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The core strengths of AEGON The Netherlands were shown during a challenging year characterized by continuing market volatility and customer uncertainty. Management focused on reaching to customers by enhancing administration services and by extending distribution and the partnering principle. A disciplined focus on profitability helped underpin AEGON The Netherlands’ low-cost producer status in each of its key product sectors.
FINANCIAL RESULTS
Net income was EUR 523 million compared to EUR 696 million for 2001. Depressed equity markets led to an additional provision for guaranteed minimum benefits of EUR 209 million.
New life production was EUR 345 million, down 2% for the year. Off balance sheet production increased 41% to EUR 1,223 million for the year while savings deposits and investment contracts were 21% and 52% lower, respectively. Sales in retail markets were lower due to fiscal changes and weak equity markets, while production in the group pension business was higher.
Total revenues were level with the prior year at EUR 6,052 million, despite 2% lower investment income on insurance activities, attributable to lower investment yields. Commissions and expenses increased 20% to EUR 666 million. This includes EUR 60 million in investment costs that are recognized on a gross instead of a net basis and which are offset by an equal amount in revenues. The change in presentation is the result of the establishment of AEGON Asset Management as a separate business unit to profile itself as a professional third party investment manager.
ABOUT OUR BUSINESS
In 2002, AEGON The Netherlands revitalized its product lines, while consolidation and standardization helped raise the visibility of the AEGON brand name across all channels. Overall, AEGON The Netherlands demonstrated both resilience and flexibility as the units adapted to the changing needs of a market with continued long-term growth potential.
The Pensioen en Advies unit – the Netherlands’ leading provider of group pension plans – performed well. Despite difficult market conditions, sales of group pensions outperformed 2001’s figure and the potential for future growth remains positive thanks to AEGON The Netherlands’ increasingly effective administration, state-of-the-art ICT support, customer accessibility and strong sales team.
This flagship unit continued to build on improvements implemented in 2001. Worksite marketing, the concept pioneered by Pensioen en Advies, was extended to other distribution channels. AEGON The Netherlands bought TPG KPN Pensioen B.V. (TKP Pensioen), an administrator of pension funds, which included approximately 150,000 participants at the end of 2002. Our other group pension unit, Bedrijfspensioenen, which distributes through agents, had lower sales compared to the good year 2001. Group life sales held up well, in spite of changes to Dutch laws that negatively affected the tax treatment of certain life insurance products.
In the individual life sector, stock market weakness and fiscal uncertainties caused something like a buyer’s strike among consumers. This led to a drop in sales and higher lapse rates among some plan holders. AEGON The Netherlands was able in part to compensate for this by marketing new products such as mortgage-related products (Beleggingshypotheek) and rejuvenating the more traditional life policies. To help minimize distribution bottlenecks and reduce costs, the organization of Van Nierop Assuradeuren was successfully merged with the AEGON Vermogensperspectief business unit, and renamed AEGON Van Nierop, serving high net worth individuals. AEGON Van Nierop’s distribution was streamlined and we believe the unit is positioned to benefit from future opportunities for further growth.
Customers for individual life and pension products are traditionally served by independent agents, who AEGON The Netherlands focused on helping them operate and compete more effectively.
The non-life sector had a good year with sound profit, notwithstanding the October storms in the Netherlands, and a strong contribution from the motor and fire portfolios, reflecting the emphasis on underwriting quality. The health and disability cover segment is gaining market share and performed well. This market is poised for renewed expansion once changes in the laws on benefits take effect.
Savings deposits decreased 21% in 2002 from 2001. Savings deposits at AEGON Bank showed a strong inflow during the first half-year, although increased competition led to pressure on overall profitability and growth in the second half. Yet, AEGON Bank has chosen to emphasize profitability over volume. As part of distribution improvements and new lines, Spaarbeleg provided intermediaries with better access to products and services in order to meet consumers’ requirements with respect to pension issues. In 2002 it became clear that under existing market conditions short-term equity savings plans or equity lease plans were currently not attractive to customers.
With respect to the Moneymaxx activities – a concept for unit linked life insurance products – in the various AEGON countries it was decided to incorporate these activities in the existing local AEGON units, unless the activities were large enough to operate independently. Consequently, in Hungary and Spain the Moneymaxx activities were incorporated in 2002, whereas AEGON Lebensversicherung-AG in Germany and AEGON Belgium continued to operate independently. For Italy it was decided to end these activities because of direct sales results lagging behind expectations. In France and Japan we are considering whether Moneymaxx can operate in collaboration with local partners.
Innovation again proved an important element of success. In 2002, AEGON The Netherlands entered into an agreement with major oil company TotalFina to create a loyalty program for truck drivers who can earn supplementary pension plan contributions by refuelling at the TotalFina stations. And there was a sound growth to 260,000 savers using the AH Geldzaken simple savings plan marketed through the Albert Heijn supermarket chain.
Despite a volatile and adverse year for the securities markets, and thanks to the high quality of its asset portfolio, investments by AEGON Asset Management outperformed those of its peers in 2002. While fixed investments were not affected by any major bond default, the value of the equity and real estate portfolio in the Netherlands declined by EUR 1,347 million in 2002. Overall, off balance sheet production enjoyed a 41% increase over 2001 to EUR 1,223 million.
BUSINESS OBJECTIVES
Without losing sight of the strategic commitment to local responsibility or to proven business principles, such as reliability, teamwork and responsiveness, AEGON The Netherlands will continue during 2003 to modernize and enhance links with distribution channels and consolidate brand perception and back-offices, while focusing on partnering both inside and outside the organization is the key to strengthening and speeding business flow.
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