Aegon's underlying earnings before tax decreased by 31% compared with the first half of 2019 to EUR 700 million. This was largely caused by lower earnings in the United States, which were only partly offset by higher earnings in the United Kingdom, International and Asset Management.
- Underlying earnings before tax: EUR 700 million (-31%), of which:
- Americas: EUR 264 million (-54%)
- Netherlands: EUR 321 million (-2%)
- UK: EUR 81 million (+17%)
- International: EUR 75 million (+6%)
- Asset Management: EUR 71 million (+17%)
- Total gross deposits: EUR 103 billion (+58%)
- New life sales: EUR 379 million (-6%)
- Revenue-generating investments: EUR 883 billion (-2%)
- Return on equity: 6.5% (-3.1 pp.)
- Solvency II ratio: 195% (-6 pp.)
- Net income: EUR 202 million (-67%)
New life sales declined by 6% to EUR 379 million, due to decreases in all regions. In the Americas, lower Whole Life and Indexed Universal Life sales in the United States were only partly offset by higher sales in Brazil. The main driver for the sales decline in the Netherlands was lower individual life single premium production as Aegon exited that market in March. In the United Kingdom, Aegon saw lower Protection sales due to the COVID-19 pandemic lockdown. International's sales declined, but remained level on a constant currency basis, as higher sales in China and Turkey were offset by lower sales in TLB.
New premium production for accident and health insurance increased by 6% to EUR 124 million, driven by higher voluntary benefit product sales in the United States through the workplace channel and higher disability sales in the Netherlands. This was partly offset by a decline in International due to the COVID-19 related lockdowns, mainly in Spain & Portugal and in Hungary. For property & casualty insurance, new premium production decreased by 9% to EUR 59 million, caused by International due to the COVID-19 pandemic related lockdowns, mainly in Spain & Portugal and in Hungary.
Revenue-generating investments decreased by 2% during the first half of 2020 to EUR 883 billion. The favorable impact from lower interest rates on the general account bond portfolio and the investment of cash in bonds was more than offset by negative equity market impacts on investments for account of policyholders and off-balance sheet investments for third parties.
Realized gains on investments amounted to EUR 16 million, reflecting normal trading activity. Net impairments amounted to a loss of EUR 194 million. This was primarily caused by impairments in the Americas on bonds - mainly in the energy sector - and on the unsecured loan portfolio in the Netherlands.
Operating expenses increased by 4% to EUR 1,986 million, largely driven by higher IFRS 9 / 17 implementation expenses and increased restructuring expenses. Excluding these items, operating expenses were stable with an increase in expenses in the United States being offset by expense reductions in other units.
Return on equity decreased by 3.1%-points to 6.5%, mainly caused by lower net underlying earnings. Shareholders' equity increased by EUR 1.5 billion in the first half of 2020 to EUR 23.9 billion on June 30, 2020. This was driven by higher revaluation reserves, due to lower interest rates, and retained earnings that more than offset adverse currency movements. Shareholders' equity excluding revaluation reserves remained stable at EUR 16.7 billion - or EUR 8.08 per common share - on June 30, 2020.
The gross financial leverage ratio improved by 20 basis points to 28.4% in the first half of 2020. Aegon intends to not refinance USD 500 million senior debt maturing in December 2020. This is expected to improve the gross financial leverage ratio by 1.4%-points based on the balance sheet per June 30, 2020. Capital generation after holding expenses amounted to EUR (443) million for the first half of 2020
Aegon's Group Solvency II ratio decreased from 201% to 195% during the first half of 2020 as a result of adverse market movements triggered by the COVID-19 pandemic, mainly lower interest rates in the United States. The adverse market impacts and a slight negative impact from assumption changes more than offset the positive impact from normalized capital generation and management actions in the United States.
"The first half of 2020 was challenging with underlying earnings for the Group declining by 31% to 700 million euros. (...) From an operational perspective, we have dealt well with the fallout of the pandemic. (...) Commercially the lockdowns have been a challenge, in particular for our agency sales channels.
In the middle of the pandemic, I was appointed as CEO of Aegon. It is my ambition and that of my management team to transform Aegon into a more focused, high-performing group with a balanced portfolio of businesses that is generating reliable free cash flows and delivering sustainable and attractive shareholder returns. I realize this is not where the company is today and it will take time to get there. (...)
We are working on our plans to transform Aegon. I am looking forward to update you on our plans - including our outlook for future dividends - and ambitions for the company during our Capital Markets Day on the 10th of December themed: Focus. Execute. Deliver."