Aegon Limited

Good day and welcome to the AGON second half year 2019 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jan Willem Wedema. Please go ahead, sir.

Thank you very much. Good morning, everyone, and thank you for joining this conference call on AGON's second half 2019 results. You would appreciate it if you could take a moment to review our disclaimer on forward-looking statements, which you can find at the back of the presentation. We will start today with our CEO, Alex Wijnand, who will give an overview of where we stand with regards to delivery of our strategy and what we have achieved in the second half of this year. After that, our CFO, Matt Ryder, will walk you through the financial highlights on the second half of 2019. At the end of the presentation, we will of course leave plenty of time for your questions. I will now hand it over to Alex.

Thank you, Jan-Willem, and good morning, everyone. Thank you all for continued interest in AGON and for joining us on today's call. So let me begin on slide two by giving you a summary of how I look back at the last six months. In this period, we continue to operate in what is for AGON a challenging environment with persistent low interest rates in combination with declining bond spreads. This has a negative impact on our underlying earnings, in particular in our U.S. business, where we've also seen outflows in our retirement and annuity businesses. And as a result, we have unfortunately not been able to meet our return on equity target of 10%. However, on the positive side, we are seeing that our commercial momentum is improving, with increases in life and accident and health sales, as well as in gross deposits. At the same time, we have strongly increased our capital generation and we have taken the necessary management actions to increase our capital position in the Netherlands. And on the back of our strong capital position and capital generation, we are announcing an increase in our dividend of 7% compared to last year. This takes me to slide three, where we will discuss our medium-term financial targets in more detail. As you can see, we had normalized capital generation of 1.6 billion euros last year, which supports our cumulative three-year target of 4.1 billion euros. Gross remittances were slightly below our 2019 target. However, when you complete proceeds from the sale of our stake in the joint ventures in Japan, which we announced in May 2019, and which we closed in January of this year, Gross remittances total 1.5 billion euros in line with our target. We did, however, fall short of our return on equity target in a challenging low rate environment, but we remain committed to taking all necessary management actions to achieve this target. Let me now discuss our normalized capital generation and the implications for our dividends. I'm now on slide four. We saw a strong normalized capital generation for the full year of 2019, which included the benefit from positive experience variances in the Netherlands and the higher release of required capital. This forms the basis for a dividend increase to 31 euro cents per share for the full year 2019 and marks the ninth consecutive year of growing dividends, something which I'm proud of. Let me stress that our ambition, of course, is to continue the trend of growing our dividends, but provided that our capital generation, our capital position, and holding excess cash so allow. On the next slide, we'll go over our progress in our portfolio of businesses. I'm on slide five, where we discuss the progress we've made on our portfolio of businesses. You are now hopefully well aware that we have grouped our businesses into three strategic portfolio categories. And I would like to share with you how we are making good progress in driving performance in each of these categories. So let me start with the manage for value category, where we focus on optimizing our capital position and reducing expenses. In the Netherlands, we announced a reinsurance transaction, reinsuring about a quarter of our longevity exposure. This has reduced the required capital and improved our capital position. Also in the Netherlands, we have closed our own employee's defined benefit plan and moved towards a defined contribution plan. This switch protects Aegon's capital position and reduces volatility in pension expenses and helps to protect, as such, our capital position. Businesses in our drive for growth category are the cornerstone of our growth strategy. and we are therefore pleased to see positive momentum in life and accident and health sales, as well as in gross deposits. At the same time, we continue to make significant investments to improve our customer experience and to increase retention rates, in particular, in our U.S. work-based solutions business. Asset management continues to grow and has had its eighth consecutive year of positive net inflows from external third parties. This growth reflects competitive investment performance together with management's ability to leverage skill and capabilities from a general account and our affiliate businesses. In the UK, we realized the promised 60 million pounds in annualized expense savings following the completion of the co-funds integration. The savings came from decommissioning legacy systems, a site closure, and other operational efficiencies. In a scale up for future category, I would like to point out an interesting development in China. Our insurance joint venture is partnering with a major e-commerce player to offer term life products on its platforms. The first products were launched in October, and this has led to over 200,000 policies being sold and 20 million US dollars in sales since the end of October, proving the potential of this e-commerce model. And finally, in May 2019, we announced a sale of our 50% stake in the Japanese variable annuity joint ventures. And in January 2020, we closed the transaction and received the proceeds of 153 million euros. On the following slide, we'll discuss gross deposits and that flows in deposit-based businesses. As you can see on the slide six, gross deposits were up nearly 40% from the second half of 2018. reaching their highest levels in three years. At Aegon Asset Management, external third-party growth inflows increased by 74% to 47.5 billion euros in the second half of 2019. This resulted from increased inflows in our joint venture in China and mainly from increased inflows into money market funds after the launch of two new equity funds. Decrease in the US was due in part to strong growth and variable annuities in the US following product enhancements and a strategic decision to protect our variable annuity distribution franchise by accepting low returns in the short term as a result of declining interest rates. Pricing actions were, however, implemented in December and Transamerica closely monitored the path to profitability while maintaining a competitive franchise. In Europe, Gross deposits increased by 12% to 13 billion euros. A major contributor was the Netherlands, as we see continued deposit growth at online bank Knop, as well as improved sales of new style definition contribution products, so-called PPI products. Net outflows were mainly caused by three large contract discontinuances in the large market on the last day of the year in the U.S. retirement plans and outflows in the U.S. annuity businesses. The discontinued contracts were only marginally profitable and the impact to future earnings is therefore limited. In the next slide, we'll continue with life and protection sales. So turning to slide seven, we are encouraged by sales momentum that we are beginning to see in life and accident and health. Much of the growth was driven by Europe, where new life sales increased by 25% to 173 million euros. mainly reflecting a pension buyout in the Netherlands. In Asia, we saw new line sales increase by 23% to 64 million euros, driven by a successful partnership with the large e-commerce play in China, which offsets lower sales in our high net worth business. And with respect to the coronavirus, we're working hard to provide support to our employees, to our policyholders, and our distribution partners in this difficult time. In terms of our business in China, we have manageable exposure to the most affected areas and we have reinsurance in place. Having said this, sales in a high net worth business in Hong Kong and Singapore would likely be negatively impacted by reduced activity in the region. In the Americas, live sales growth was driven by a 17% increase in Brazil. And overall, sales of the live products are increasing, Nevertheless, in the U.S., sales growth is not where we want it to be. We have repriced our term life products in the market, and we are making our rates more competitive, which points out to future growth while maintaining our pricing requirements. So let's move into accident and health. Our accident and health business in the Americas increased sales by 14% as a result of onboarding a short-term disability contract. And finally in Europe, new premium production for accident health, which was up by 44% to 23 million euros. And the main drivers were higher sales in Spain, following the launch of a new accidental death and disability product, as well as higher disability sales in the Netherlands. I would now like to focus on our U.S. business, which has realigned its organization in the first half of 2019 into workplace solutions, and individual solutions to accelerate growth and enhance customer service. This change will also bring decision-making closer to our customers and drive faster execution of a strategic priority. So let me start with workplace solutions on slide eight. You can see that we are successfully investing to further improve customer service. Customer centricity is a key theme and we are addressing it at multiple levels. In US retirement plans, we made great progress in our Touchpoint Net Promoter Scores in 2019. In our retirement business, we are pleased to witness a 50% reduction since 2018 in the monthly average number of current plan sponsors that are initiating requests for proposals. This points to a better outlook for contract withdrawals. However, we could still see some withdrawals in 2020 due to service issues of the past. Retaining retirement plans is important to us, and it's just as important to retain participants. Industry-wide, participants are expected to retire at an accelerating rate, and we focus, therefore, on retaining those participants into retirement through our advice center. As you can see on slide nine, Individual Solutions is making continued progress towards operational excellence. TCS's performance against service level agreements is improving, while focus remains on the launch of our first new product on the TCS platform in 2020. Fixed index annuities have been an area of growth. Our fixed index annuity product availability has been extended into California, a major market for Transamerica, and we expect that this will drive growth in 2020. building on a strong momentum in 2019. And in variable annuities, we're also gaining market share. Our market share in the second half of 2019 increased to 3.8%. And let me now take you through some exciting developments in how we apply technology in our business. On slide 10, I would like to spend just a few moments sharing with you how we continue to invest in technology and how we are realizing cost savings and efficiencies across the group, while at the same time improving customer experience. As shown on the slide, we've had tangible results when it comes to automation. Both in software testing and interactions with our customers, we have successfully deployed technology. So furthermore, optimizing our group-wide procurement process has allowed us to leverage scale with negotiating and has led to expense savings of over 40 million euros. And lastly, let me talk about how we are using the cloud to improve efficiency. Increasing the flexibility of 25% of our cloud services allows us to more efficiently allocate computing resources. And with increased flexibility, we don't need to pay for services when we don't need them, and we have the ability to scale up at peak times. So finally, I would like to highlight our responsible investment policy on slide 11. At Aegon, we take our responsibility towards society seriously. As the major investors, we have an opportunity to combine our promise of a secure and healthy financial future for our customers with helping to protect the environment. Our updated Responsible Investment Policy expands the criteria for excluding companies with cold-related activities from our new investments. Therefore, from January 1, 2020, New investments in large mining and utility companies that are expanding their coal-related operations have been seized at Aegon. And as you can see on the slide, Aegon Asset Management actively engages on ESG topics on behalf of Aegon and its customers. We have stepped up our efforts in 2019 and increased the number of engagements on ESG topics to 564. And furthermore, we continue to grow our ESG and impact investments and now have almost 9 billion euros assets under management in this space. So let me now conclude. This is my last results presentation after 12 years as CEO of Aegon, and I would like to say a few personal words. I look back with pride on what we have achieved together over the last 12 years. We have successfully managed Aegon through the financial crisis that started in 2008. We have transformed the company from a predominantly spread-based business to a company where fee-based business is the largest source of income. And this has allowed us to strengthen our balance sheet, more than triple our cash flow generation over that period, and increase the dividend to our shareholders by more than 50% since 2011. We've also optimized our portfolio businesses so that we can focus all our efforts on growing those businesses where we build scale and where we have attractive growth potential. This transformation has taken place in an environment where interest rates have dropped to historical lows, as well as with significantly increased regulatory pressures, including the introduction of Solvent C2. At the same time, we've implemented and are all living up to a clear purpose for AGON, the purpose of helping people secure a lifetime of financial security while balancing the interest of all stakeholders, being our customers, our employees, our shareholders, as well as the communities in which we live. I do recognize that this transformation has also asked a lot from our investors, with at times significant volatility in our results and a share price performance, which despite all our efforts, has been disappointing. And I wish that this would have been different. But I'm convinced that Aegon today is in a better shape than ever and is well positioned for future growth. And I wish my successor, Lars Friese, all the success in the future. And finally, I would like to say that I did greatly enjoy my interactions with you all, even if at times some of you have been very critical. So let me now turn it over to Matt for our financial highlights.