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AEGON Holds Line On Annuity Guarantees

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NU Online News Service, Aug. 7, 2003, 12:45 p.m. EDT – Executives at AEGON N.V., The Hague, Netherlands, got tough on annuity buyers during the first half.

The recent low rates have helped the stock market and products linked to the stock market. But the low rates have hurt operations that sell long term disability insurance, long term care insurance, whole life insurance and other products that guarantee minimum levels of benefits for long periods.

The low rates have done the most obvious damage to fixed annuity operations, by cutting insurers’ spreads, or the gaps between the average rates that insurers pay to annuity holders and the average yields that the insurers earn on their own investments.

AEGON says it coped with the drop on its investment yields by cutting fixed annuity crediting rates enough to increase its average spread 0.03 percentage points, to 1.63 percentage points.

Net deposits for variable annuities amounted to $4 billion, up 47% from the second quarter of 2002, but net deposits for fixed annuities fell 51%, to $1.2 billion, AEGON says.

AEGON notes that it also got tough on the guarantees included with variable annuities.

Although variable annuity deposits were much higher during the second quarter than they were during the comparable quarter in 2002, deposits were 46% lower than they were during the first quarter of 2003.

The decrease from the first quarter “is due to the discontinuance of the guaranteed minimum income benefit feature,” AEGON says.

The company as whole is reporting the equivalent of $949 million in net income for the first half on $16 billion in revenue, up from $685 million in net income on $15 billion in revenue for the first half of 2002.

Revenue from the Americans increased 27%, to $752 million.

AEGON computed the U.S. dollar figures in its income statements using an exchange rate of $1=0.905 euros for the 2003 result and an exchange rate of $1=1.114 euros for the 2002 results.