastern Europe from operating result to Other income following the announced divestment of the business. Adjusted for this reclassification and on a constant currency basis, Aegon’s operating result increased by 32% compared with the first quarter of 2020.

The operating result from the Americas increased by 27%, or 38% on a constant currency basis, compared with the first quarter of 2020 to EUR 163 million. The main drivers were favorable equity market performance – especially in Variable Annuities and Retirement Plans – and lower addressable expenses in all lines of business. In addition, better than expected morbidity experience, mainly in Long-Term Care, contributed EUR 65 million. This was offset by EUR 138 million adverse mortality experience in Life, which was EUR 81 million worse than the first quarter in 2020. Aegon estimates that EUR 79 million of claims in the first quarter of 2021 can be directly attributed to COVID-19 as the cause of death. Aegon believes that the remaining adverse mortality experience is, to a large extent, attributable to the pandemic as well.

Aegon’s operating result in the Netherlands increased by 19% compared with the first quarter of 2020 to EUR 184 million. This was driven by higher investment margins in the Life business, growth in Mortgages and better claims experience in Workplace Solutions.

The operating result from the United Kingdom decreased by 11% compared with the first quarter of 2020 to EUR 39 million, driven by lower results from Aegon’s protection and distribution businesses. Fee revenues were broadly stable, as the favorable impact from higher equity markets was offset by net outflows in recent quarters.

The operating result from International decreased by 42% to EUR 28 million in the first quarter of 2021, reflecting the reclassification of the result of Central & Eastern Europe from operating result to Other income following the announced divestment of the business. Adjusting for this impact, the operating result decreased by 6% on a constant currency basis, as business growth and improved claims experience in Spain & Portugal and China were more than offset by a lower result in TLB and in the Asian direct marketing business.

The operating result from Aegon Asset Management nearly doubled compared with the first quarter of 2020 to EUR 75 million. The increase was mostly driven by strong performance of Aegon's Chinese asset management joint venture, Aegon Industrial Fund Management Company (AIFMC). The operating result from Global Platforms also increased, mainly due to higher revenues as a result of net deposits and favorable market movements.

The operating result from the Holding amounted to a loss of EUR 59 million, mainly driven by funding expenses.

Non-operating items

The result from non-operating items amounted to EUR 50 million in the first quarter of 2021, resulting from realized gains and net recoveries on investments.

Fair value items

The gain from fair value items amounted to EUR 3 million in the first quarter of 2021. Losses on hedge programs, a result of higher equity markets and interest rates, were offset by a reduction in the Liability Adequacy Test deficit in the Netherlands. The latter was mostly driven by market movements, including mortgage spread tightening.

Realized gains on investments

Realized gains on investments amounted to EUR 31 million driven by normal trading activity.

Net recoveries

Net recoveries amounted to EUR 16 million, as recoveries on investments – including the unsecured loan portfolio in the Netherlands and corporate credits in the Americas – more than offset gross impairments.

Other income

Other income amounted to EUR 1 million, which included the favorable impact from an update of inflation assumptions in the Netherlands and a one-time gain in the Americas related to the sale of a small-sized Individual Retirement Account (IRA) portfolio to a third party. These offset EUR 83 million of one-time investments related to the operational improvement plan and EUR 15 million IFRS 9 / 17 project costs in the Holding.

Net result

The income tax expense amounted to EUR 96 million, while the profit before tax was EUR 482 million, resulting in a net result of EUR 386 million. The effective tax rate of 20% is below the nominal tax rate, which is mainly due to tax-exempt income and tax credits in the Americas.

Expenses

Addressable expenses decreased by 12% compared with the first quarter of 2020, or 8% on a constant currency basis, to EUR 691 million. This was driven mainly by expense initiatives as part of the operational improvement plan. Furthermore, expenses benefited from lower travel, marketing, and sales activities due to the impact of the COVID-19 pandemic. Addressable expenses in both the first quarter of 2020 and 2021 exclude expenses related to Central & Eastern Europe following the announced divestment of the business.

Operating expenses decreased by 4% compared with the first quarter of 2020 to EUR 954 million. The decline in addressable expenses, and lower IFRS 9 / 17 project costs were partly offset by EUR 83 million one-time investments related to the operational improvement plan.

Sales

Net deposits for the Group amounted to EUR 0.4 billion in the first quarter of 2021. This was the result of EUR 3.1 billion third-party net deposits in Asset Management, mainly from AIFMC. Furthermore, the United Kingdom contributed EUR 0.7 billion net deposits driven by the platform business, and the Netherlands contributed EUR 0.2 billion as a result of continued demand for defined contribution products (PPI). These were partly offset by EUR 3.6 billion net outflows in the Americas, which were mainly attributable to outflows in the large market segment of Retirement Plans.

New life sales declined by 13% compared with the first quarter of 2020 to EUR 181 million. This was mainly driven by derecognition of Central & Eastern Europe new life sales following the announced divestment of the business. Adjusting for this impact, new life sales were up 2% on a constant currency basis compared with the first quarter of 2020. This was mostly driven by higher sales in the Americas, where Indexed Universal Life sales benefited from an 18% increase in licensed agents at World Financial Group (WFG), in addition to a higher market share in this affiliate distribution channel. This was partly offset by lower sales in the Netherlands following the decision to classify the Dutch Life business as a Financial Asset and, over time close most products for new sales. Furthermore, new life sales in China were down, as a result of a decline in low-margin single premium sales through the bank channel.

New premium production for accident & health insurance decreased by 25% to EUR 55 million. This was mainly due to last year’s decision to exit the individual Medicare supplement segment in the Americas and lower market-wide demand for group disability products in the Netherlands.

New premium production for property & casualty decreased by 30% compared with the first quarter of 2020 to EUR 25 million. This was mainly driven by derecognition of Central & Eastern Europe production following the announced divestment of the business. Adjusting for this impact, sales increased by 47%, mainly as a result of higher sales in Spain & Portugal driven by the introduction of a new household insurance product.

Market consistent value of new business

Market consistent value of new business (MCVNB) increased by 67% compared with the first quarter of 2020 to EUR 166 million. This was mainly driven by an increase in MCVNB in the Americas resulting from the repricing of variable annuity riders, as well as higher volumes and a favorable product mix in Indexed Universal Life.

Shareholders’ equity

Shareholders’ equity excluding revaluation reserves increased by EUR 1.2 billion during the first quarter of 2021, to EUR 16.7 billion – or EUR 8.03 per common share – on March 31, 2021. The increase was mainly driven by retained earnings and favorable currency movements.

Gross financial leverage

Gross financial leverage increased by EUR 0.1 billion in the first quarter of 2021, leading to gross financial leverage of EUR 6.1 billion per March 31, 2021. This increase was driven by the strengthening of the US dollar against the Euro.

The gross financial leverage ratio improved from 27.9% on December 31, 2020, to 26.7% on March 31, 2021, as the increase in leverage was more than offset by higher shareholders’ equity excluding revaluation reserves.

Cash Capital at Holding and Free Cash Flow

Aegon’s Cash Capital at Holding position increased from EUR 1,149 million to EUR 1,191 million during the first quarter of 2021, which is in the upper half of the operating range of EUR 0.5 billion to EUR 1.5 billion. Free cash flow to the Holding of EUR 75 million resulted from EUR 115 million gross remittances from the units and EUR 41 million holding funding and operating expenses. Additional proceeds of EUR 21 million from the divestment of Stonebridge were received by the Holding in the first quarter. These cash inflows were partly offset by EUR 54 million capital injections and other items, mainly to fund one-time investments related to the operational improvement plan.

Capital ratios

Aegon’s Group Solvency II ratio decreased from 196% to 194% during the first quarter of 2021, and the capital ratios of its three main units were around or above their respective operating levels at the end of the quarter. Capital generation after holding expenses amounted to EUR (28) million for the first quarter of 2021. Market movements totaled EUR (358) million and were mainly driven by the impact of interest movements in the Netherlands. One-time items amounted to EUR 107 million, as management actions in the United Kingdom as well as several other smaller items across the Group more than offset the impact of the reduction of the ultimate forward rate by 15 basis points in the Netherlands. Operating capital generation amounted to EUR 223 million, despite being impacted by adverse mortality due to the COVID-19 pandemic.

The estimated RBC ratio in the United States decreased from 432% on December 31, 2020, to 428% on March 31, 2021, and remained above the operating level of 400%. Market movements had a slight negative impact on the RBC ratio, as higher equity markets and significantly higher interest rates led to flooring of variable annuity reserves. In addition, dividend payments to the intermediate holding company reduced the RBC ratio by 8 percentage points. Operating capital generation had a positive impact, despite being impacted by adverse mortality as a result of the COVID-19 pandemic.

The estimated Solvency II ratio of NL Life decreased from 159% on December 31, 2020, to 149% on March 31, 2021, which is around the operating level of 150%. The decline resulted from the reduction of the ultimate forward rate by 15 basis points and the adverse impact from market movements on the ratio, which was driven by rising interest rates. This is a reflection of the fact that Aegon hedges on an economic basis. Real estate revaluations also had a negative impact on the ratio following a change in transfer tax. There was a partial offset from the tightening of mortgage spreads. Operating capital generation had a positive impact, which offset the EUR 25 million dividend payment to Group in the first quarter.

The estimated Solvency II ratio for Scottish Equitable Plc increased from 156% on December 31, 2020, to 158% on March 31, 2021, and remained above the operating level of 150%. The increase was primarily driven by management actions to reduce the equity risk in the own pension scheme and the interest rate risk in the general account. In addition, operating capital generation had a positive impact. These positive impacts more than offset the impact of dividend payments to the intermediate holding company.

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Additional information

Presentation
The conference call presentation is available on aegon.com as of 7.30 a.m. CET.

Supplements
Aegon’s 1Q 2021 Financial Supplement is available on aegon.com.

Conference call including Q&A
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Financial calendar 2021
AGM – June 3
Ex-dividend date final dividend 2020 – June 7
Publication stock fraction final dividend 2020 – June 30
Payment date final dividend 2020 – July 7
Second quarter 2021 results – August 12
Ex-dividend date interim dividend 2021 – August 20
Publication stock fraction interim dividend 2021 – September 10
Payment date interim dividend 2021 – September 17
Third quarter 2021 results – November 11

All references to the payment of (interim) dividends are subject to any relevant board or shareholders’ resolution to distribute such (interim) dividend and barring unforeseen circumstances.

About Aegon

Aegon’s roots go back more than 175 years – to the first half of the nineteenth century. Since then, Aegon has grown into an international company, with businesses in the Americas, Europe and Asia. Today, Aegon is one of the world’s leading financial services organizations, providing life insurance, pensions and asset management. Aegon’s purpose is to help people achieve a lifetime of financial security. More information on aegon.com.

Notes (1 of 2)

1) For segment reporting purposes operating result, operating result after tax, operating expenses, addressable expenses, income tax (including joint ventures (jv's) and associated companies), result before tax (including jv's and associated companies) and market consistent value of new business are calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s joint ventures and Aegon’s associates. Aegon believes that these non-IFRS measures provide meaningful information about the underlying results of Aegon's business, including insight into the financial measures that Aegon's senior management uses in managing the business. Among other things, Aegon's senior management is compensated based in part on Aegon's results against targets using the non-IFRS measures presented here. While other insurers in Aegon's peer group present substantially similar non-IFRS measures, the non-IFRS measures presented in this document may nevertheless differ from the non-IFRS measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards. Readers are cautioned to consider carefully the different ways in which Aegon and its peers present similar information before comparing them.

Aegon believes the non-IFRS measures shown herein, when read together with Aegon's reported IFRS financial statements, provide meaningful supplemental information for the investing public to evaluate Aegon’s business after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (i.e. companies can use different local GAAPs to measure the insurance contract liability) and that can make the comparability from period to period difficult.

Aegon segment reporting is based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker.

 

Segment information
	First quarter 2021			First quarter 2020
EUR millions	Segment total	Joint ventures and associates eliminations	Consolidated	Segment total	Joint ventures and associates eliminations	Consolidated
Operating result after tax	357	(19)	338	311	22	333
Tax on operating result	(74)	24	(50)	(47)	15	(33)
Operating result	431	(43)	388	358	8	366
Fair value items	3	19	22	1,377	(20)	1,357
Realized gains / (losses) on investments	31	(3)	28	14	(4)	10
Net impairments	16	-	16	(59)	-	(59)
Non-operating items	50	16	66	1,333	(24)	1,309
Other income / (charges)	1	3	4	(162)	1	(161)
Result before tax	482	(24)	458	1,529	(15)	1,514
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax	24	(24)	-	15	(15)	-
Income tax (expense) / benefit	(96)	24	(72)	(258)	15	(243)
Of which income tax from certain proportionately consolidated joint ventures and associates included in income before tax	(24)	24	-	(15)	15	-
Net result	386	-	386	1,270	-	1,270
Segment information
	Fourth quarter 2020
EUR millions	Segment total	Joint ventures and associates eliminations	Consolidated
Operating result after tax	409	36	445
Tax on operating result	(70)	14	(55)
Operating result	479	22	501
Fair value items	(524)	(40)	(564)
Realized gains / (losses) on investments	76	-	76
Net impairments	(23)	1	(22)
Non-operating items	(471)	(39)	(510)
Other income / (charges)	368	14	382
Result before tax	376	(2)	374
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax	2	(2)	-
Income tax (expense) / benefit	(105)	2	(103)
Of which income tax from certain proportionately consolidated joint ventures and associates included in income before tax	(2)	2	-
Net result	271	-	271

Notes (2 of 2)

^2)	New life sales is defined as new recurring premiums plus 1/10 of single premiums.
^3)	The present value, at point of sale, of all cashflows for new business written during the reporting period, calculated using approximate point of sale economics assumptions. Market consistent value of new business is calculated using a risk neutral approach, ignoring the investment returns expected to be earned in the future in excess of risk free rates (swap curves), with the exception of an allowance for liquidity premium. The Swap curve is extrapolated beyond the last liquid point to an ultimate forward rate. The market consistent value of new business is calculated on a post tax basis, after allowing for the time value financial options and guarantees, a market value margin for non-hedgeable non-financial risks and the costs of non-hedgeable stranded capital.
^4)	Return on equity is a ratio calculated by dividing the operating result after cost of leverage, by the average shareholders' equity excluding the revaluation reserve.
^5)	Included in Other income/(charges) are income/charges made to policyholders with respect to income tax in the United Kingdom.
^6)	Includes production on investment contracts without a discretionary participation feature of which the proceeds are not recognized as revenues but are directly added to Aegon's investment contract liabilities for UK.
^7)	APE = recurring premium + 1/10 single premium.
^8)	Reconciliation of operating expenses, used for segment reporting, to Aegon's IFRS based operating expenses.

	Q1	Q1
	2021	2020
Employee expenses	490	521
Administrative expenses	376	404
Operating expenses for IFRS reporting	866	925
Operating expenses related to jv's and associates	89	66
Operating expenses in earnings release	954	991

^9)	New life sales, gross deposits and net deposits data include results from Aegon’s joint ventures and Aegon’s associates consolidated on a proportionate basis.
^10)	The calculation of the Solvency II capital surplus and ratio are based on Solvency II requirements. For insurance entities in Solvency II equivalent regimes (United States, Bermuda and Brazil) local regulatory solvency measurements are used. Specifically, required capital for the regulated entities in the US is calculated as one and a half times (150%) the upper end of the Company Action Level range (200% of Authorized Control Level) as applied by the National Association of Insurance Commissioners in the US, while the own funds is calculated by applying a haircut to available capital under the local regulatory solvency measurement of one time (100%) the upper end of the Company Action Level range. For entities in financial sectors other than the insurance sector, the solvency requirements of the appropriate regulatory framework are taken into account in the group ratio. The group ratio does include Aegon Bank N.V. As the UK With-Profit funds is ring fenced, no surplus is taken into account regarding the UK With-Profit funds for Aegon UK and Group numbers.
^11)	The solvency II capital ratio reflects Aegon’s interpretation of Solvency II requirements and are not final until filed with the regulators. The solvency II capital calculation is subject to supervisory review on an ongoing basis.
^12)	The numbers in this release are unaudited

Cautionary note regarding non-IFRS-EU measures

This document includes the following non-IFRS-EU financial measures: operating result, income tax, result before tax, market consistent value of new business, return on equity and addressable expenses. These non-IFRS-EU 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 IFRS-EU measure is provided in the notes to this press release. Market consistent value of new business is not based on IFRS-EU, which are used to report Aegon’s primary financial statements and should not be viewed as a substitute for IFRS-EU 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-IFRS-EU 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-IFRS-EU measures, together with the IFRS-EU 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.

Forward-looking 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 are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Aegon undertakes no obligation 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 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:

• Changes in general economic and/or governmental conditions, particularly in the United States, the Netherlands and the United Kingdom;
• 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; and
– 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.