Aegon Limited

Thank you for joining this conference call on Aegon's third quarter 2022 results. 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. With me today are Aegon's CEO, Lars Friese, CFO, Matt Ryder, and Chief Transformation Officer, Duncan Russell, who will take you through our three key results and the progress we are making in the transformation of Aegon. After that, we will continue with our Q&A session. And on that note, I would like to give the floor to Mark Beeson.

Yes, thanks, John Billen, and good morning, everyone. We appreciate that you're joining us on today's call. It's been a busy few months for us here at Agon, and I want to start by running you through our achievements on slide number two. In the past few months, we have taken a number of important steps in the transformation of Agon. We have made substantial progress on our operational improvement plan, and taken additional actions to maximize the value of both our U.S. variable annuity book and TLB, our high-net-worth insurance business. And, of course, we recently announced the combination of Aegon the Netherlands with ASR. We also made solid progress on our ambition to grow our strategic assets, especially in our life and retirement businesses, despite continued financial market volatility and political unrest. Our operating result in the third quarter declined by 11% on a constant currency basis, reflecting adverse market conditions that more than offset an improvement in claims experience in the United States, expense savings, and the benefit from growth initiatives. Based on extensive analyses and the learnings from engagements with third parties, We have concluded that the best option with respect to our U.S. variable annuity portfolio is to continue to own and actively manage it, at least in the near term. Furthermore, we recently completed an internal reinsurance transaction between TLB and Transamerica that freed up 600 million U.S. dollars of excess capital. This will in part be used to create a buffer to mitigate the impact of adverse equity markets which materially reduces the capital sensitivity of our U.S. variable annuity book. But we're not done yet. We continue to see opportunities for growth and greater efficiency, and we will remain focused on the execution of our strategic agenda. So let's turn to slide three. In October, we took a pivotal step in our transformation with the agreement to combine our Dutch activities with those of ASR to create a leading insurance company in the Netherlands. The transaction enables us to accelerate the return of capital to stockholders. It also propels our strategy of releasing capital from mature businesses and building advantaged businesses in our chosen markets where Egon is well positioned for growth. Additionally, The long-term asset management agreement that we have entered into with ASR strengthens our position as a provider of fiduciary services, retirement multi-asset solutions, fixed income, and responsible investing. We are excited about this transaction and the opportunities it brings. After the closing, we will hold a strategic stake of almost 30% in ASR. And through this stake, we will benefit from the synergies that this in-market consolidation brings. The majority of the cash proceeds from the transaction will be used to return capital to shareholders. We expect the transaction, the synergies, and the capital deployment to result in accretion of the free cash flow per share over time. We have started the preparations to get approvals from the relevant stakeholders, and we initiated a program to disentangle the Dutch business from the group to ensure a smooth transition to ASR. Slide number four highlights the good progress we continue to make with the execution of our operational improvement plan. We have now implemented most of the more than 1,200 initiatives that are part of this plan. Just in the last three months, we completed another 100 initiatives. And our efforts are bearing fruit. Expense initiatives resulted in a reduction of annual addressable expenses of 300 million euros in the trailing four quarters compared with the base year 2019. This is an increase of 50 million euros compared with last quarter. We have been able to absorb inflationary headwinds and further reduce our expense base towards the goal of 400 million euro expense savings by 2023. We are also increasingly seeing the benefits from our 260 growth initiatives that we have executed so far. Over the trailing four quarters, growth initiatives contributed 264 million euros to our operating result. In light of the announced transaction with ASR, we will update our expense savings target and other targets in due course. And in the meantime, we will remain disciplined and focused on improving the operational performance across all our businesses. Slide number five zooms in on the progress of our U.S. strategic assets. In individual solutions, we have the ambition to regain a top five position in selected life products over the coming years. And as you can see, commercial momentum remains strong in this segment. new life sales increased by 24% compared with the third quarter of last year. This was supported by the World Financial Group distribution channel where the number of licensed life agents grew another 10% compared with last year and now stands at nearly 60,000 agents. In the retirement business, Transamerica aims to compete as a top five player in new middle market sales. Written sales were 805 million US dollars this quarter, which is lower than the same period last year. Nevertheless, I'm satisfied with the results, considering the difficult circumstances with plan sponsors being hesitant to move retirement plans given the current volatile markets. Strong written sales in prior periods supported an increase in net deposits for the middle market to US$532 million. We will build upon Transamerica's emerging commercial momentum and intend to invest capital to profitably grow our market share in selected product lines. We will share more details on our plans to profitably grow Transamerica, as well as the UK, our growth markets, and our global asset manager at a capital markets day in the second quarter of 2023. Turning to slide six, where we highlight the performance of our Dutch and UK strategic assets. I will start with the Netherlands, where we are a leading player in both mortgage origination and defined contribution pensions, and continue to attract new customers. Mortgage sales decreased to two billion euros as the Dutch housing market is cooling down. Nevertheless, mortgages under administration continue to grow partially due to lower client prepayment activity, and now amount to more than 62 billion euros. We also continue to consistently grow our workplace business, mainly driven by sustained strong demands for PPIs. Net deposits for defined contribution pension products increased by 35% to 245 million euros in the third quarter of 2022. Moving on to the United Kingdom. In the third quarter of 2022, the platform business across the retail and workplace channels generated net deposits of 83 million pounds. Our workplace business delivered another quarter of positive net deposits. Outflows in retail reflect the impact of market volatility on customer confidence and their propensity to invest in line with what we have seen across our industry. Revenues for the overall UK business declined, as a result of the anticipated gradual runoff of the traditional product portfolio. Despite the unfavorable impact of adverse markets under assets under administration, the efficiency of the platform deteriorated only slightly as a result of the steps we made to reduce expenses. Slide number seven shows that our asset management business saw third-party net outflows on the global platforms, which reflect the challenging market conditions and the fact that customers freed up liquidity in a rising interest rate environment. Third-party net deposits and strategic partnerships of 1.5 billion euros more than offset the 1 billion euro outflows in global platforms, leading, in fact, to positive net deposits for asset management overall. The operating margin of global platforms improved by around two percentage points to approximately 15%, driven by lower expenses. This includes a reduction in accruals for variable compensation. The operating result from strategic partnerships decreased by 38% as performance fees for our Chinese asset management joint venture reduced from last year's elevated level due to adverse market conditions. In our growth markets, Agon is investing in profitable growth. New life sales from these markets increased by 16% to 54 million euros, and non-live sales grew by 17% to 25 million euros. In summary, we remain focused on executing our strategic agenda and continue to maintain a high pace in transforming Agon despite the challenging backdrop. Duncan will now provide you with more detailed information on the actions we have taken regarding TLB and the U.S. Variable Annuities Book. Duncan, over to you.

Thank you, Lars. Let's move to slide nine. At our Capital Markets Day, we laid out our strategy to focus on three core markets, three growth markets, and one global asset manager. We made clear that businesses outside the corporate investor would be managed with tight capital and a bias to exit. We've made good progress on our portfolio rationalization, whether it is through the divestment of Central and Eastern Europe, or our various actions to release capital by winding down or selling subscale ventures and businesses. TLB, our high net worth business, was the largest remaining operation outside the core perimeter. In the past two years, it has been managed with a focus on strict cost control and capital efficiency to increase its capital generation. Over the past years, we have considered different strategic options for TLB, including a divestment Following this review, we have decided to extend our internal reinsurance of TLB's closed block to Transamerica. As of the fourth quarter of 2022, Transamerica will also reinsure the remaining 75% of TLB's closed block of universal life policies that have previously not been reinsured, meaning that 100% will now be internally reinsured. Transamerica will hold additional reserves to cover the underlying risks. but it will also be allowed to recognize excess capital as TLB in its capital position. This frees up around $600 million of excess capital on a U.S. level, which will increase Transamerica's RBC ratio by approximately 30% in the fourth quarter of 2022. As a consequence, we feel that we have landed on the optimal solution for TLB compared to the alternatives and therefore will classify the business going forward as a financial asset with a continued focus on improving cash flows and disciplined capital management. Next, on slide 10, let me update you on our variable annuity business. In recent months, we have engaged with third parties to explore the possibility for a reinsurance deal. These interactions gave us confidence in our actuarial assumption set for variable annuities. And we saw that these third parties aim to manage the liabilities economically, just as we do. Put simply, we witnessed a management approach and philosophy around VA that was consistent with where we have taken the block in recent years. Following these interactions, we have decided not to engage further on a variable annuity transaction at this point in time. There are three main reasons for this. First, a transaction would lead to significant counterparty exposure. given the size of the variable annuity business we have. And we have concluded that doing a smaller deal, and thus reducing potential counterparty exposure, wouldn't represent a good use of time and effort, given the intensity of these processes. Second, we would need to deal with stranded costs as the variable annuity block supports a substantial amount of overhead expense. These costs will need to be addressed as the block shrinks naturally over time, in an orderly manner. Over time, as the variable annuity block runs off and we successfully grow our strategic assets, stranded costs and counterparty risk will become less of a consideration for us. Thirdly, with respect to valuation, the block under our ownership benefits from two main items. Number one, Transamerica benefits from a lower cost of liquidity management, given its overall large and diversified balance sheet. Number two, we believe there is value in the emergency fees on the base contracts, as these are asset management-like in nature. Other parties tend to hedge the base fees due to the volatility in the capital position it creates, in particular on a smaller balance sheet. For this reason, we concluded also that the value-benefit of a transaction was unlikely to be compelling. Now, our work on the block does not stop. In October, we have taken another management action on the variable annuity portfolio, following on from the actions we have taken so far. we've decided to set up a voluntary reserve which reduces the amount of base fees reflected in the capital position. Setting up the reserve will reduce the RBC ratio by approximately 15 percentage points in the fourth quarter of 2022. But by setting up the reserve, the recognition of base fees in our capital position will be more closely aligned with when they are earned. As a result, the sensitivity of the RBC ratio to 25% decline in equity markets will reduce by about a third. When taken in conjunction with previous actions we have put in place, for example, a dynamic hedging and a policy buyout, this additional action brings further stability and quality to capital generation as a variable annuity block runs off. I would now like to hand over to Matt to address the financial performance of Aegon in the third quarter.