Insurance Americas (continued)
Financial developments
Underlying result before tax declined to a loss of EUR 534 million in 2008 from EUR 2,062 million profit in 2007. The US recorded a loss of EUR 1,117 million compared to a profit of EUR 1,356 million in 2007, following the severe impact of the turbulent financial environment. This result included investment losses of EUR 965 million, of which EUR 811 million related to credit losses. In addition, deferred acquisition costs (DAC) unlocking had a negative impact of EUR 1,180 million in 2008, compared with a positive impact of EUR 14 million in 2007. The underlying result was also impacted by negative alternative asset returns and lower fee income, as positive net flows could not overcome asset under management erosion and higher hedging costs. Underlying profit before tax in Canada decreased 22.6%, or 17.7% excluding currency effects, to EUR 364 million, driven by a lower underwriting result due to unfavourable claims experience, which was partially offset by higher investment results and lower impairments on fixed interest securities. Underlying profit before tax in Latin America decreased by 6.8%, or 2.3% excluding currencies, to EUR 220 million. The life business posted EUR 44 million lower profit, triggered by lower investment gains in Mexico. The profit from the non-life business improved by EUR 28 million, due to higher results in Brazil, including a tax reserve release of EUR 24 million.
Premium income decreased by 1.1% to EUR 21,887 million, but rose 6.9%, excluding currency effects. In the US, premiums increased by 8.4%, excluding currency impact, as sales of retirement services, variable and fixed annuities and insurance were higher than 2007 levels. Premium income in Canada decreased 4.2% to EUR 2,671 million, but increased by 1.7% excluding currency impact, reflecting rate increases in personal lines but a lower number of new insured risks. Premiums in Latin America decreased 20.6%, excluding currency effects, reflecting the sale of the Chile health insurance business in the first quarter of 2008, which was partly offset by higher annuity sales.
Operating expenses increased by 3.0% to EUR 2,340 million, or 10.5% excluding currency effects. Operating expenses in the US increased 10.1% excluding currency impact due to the acquisition of CitiStreet, and were partly offset by lower personnel-related expenses. Excluding CitiStreet and the currency impact, operating expenses in the US rose modestly by 0.7%. The increase in Latin America of 29.9% excluding currency impacts was mainly driven by the acquired pension businesses and higher sales, and was partly offset by the divestment of the Chile health business. Excluding the impact of acquisitions and the sale of the Chile health business and currency effects, operating expenses in Latin America increased by 1.5%. In Canada, operating expenses rose by 4.3% excluding currency impact, related to the direct distribution network and claims processing.
The value of new business (VNB) increased by 12.6%, driven by higher pension fund sales and better quality of business in Latin America. VNB in the US fell 7.9% due to reduced spread-related products sales and pressure on variable annuity margins and sales.
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