(3,68 EUR, 2,56%) will report its 2Q11 earnings on 11 August, before market. We expect underlying earnings before tax to drop 23.1% to € 402m (consensus at € 416m) mainly as a result of the transfer of the US reinsurance business ($ 79m uPBT in FY10) and the US BOLI/COLI business ($ 50m uPBT in FY10) to run-offbut also the 11.6% y/y decline in USD/EUR. Positive run-off results and lower impairment charges are most likely to be largely offset by less realised gains and negative fair value items. This should lead to an 18.7% decline in net profit to € 336m (consensus € 329m).
2Q11 EARNINGS – MAIN ITEMS
New life sales (APE) are estimated at € 533m (-9.4%)which should be the combined effect of business put into-run off, the de-emphasizing of production of fixed annuities to the benefit of variable annuitiesand the decline in USD/EUR. Since variable annuities contribute less to NBV, we expect the (all modelled) NBV to drop by 17.8% to € 122m with a NB-margin at 17.9% (-2.6 points). Gross deposits, excluding run-off businesses are estimated at € 6.1bn.
Most of the fair value items should see a negative impact from the decline in interest rates partly offset by the positive earnings contribution from credit derivatives (benefits from 20bps spread tightening) and the US macro hedge. We see a negative contribution of € 9m and also lower realised gains at € 98m.
Core equity is expected to slip 2.08% q/q to € 16.6bn (€ 8.79 per share) with on the positive side the impact from reported earnings (€ 336m) and a small rise in the fair value reserve (interest rates eased down) offset by€ 0.4bn currency translation losses and the € 375m penalty paid upon redemption of the remaining part of the Dutch state aid.
Aegon’s exposure to PIIGS countries is very limited at € 1.1bn o/w € 866m on Spain, € 5m on Greece and € 84m on Italy. The budgetary worries in the US could have an impact on local GAAP solvency (which is very high at Americas) but do in our view not warrant the share price decline we have seen in recent weeks.