Restructure and re-focus UK Otto Thoresen Member of the Management Board, CEO UK Adrian Grace COO UK Analyst & Investor Conference, London June 22-23, 2010
Key messages o Full product suite strategy no longer appropriate o Focus on growth markets where AEGON has a leading position o Targeted investment in SIPP and workplace proposition o Targeting 25% cost reduction by end 2011 using a focused model o Explore strategic options for non-core markets and back books o Move towards capital light model, higher RoC and improved cash flows Local knowledge. Global power. 2
AEGON UK at a glance o Leading positions in At Retirement and Workplace Savings o Focused on markets where: customers have assets and face complex retirement decisions employers are committed to providing quality employee benefits o Complex advice requires quality intermediaries New life sales per channel (Q1 2010) New life sales per product (Q1 2010) 6% 4% 2% 3% 7% 14% 49% 77% 38% IFA s Banks Group pensions Annuities Onshore bonds Tied distribution Rebates Individual pensions Protection Local knowledge. Global power. 3
Underlying earnings do not reflect resilient new life sales Revenue-generating Underlying earnings New life sales investments before tax (GBP million) (GBP billion) (GBP million) 253 210 212 224 235 42 45 52 53 54* 16 29 25* 9 (7) Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 * Excluding asset management as of Q1 2010 Local knowledge. Global power. 4
Strategic review of UK business Divest Run-off Restructure One-off sale proceeds No more acquisition costs Focus on growth market segments Back book run-off Target 25% cost reduction by end 2011 Focus on capital light model Increase RoC from 2.7% in 2009 to 8-10% by 2014 Explore strategic options back books Improve cash flows Large discount to embedded value Increased lapses destroy value High one-off costs to implement Destroy franchise value Restructuring costs Maximize shareholder value Local knowledge. Global power. 5
Leverage leading market positions in the UK o Focus on growth market segments where AEGON has a leading position At Retirement Growing market with GBP 16 billion of funds maturing annually Workplace savings Attractive market with GBP 800 billion of assets Positive impact from Pension Reform expected Continue to invest in Self Invested Pension Plan (SIPP) Exit bulk annuities market o Target 25% cost reduction by end of 2011 o Operating cash flows of GBP 600-650 million (cumulative 2010 to 2014) o Achieve RoC on new business of >12%; overall RoC of 8 10% by 2014 Management team committed to deliver Local knowledge. Global power. 6
At Retirement is an attractive market with opportunities UK population to exceed 65m by 2018 Getting older Source: ONS Living longer Projected life expectancy for 65 year old male 25 20 15 In, At or Near Retirement o Have money and need income during extended retirement years o Want security, certainty, help and support o Large and growing market GBP 16 billion of funds maturing annually Source: GAD 10 50 60 70 80 90 00 10 20 30 40 50 Historical 1992 projection 1983 projection 2003 projection At Retirement focus Accumulated wealth Source: AEGON estimates, Watson Wyatt At Retirement Assets (GBP 29bn in 2017) 07 08 09 10 11 12 13 14 15 16 17 Primary offering Supported by Pension consolidation * ISA = individual savings account Income from fund ISA wrapper* Guarantees Payout annuity Mutual funds Local knowledge. Global power. 7
Workplace savings is an attractive market with GBP 800 billion of assets Large DB shift with employers concerned for employees in the new world Pension Reform highlighting large under-provision in corporate market (c1 million employers or 79% of employers must take action to comply) 270,000 employers 21% 280,000 employers 22% 58% 750,000 employers 1990 2008 2020 DB Hybrid DC Personal Accounts 60% of employers No provision <3% employer contribution Compliant Sales of Group schemes are large and growing o Concerned employees not saving enough o GBP 3 billion APE in 2009 in insured schemes o Believe they should offer more financial education and assistance o 87% of private DB schemes are now closed to new members Source: Watson Wyatt, Pension Research Forum The future of UK retirement savings (2008) for large UK employers Source: - UK Government Department of Work and Pensions 2010, ABI, ACA 2009 survey Local knowledge. Global power. 8
Leveraging our existing strengths to execute strongly Credentials At Retirement Presence in the UK since 1994 Leading positions in key markets o Leader in At Retirement and Workplace Savings o 28,000 employer relationships o 500,000 individual customers Single minded focus on chosen markets Builds on expertise and deep distributor relationships Enhanced by strong links to other parts of the AEGON Group o Customers with complex needs and accumulated assets o Focused and joined up proposition o Provision of guarantees for income needs o Targeting markets which will thrive under RDR Workplace o Broaden proposition to satisfy wider employer demands o Leverage significant in-force scale o Continue to build on close relationships with key specialists o Benefit from Pension Reform and RDR developments Delivered via a shared infrastructure Local knowledge. Global power. 9
Shared infrastructure delivers new focused proposition At Retirement Customer relationships Adviser relationships Transition support Employer relationships Workplace At Retirement o Web access for advisers & customers o Interactive At Retirement tools & guidance o Flexible, joined up investment and income options Advice and guidance Web Services: Financial education and decision support Self-service Choice of tax wrappers Investment guarantees (variable annuities) AEGON Asset Management AEGON select fund range Shared infrastructure Full investment flexibility Workplace o Web access for employees o Customized for large employer o Guidance, communications and education o Defaults and options for employees In place Improve add Local knowledge. Global power. 10
Regulatory change will impact distribution At Retirement o Fragmented market 40,000 advisers in generally small firms o Large tail of low producing advisers Low value exit o Up-skilling to focus on wealth segment o Advice gap for mass market Retail Distribution Review (RDR) o Higher Qualifications o Commission ban (customer must pay adviser directly) o Higher capital buffers o New definitions of advice o Improved professionalism o Consolidation of advisers o Advice gaps created o Competition no longer based on commission Workplace o Smaller number of key players emerge Specialists and Employee benefit consultants Generalists reduce o Old model not viable Face to face with employees expensive New technologies becoming key Commission based advisers exit corporate market Local knowledge. Global power. 11
New sales approach positions AEGON strongly with key advisers Critical Success Factors Sales Review Demonstrate expertise Adviser support Focus on key accounts generating value not volume Efficiency Advice gap At Retirement and Workplace focus Highly qualified consultants Qualified consultants to support adviser journey Structure for value: o Strategic Accounts o Regional Mid Market o Telesales Streamlined processing Build on direct capability for existing customers Local knowledge. Global power. 12
Targeting 25% cost reduction in Life & Pensions o Cost reduction of 25% targeted to be achieved by end 2011 o Operating expenses to be reduced by GBP 80-85 million per annum o Most cost savings expected to be achieved in 2011 o Restructuring charges expected in 2010 Operating expenses (GBP million) -25% Life & Pensions Distribution 326 245 FY 2009 Post 2011 Local knowledge. Global power. 13
Targeting 25% cost reduction using a focused model Design principles Focused model delivers o Opportunity to reduce cost o No longer need to support and invest in full product suite by becoming more effective and driving efficiency. o Realign spans of control o Outsource where o Exit or reduce non core appropriate activity o Escalate procurement o Consolidate functions / initiatives areas 2010 2011 2012 Immediate Shared services 1 2 3 priorities re-alignment Customer service solution Timing June Dec 2010 July 2010 Dec 2011 January 2012 Dec 2012 Actions o Sales review o Customer services organisation design o Small restructures o Operating model design o Shared services organization design o Review roles/layers o IT model design o Process efficiencies o Potential further savings: Straight through processing Review of Customer Service model Local knowledge. Global power. 14
Move towards a capital light model o AEGON s portfolio review on four metrics: Profitability Growth prospects Cash flow profile Need for products in customer financial life cycle o Old business UK written with expectations of higher equity markets RoC on old book is low and hard to improve (high DAC amortization) Future business can be improved significantly New model delivers RoC of >12% o Cash flows to improve strongly as new business strain declines Deliver operating cash flow of GBP 600-650 million (cumulative 2010 to 2014) Lower upfront commission Lower costs Local knowledge. Global power. 15
Focus is on optimising portfolio and operational excellence Reallocate capital o Closure of Group Risk o Focus on At Retirement and Workplace savings o Explore strategic options for back books o Actively managing flows in immediate annuities o Withdraw from bulk annuities Improve returns o Significant cost reductions to improve efficiency o Deliver operational excellence o Focus on customer retention Optimize ONE AEGON oasset gatherer for AEGON Asset Management oeuropean variable annuities oback office synergies (European Data Centre) osupporting India s operations Local knowledge. Global power. 16
Management team committed to deliver Otto Thoresen CEO Adrian Grace COO Charles Garthwaite CRO Clare Bousfield CFO Ian Black Distribution Duncan Jarret Sales Andy Marchant Marketing Simon Skinner Customer service Local knowledge. Global power. 17
Conclusions o Full product suite strategy no longer appropriate o Focus on growth markets where AEGON has a leading position o Targeted investment in SIPP and workplace proposition o Targeting 25% cost reduction by end 2011 using a focused model o Explore strategic options for non-core markets and back books o Move towards capital light model, higher RoC and improved cash flows Local knowledge. Global power. 18
Q&A
For questions please contact Investor Relations T: +31 70 344 8305 E: ir@aegon.com P.O. Box 85 2501 CB The Hague The Netherlands
Disclaimer Cautionary note regarding non-gaap measures This presentation includes certain non-gaap financial measures: underlying earnings before tax and value of new business. The reconciliation of underlying earnings before tax to the most comparable IFRS measure is provided in Note 3 "Segment information" of our Condensed consolidated interim financial statements. Value of new business is not based on IFRS, which are used to report AEGON's quarterly statements and should not viewed as a substitute for IFRS financial measures. AEGON believes that these non-gaap measures, together with the IFRS information, provide a meaningful measure for the investment community to evaluate AEGON s business relative to the businesses of our peers. Local currencies and constant currency exchange rates This presentation contains certain information about our results and financial condition in USD for the Americas and 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 us presented in EUR, which is the currency of our primary financial statements. Forward-looking statements The statements contained in this presentation 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, is confident, will, and similar expressions as they relate to our company. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. We undertake 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 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 our fixed income investment portfolios; and 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 we hold; The frequency and severity of insured loss events; Changes affecting mortality, morbidity and other factors that may impact the profitability of our insurance products; 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; Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets; Changes in laws and regulations, particularly those affecting our operations, the products we sell, and the attractiveness of certain products to our consumers; Regulatory changes relating to the insurance industry in the jurisdictions in which we operate; Acts of God, acts of terrorism, acts of war and pandemics; Effects of deliberations of the European Commission regarding the aid we received from the Dutch State in December 2008; Changes in the policies of central banks and/or governments; Lowering of one or more of our debt ratings issued by recognized rating organizations and the adverse impact such action may have on our ability to raise capital and on our liquidity and financial condition; Lowering of one or more of insurer financial strength ratings of our insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability of its insurance subsidiaries and liquidity; The effect of the European Union s Solvency II requirements and other regulations in other jurisdictions affecting the capital we are required to maintain; Litigation or regulatory action that could require us to pay significant damages or change the way we do business; Customer responsiveness to both new products and distribution channels; Competitive, legal, regulatory, or tax changes that affect the distribution cost of or demand for our products; The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including our ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions; Our failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving initiatives; and The impact our adoption of the International Financial Reporting Standards may have on our reported financial results and financial condition. Further details of potential risks and uncertainties affecting the company are described in the company s filings with Euronext Amsterdam and the US Securities and Exchange Commission, including the Annual Report on Form 20-F. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, the company 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 the company s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Local knowledge. Global power. 21