Aegon Limited

Good day and welcome to the EGON second half-year 2020 results conference call. Today's conference is being recorded, and at this time I'd like to turn the conference over to Jan Willan. Please go ahead, sir.

Thank you, Anna. Good morning, everyone, and thank you for joining this conference call on EGON's second half-year 2020 results. You would appreciate it if you could take a moment to review our disclaimer on four looking statements, which you can find at the back of the presentation. With me today are Engel CEO Lars Wiese and CFO Matt Ryder. Let me now hand over to Lars.

Thanks, John Willem, and good morning, everyone. Thank you for joining us on today's call. In my part of the presentation, I will take you through the financial and strategic highlights for the half year and look forward to our strategic priorities for the coming year. Matt Ryder will then go through the details of the results in our capital positions. I will conclude the presentation with a wrap-up, after which we will open the call for the Q&A session. So let's move to slide number two. And let's start by recognizing that the COVID-19 pandemic continues to affect all of us. It made the second half of 2020 challenging for our customers, colleagues, and the communities we operate in. I am proud of the continued commitment of our employees who provide support and and uninterrupted services to our customers and business partners in the midst of the pandemic. Despite the impact of COVID-19 on different parts of our business, we were able to report a 7% increase in underlying earnings to €1.29 billion. This increase was driven by lower addressable expenses in all our units and the benefit from higher equity markets. In contrast to the first half of this year, Colleen's experience was broadly in line with our expectations, as favorable morbidity experience in long-term care provided a meaningful offset against adverse mortality experience in our U.S. life business. These were both driven by the impact of COVID-19. The net loss of €147 million for the second half of 2020 is due to a negative result from fair value items in the Netherlands. This is a reversal of what happened in the first half of 2020. The Solvency II ratio for the group increased slightly to 196%, which is after deducting the proposed final dividend for 2020. By proactively managing our balance sheet, we have ensured that the capital ratios of our three main units ended the year above their respective operating levels. For the Dutch light business, we have now implemented an improvement to our internal model following approval by the Dutch Central Bank. This significantly reduces the sensitivity of its Solvency II ratio to credit spread movements. Pre-cash flows amounted to €530 million for the full year 2020. In 2020, we used these pre-cash flows to reduce leverage and pay dividends to our stockholders. We will propose a final dividend for 2020 of 6 euro cents per common share at our 2021 AGM, bringing the full year dividend to 12 euro cents. Last year's rebasing of the dividend ensures that it is sustainable and well covered by the free cash flows that we generate, even in reasonable stress scenarios. So let's move to slide number three. At a recent Capital Markets Day, we shared with you our ambitious plan comprised of over 1,100 detailed initiatives designed to improve our operating performance by reducing costs, expanding margins, and growing profitably. The program has had a good start, with 260 initiatives delivered at the end of 2020, of which the majority relates to expense savings initiatives. We maintained our pace with initiatives being executed up to the end of the year, and we kept the rhythm and discipline into 2021, with continued good progress seen in January. As I highlighted at the Capital Markets Day, the Performance Improvement Program is important, not only because of the anticipated medium-term financial benefits, but also because of the discipline and execution capability it is helping us to build. These initiatives led to a reduction in expenses of more than 75 million euro and were the main driver behind a 136 million reduction in addressable expenses. This puts us firmly on track to deliver half of our 2023 target of 400 million euro savings from expense initiatives by the end of 2021. In addition, expenses benefited from reduced travel, marketing and other spend due to the COVID-19 pandemic. We expect this to reverse once vaccines are rolled out and restrictions are lifted in the countries that we operate in. Let's now turn to the progress we have made in respect of our strategic assets in the second half of the year. Now on slide number four. Our priority for the strategic assets is to grow the customer base and expand the margin we are able to achieve. Some of these businesses do require investments in order for us to fulfill our ambitions, while others are already positioned to take advantage of market trends. In the U.S., we have the ambition to regain a top-five position in selected life products over the coming years. It is early in that transition. However, in the second half of 2020, we saw good momentum in our main distribution channel, World Financial Group, as a result of growth in the agency counts and the introduction of a new funeral concierge benefit for indexed universal life policies. This benefit is especially attractive for customers with higher face amount policies and results in a higher margin on new business. Overall new sales were down, however, due to our decision to make product changes and sunset certain legacy whole life products. In the U.S. retirement business, we saw a strong bounce back in our mid-market segment in top-line sales in the second half, following a temporary slowdown in second-quarter sales driven by COVID-19. Mid-market sales increased by 49% compared with the first half of the year to $2.2 billion, as our sales team was able to quickly and effectively adapt to a virtual sales model. In addition, The momentum continues to build with ancillary product sales to our existing customers, with utilization of our managed advice offering increasing 20%, driven largely by the middle market. Stable value product adoption and asset retention rates in the advice center also increased. These initiatives support our ambition to expand our margin in the retirement plan business. Our Dutch strategic assets continue to perform well. We are market leaders in both mortgage origination and defined contribution pensions, and we believe that our market share continues to increase in the second half of the year. This contributed to the earnings growth of our service businesses, which now represent 12% of our earnings in the Netherlands and also generate significant asset management fees. Our mortgage origination volume for full year 2020 surpassed the €10 billion mark for the first time, of which €7 billion was related to fee-based mortgages. This cements our position as the largest third-party mortgage originator of the Netherlands, benefiting from our scale, high service levels, and diversified funding. Lagos defines contribution pension offering benefits from the scale of TKP. TKP is our subsidiary specialized in pension administration servicing four million participants and is the second largest player in this field in the Netherlands. It recently won a new contract for the administration of pension fund for workers in the Dutch metals and electronics industries. As of next year, TKP will start servicing this top five Dutch pension fund, representing 1,400 employers and over 600,000 participants. In the UK, our aim is to grow in the retail and workplace channels. We had net deposits in the workplace channel in the second half, albeit lower than previous quarter due to one large customer moving to another provider. We did have a strong second half of the year from a sales perspective. We expect the benefits of that to appear in net deposits around the middle of the year as there is several months lead time between winning new contracts and the funds arriving. Retail net outflow shows an improvement compared to last year as a result of better retention rates. By investing in front-end portals and service for advisor and customer, we want to increase the momentum in the retail channel. These investments will take place in the coming 18 months and are expected to lead to an improvement in net deposits over time. Let me now turn to our global asset manager and our growth markets on the slide number five. Our asset management business performed exceptionally well in the second half, both in terms of net deposits and earnings. Net deposits were up in our global platforms as well as in our strategic partnerships. As a result, 2020 was the ninth consecutive year of positive third-party net deposits. The combined earnings from global platforms and strategic partnerships increased strongly to €111 million for the half-year, mainly driven by higher performance fees from strong fund performance in our Chinese joint venture, IAFMC. In our growth markets, Brazil, China, Spain, and Portugal, sales were down compared with last year. Bank distribution in Spain and Portugal was impacted by the fallout of the COVID-19 pandemic, and sales in China were down from a record high level in the second half of 2019. But despite lower sales, our in-force business continues to grow, which resulted in a 22% increase in underlying earnings to €45 million. Let's move to slide number six. On slide six, I'll take you through the progress we're making in reducing our risk profile and in managing our financial assets for value. As mentioned, at the Capital Markets Day, we are working on extending our disclosures to allow you to better track this progress, and we'll share more details with you over the course of this year. A key priority for us is to reduce our dependency on financial markets. At the end of 2020... We had already executed a quarter of the U.S. interest rate management plan that we announced at our Capital Markets Day. This was achieved by lengthening the duration of our asset portfolio, and we will take further steps in the coming quarters. For the financial assets in the United States and the Netherlands, we are putting teams in place to continuously look for ways to maximize their value. We are, for instance, looking to extend our dynamic hedge program for variable annuities to the legacy block. The existing dynamic hedge program for variable annuities with withdrawal benefit, the GMWBs, was highly effective throughout a very volatile year. In each of the quarters in 2020, we achieved a hedge effectiveness of over 95% for the targeted risks. We also took continue to make progress in our long-term care book. After successfully completing 90% of the rate increase program initiated in 2016, we launched a new rate increase program which includes the remaining portion of the 2016 program. On a combined basis, Transamerica will be targeting to obtain approvals for rate increases for a value of $300 million over the coming years. In the meantime, long-term care claims experience developed favorably with an actual to expected ratio of 71% in the second half of the year due to the impact of COVID-19. Matt will go into more details on the exact dynamics there. For our Dutch-like business, our aim is to turn it into a low-risk cash generator paying predictable regular dividends. We have taken two important steps to achieve this. Firstly, we have implemented improvements to our internal model as flagged at the Capital Markets Day. This materially dampens the sensitivity to credit spread movements. Secondly, we lowered the factor applied when calculating the loss-absorbing capacity of deferred taxes to make it less sensitive to economic variances. We did see, however, volatility in the ratio as a result of volatility in our separate account businesses with guarantees, and we are looking into ways to tame this going forward. Slide number seven. On slide seven, I'll summarize the steps we've taken to deliver on the two other key commitments, namely to increase our strategic focus and tightly manage the capital in small, niche, and subscale businesses. In the last few months, we have not only announced the divestments of Stonebridge and their operations in Central and Eastern Europe, but we have also announced the right-sizing of TLB, we have restructured our businesses in India, and we have decided to seize the funding of GoBear. Our aim is to reallocate capital that we release from these businesses to strategic assets and growth markets, which offer a greater potential for an attractive return on capital. and where we are well positioned for growth. An example thereof is the expansion of our joint venture in Spain with Banco Santander, which closed in July. Finally, on slide eight, I would like to spend a minute on our priorities for 2021. Our primary focus is to improve our performance across all of our businesses. That means achieving efficiencies and expense savings, while at the same time investing in products and services to our customers in the various core businesses. We will also continuously look for ways to maximize the value of our financial assets, for instance, by implementing long-term care rate increases and dynamically hedging our legacy variable annuity block. We will update you of these management actions in the course of the year. In our Dutch Life business, our mindset is one of active capital management that constantly assesses ways to reduce volatility and accelerate cash flows. Capital release from our financial assets and the businesses outside of our core markets will be redeploying our most profitable and promising businesses. Obviously, this is subject to strict financial criteria in order to create value for our shareholders. We will continue to be focused on maintaining a strong balance sheet. In the near term, we want to keep cash capital at holding in the upper half of the operating range. We will also reduce leverage by around €200 million in 2021, and we want to deliver on our dividend objectives. To summarize, we are fully focused on delivering the plans outlined at our recent Capital Markets Day to turn Agon into a more enduring, high-performance company. With this, I would like to hand over to Matt Ryder.