The increase in return on equity to 7.7% for the third quarter of 2012, was driven by the positive effect of growth in net underlying earnings only partly mitigated by higher shareholders' equity excluding revaluation reserves. Return on equity for Aegon's ongoing businesses, excluding the run-off businesses, amounted to 8.6% over the same period.
In the third quarter, operating expenses decreased 10% to EUR 798 million as a result of cost savings, lower restructuring charges and the one-time benefit of changes in post-retirement benefit plans in the United States. On a comparable basis, operating expenses decreased 4% compared with the third quarter of 2011.
SalesAegon's total sales amounted to EUR 1.6 billion. New life sales were stable, as increased sales in the Americas and the effects of favorable currency movements were offset by lower sales in the Netherlands, the United Kingdom and Spain. In Spain, sales declined mainly as a result of lower production at joint venture partners due to a number of adverse developments in the Spanish market, as well as the exclusion of sales from its partnership with CAM. Gross deposits remained strong for the variable annuity, retirement plan and asset management businesses, partly offset by lower stable value deposits. New premium production for accident & health insurance increased, mainly driven by strong travel insurance sales in the United States. Market consistent value of new business The market consistent value of new business increased to EUR 173 million mainly as a result of product repricing in the United States, a higher contribution from mortgage production in the Netherlands and improved margins in the UK annuity business. Revenue-generating investments Revenue-generating investments rose 2% compared to the second quarter-end 2012 to EUR 463 billion at September 30, 2012. This was mainly the result of favorable markets and net inflows. Capital management Aegon's core capital excluding revaluation reserves amounted to EUR 18.7 billion, equivalent to 75.0% 6 of the company's total capital base at September 30, 2012. This is in line with the company's capital base ratio target of at least 75% by the end of 2012. Shareholders' equity increased to EUR 24.5 billion. This increase was mainly a result of the third quarters' net income and an increase in the revaluation reserves. The revaluation reserves increased by EUR 1.4 billion during the third quarter to EUR 5.9 billion, mainly a reflection of lower credit spreads and interest rates. Shareholders' equity per common share, excluding preference capital and revaluation reserves, amounted to EUR 8.50 at September 30, 2012. In 2012, Aegon aims to maintain excess capital at the holding of at least EUR 750 million. During the third quarter, excess capital in the holding remained stable at EUR 1.6 billion. The dividends received from operating units were offset by interest payments, dividends on common shares and operational expenses. At September 30, 2012, Aegon's Insurance Group Directive (IGD) ratio amounted to 222%, an increase from the level of 216% at the end of the second quarter. Measured on a local solvency basis, the Risk Based Capital (RBC) ratio in the United States increased to ~480%. This was the result of a combination of strong net income and a capital management transaction that made USD 575 million of additional regulatory capital available, partly offset by dividends paid to the holding company. The IGD ratio in the Netherlands decreased slightly to ~255% mainly the result of lower interest rates and credit spreads, while the Pillar I ratio in the United Kingdom remained level at ~130% at the end of the third quarter of 2012. Cash flows Operational free cash flow amounted to EUR 41 million. Excluding negative market impacts of EUR 407 million, the operational free cash flows amounted to EUR 448 million. Market impacts related mainly to lower interest rates and narrowing credit spreads. Operational free cash flows excluding market impacts were particularly strong during the quarter, mainly the effect of model refinements. Operational free cash flows represent the distributable earnings generated by the business units. The impact of capital preservation initiatives is not included in the reported operational free cash flows. Aegon is on track to improve operational free cash flow from its 2010 normalized level of EUR 1.0-1.2 billion per annum by 30% by 2015. ADDITIONAL INFORMATION