Aegon Limited

Ladies and gentlemen, good day and welcome to the Aegon first half year 2019 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jan Willem Wedema, CEO, Aegon. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining this conference call on Aegon's first half 2019 results. We would appreciate it if you could take a moment to review our disclaimer on forward-looking statements which you can find in the back of the presentation. We will start today with our CEO, Alex Wijnands, who will give an overview of where we stand with regard to the delivery of our strategy and our achievements in the first half of the year. After this, our CFO, Matt Ryder, will walk you through the financial highlights of the first half of 2019. At the end of the presentation, we will, of course, leave more than sufficient time for your questions. I will now hand it over to Alex.

Thank you, Jan Willem, and good morning, everyone. And also thank you, all of you, for your continued interest in Aegon and for joining us on today's call, which is a busy day, as we all know. You will remember, in February, we provided you with new medium-term targets. The economic context in the first half of this year has been challenging, with interest rates falling to historic lows in many of our key markets. In this environment, our hedging programs protected us well and we have achieved significant progress in many of the strategically important areas. Very importantly, we have maintained a strong capital position and have been able to increase our dividend to our shareholders. Before going into more details on the actions we have taken and the underlying developments, let's first together have a look at the progress we've made towards our targets. Normalized capital generation, the cornerstone of our targets, has increased by 20% compared to the first half of 2018. With no less capital generation of €740 million, we are well on track to deliver on our target of €4.1 billion for the three-year period 2019 to 2021. And what's more, in this period we have maintained a strong capital position. Our Group Solvency II ratio of 197% is at the top end of our range, and our holding cash buffer has been increased. This allows us to raise our interim dividend by 7% to 15 euro cents per share. As a result, our dividend payout ratio of normalized capital generation is 43%. And this puts us on track towards a full year target of 45 to 55%. The dividend is supported by well-diversified remittances from our subsidiaries of €765 million. This is in line with our full-year guidance. The Netherlands retained its planned remittance as a result of being just below its new Solvency II ratio target zone. Our return on equity at 9.6% is slightly below our 10% target. However, we remain fully committed to do everything we can to achieving a return on equity of more than 10% while recognizing the challenges that the current environment brings. In line with our strategy, we have taken several key portfolio actions as we're showing on slide three. As you are by now hopefully well aware of, we have regrouped our businesses in three distinct strategic portfolio categories. In each of these categories, we are making good progress. In the Manage for Value category, we focus on optimizing our capital position and reducing expenses. In the first half of 2019, we have started the process of transferring the administration of the defined pension book from Aegon Leven in the Netherlands to our in-house, low-cost administrator, DKP. This process is unique in the Netherlands and will allow us to achieve a more variable and lower cost base in our life's business. Furthermore, We are considering various options to accelerate the release of required capital in the Netherlands. Our drive for growth businesses are the cornerstone of our growth strategy. The vast majority of the new business strain is invested in this category, and we are focused on accelerating growth in these businesses. As an example, in a U.S. business, we have created dedicated leadership teams for workplace solutions and individual solutions. This allows us to sharpen our focus on the specific market segment and customer requirements. We are already seeing increased commercial momentum in the organization. Our partnership with TCS is bearing fruit as demonstrated by a notable increase in customer satisfaction. An excellent customer experience is key to achieving our growth targets in a sustainable way. we have successfully finalized the co-funds integration. The migration of the nationwide portfolio has happened smoothly as we have applied the learnings from the retail migration last year. Our team in the UK is now realizing the remaining cost efficiencies as we dismantle the co-fund system. Furthermore, a number of actions have been taken to scale up for the future business. We announced in May that we are divesting Agle Steak and the Japanese joint ventures for 130 million euro expect to realize a book gain of 50 million euro we've also decided to wind down our mexican joint venture as it did not meet our financial objectives and in india we are building the leading digital insurance company of the country and we have just agreed a distribution partnership with mobi quick the country's second largest mobile wallet provider we're confident that will be partnered with more leading e-commerce providers to increase our reach in a vast and developing Indian market. And finally, here in the Netherlands, we are in the process of rationally integrating Aon Bank and Knop to strengthen our leading position as a digital bank. I'm now turning to slide four. As mentioned, capital generation is significantly higher compared with last year's first half. capital generation has increased in all strategic categories, and it was mainly driven by enforced earnings as a result of the actions we have taken earlier, such as rate increases in long-term care and our universal life book. In line with our targets, the vast majority of the new business strain is invested in a drive for growth category. We invested mainly in indexed universal life new business in the US. Also, The evolving business make leads to a higher new business trend, for example, from continued growth in a scale-up for the future market in Spain. In the right-hand graph, you can see the distribution of capital allocated across the three strategic categories. And as expected, capital allocated to demand for value category is slowly declining as a result of the runoff of the large underlying life insurance books in the UK and here in the Netherlands. And consequently, we're therefore able to allocate now more capital to the other two categories. On slide five, we show the development of our gross and net deposits. Obviously, we are not satisfied with the overall negative net deposits. However, underlying, we observe an improving commercial momentum with gross deposits increasing in most regions, and this will lead to positive net deposits over time. In the U.S., we recorded higher takeover deposits in retirement plans, higher variable annuity deposits reflecting product advancements, and increased fixed index annuity sales. Unfortunately, net deposits in the U.S. were negative, mainly due to contract discontinuances in the retirement plans. We will take a deeper dive into the U.S. operations on the next slides. Aegon Asset Management continues to grow its third-party business. whereby our Chinese asset management venture is a strong contributor. Let us now take a quick look at life and general insurance sales on slide six. Although we are not yet where we want to be, life sales in the U.S. increased in the strategically relevant distribution channels. Also, sales in China are developing positively. In accident health, The decline in new business is mostly driven by last year's management decision to discontinue certain product lines. In the U.S., we saw positive developments in our individual business as we gained market share, while the competitive environment in the employee benefit business resulted in lower new production. Looking forward, let me share with you the challenges we're seeing in our markets and the actions we are taking. And now on slide seven. So clearly, the financial markets are challenging at the moment. This is mainly the case in two areas. Firstly, the low interest rates put our variable annuity and live new business in the U.S. under pressure. It is difficult to provide attractively priced products to our customers while also ensuring economic pricing of our products. We are well equipped to meet this challenge with strong capital position and a unique franchise. Secondly, dislocated credit spreads impact our Dutch capital position negatively, as Matt will explain in more detail in a moment. And as a result of this market environment, we will continue to expand the less capital intensive service businesses and selectively consider other options to optimize the Dutch capital position. In the U.S., We're improving our service delivery in the retirement plan business to stop the current outflows and retain more customers. Furthermore, we're addressing the intense competition in the U.S. workplace market by bundling products to provide attractive employee benefit propositions to customers and leverage their cross-selling potential. In the U.K., we have finalized the co-funds migration and can now fully concentrate on growing and expanding the business. Customers will benefit from leading propositions and further enhance platform functionality. Operationally, our biggest challenge is to lower expenses in our back books to make them more variable. For this, we have partnerships with TCS in the US and Altos in the UK, and we're making good progress with the implementation of these partnerships. Recognizing full implementation will take several years. Also in our other markets, we're actively addressing our challenges. Our high network business in Asia is expanding its product range, its geographic reach, and is developing new distribution capacity to counter the increased competition in the market. And in Spain, our joint venture with Santander is developing according to our plans, and we have now the opportunity to expand the business to the Banco Popular branches that Santander acquired. At the same time, we are in a turnaround process for our own business to improve profitability in Spain. Let me give you some more insights of what we're doing in the U.S. in the next slides. And now slide eight. As mentioned briefly before, we have realigned our Transamerica organization. All workplace-related businesses, such as retirement plans, employee benefits, and stable value solutions are now under a single management under the leadership of Blake Boswick. This alignment is making Transamerica much more responsive in the competitive market environment. And the renewed market focus is already visible in the improving commercial momentum in the workplace area. We've seen that written sales have significantly increased, and we are proud to have won several large mandates, including one mandate with $3 billion of assets. This large case reflects the skills and capabilities that we have obtained through the Mercer acquisition. which allows us now to compete effectively in the large-case markets. However, we also experienced net outflows in retirement plans in the first half of 2019. Due to the nature of the business, net flows can be lumpy. Current outflows are partly due to some service challenges we have experienced in the workplace solutions areas in the past. That's why we are making the needed investments and the team is working very hard to re-establish the service levels that customers should be able to expect from Transamerica. And in addition, we continue to roll out our bundle propositions. Managed advice is now available in the middle market and customers are responding positively to this proposition. So overall, we're confident that we are back on track to stand out in the U.S. workplace business with a compelling brand narrative and integrated solutions. Let's now turn to individual solutions on the following slides. And at slide nine, under the leadership of Dave Poulsen, the individual solutions team is implementing an integrated view across all of our distribution channels and the product suite for individuals. As a first sign of success, we increased our market shares in recent months for some of our key strategic products, being indexed universal life, variable annuities, and fixed index annuities. This demonstrates the competitiveness of our product range. Our partnership with TCS is also contributing to this progress, with higher customer satisfaction as evidenced by a significant increase of the TNPS scores since we announced the partnership. The next step is to bring the first new products onto the bank's platform over the next quarters. And in addition to our cooperation with TCS, We are now also partnering with a specialist provider for long-term care, long-term care group. The last week, we started to implement this new partnership, which brings extensive expertise in managing long-term care cases efficiently, cost-efficiently, and with higher customer services quality. So let me now summarize. We are starting to see good commercial momentum in key areas, but we will need to continue to invest and to work harder to improve retention. Overall, we've made good progress in the execution of our strategy by driving efficiencies in those businesses we manage for value by allocating capital to those activities with the best growth prospects. Let us now turn to more insights into the financial results for the first half this year. Ahmed, can you please take a few speakers?