Earnings call transcript: Aegon N.V. Q1 2024 shows stable financial performance

Aegon (NYSE:AEG) N.V. reported a stable financial performance in the first quarter of 2024, maintaining its IFRS operating result at €1.5 billion, similar to the previous year. The company announced a proposed dividend increase of 17% compared to 2023 and highlighted its ongoing share buyback program. The stock has shown strong momentum, delivering a 27% return year-to-date and an impressive 44% return over the past year. According to InvestingPro analysis, the company appears slightly overvalued at current levels. Despite challenges in international markets, Aegon continues to focus on strategic growth areas, including the expansion of its World Financial Group (WFG) network and its retirement plans in the U.S.

Key Takeaways

• Aegon maintained its IFRS operating result at €1.5 billion for Q1 2024.
• The company increased its proposed final dividend by 17% from 2023.
• Aegon is executing a €150 million share buyback program.
• Strong growth was reported in mid-sized retirement plans and the WFG network in the U.S.
• Challenges in China due to low interest rates impacted sales.

Company Performance

Aegon’s overall performance in Q1 2024 remained steady, with key financial metrics in line with the previous year. The company continues to focus on its core markets, particularly in the U.S. and the UK, while addressing challenges in international markets like China. InvestingPro data shows the company maintains a FAIR financial health score of 2.27, with revenue growth of 13% in the last twelve months. For deeper insights into Aegon’s financial health and growth prospects, subscribers can access the comprehensive Pro Research Report, available exclusively on InvestingPro. Aegon’s strategy of expanding its distribution network and focusing on retirement and life insurance products has shown positive results, especially in the U.S., where annuity sales and individual retirement accounts have significantly increased.

Financial Highlights

• IFRS Operating Result: €1.5 billion, unchanged from the previous year.
• Free Cash Flow: €759 million.
• Shareholder Returns: €1.4 billion returned through dividends and share buybacks.

Outlook & Guidance

Aegon is targeting an operating capital generation of €1.2 billion in 2025, with a free cash flow target of €800 million. The company aims to grow its dividend to around €0.35 per share in 2025. Aegon continues to reduce capital in its Financial Assets segment and expects U.S. operating results to range between $650 million and $750 million.

Executive Commentary

CEO Lars Freiser stated, "We have met the financial guidance we previously presented to you and remain confident that we can meet our targets for 2025." He also emphasized the company’s strategic focus, saying, "We are growing our strategic assets and we’re reducing our exposure to financial assets step by step."

Risks and Challenges

• Low interest rates in China are affecting sales, posing a challenge to international growth.
• Aegon must manage its exposure to financial assets while expanding its strategic business areas.
• The company faces potential macroeconomic pressures that could impact its performance in various markets.

Q&A

During the earnings call, analysts inquired about the challenges in China due to low interest rates, which have impacted sales. Aegon also addressed questions regarding mortality experience variances and the potential for future acquisitions in its core business lines.

Full transcript - Allergan PLC (NYSE:AGN) Q4 2024:

Yves Cormier, Head of Investor Relations, Aegon N.V.: good morning, everyone. My name is Yves Cormier, Head of Investor Relations, and I would like to welcome you to this conference call on Aegon’s Second Half twenty twenty four Results. Joining me to take you through our progress are Aegon’s CEO, Lars Freiser and CFO, Duncan Russell. Before we start, we would like to ask you to review our disclaimer on forward looking statements, which you can find at the back of the presentation. And I now would like to hand over to Lars.

Lars Freiser, CEO, Aegon N.V.: Thanks, Yves, and good morning, everyone, and thank you for joining the call today. Let me start today’s presentation by running you through our strategic and commercial developments before handing over to Duncan to address our financial results in more detail. Let’s move to Slide two to review the highlights of the year. In 2024, we made good progress with the transformation of Aegon and are on track to meet the 2025 targets. I will begin by highlighting some of our key financials.

Starting with IFRS, we reported an operating result of nearly EUR 1,500,000,000.0 over 2024, which is in line with last year’s results and with a clear improvement of claims experience following our assumption updates in the first half of twenty twenty four. Aegon reported operating capital generation before holding and funding expenses of EUR 1,200,000,000.0 in 2024 in line with the guidance we provided. We also met our guidance on free cash flow, which came in at EUR $759,000,000. Based on this progress, we propose a final dividend of per common share, which would bring the full year dividend to per share, which is an increase of 17% compared with 2023. We also returned EUR 1,400,000,000.0 of capital to our shareholders during the calendar year in the form of dividends and share buybacks and furthermore we are currently executing an additional EUR 150,000,000 share buyback program.

These are testimony to our commitment to generating attractive returns for our shareholders. Turning now to our strategy and commercial momentum, I’m also pleased with the progress that we have made. In The United States, we are building Transamerica into America’s leading middle market life insurance and retirement company. World Financial Group, our affiliated insurance distribution network continues to attract new agents and grow its business. In mid sized retirement plans, we are growing the portfolio and have a very strong pipeline of written sales.

We continue to pursue our strategy in our Protection Solutions business with a focus on growing our Life and Indexed Annuity business. In Financial Assets, we have reduced capital employed and made good progress in Long Term Care and completed the program to purchase institutionally owned universal life policies ahead of schedule reducing our exposure to mortality risks. Moving to The UK, in June, we updated you on our strategy to create a champion in The UK savings and retirement market. The results since then have been in line with our expectations. We have seen record growth in the workplace platform.

And while outflows continued in our advisor platform, we are executing a strategy to reverse the flow dynamics in this business that includes targeting our top 500 financial advisor firms. Our Asset Management business had a very strong year with solid net deposits in both the global platforms and the strategic partnership channels. Finally, in international, commercial results have been volatile this year in several markets, but mostly from pricing actions in China to reflect lower interest rates. I’m now turning to Slide number three for an update on our strategic assets in The Americas. We remain on track to deliver on the transformation of Transamerica.

Starting with WFG, compared with the end of twenty twenty three, the number of licensed agents increased by 17% to over 86,000. The number of multi ticket life agents remained stable over the same period. Annuity sales through WFG network increased by 22% compared with 2023, while new life sales decreased by 3%. In the Savings and Investments segment, while large market retirement plans experienced net outflows, net deposits in the mid size segment amounted to $600,000,000 in 2024. Strong levels of new written sales in both mid sized and large market plans point to solid growth of growth deposits going forward.

In this segment, we also strive to increase profitability and diversify revenue streams by growing in ancillary products as explained during the Capital Markets Day in 2023. Assets under administration in individual retirement accounts increased by 22% over the past twelve months to nearly $13,000,000,000 while assets under management of the general account stable value product increased by 18% to $13,000,000,000 In the Protection Solutions segment, new life sales decreased by 3% compared with the first half of last year to $473,000,000 New Life sales were impacted by a number of factors within the WFG distribution channel. These included some attrition of senior producing Life licensed agents, higher levels of sales for third party high face value life contracts, which is a product segment that Transamerica is not focused on, along with a shift in the mix of sales towards more annuities. We are actively addressing these challenges and in the fourth quarter we noted an improvement of new life sales of Transamerica products versus the third quarter. We’re also making good progress with the transformation of our life operating model, having completed major milestones in 2024.

So let’s now move to our UK business using Slide number four. In The UK, trends remain consistent with the path we discussed at the strategy teaching. Commercial momentum in the workplace platform remains very strong, evidencing our strong position in this market. Net deposits during 2024 amounted to £3,700,000,000 more than double the level of 2023. In the Advisor platform, net outflows amounted to £3,500,000,000 in 2024.

This reflects continued elevated levels of customer withdrawals and ongoing consolidation in non target advisor segments. In line with our strategy, we are focusing our efforts on targeting our top 500 financial advisor firms and improving the platform experience. At the end of twenty twenty four, the platform assets under administration amounted to billion, up 11% compared with the end of twenty twenty three due to favorable markets and the net deposits on the workplace platform. I now turn to Slide number five to address the progress of our international businesses. New Life sales in international segment decreased by 15% compared with 2023.

This was mainly driven by pricing actions in China to reflect lower interest rates. This more than offset the slightly elevated sales volumes generated ahead of a second regulatory change in October 2024. In Brazil, the decrease of new life sales is explained by unfavorable exchange rate movements and a very strong sales level in 2023. In Spain and Portugal, new life sales decreased mainly as a result of fewer mortgage linked life sales as higher interest rates dampened demand, especially in the first half of the year. This was partly offset by higher sales in single premium products linked to consumer loans.

A similar reduction was observed for excellent health products. But we continue to properly grow our books in these markets and have recorded solid increases in gross written premiums during 2024 compared to 2023. Moving now to Slide number six. Aegon Asset Management reported solid results, very solid results over the year. In the Global Platforms business, we saw strong third party net deposits of billion.

This was driven by strong inflows in alternative fixed income funds, which also benefited from the asset management partnership with ASR. The other main contributors to net deposits were retirement funds in The UK and The Netherlands. In the strategic partnership segment, net deposits amounted to EUR 4,500,000,000.0 and that was mainly driven by our Chinese joint venture, AIFMC. These solid levels of net deposits combined with favorable markets and favorable currency movements increased the assets under management to billion at year end 2024. Duncan, I will now hand over to you to discuss the financial performance over the second half of twenty twenty four.

Duncan Russell, CFO, Aegon N.V.: Thank you, Lars. Good morning, everyone. Let’s turn to Slide eight for an overview of our financial performance. In the second half of twenty twenty four, the IFRS operating result increased by 14% compared to the prior year period, mostly driven by The Americas, reflecting business growth in all three strategic asset segments. Operating capital generation before holding, funding and operating expenses was flat compared to the second half of twenty twenty three, as elevated required capital release was offset by higher new business strength.

Free cash flow amounted to million following receipts of planned remittances from all units and including the capital distributions from ASR. Cash capital of holdings stood at billion at the December. The decrease compared with the balance at the June was driven by million of capital returns to Aegon shareholders. Valuation equity, which consisted of some of shareholders’ equity and the CSM balance after tax on a per share basis increased by 9% to EUR 8.91 over the reporting period. Gross balance of leverage increased slightly to EUR 5,200,000,000.0 following FX movements.

And the group’s solvency ratio decreased by two percentage points since the June to 188% at the December 2024. Let’s now move to operational results Slide nine. The Group’s operating results increased to million, driven by The U. S. Strategic assets and Aegon Asset Management.

In The U. S, the operating results increased by 15%, reflecting business growth in the strategic assets. The increase was partially offset by lower operating profit from financial assets as these blocks continue to shrink. In The UK, the operating results decreased by 2%. Higher revenues from business growth and favorable markets were offset by higher hedging costs and lower interest income on owned cash.

In our International segment, the operating results decreased by 8% predominantly as a result of a lower operating result from TLB because of lower investment income post remittances. The operating result from Avon Asset Management increased by 34%, thanks to business growth, favorable markets and a one time benefit in our Chinese joint venture. And finally, our holding operating our holding reported a negative result of million. The results included a benefit resulting from an international reinsurance transaction between Transamerica and TLB, offsetting a negative impact in owners’ contracts and The Americas’ financial assets. I will elaborate on this item and the operating results of Americas more broadly using the next slide.

Number 10. In the second half of twenty twenty four, the Americas operating results amounted to $599,000,000 The operating results from Protection Solutions increased by 35%. Growth in the portfolio drove higher CSM release and investment income. The savings and investment operating results increased 10% mainly from increased revenues in retirement plans. The distribution operating results increased 25% mainly due to higher net commission revenues and revenue sharing income from third party product providers, both related to increased annuity sales volumes, both of which led to a higher operating margin.

The operating results and financial assets decreased by $37,000,000 due to the continued run off unfavorably impacting the net investment results and the release of CSM. Claims variance is overall favorable in second half twenty twenty four and materially more favorable year on year. But in second half twenty twenty four, we had a negative AUD 147,000,000 unfavorable experience on onerous contracts. About one third of this was driven by premium variances in the Universal Life block. Another third resulted from lapse behavior in TLB because of higher interest rates.

As this is related to an internal reinsurance transaction, this impact is eliminated in the Holdings segment. The remaining impact related largely due to the reclassification of interest accretion for owners variable annuity contracts from fair value items to operating results. Looking into 2025, the operating results should continue to benefit from the growth we are seeing in strategic assets and expense discipline, albeit with a lower operating a lower anticipated operating margin in the distribution segment as we invest in our franchise. Taking into account the reclassification of the variable annuity interest accretion into the operating results, which is a mechanical drag, the overall Americas operating result is anticipated to be in a yearly half yearly run rate of $650,000,000 to $750,000,000 This U. S.

Run rate feeds into a €750,000,000 to €850,000,000 run rate per half year for the group. Let me now turn to the net results on Slide 11. Non operating items amounted to a charge of EUR 91,000,000 in the second half of twenty twenty four. Fair value items resulted in a gain of EUR 64,000,000, driven by The Americas, where gains on hedges offset the underperformance of private equity investments. This was more than offset by net impairments of EUR 163,000,000.

This mostly related to ECL balance increases for bonds and mortgages, following more adverse ECL economic scenario outlooks. Other income amounted to EUR 159,000,000 in the second half of twenty twenty four, mainly driven by the result of our stake in ASR, partly offset by restructuring charges and investments in the transformation of our businesses. After income tax, this leads to a net profit for the group of EUR $741,000,000 for the second half twenty twenty four. Slide 12 talks to the development of Aegon’s shareholders’ equity in the second half of twenty twenty four. Shareholders’ equity per share increased by EUR 0.51 to EUR 4.53 compared to the June 2024.

The increase was driven by the net results, favorable currency movements, a reduction in the share count as well as gains in revaluations in OCI, which in part offset losses within the non operating items. These items more than offset the reduction in equity related to capital distributions to shareholders in the period. I’m now moving to the CSM and valuation equity development in the second half of twenty twenty four on Slide 13. The CSM at the end of twenty twenty four grew to EUR 9,000,000,000 helped by growth in our U. S.

Strategic assets. Outside The U. S, the CSM decreased in The UK from unfavorable experiences and the runoff of the traditional book. This was offset by the international segment. Valuation equity, which we define as the sum of Shell (LON:SHEL)’s equity and CSM after tax, grew by EUR 0.72 over the reporting period to EUR 8.91 on a per share basis.

I’m now on Slide 15 to address operating capital generation or OCG. In the second half of twenty twenty four, OCG from the units amounted to EUR $658,000,000, a comparable level to the prior year period. Lower OCD in The U. S. And international was offset by increases in The UK and asset management.

Earnings on imports decreased by 1% to €793,000,000 driven by The Americas, partly offset by asset management, which benefited from growth in favorable markets. The release of required capital increased by 18% to million, again driven by The U. S. And overall new business strain increased by 10%, mainly from business growth in U. S.

Strategic assets. Overall favorable one time items had a smaller impact in second half twenty twenty four than in second half twenty twenty three. In the second half of twenty twenty four, they amounted to around million, of which around EUR 15,000,000 was in the fourth quarter. Using Slide 15, I will elaborate on the OTG of our U. S.

Business. In the second half of twenty twenty four, Transamerica’s earnings on imports amounted to EUR $614,000,000, a decrease of 2% compared to the same period last year. Earnings on imports in general benefited from business growth year on year, while the prior year period benefited from larger positive non recurring items in financial assets. Claims experienced variance was also an unfavorable $60,000,000 in the second half of twenty twenty four compared to $70,000,000 in the second half of twenty twenty three. The release of required capital increased to $219,000,000 in the period.

This was mainly the result of non recurring capital releases in the period following management actions to lower the required capital on investment assets in general accounts. New business strain in the second half of twenty twenty four amounted to $4.00 $4,000,000 The increase was driven by large deposits in the general count stable value product within the Retirement Plans business and growth in the rider product within Protection Solutions. Summarizing, OCD in The Americas decreased by seven percent to AUD $429,000,000 in the second half of twenty twenty four. The decrease was largely explained by non recurring items and higher new business strain, which together offset the increased earnings on in force from business growth. Using Slide 16, I want to address the capital positions of our U.

S. And UK units, which remain strong and well above their operating levels. The U. S. RBC ratio decreased by three percentage points to 443% compared to the June.

As announced of the third quarter trading update, the termination of a portfolio of purchased Universal Life policies, including the return of part of the equity funding to finance those purchases negatively impacted the RBC ratio with eight percentage points. Restructuring charges and a contribution to the own employee pension plan reduced the RBC ratio by another eight percentage points. The benefit from OCG was partly offset by remittances to the group and market movements had a positive impact of eight percentage points. Although the RBC ratio remains very healthy, it is important to note that the capital sensitivities have significantly increased in second half twenty twenty four compared with the prior period. This has been driven by higher interest rates and equity markets, triggering uneconomic florries on our VA reserves as well as deferred tax asset constraints starting to bite.

Note that our published sensitivities now affect our actual DTA position in each relevant scenario. And I’m happy to go into further detail in the Q and A. In The UK, the Solvency ratio of Scottish Equitable decreased by three percentage points over the same period to 186%. The positive impact from operating capital generation and the annual assumption updates was more than offset by remittances to the holding and model refinement and some smaller one time items. Moving now to Slide 17 for an update on our financial assets.

We are making steady progress towards our goal of reducing capital employed in our financial assets to around $2,200,000,000 by the end of twenty twenty seven. As of the end of twenty twenty four, capital employed had decreased to 3,400,000,000 In variable annuities, annualized net outflows in the reporting period amounted to 9% of the account balance, in line with expectations for this run off block. In fixed annuities, annualized net outflows amounted to 16% of the average account balance as the book gradually runs down. In Long Term Care, we have now obtained regulatory approvals for additional premium rate increases amounting to $571,000,000 since the beginning of twenty twenty three, which is 82% of our target. Claims experience continues to track well with assumptions with actual to expected claims ratio that was largely in line with expectations.

Finally, in universal life, we have completed our program, which targets the purchase of 40% of the face value of institutionally owned policies that were in force at the end of twenty twenty one. As previously mentioned, funding remains available for additional purchases if these are economically favorable for Transamerica. And in fact, in the fourth quarter, we did purchase more policies. The run off of the book and this program drove the reduction of the net face value of universal life policies. At the end of the year, we have a net face value of $47,000,000,000 outstanding.

Turning now to Slide 18. Cash capital as a holding amounted to EUR 1,700,000,000.0 at the end of twenty twenty four. The decrease from the June was driven by EUR $728,000,000 of capital returned to shareholders in the form of dividends and share buybacks. Free cash flow amounted to EUR $385,000,000 in the period and includes remittances from all units and capital returns from ASR. Looking forward and as a reminder, we are currently engaged in million share buyback program, which is expected to be completed in the first half of twenty twenty five.

My final slide is number 19 for a recap of where we stand relative to our financial targets for 2025. OCG for 2024 was in line with our updated guidance of billion, reflecting not only solid business growth but also several favorable non recurring items, which totaled around EUR 65,000,000 over the year. For 2025, as communicated at the twenty twenty three Capital Markets Day, we expect OTG to be around EUR 1,200,000,000.0. OCG in The U. S, UK and asset management are all trending well versus original guidance, but are being offset by lower than originally anticipated OTG from international.

We also met guidance for free cash flow in 2024, which came in at million and included a million benefit from our participation in ASR’s recent buyback program. For 2025, our target remains a free cash flow level of around EUR 800,000,000 on the back of increasing sustainable OCG from the business units. Gross financial leverage of EUR 5,200,000,000.0 increased slightly due to currency movements but remains at our target level. Finally, we have increased our dividend over the year 2024 to EUR 0.35 per common share, up 17% from the EUR 0.3 per share over 2023. We are confident that we can continue to grow the dividend to our stated target of around per share over the full year 2025.

And with that, I hand it back to you Lars.

Lars Freiser, CEO, Aegon N.V.: Thank you, Duncan. And let me recap today’s presentation with Slide number 21. Looking back in 2024, I am proud of what the teams in our company have achieved and I’m grateful for their very hard work. We have made significant steps in the transformation of Aegon, but the work is not done. We will remain laser focused on executing our strategy and delivering on our commitments.

We have met the financial guidance we previously presented to you and remain confident that we can meet our targets for 2025. We are growing our strategic assets and we’re reducing our exposure to financial assets step by step. You can see this in our CSM development, but also in how the quality and quantum of capital generation is shifting towards our more profitable and attractive businesses. Although we will speak before then, I look forward to providing you with an update on our strategy and new group targets at our next Capital Markets Day on 12/10/2025, in London. With that, I would now like to open the call for your questions.

Please limit yourself to two questions per person. Sharon, please be so kind as to open the Q and A session.

Conference Call Operator: Thank you, sir. Thank you. We will now go to the first question. And your first question comes from the line of David Palmer from Bank of America. Please go ahead.

David Palmer, Analyst, Bank of America: Good morning. Thanks for taking my question. Can we start with the operating capital generation, please? And could you help me understand the moving parts leading you to reiterate your 2025 guidance? So maybe if you can run through the main building blocks and the offsetting factors to the pressure you’re seeing in China?

Duncan Russell, CFO, Aegon N.V.: Okay. I think David, it’s Duncan here. Your question is around the guidance for next year, which as you say has been reiterated. So it’s very simply if you multiply our 4Q actuals and the underlying by four, you’re getting to a run rate of around $1,200,000,000 currently, which is in line with our guidance. Compared to the original Capital Markets Day guidance, we have benefited from higher equity markets than assumed and from the dollar strength.

So we’ve had some favorable tailwinds helping us. And in fact, if I look at our business units, I think The U. S, The U. K. And the asset management business, they’re all running slightly favorably compared to the target at the Capital Markets Day, reflecting those tailwinds with some offsetting headwinds.

But the international is an offset as you pointed out and that’s running weaker than we originally assumed, which is mostly due to China. And if I go into the specifics, we have the tailwinds of the equity markets. Within The U. S, we have the drag from mortality. If you recall, we updated our mortality assumptions, which we reflected in IFRS, but we have to take over time in OCG.

But despite that, we think The U. S. Is running quite well. But offsetting at the group level is the international business where China is anticipated to be around $50,000,000 lower in 2025. And that’s mostly due to the low interest rates where we have a drag coming through as we have to amortize basically the difference between the assumed regulatory curve and the market curve through the OCG over a three year period.

So if I take those two things net, I’m getting to a pretty stable outlook for 2025.

David Palmer, Analyst, Bank of America: Thank you. And what kind of interest rate benefits are you muddling there? I think you said at Q3, you were reinvesting 130 basis points higher than your back book yield. That’s now probably 200 basis points. So how does that feed into the equation?

Duncan Russell, CFO, Aegon N.V.: So you’re right, we are already investing higher than our back book, but we’re not seeing a huge benefit coming through in our and we don’t anticipate a huge benefit coming through in our OCG. And And the reason for that is we’re seeing some competitive pressure. So where we are earning a higher yield, we’re actually passing some of that back onto the customer. And that’s because the two areas where we are reinvesting is in the Ryla product, which is quite a competitive market at the moment. And also then in our stable value and the retirement plans, even though that takes a bit longer to filter through, over time we’re seeing that also coming down to more normalized levels.

So yes, we’re reinvesting at a higher rate, but we’re passing that on to the customers. So I’m not anticipating a significant benefit in OCG as I look forward.

David Palmer, Analyst, Bank of America: Understood. Thank you. And my second question is on the big increase in the equity sensitivity of the RBC ratio. Are there any measures that can be taken to manage this? Or is it just dependent on the level of equity markets, so you need basically markets to go down?

Or is there anything on the hedging that can be done to change the flooring level?

Duncan Russell, CFO, Aegon N.V.: Yes. That’s a it’s a good point. And indeed, there was a significant change in our equity sensitivities and our sensitivities in general in the second half. There are three reasons for that or two reasons really actually. The first was, we’ve moved our sensitivities now to be on a actual tax position.

And as interest rates rose and equity markets rose, we found ourselves reaching a limit on the amount of DTA we can include in our RBC ratio. And so we’ve adapted our sensitivities now to now reflect the actual tax position. And that means basically all our sensitivities are now pretax as opposed to net tax, which means they’re just higher. And then second reason, which is the point that you mentioned is the flooring on the variable annuity book. Now that’s slightly counterintuitive and it reflects a prudence in the regulatory system.

As you know, we manage that book on an economic basis, but under The U. S. Stat system, we’re only allowed to we’re not allowed to reflect the full reduction in economic reserves. We have to floor them at zero. And as a consequence of that, we’re now pretty sensitive to up equity markets.

The good news is that our ratio is at a pretty high level with four:four:three. So even a 25% movement in equity still leaves us at around our commercial capital level. But it is something we will look into and see if there are ways of mitigating it. However, I doubt we would change our approach to the management of the variable annuity book, which is to continue to manage us on an economic basis and hedge out the risk we’re exposed to.

Nazib Ahmed, Analyst, UBS: Understood. Thank you.

Conference Call Operator: Thank you. Your next question comes from the line of Michael Hutner from Berenberg. Please go ahead.

Michael Hookner, Analyst, Berenberg: Thank you so much. I’ve got two questions do want one time. So China solvency, can you say what the solvency is now and what it would be if you once you’ve amortized if you were to apply spot interest rates rather than the kind of smooth curve. What I’m really asking is, is there what is the risk that you have to inject capital in China? And then I have another question on mortality.

Lars Freiser, CEO, Aegon N.V.: Why don’t you so Michael, why don’t you also do the mortality question and

Marcos Rivaldi, Analyst, Jefferies: then

Duncan Russell, CFO, Aegon N.V.: we’ll make sure.

Michael Hookner, Analyst, Berenberg: Sure. So on the mortality, so I’m hopeful that all these drugs that are coming through and the peaking of maybe mortality due to fentanyl and other stuff should mean that mortality going forward in The U. S. Will improve. And I’m just wondering what metrics should I use to kind of try and gauge whether how much a benefit or the relative to expectations could be.

You just mentioned the face value figure for Universal Life of $47,000,000,000 but my memory of mortality exposure was higher. So I just wonder if you can help me on these moving parts. Thank you.

Lars Freiser, CEO, Aegon N.V.: Thank you very much, Michael. So Duncan?

Duncan Russell, CFO, Aegon N.V.: So on the mortality first, Michael. So the thing I look at is the experience variances in the IFRS accounts. The reason I look at that is that the IFRS accounts reflect our best estimates. We took the updates in the first half, whereas the capital position is often locked in. So I would focus on the IFRS accounts and look at the experience there.

And the good news is that in the second half of this year, we had a positive variance on mortality, which is pleasing. That happened that variance was both in the third quarter and in the fourth quarter a positive, which is good and was across all product lines, which is also good. So that’s what you should monitor is the variance and we have a positive experience in the second half, which is good news. On the Chinese solvency, they have various metrics. The 4Q local comprehensive solvency ratio was 228% and the core ratio was 177%.

And just for your reference, the regulatory thresholds are 12060% respectively. So we’re quite a bit above the regulatory thresholds. A couple of things of reference. Firstly, as I pointed out, the curve that they use on a local basis is higher than the current straight curve. And we have to amortize that difference through the regulatory capital basis over a three year period.

And that’s why we’re expecting a negative OCG or largely reduced OCG in China over the current period as we basically pay that down. It’s all dependent on where interest rates are. So interest rates in China have fallen a lot and that’s why it’s particularly onerous at the moment. If interest rates continue to fall, that drag will increase. If interest rates go up, that drag will reduce, although our solvency ratio will come down.

So it’s something we’re closely monitoring. We’re looking into various management actions in order to protect our solvency position.

Michael Hookner, Analyst, Berenberg: Thank you.

Conference Call Operator: Thank you. Your next question comes from the line of Farooq Hanif from JPMorgan. Please go ahead.

Farooq Hanif, Analyst, JPMorgan: Hi there. Thanks very much. Two questions. I’m just going to start with international. The return on capital in international just seems really weak compared to the rest of the group.

And given the low interest rates in China, given perhaps the market possibly doesn’t sort of really look at the international business in a lot of detail, gives you a lot of value for it, what can you say about potential disposals or looking at restructuring that business going forward now that obviously a lot of your U. S. Restructuring and transformation is kind of in the bag and it’s just running. I mean, is that the next area that you think you might turn to? That’s question one and then I’ll wait for question two when you answer that.

Lars Freiser, CEO, Aegon N.V.: Okay, Baruch. Varouf. Yes, so on international, no, the international businesses are core to the perimeter of the group. And if I look at if I just I’ll get to China in a second and Duncan has already mentioned quite a bit about that. But if I look for instance in our Brazilian business, that business is doing that’s just doing well structurally well already for quite a long time.

We have actually increased our ownership stake in that business in the course of last year because we have good expectations from that business. While sales this year for Brazil were slightly muted versus an exceptionally good sales year in the second half of the year last year. The gross written premium, so the overall size of the business giving strong customer retention has actually gone up more than 15%. So we are quite pleased with that business and we’ll continue to support it and to to make sure that it continues to grow profitably. If you look at the joint ventures we have with Banco Santander (BME:SAN) in Spain and in Portugal, I mean, they’re chugging along very nicely over the years if you look at the profitability of those businesses.

And yes, there are some interest rates and mortgage related sales that came down a bit. But if you also look at the overall growth of the gross written premium of those businesses, that also grows more than 10%. So quite pleased with that as well. It’s checking along nicely. Now when you go to China and that’s on TLB, by the way, which we shouldn’t forget, it’s our high net worth business in Singapore and Hong Kong.

You may recall that we’ve put that in hibernation mode, if you will, a while back, but we have decided to start to grow in a disciplined and moderate pace that business. And then we have China. And in China, Life, which is included in the international segment because the asset management business is doing fine in China, but on the Life Assurance side, we are seeing those headwinds. I mean, Duncan already talked about the lower interest rate environment in China, which came down, of course, quite dramatically in Q3 and Q4. We repriced all the products and as a result, we don’t see the sales that you would want to see there.

So we’re monitoring the situation in China closely given that the environment for life insurance is not that great. But China is a very large market that remains to be the case and the dynamics are structurally in our favor. So our international businesses are a core part of our franchise. You had a second question, Haruk.

Farooq Hanif, Analyst, JPMorgan: Yes. So going to earnings, the IFRS earnings, so obviously the onerous contracts in The U. S. Have been a negative surprise. And I think there was a feeling the last time you spoke to us that some of these surprises would go away, especially around mortality that kind of come out of the blue.

So two parts to my second question. So firstly, is there anything else that you’re looking at in your accounting and the way that you do it, given that it’s a new framework that we need to be aware of? And secondly, when I look at the buckets that contribute to those own risk contract, it seems that two out of the three are probably going to continue. Obviously, one is offset at the holding. But what about the premium variances in Universal Life?

If you could just explain that and what you can do about that? Thank you very much.

Lars Freiser, CEO, Aegon N.V.: Thanks, Roop. So Duncan.

Duncan Russell, CFO, Aegon N.V.: Okay. Just coming on to the surprises. So the there was the good news is that the mortality experience variance was, as I mentioned, positive. We’re tracking well on expenses, etcetera, etcetera. So actually, you’re right to highlight that there was one area which negatively surprised in the second half, which is the onerous contracts, which we have to take all of the adjustment for onerous contracts through the P and L to remind you because these are contracts that we don’t have as CSM to get a magnified impact.

If you look at that, part of that onerous contract was a reclassification. So that’s where we’ve improved the quality of our operating profits as we’ve moved the light from below the line to above the line, which I think was appropriate and therefore will recur. And that was about $35,000,000 But that’s just a reclassification with no impact on the net profit or the valuation equity growth. The rest of the onerous then indeed in The U. S.

Part of it was an internal thing. So we saw or we’re seeing higher lapses in TLB as a result of the higher interest rates. That resulted in a drag in The U. S. Business and then an offset in the holding and net net for the group.

There was no impact on the operating profit. I would expect that kind of mismatch to continue at least into 2025. And therefore, we should see we’re likely to see I think another drag in the first half in Transamerica offset by a positive in the holding. Then the rest of the onerous then, there were some fairly small onerous on new business. I think you’ll always get a bit of bits and bobs on new business.

So I would factor in a small kind of recurring number there. But then the main big one was the premium paying variances on our universal life block, which we saw in the second half of the year. That’s a flexible premium policy, which means that policyholders can vary how much they pay. And what we’ve shown is when we see that behavior, we assume that indicates more efficient policyholder behavior, which I think is a prudent thing to do. And we reflect that through the onerous movement entirely.

It could be the case as this develops over time that it actually reflects not more efficient behavior, more lapses or something else. But for now, we’ve assumed it’s more efficient behavior. And I think again, it’s probably reasonable to assume that there’ll be some continuation of that into 2025. Although, I think it’s more open ended and it’s something we’ll just have to monitor. In terms of the accounting changes, Frook, the reason we moved the accretion from below the line to above the line is that we’ve just felt that was the right thing to do and it created a more robust operating profit.

It could be the case that we continue to look at ways to make the operating profit more robust in the future, but at this point in time, I don’t see anything on the horizon.

Farooq Hanif, Analyst, JPMorgan: Okay. Thank you very much. Thank you.

Conference Call Operator: Thank you. We will now go to the next question. And your next question comes from the line of Ria Shah from Deutsche Bank (ETR:DBKGn). Please go ahead.

Ria Shah, Analyst, Deutsche Bank: Two questions, but I’ll start with the first one. So in terms of The UK business, I mean strong workplace flows in 2024, what are your expectations for this in 2025? Do you in 2025? Do you still expect to see growth in this number? And then I’ll move on to the second question after that.

Lars Freiser, CEO, Aegon N.V.: Well, Ria, we this is Lars. We have indeed observed now already for quite a number of quarters, it’s not only limited to 2024, A quite strong commercial momentum in our workplace business, which meaning that we are we found with our propositions and the distribution that we have a good path to continue to grow that business and for 2025. I mean, 2024 was a record year. While I have no reason to believe the commercial momentum will not sustain, we do need to recognize that 2024 was exceptionally high. But I think we’re very well positioned to continue to grow in that business.

When it comes to the advisor platform, which is the softer piece of the profile in The UK, we saw continued outflows during this was anticipated by the way. You know that we’ve had a capital markets teaching about The UK business where we have outlined our plans in the coming years to turn that platform experience for our IFAs around. And with that, we aim to grow it to $5,000,000,000 of positive flows by the end of twenty twenty eight.

Ria Shah, Analyst, Deutsche Bank: And then my second question is, just looking at the IFRS result going from operating to net, the restructuring charges related to U. S. Investments, is this a good run rate to use, the numbers seen in the second half of the year?

Lars Freiser, CEO, Aegon N.V.: Yes, Sreedhar, let me ask Duncan to take that question.

Duncan Russell, CFO, Aegon N.V.: The run rate for the second half of the year, let me just get that. I think it’s around million to million per half year.

Ria Shah, Analyst, Deutsche Bank: Okay. Thank you.

Conference Call Operator: Your next question comes from the line of Nazib Ahmed from UBS. Please go ahead.

Nazib Ahmed, Analyst, UBS: Hi, good morning. Thanks for taking my question. So firstly on the financial assets, I think you’ve got a target of getting the capital consumed or capital deployed in that business to $2,200,000,000 by $27,000,000,000. There’s no additional management actions today. What’s the pipeline looking like?

How are you going to get down to $2,200,000,000 So there’s another $1,000,000,000 odd to go from where you are at the moment? So yes, that’s my first question. I’ll ask the second one later.

Lars Freiser, CEO, Aegon N.V.: Okay. Thank you very much, Nazeem. Financial assets, the management actions get down to the target that is Chris.

Duncan Russell, CFO, Aegon N.V.: Yes. Just to recap, so at the time of making that target and we’re making good progress on it, we said that we would use a combination of bilateral, which is where we have to engage with a third party unilateral. And then we didn’t assume any major third party transactions in that. So it’s not that that target is based off an assumption that we have to do a major transaction. It could be that transactions are supported, but we’re not baking in major transactions.

We continue to look at all options. In the fourth quarter, as I mentioned, we continue to buy institutional loan policies, which is a bilateral action. And we continue to explore if there are any transactions that could make sense. And if we find one, we’ll announce it.

Nazib Ahmed, Analyst, UBS: I guess the follow-up to that one is, do you need a transaction to get to sorry, not a transaction, a bilateral reinsurance or something like that to get to the $2,200,000 or can you kind of just get it down to runoff? So I’ll ask the second question. So in terms of kind of it’s related in terms of the deals that you’ve seen particularly on retirement plans, I think Voya did a deal as well. Is that an area where you could potentially look to build up scale because it’s a fee based business, it’s scale will give you operating leverage, is that where you would look to acquire something? Thanks.

Lars Freiser, CEO, Aegon N.V.: We are, so let me take that question, if you don’t mind. We are a company that any acquisitions that we would be evaluating, we’re more than happy to do so in those business lines and it’s in line with our strategy, right? So in those business lines and markets that we define as core to our group. And if we would see something that is attractive, that we strengthen the business, that we’re ready to integrate and meets financial and non financial criteria, we will seriously consider it,

David Palmer, Analyst, Bank of America: including

Lars Freiser, CEO, Aegon N.V.: retirement in The U. S.

Duncan Russell, CFO, Aegon N.V.: And I thought I’d answered the question, but we did not assume material third party transactions in the original target. And it could be the case that we need to do some transactions or reinsurance deals or whatever in order to get down there, but we did not assume any material third party transactions. And while I’m on, I just want to correct my answer to Ria on the prior question on the restructuring charges. It’s actually U. S.

Dollars 30,000,000 to 40,000,000 per quarter restructuring charges, the run rate you should assume.

Nazib Ahmed, Analyst, UBS: All right. Thank you.

Conference Call Operator: Thank you. Your next question comes from the line of Marcos Rivaldi from Jefferies. Please go ahead.

Duncan Russell, CFO, Aegon N.V.: Good morning

Marcos Rivaldi, Analyst, Jefferies: everyone. Can you sort of away from I guess the results today, but any update you can provide on discussions you’re having with the BMA around the long term regulatory capital value of your outstanding securities? I’m thinking particularly of the about SEK1.4 billion of Solvency II grandfather debt that’s due to lose regulatory capital value in Bermuda at the end of the year. Thank you.

Duncan Russell, CFO, Aegon N.V.: Thanks, Marcus. Duncan? Yes. We as you know, we have a transition period agreed with the BMA whereby we, from a Solvency Capital calculation, continue with the method we were using under Solvency II until the end of twenty twenty seven. And we’re in continued discussions with the BMA on two items.

One is the capital calculation post that period and the second is on the treatment of our debt securities. And as and when we have an update on that, we will come to the market with it.

Marcos Rivaldi, Analyst, Jefferies: Okay. Thank you.

Conference Call Operator: Thank you. We will now go to the next question. And your next question comes from the line of Stephen Haywood from HSBC. Please go ahead.

Lars Freiser, CEO, Aegon N.V.0: Good morning. Thank you. Two questions. Obviously, there was quite a negative net impairment on the IFRS profit line. But obviously and you do it on an ECL basis now in line with the rules.

Can you give us an indication of how conservative this is? What’s the likelihood of these ECLs materializing as actual impairments? My second question is more of a statement, I guess. It’s if you look at your RBC sensitivities, they’re showing that no matter what equity market moves up or down or whatever interest rate move up or down you have, it is negative on the RBC. How can you sort of give this a better information on an economic basis to us?

Duncan Russell, CFO, Aegon N.V.: Yes. Okay. On the ECL, which means expected credit losses, so which is kind of like a bit of a forward looking metric, I think. And most of the changes we saw reflected changes in our expectations around future losses rather than defaults that occurred in the period. So we’re not actually seeing significant defaults in the current period, but we did make our expectations more prudent.

And that was mostly due to using more pessimistic assumptions around U. S. Unemployment. To give you a bit more color, two thirds of the ECL impairments in the second half were for bonds and mortgages as a result of those more pessimistic model inputs for unemployment. And the rest then reflected a small number of downgrades and defaults on mostly real estate assets.

So Stephen, it’s mostly due to indeed a more prudent forward looking expectation around the macroeconomic outlook. On the second question, which to remind me the RBC sensitive to the year, it is counterintuitive. So you’ve noticed that now our RBC capital ratio basically if equity markets go up, it goes down. If equity markets goes down, it goes down. And same on interest rates but to a lesser degree.

And as I explained earlier, it’s mostly or almost entirely due to this flooring of reserves under the variable annuity business we have. This is quite a technical point, but I’ll try and explain it a bit better by using the sensitivities which we disclosed. So you see that in the up 10% equity market sensitivity, our ratio would fall by 18%, all else being equal and assuming that is an instantaneous shock. What happens in that scenario is that we would book the hedge losses in our capital base because we hedge the economic exposure we have, but we cannot take full credit for the reduction of the economic reserves back in the policies as they get flawed under The U. S.

Statutory scenarios. And these reserves, if we cannot take credit for, they can be seen as a prudence in the system and they’ll get released over time as and when we earn the underlying fees. So they don’t disappear, they come back and it’s kind of reflecting prudence. In a down scenario though, you see that our ratio only falls by 6%. So that’s quite a bit lower than the 18% on the up scenario.

And the reason that this is less than the up sensitivity is in that scenario we first release those reserves, those floor reserves, that prudency and that observes the first part of the hit. So it acts like a buffer. So consequently what I’m trying to explain is that, yes, it’s counterintuitive But as equities move up the protection we’re building into our ratio from subsequent equity market corrections makes our ratio much more prudent and secure. And it means that even if our ratio falls, which it will do, we are at that point in time far less sensitive to equity market moves than otherwise, all else being equal. In terms of the economics, which I think is also a valid point, I think the IFRS basis is pretty economic.

So we also disclose the IFRS sensitivities and to rates, equity markets, etcetera. And I see that as a good representation of our economic exposure. And just to recap, most of our equity market exposure is actually due to fees. We fully hedge guarantees and we leave open fees on the underlying mutual funds. Thank you.

Very comprehensive.

Conference Call Operator: Thank you. Your next question is from Michael Hookner from Berenberg. Please go ahead. I

Michael Hookner, Analyst, Berenberg: had two and they’re both about 2025. So billion, does it can you talk a little bit about moving parts? I think you’ve got a sensitivity on OCG in The Americas of million in the group of million if the equity market goes up 10%. So I’m just asking, have you included that because equity markets are up a lot? And then the second is a similar calculation on the free cash flow.

So you beat on free cash flow in 2024, partly because ASR bought back some shares. And the $800,000,000 do you include in that the ASR buyback they announced yesterday the $125,000,000 which they kind of indicated at the Capital Markets Day? Any help on the moving parts, please?

Duncan Russell, CFO, Aegon N.V.: Okay. If I deal with the second one first, Michael, here I think, Yes, we do include the ASR. Our portion of the ASR share buyback, which say indeed flags at the Capital Markets Day, which is when I think that’s going public. And that has a positive impact for us, which is helpful in us delivering the GBP 800,000,000 target. On the OCG, we reflect the markets as they were in the most recent quarter.

So if you take the 4Q underlying run rate, we’re around $1,200,000,000 based on XE markets as they were, I think, at the start of 4Q. The and as we look forward, as I mentioned earlier, what I see is that The U. S. Asset management in The UK are all trending quite well versus our original target. But the real drag is the international business, which is mostly China due to those lower interest rates.

But also we and that’s why we’re

Yves Cormier, Head of Investor Relations, Aegon N.V.: coming around,

Duncan Russell, CFO, Aegon N.V.: we’re at the 1.2% despite favorable performance in the other businesses.

Michael Hookner, Analyst, Berenberg: Brilliant. Thank you.

Conference Call Operator: Thank you. We have no further questions. I would like to hand the call back over to Yves Cormier for closing remarks.

Yves Cormier, Head of Investor Relations, Aegon N.V.: Thank you, operator. This concludes today’s Q and A session. Should you have any remaining questions, please get in touch with us in Investor Relations. On behalf of Lardan Denken, I want to thank you for your attention. Thanks again and have a good day.

Conference Call Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.

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