AEGON: Adapting to change in the US Life industry Mark Mullin, President AEGON Americas Goldman Sachs European Financials Conference June 3, 2009
Cautionary note regarding forward-looking statements Cautionary note regarding 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: believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, 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; Changes in the policies of central banks and/or governments; 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; 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. Cautionary note regarding Regulation G (non-gaap measure) This presentation includes certain non-gaap financial measures: net operating earnings, operating earnings before tax, (net) underlying earnings, value of new business and embedded value. Value of new business and embedded value are not based on IFRS, which are used to prepare and report AEGON s financial statements and should not be viewed as a substitute for IFRS financial measures. AEGON believes the non-gaap measures shown herein, together with GAAP information, provides a meaningful measure for the investment community to evaluate AEGON s business relative to the businesses of our peers. Local knowledge. Global power. 2
Key messages o US market is important for AEGON o Execution of strategic priorities o A resilient US franchise o Focus US business in three main segments Positioned to benefit from future opportunities in the world s largest life and pension market Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 3
AEGON at a glance AEGON conducts business in more than 20 countries around the world, with major operations in the U.S., the Netherlands and the U.K. Global operations o 40 million customers o 31,000 employees worldwide o EUR 334 billion in revenue generating investments AEGON Americas o Includes the U.S., Canadian and Latin American operations o 15,000 employees o Two main brands: AEGON and Transamerica Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 4
Committed to core business Focused on life insurance, pension and long-term investment and savings products and the Americas is an important part of the business 7% 8% 11% >1% 4% 3% 41% 30% 25% 57% 14% Life and Protection Individual Savings and Retirement Pension and Asset Management Institutional Products Life Reinsurance Americas Netherlands United Kingdom Asia Central & Eastern Europe Other European Countries Both charts based on Group embedded value life insurance 2008 Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 5
AEGON s strong market positions Category As of December 31, 2008 Individual Term Life Sales 1 Individual Universal Life Sales 1 Equity Indexed Universal Life Sales 2 Variable Life Sales 3 Variable Annuity Sales 4 Fixed Annuity Sales 1 Ordinary Life Reinsurance Assumed 5 Synthetic GICs 1 401(k) Plans Under Management 6 Rank 10 th 6 th 5 th 12 th 14 th 4 th 2 nd 1 st 15 th Sources 1. LIMRA 2. Advantage Group Associates, Inc. 3. Towers Perrin 4. Morningstar 5. Munich America Re Survey 6. PLANSPONSOR Recordkeeping Survey Asset International, Inc. Objective to have leading position in chosen markets to realize benefits of scale Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 6
Despite crisis, long-term fundamentals remain attractive Demographic and economic changes = Opportunity o Increasing longevity and aging populations Need for long term protection o Financial market volatility o Reduced safety net from government, employers and family Need for accumulation products Need for financial guarantees Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 7
The US is the largest life and pension market Worlds largest insurance market o 350 million people 3rd most populous country 21% of global GDP o Baby boomers 78 million people Represent 47% of disposable income, but only 7% of savings 75% own life insurance 67% unprepared for retirement Prefer face to face sale o Shadow boomers - Gen X & Y 125 million people Technology buying trend gradually increasing Source: LIMRA Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 8
Pre-crisis growth in the Americas Underlying earnings before tax Revenue generating investments (USD million) (USD billion) 2,727 326 2,427 2,268 287 265 2005 2006 2007 2005 2006 2007 Value of new business (USD million) 340 Sales (APE) Deposits 581 494 1,166 37.5 1,249 43.6 1,276 53.9 2005 2006 2007 2005 2006 2007 Sales Deposits Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 9
The financial crisis a new reality Credit spread widening Declining equity markets 120% AA Dow Jones 1.600 A Nasdaq 1.400 BBB 100% S&P 500 1.200 B 1.000 800 80% 600 400 60% 200 0 40% Jan- Mar- Jun- Sep- Dec- Feb- May- Aug- Nov- Jan- Apr- Jan-08 Apr-08 Jul-08 Oct-08 Dec-08 Mar-09 07 07 07 07 07 08 08 08 08 09 09 Lower risk free rates 6 5 4 3 2 1 3 Months 2 Year 100 5 Year 10 Year 80 Unprecedented implied volatility CBOE VIX 0 0 Jan- Mar- Jun- Sep- Dec- Feb- May- Aug- Nov- Jan- Apr- Jan-04 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 07 07 07 07 07 08 08 08 08 09 09 60 40 20 Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 10
Impact on US life insurance industry Continued flight to safety by consumers to fixed and stable value products Margin pressure Increased capital requirements Lower assets under management Higher hedging costs Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 11
Execution of strategy and short term priorities Group strategic priorities Capital release of EUR 1.5 billion in 2009 Reduce costs by EUR 150 million in 2009 Portfolio review Americas action taken Capital initiatives completed in Q1 o De-risk investment portfolio; maintain strong liquidity position o Start to put new money inflows into highly rated credit investments o Capital market solutions, securitizations and external reinsurance USD 40 million is cost savings achieved against annual target of USD 140 million o Salary freeze / headcount reduction o Reduce travel and events o Technology initiatives Adapt business model to respond to current market conditions o Wind down institutional spread business o Exit auto credit market o Redesign and re-price new variable annuity product o Reduce direct marketing presence in Europe and Asia Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 12
Maintaining a resilient franchise in the Americas New life sales (USD million) Value of new business* (USD million) 262 205 182 97 154 98 Q1 08 Q4 08 Q1 09 Q1 08 Q4 08 Q1 09 * Excluding Institutional Guaranteed Products Fixed (FA) and variable annuities (VA) Pensions and asset management (USD million) (USD million) FA 459 2,328 2,120 VA 974 747 780 4,252 2,771 3,169 Q1 08 Q4 08 Q1 09 Q1 08 Q4 08 Q1 09 Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 13
Why stay in the variable annuity business o Strong fit with AEGON s vision of providing comprehensive solutions to help customers secure their financial futures o Provides diversification benefits to other protection, savings and pension businesses o Although AEGON s market ranking has remained relatively flat at 13-14 during the last several years. AEGON s decision to pull back from the GMIB market in 2003 was the right one o Market has been irrational in the past, however transformation is underway o AEGON has been focused on building competitive advantages in distribution and hedging capabilities over the last four years now in a position to capitalize on market rationalization Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 14
Going forward - strike the right balance Risks Underwriting Operational leverage Market Credit / spread Rewards Sustainable growth Increased transparency Quality earnings Reduced volatility Risk of potential outcomes Growth 12% 10% 8% 6% 4% 2% 0% 10% 7.5% o Manage complementary risk profiles on one balance sheet o Improve risk profile by exiting or reducing higher risk businesses o Redeploy low risk / low growth capital to fund growth o Focus the business with a slightly reduced earnings power but an improved risk profile o Leverage scale and stability of the entire group to align risk Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 15
a more balanced business o High growth potential o Good earnings quality with some capital markets leverage fee based Employer Solutions and Pensions Life and Protection o Lower growth potential o High quality earnings with lower capital markets leverage o Solid returns and strong distributable earnings Individual Savings and Retirement o Moderate growth potential o Fair quality earnings with some capital markets leverage post hedging programs Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 16
and a more focused business Partnering with and managing distribution Focused product expertise Disciplined management of risk Business Business focused on core focused competencies on core competencies Superior service levels Effective cost structure Appropriately priced products Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 17
Organization re-aligned with long term growth opportunities Life and Protection Individual Savings and Retirement Employer Solutions and Pensions Alternative Markets o AEGON Financial Partners o Monumental o AEGON Direct Marketing Services o Long Term Care o World Financial Group o Transamerica Capital Management o Transamerica Retirement Management o Transamerica Asset Management o Diversified Investment Advisors o Transamerica Retirement Services o Worksite Marketing o Clark Consulting o Institutional Markets Division o Extraordinary Markets o Seguros Argos o Mongeral o Transamerica Canada Corporate support Risk Management Finance Legal and Compliance Operations and Technology Employee Services Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 18
Delivering more than the sum of the parts Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 19
Conclusion o US market is important for AEGON o Execution of strategic priorities o A resilient US franchise o Focus US business in three main segments Positioned to benefit from future opportunities in the world s largest life and pension market Overview US market Impact from the crisis Adapting to change Conclusion Local knowledge. Global power. 20
Q&A For questions please contact Investor Relations +31 70 344 8305 ir@aegon.com P.O. Box 85 2501 CB The Hague The Netherlands Local knowledge. Global power. 21
Upcoming AEGON events 2009 June 9 and 10 August 13 November 12 December 2 Analyst and Investor Conference, London Q2 2009 results Q3 2009 results Investor day, New York Local knowledge. Global power. 22
Appendix I: First quarter 2009 results Embedded Value 2008
Net loss due to capital market effects and impairments o Net income mainly impacted by financial markets Underlying earnings affected by lower capital markets Impairments on bonds (EUR 320 million) and shares (EUR 66 million) Under US GAAP, impairments would have been ~EUR 160 million lower Tax benefits related to operating losses and tax exempt income Underlying earnings to net income development in Q1 2009 (EUR million) ~450 ~(470) (22) (197) 173 (386) (23) 282 (173) Underlying Capital Underlying Fair value Gains on Impairment Other charges Income tax Net income earnings markets earnings items investments charges before capital impact before tax performance markets impact Local knowledge. Global power. 24
Equity market decline in Q1 has been reversed quarter-to-date o Accelerated amortization of DPAC and reserve strengthening take quarterend equity market levels into account S&P index down 12% from 903 at year-end 2008 to 798 at March 31, 2009 Fully reserved for S&P index level of 798 Index rose quarter-to-date by 14% S&P 500 index (January 1 May 12, 2009) 950 900 908 850 800 750 700 650 Q1 2009 12% April May 12 + 14% 600 12/31/2008 1/31/2009 2/28/2009 3/31/2009 4/30/2009 Local knowledge. Global power. 25
Sensitivity to equity markets Estimated impact on net income* (12 month period, EUR million) Estimated impact capital* (EUR million) Direct exposure DPAC and guarantees Fees 200 400 Direct exposure Guarantees Fees 300 600-20% -10% +10% +20% -20% -10% +10% +20% -900-400 o Impact from rising markets limited due to reversion to the mean methodology o Reserve adjustment for VA guarantees (Since 2003 new VA is delta hedged) -700-400 o Impact includes costs of rebalancing of hedges AEGON has a strong capital buffer to withstand equity market shocks * Based on equity markets as of March 31, 2009 Local knowledge. Global power. 26
Relatively stable new life sales o New life sales of EUR 543 million Americas sales lower due to retail life and BOLI/COLI Group pension sales in the Netherlands held up well, decline in retail life Increased annuities sales in the UK, more than offset by drop in pensions Strong new life sales in other countries o New life sales relatively stable compared to Q4 2008 New life sales New life sales New life sales New life sales Americas The Netherlands United Kingdom Other countries (USD million) (EUR million) (GBP million) (EUR million) 262 205 182 71 41 62 291 289 265 56 58 50 Q1 08 Q4 08 Q1 09 Q1 08 Q4 08 Q1 09 Q1 08 Q4 08 Q1 09* Q1 08 Q4 08 Q1 09 * Excluding VA Europe Local knowledge. Global power. 27
Strong net deposits o Net deposits of EUR 1.1 billion* Growth driven by fixed and variable annuities o Gross deposits of EUR 6.4 billion* Continued strong fixed annuities sales Other countries higher due to inclusion of asset management JV in China and European variable annuities Fixed (FA) and Variable Pensions & Asset Total gross deposits annuities (VA) Americas management Americas Other countries (USD million) (USD million) (EUR million) FA 459 2,328 2,120 VA 974 747 780 4,252 2,771 3,169 234 394 706 Q1 08 Q4 08 Q1 09 Q1 08 Q4 08 Q1 09 Q1 08 Q4 08 Q1 09 * Excluding Institutional Guaranteed Products Local knowledge. Global power. 28
Resilient value of new business o Value of new business of EUR 201 million, up 8% VNB in Americas flat* VNB in the Netherlands driven by margin improvement in mortgage business Higher VNB in the UK driven by higher annuity sales and higher margins Lower VNB in Other countries mainly driven by lower sales in Taiwan and CEE o Internal rate of return of 17.8% Value of new business* Value of new business Value of new business Value of new business Americas The Netherlands United Kingdom Other countries (USD million) (EUR million) (GBP million) (EUR million) 97 154 98 12 13 31 40 50 52 42 36 33 Q1 08 Q4 08 Q1 09 Q1 08 Q4 08 Q1 09 Q1 08 Q4 08 Q1 09 Q1 08 Q4 08 Q1 09 * Excluding Institutional Guaranteed Products Local knowledge. Global power. 29
Solid progress on cost reduction Americas Netherlands United Kingdom o No wage increases o Reductions of contract o Restructuring IT, o Staff reductions services marketing, customer o Deferred hiring o Process re-engineering services o Reorganization o General cost savings o Cost containment o Agency distribution o Savings in distribution 1/3 realized in Q1 2009 cost savings target of EUR 150 million Local knowledge. Global power. 30
Capital position remains strong December 31, 2008 March 31, 2009 Insurance Group Directive (IGD) surplus capital EUR 5.6 billion (183%) ~EUR 4.6 billion (~170%) S&P risk-based insurance capital model excess capital above AA level EUR 2.9 billion EUR 2.7 billion o Decline in IGD surplus capital mainly due to Revaluation of bond portfolio in the Netherlands Risk free interest rates increased during Q1 Rating migration in US bond portfolio Local knowledge. Global power. 31
Core capital primarily impacted by unrealized losses o Decline in core capital primarily driven by unrealized losses (revaluation reserves) o Increase in risk free interest rates is the main driver of the unrealized losses o Unrealized bond losses are not a good proxy for future credit losses o Markets improved after quarter-end Core capital* development Q1 2009 (EUR billion) 16.2 (0.2) 0.5 (0.05) (0.02) 16.4 (8.5) 7.9 Dec 31, 08 Net income Movements in Dividends and Other changes March 31, 09 Revaluation March 31, 09 excluding foreign currency coupons on excluding reserves revaluation translation perpetuals (net revaluation reserves reserves of tax) reserves * Core capital is the sum of shareholders equity and the EUR 3 billion convertible core capital securities issued to Vereniging AEGON and funded by the Dutch State Local knowledge. Global power. 32
Excess capital supported by pro-active capital management Excess capital development Q1 2009 (EUR billion) 2.9 (0.2) (0.6) 0.3 2.7 0.6 (0.6) 0.3 Impact f rom capi ta l mark ets : EUR 1. 4 billi on Q4 08 Excess Credit Rating Interest rates Capital De-risking Other Q1 Q1 09 Excess capital impairments migration US & equity preservation impacts capital market impact o Impact on earnings from capital preservation and de-risking in Q1 2009 of EUR 85 million per annum due to: Temporary investments in cash and treasuries Lower alternative investment balances o Earnings impact is not permanent as most de-risking measures are reversible Local knowledge. Global power. 33
US impairments Q1 2009 EUR million ABS CMBS RMBS Subtotal structured assets Corporate private Corporate public Subtotal corporate Commercial mortgage loans Subtotal net credit impairments Common equity impairments Total recoveries Total net impairments IFRS 133-72 205 2 91 93 27 325 5-2 328 US GAAP ~170 Under IFRS, assets are impaired to market value. Under new US GAAP rules as applied by US peers impairments reflect expected economic losses Local knowledge. Global power. 34
Rating migration not expected to be repeated to same extent as in Q1 Rating distribution of US fixed income securities* (EUR 67 billion) o Rating migration primarily due to downgrades of RMBS by Moody s 60.1% 57.2% o Majority of downgrades in structured investment portfolio were from A or above to below investment grade o Rating migration front-end loaded 31.5% 31.3% 8.4% 11.5% YE 2008 Q1 2009 NAIC 1 (AAA, AA, A) NAIC 2 (BBB) NAIC 3 6 (Below investment grade) * Amortized cost, excluding interest rate hedges Local knowledge. Global power. 35
Active portfolio management o Increased allocation to cash, treasuries and short term paper in US portfolio o Prudent to invest in low risk investments in periods of widening credit spreads o Run-off of institutional spread-based balances accelerates in 2H09 o Begin reinvestment in credit risk in select market segments Investments general account December 31, 2008 EUR 130 billion March 31, 2009 EUR 133 billion 2%2% 2% 3% 2% 2% 4% 3% 23% 25% 15% 16% 14% 13% Cash / Treasuries / Agencies Credits Structures assets Mortgages Equity like Real estate Policy loans Other 38% 36% Local knowledge. Global power. 36
Embedded value EUR 11.35 per share EUR billion, except per share data 2008 2007 Δ Δ constant currency Embedded value life insurance 22.9 25.9 (11)% (10)% Total embedded value (TEV) 18.5 21.7 (15)% (13)% TEV per common share* 11.35 13.44 (16)% (14)% Value of new business 0.8 0.9 (10)% (2)% * Adjusted for estimated theoretical value of the preferred shares Local knowledge. Global power. 37
Capital markets impact Embedded Value Life Insurance Embedded value life insurance movement (EUR billion) Capital markets impact 25.9 0.8 0.9 (3.2) (2.0) EV operating return EUR 1.7 billion (0.3) 0.4 0.5 22.9 2007 Value of new Inforce Long term Change in Currency Other Capital 2008 business performance investment economic movements return assumptions variance Local knowledge. Global power. 38
Appendix II: Other information
US portfolio composition US investment portfolio detail Cash/Treasuries/Agency IG Corporate & Preferred Hig h yield Corporate Em erging Markets Debt ABS MB S & CMO Co mmercial MBS Mo rtgage loans Co nvertible Bonds & Pref Stock Co mmon Equity Pri vate Equity & Real Estate He dge Funds Other Total U SD billions* EU R billions* Dec 31, 2007 8.6% 43.8% 3.6% 2.1% 10.8% 5.8% 5.5% 13.2% 0.5% 0.5% 2.0% 1.9% 1.6% 100% 127.4 91.5 Dec 31, 2008 12.6% 41.6% 3.8% 1.9% 10.1% 6.0% 6.7% 12.5% 0.2% 0.5% 1.9% 0.9% 1.4% 100% 130.0 93.4 All numbers are for AEGON USA only and are on an IFRS amortized cost basis, excluding policy loans Mar 31, 2009 16.5% 38.3% 4.5% 1.6% 9.6% 5.8% 6.8% 12.5% 0.2% 0.5% 2.0% 0.9% 0.8% 100% 127.5 95.8 Change since 07 - - - Local knowledge. Global power. 40
Portfolio review: downsizing Institutional Markets Division o Reduce spread-based balances by USD 20 billion (EUR 14 billion) over two year period o Reduction of credit risk o Capital relief of USD 0.8 billion (EUR 0.6 billion) over two year period (EUR 0.3 billion in 2009) o Expected annual cost savings of USD 70 million (EUR 50 million) as of 2011 o Outflows well under control as AEGON has strong liquidity management Spread based balances (USD billion) 33-61% 13 8 3 2 2008 2010E 2012E 2014E 2016E Local knowledge. Global power. 41
US variable annuity guarantees Other information Per March 31, 2009 (USD billion) Direct - GMIB Direct - GMWB Reinsurance Total living benefits Total fund value 6.8 5.2 5.4 17.4 Hedged fund value 1.2 * 5.2 5.1 11.5 % of fund value hedged 18% 100% 94% 68% Net amount at risk 3.9 1.7 1.8 7.4 Statutory reserve 1.3 0.1 0.8 2.2 Δ Statutory reserve Q1 0.2 - - 0.2 GMDB 12.8 0.3 2% 5.4 1.0 0.1 Reinsurance 1.3 0.7 53% 1.1 0.3 0.1 Total death benefits 14.1 1.0 7% 6.5 1.3 0.2 o o Approximately 68% of living benefit guarantees are hedged or reinsured Conservative reserving for variable annuity guarantees Utilization rates on GMIB are low (<2%) Current policy reserves assume higher utilization rates Most of AEGON s GMIB business can only elect annuitization without penalty starting 2012 * Reinsurance capped at USD 200 million benefit Local knowledge. Global power. 42