Aegon Ltd. New York Registry Shares

Good day and thank you for standing by. Welcome to Ergon's first half 2024 results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to slowly press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Yves Cormier, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. It is good to have you join us for this conference call on our first half 2024 results. My name is Yves Cormier, Head of Investor Relations. Joining me today to take you through our results are Egon C. Olar-Frieser, and for the last time before his retirement, our CFO Matt Ryder. As usual, after that, we will continue with the Q&A session. But 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. Now, I would like to give the floor to Lars.

Lars Nielsen Thank you, Yves, and good day, everyone. Thanks for being on the call. As we go through the highlights of the past six months, I would like to take a step back and place these results in the context of the implementation of our strategy. Our strategy is to grow our strategic assets, as well as our positions in other core markets, and to risk manage and shrink our financial assets. Our ultimate objective is to build leading businesses in investments protection and retirement solution in chosen markets, and by doing so, increase our operating results, OCG, and free cash flows over time, leading to growth and capital returns to stockholders. In the U.S., we are making good progress building our distribution reach. We continue to grow in indexed universal life and in retirement plans. And at the same time, the momentum in Brazil remains solid and we have achieved very strong net deposits in the U.K. workplace and in asset management. Software spots are in China, Spain, and our advisor platform in the U.K., which I will touch upon later. Again, we want to reduce our exposure to financial assets. and we have indeed delivered an approximately $400 million decrease in required capital over the first six months of 2024. The overall consequence of these developments is a further shift in the mix of our group operating capital generation and our IFRS operating results towards our strategic assets. We are also on track to meet our 1.1 billion euro operating capital generation guidance for the year, as we just delivered 588 million euros for the first half of the year, despite unfavorable mortality experience. Business growth and a higher investment result benefited the OCG, which was offset by higher new business strain, demonstrating that we are successfully growing our strategic assets. During the first half of the year, our IFRS operating result was negatively impacted by adverse mortality and morbidity claims experience. This mostly affected our U.S. financial assets, and these impacts are expected to be mitigated in our operating results going forward as we just went through an update of our assumptions and our models. As expected, cash capital at the holding decreased to 2.1 billion euros over the reporting period mainly as a consequence of returning capital to stockholders. We have now completed the 1.5 billion euro share buyback program related to the ASR transaction. As previously announced, we are currently executing a new 200 million euro buyback program that is expected to be completed by the end of 2024. This has indeed been a good half year. and on this basis we are announcing a 16 euro cent interim dividend for 2024, two euro cents higher than the interim dividend last year. Given the progress we're making on our strategic agenda, we remain confident that we can increase the dividend to our target of 40 euro cents per share over 2025. So I'm now turning to slide number three for an update on our strategic assets in the Americas. Our ambition for World Financial Group, or WFG, our wholly owned distribution channel, is to increase the number of agents to 110,000 by 2027, while at the same time improving agent productivity. We continue to make good progress with the number of licensed agents increasing by 13% with the June 2023 comparable to 79,000 in total, driven by continued recruiting and successful training of new recruits to become licensed agents. Agent productivity also continues to improve. The number of multi-ticket agents who sell more than one life policy over the last 12 months increased by 9% compared with a year ago. In the savings and investment segment, Progress in our sweet spot of mid-sized retirement plans has also been good. Net deposits amounted to $1.2 billion in the first half of 2024 and were supported by the funding of a large pooled plan sale that we wrote in the first quarter of last year. In this segment, we also strive to increase profitability and diversify revenue streams by growing in ancillary products such as an individual retirement accounts as well as a general account stable value product. In each of these, we recorded further growth over the period and now manage over $11 billion of assets in each of the products. In the product protection solution segment, we are investing in both product manufacturing capabilities and in the operating model in order to position the individual life insurance business for further growth. New life sales increased by 5% over the first half of last year, supported by old channels. Sales of indexed universal life policies drove this growth, and we continue to right this business with attractive internal rates of return in excess of 12%. Let's move to slide four. I now want to address our UK business. For the workplace platform we expect annual net deposits to increase around 5 billion to around 5 billion in 2028 and our latest results indicate that we are well in the path to achieving that goal. Net deposits in the first half of 2024 amounted to 1.7 billion pounds, driven by both inflows on new schemes and higher net deposits on existing schemes. The advisor platform, which in the past was referred to as the retail business, is expected to see positive flows by 2028, driven by our efforts focusing on our 500 target advisor firms. In the first half of 2024, net outflows in this channel amounted to 1.8 billion pounds. We continue to see the impact of competition on the attrition of advisor firms that we are not targeting, as well as industry-wide low levels of consumer activity. Platform assets under administration, or AUA, now amount to 111 billion pounds, increasing compared with the end of June 2023 due to favorable markets and net deposits on the workplace platform. Again, this puts us well on the path to achieve our target of AUA on the platform of over 135 billion by 2028. So let me now turn to slide number five to address the progress of our international businesses. New light sales in the international segment decreased by 20% compared with the first half year of 2023. While new light sales increased by 9% in Brazil, this was more than offset by weaker sales in China due to new pricing regulations and in Spain. In Spain, higher interest rates have tempered mortgage sales, which result in lower sales of new life insurance and household insurance products linked to mortgages. Operating capital generation, on the other hand, increased by 20% compared with the first half of 2023. This was driven by lower new business strain and asset liability management actions, including a reinsurance agreement in China. Using slide number six, I want to reflect on the performance of our asset manager that reported very solid results over the period. The global platforms business saw very strong third party net deposits of 5.1 billion euros. The UK fixed income business onboarded a large client and generated solid inflows following strong fund performance. In the Netherlands, we won a large contract with a large fiduciary client. and we also continue to benefit from the asset management partnership with ASR. In the strategic partnership segment, we also recorded positive net deposits amounting to 2.7 billion euros. This was mainly driven by our Chinese joint venture AIFMC on the back of a successful collaboration with a consumer finance platform for money market funds. So overall, third-party net deposits Third-party net deposits reached almost 8 billion euros over the first half year. Assets under management increased to 318 billion euros, supported by favorable market movements, third-party net deposits, and the partnership with ASR. I will now hand over to Matt to discuss the financial performance over the first half year of 2024 in more detail. Matt, over to you.

Thank you, Lard, and good morning, everyone. Let me start with an overview of our financial performance As of 2024, the IFRS operating result was impacted by unfavorable mortality claims experience in the U.S. and amounted to 750 million euros. Operating capital generation before holding funding and operating expenses was impacted by unfavorable claims experience and decreased by 5% over the first half of 2024, coming in at 588 million euros. Free cash flow amounted to 373 million euros following receipt of planned remittances from all units and included the final 2023 dividend payment from ASR. Cash capital at the holdings stood at 2.1 billion euros at the end of June. The decrease compared with the balance at year-end 2023 was driven by the completion of the 1.5 billion euro share buyback program partially offset by the free cash flow in the period. In April, we redeemed a 700 million euro subordinated bond that had matured, and we refinanced it with a 760 million US dollar senior bond with basically no impact on cash capital at the holding or on our financial leverage. The gross financial leverage remains at 5.1 billion euros. The group solvency ratio decreased by three percentage points since the end of December 2023 to 190%. This was mainly a reflection of the redemption of the subordinated bond, the announcement of the new 200 million euro share buyback program last quarter, a previously announced fungibility haircut on the own funds of the Chinese insurance joint venture, and the interim dividend that we have announced today. This was partly offset by favorable market movements and one-time items, including the impacts from our stake in ASR. Let's now move to the operating result on slide nine. The group's operating result was 750 million euros, a decrease of 8% compared with the prior year period. In the U.S., the operating result decreased by 12% over the same period, reflecting unfavorable mortality claims experience and a decrease of the net investment result both in the financial assets business segment. In the UK, the operating result decreased by 15%. The decrease is mainly due to unfavorable claims experience in the protection book that has been sold to Royal London. The sale was completed on the 1st of July. In the UK fee business, higher revenues from business growth, improved markets, and a higher CSM release broadly offset higher expenses. In our international segment, the operating result decreased by 5%, predominantly as a result of a lower operating result in TLB in the reporting period. This was partly offset by higher operating results in the other international units. The operating result from Agon Asset Management increased by 44% compared with the same period of 2023, driven by both global platforms and strategic partnerships. The operating result of global platforms benefited from business expansion in favorable markets. The result of strategic partnerships mainly improved as a consequence of a one-time expense benefit in our Chinese asset management joint venture and from the expansion of our joint venture with Le Banque Postale in France. Finally, our holding reported a negative result of 91 million euros, which mainly reflects funding and operating expenses and was stable compared with the prior year period. Let me give you more background on our U.S. operating result on the next slide, number 10. The operating result of the U.S. amounted to 594 million euros in the first half of 2024, a decrease compared with the same period of 2023. While the operating result for strategic assets showed a strong increase of 27% in the first half compared with the first half of 2023, this was more than offset by a 75% decrease in the operating result of the financial assets business segment. The operating result from protection solutions increased by 37%, benefiting from a growing profitable portfolio. This was driven first by higher investment balances and higher book yields in a favorable market environment that increased investment income, together with a methodology change that reduced interest accretion on indexed universal life products and should stabilize the result over time. Secondly, growth in profitable new sales has driven a growing CSM balance, which has in turn resulted in an increasing release of CSM into earnings. The savings and investments operating result increased 14% mainly from higher revenues and retirement plans, which came as a consequence of higher fees on average and higher average account balances and from higher net investment income coming for more assets being invested at higher returns in the general account stable value product. The distribution operating result increased 20% mainly due to higher net commission revenues in line with growing sales. In addition, we saw higher revenue sharing income from third-party product providers. Increasing revenues were partly offset by a small increase in operating expenses. The lower operating result from financial assets was driven by unfavorable mortality claims experience of $116 million, which resulted from a small number of large claims from old policyholders in Universal Life. Volatility in mortality claims experience is inherent to our life insurance business, although we have been taking actions to reduce it over time. The operating result was also negatively impacted by a decrease in the net investment result by $103 million. This decrease was partly driven by a $46 million one-time gain in the first half of the prior year period. In addition, asset levels decreased as a result of the runoff of the book and management actions we have taken, including the reinsurance of a portion of the universal life portfolio to Wilton Re in the second half of 2023. Also, higher interest accretion on IFRS liabilities is expected to further reduce the net investment result for financial assets in the periods to come. Let me now turn to the net result of the group on slide 11. In the first half of the year 2024, non-operating items amounted to a charge of 430 million euros. This was driven by unfavorable fair value items in the Americas arising from the underperformance of private equity and other alternative investments following updated valuations for multifamily real estate and land holdings with an economic exposure to lower oil and gas prices. Over the reporting period, gains and losses from product hedges offset each other. Fair value losses in the UK reflected negative revaluation of hedges used to protect the solvency position there. Other charges amounted to 403 million euros in the first half of 2024. 361 million of these charges came from the Americas, largely as a consequence of various assumption and model updates coming out of the annual assumption review process in the second quarter. The charge mostly relates to updated mortality assumptions for universal life and term life insurance products, where we have been seeing volatile, unfavorable claims experience in the recent past. Back in March, we had flagged potential short-term mortality fluctuations that could impact the operating results of our U.S. business. At the time, we had communicated on an operating result run rate for the group in a range of 700 to 800 million euros per half year. The new assumptions are more consistent with past experience and have resulted in an increase in our best estimate liabilities. This assumption update is expected to reduce future claims experience variances going forward, resulting in an increase of our operating result. As an indication of the amount of the expected increase, had the new assumptions already been embedded in our IFRS liabilities at the beginning of the year, the operating result for the first half of 2024 would have been approximately $50 million higher. After the assumption update, while we still expect some volatility, the experience variance should average out to zero over time. Along with anticipated business growth, this should now put the operating result run rate for the group in a range of about 800 to 900 million euros per half year. Other charges in the Americas also included 82 million euros related to restructuring but these were largely offset by a gain related to a recapture by a third party of a block of policies that had been reinsured to a Transamerica entity. The UK reported 28 million euros of restructuring charges related to the investments in the transformation of the business. We discussed that the UK strategy teach-in in June that we expected to invest between 70 and 80 million pounds in the years 24 through 2027, in this business. Our stake in ASR contributed 26 million euros to other income, reflecting our stake in ASR's net result. Non-operating items and other charges offset the operating result, leading to a net loss for the group of 65 million euros for the first half of 2024. Turning to slide 12, I want to talk about the development of Agon shareholders' equity in the first half of 2024. Shareholders' equity per share decreased by 25 euro cents to 4 euros and 2 cents compared with the end of 2023. This decrease is almost fully explained by capital returns to shareholders over the period which amounted to roughly 1 billion euros coming from the completion of the 1.5 billion euro share buyback program, as well as the 2023 final dividend. Total comprehensive income amounted to a gain of 84 million euros. The negative net result and the loss in OCI related to the assumption updates were more than offset by gains in OCI related to asset disposals and revaluations due to currency movements. I'm now moving on to talk about the CSM development on slide 13. The CSM at the end of June 2024 amounted to 8.7 billion euros, an increase of 6% compared with the level at the end of last year. On a per share basis, the CSM after tax increased by 14% over the reporting period to 4 euro and 17 cents, supported by the reduction in the share count due to the share buybacks. In the US, the dynamics of the CSM development over the period reflects our strategy to grow strategic assets and to reduce financial assets. I will elaborate this in a moment. Outside the US, the main driver of the CSM increase was the UK business, where the CSM increased by 7% during the period. The release of CSM, mostly from the traditional book and unfavorable experience variances, were more than offset by the favorable impacts of markets on the unit-linked business. Let's move to the development of the CSM in the U.S. on slide 14. Following the update to the business segments in the U.S., we report CSM for our two insurance business segments, protection solutions and financial assets. Protection Solutions is a strategic asset, and as such, we expect to grow this business over time. During the first half of the year, CSM for this segment increased about 12% to $3.1 billion, with the increase due to writing profitable new business far exceeding the release of CSM from enforced business. In addition, experience variances as well as non-financial assumption changes had a net positive impact on the CSM. Over the same period, however, the CSM balance of our financial assets decreased by 5% to $4.1 billion. Given the runoff nature of this segment, additions from new business only had a minor contribution to the CSM, as you would expect, or more than offset by the release of CSM. Experience variances and assumption updates had an unfavorable impact on the CSM of financial impacts, mainly in the universal life and long-term care books. Partly offsetting the unfavorable items were some positive elements, such as normal interest accretion on the CSM, updates to the risk adjustment, and notably the impact of positive equity markets on the CSM of the variable annuity blocks. Let me now turn to operating capital generation on slide 15. In the first half of 2024, operating capital generation before holding funding and operating expenses amounted to 588 million euros, a decrease of 5 percent compared with the prior year period. Lower operating capital generation in the U.S. increases in the other reporting units. Earnings on in-force decreased 7% to €704 million. Unfavorable underwriting experience primarily in the U.S. was partly offset by a one-time expense benefit in asset management. The release of required capital was stable compared with the prior year period. Overall, new business strain decreased by 6%. While new business strain in the U.S. increased, This was more than offset by the impact of lower sales in China and the impact of the sale of the protection book to Royal London in the UK. Using slide 16, I will elaborate on operating capital generation in our US business. In the first half of 2024, Transamerica's earnings on Inforce amounted to $571 million. a decrease of 6% compared with the first half of last year. This decrease was driven by unfavorable claims experience in the financial asset segment, in contrast to the favorable claims experience in the first half of 2023. During the first half of the year, unfavorable mortality experience amounted to $88 million, the vast majority stemming from a small number of large claims on old age universal life policy. Morbidity experience was unfavorable, $31 million in the period, largely from the long-term care business, and was more than offset by a non-recurring reserve release there. Earnings on in-force in the protection solutions business increased over the same period from business growth and improved fee income due to higher equity markets and interest rates. Within savings and investments, earnings on in-force rose due to higher fee income in the retirement plans business as favorable equity markets increased account balances. Finally, earnings on in-force from distribution segment were negatively impacted by the reallocation of a tax item to this business as of 2024. Excluding this impact, earnings on in-force continued to grow. Furthermore, Transamerica's earnings on in-force benefited from higher investment income in part due to a positive one-off item and from favorable timing of expenses, which is expected to largely reverse in the second half of the year. New business strain in the first half of 2024 amounted to $385 million, an increase compared with the same period of last year. This is the result of growth of our strategic assets, mostly in individual life, as well as the general account stable value product and retirement plans business. We now expect new business strain to remain at a similar level for the remainder of 2024, above the level of around $700 million that we had previously guided to. Despite the higher new business strain, we remain confident that we will achieve our guidance on operating capital generation of around $800 million from the Americas for the full year 2024. This comes on the back of improved earnings on Inforce due to improved fee income from higher account balances, as well as somewhat higher release of required capital due to the business growth. Slide 17 talks to the capital positions of our U.S. and U.K. units. The U.S. RBC ratio increased by 15 percentage points compared with the end of 2023 to 446 percent and remains well above the operating level of 400 percent. Market movements had a positive impact on the ratio of 11 percentage points due to a higher equity market and interest rates as well as favorable credit developments. One-time items had a five percentage point positive impact driven by changes to asset diversification factors. The positive contribution to the RBC ratio from operating capital generation was offset by remittances to the holding. In the UK, the solvency ratio of Scottish Equitable increased by two percentage points compared with the end of last year, to 189 percent above the operating level. The positive impact from operating capital generation was also largely offset by remittances to the holding. I will now turn to slide 18 for an update on our financial assets. We continue to make steady progress toward our goal of reducing capital employed in our financial assets to around $2.2 billion by the end of 2027. As of the end of June 2024, capital employed in financial assets has decreased to $3.5 billion, driven by favorable market impacts on variable annuities, the earlier expansion of the dynamic hedge program to include the lapse in mortality margins of the riders, as well as the reinsurance of the universal light portfolio to Wilton Re in 2023. Operating capital generation from financial assets declined in comparison with the first quarter of 2023 as a consequence of unfavorable claims experience. In variable annuity, we have achieved 99% hedge effectiveness over the first half of the year, which has been consistent over the past periods, demonstrating the success of this program. Annualized net outflows in the reporting period amounted to 9% of the account balance in line with expectations as the book gradually runs off. In fixed annuities, annualized net outflows amounted to 11% of the average account balance, also in line with expectations for this runoff book. Surrender and withdrawal rates increased compared with last year, although they remain in line with our long-term best estimates. In long-term care, we have now obtained regulatory approvals for additional actuarially justified premium rate increases amounting to $395 million since the beginning of 2023. This represents 56% of our target. Claims experience continues to track well with assumptions with an actual to expected claims ratio that was mildly unfavorable at 103% in the first half of 2024. Finally, in universal life, we continue to make progress with our program, which targets the purchase of 40% of the $7 billion face value of institutionally owned policies that was enforced at the end of 2021. As of the end of June, we have bought the equivalent of 36% of the face value of the targeted policies. Now let's turn to slide 19. Cash capital at the holding amounted to 2.1 billion euros at the end of 2024. The decrease from the end of last year was driven by the completion of the share buyback program launched after the ASR transaction last year. Free cash flow of 373 million euros increased cash capital during the period and included remittances from all units and the 2023 final dividend on our stake in ASR. As a reminder, we will only deduct the cash consideration related to the payment of the 2023 final dividend and the 2024 interim dividend, which in total amounts to around 520 million euros, from cash capital at the holding in the third quarter of 2024. The ongoing $200 million share buyback program, Euro share buyback program, will also decrease cash capital further in the second half of the year. My final slide is number 20 for a recap of where we stand relative to our financial targets. We remain well on track to achieve our financial targets for 2025. Gross financial leverage of 5.1 billion euros was stable compared with the end of 2023 and at our target level. The exchange of a 700 million euros subordinated bond with a $760 million senior unsecured note left gross financial leverage broadly unchanged. Adjusting for the unfavorable mortality and for other non-recurring items experienced in the quarter, we remain on track to meet our operating capital generation guidance for 2024 of around 1.1 billion euros. As a reminder, we plan to achieve around 1.2 billion euros of operating capital generation in 2025. Our free cash flow guidance for 2024 of more than 700 million euros is on track, having achieved more than half of this amount in the first half of the year. Our target for 2025 is for a free cash flow of around 800 million euros on the back of sustainable operating capital generation growth that we have seen. Finally, we have increased the 2024 interim dividend by 14% to 16 euro cents per share, given the good progress we are making on our strategic agenda. We are confident that we can continue to grow the dividend to our stated target of 40 cents per euro share over the full year 2025. So that concludes my remarks on the first half results. But as you know, this is my last earnings call at Agon, and I'll be retiring as of the 1st of September and will leave the CFO job in Duncan Russell's capable hands. I just wanted to take a moment to thank all of you for your time and attention on Agon. The depth of your analysis definitely has kept me and this management team very sharp, and I know that this will continue in the years to come. Again, many thanks to all of you. And with that, I hand it back to Lard for the last time. Yeah.

Well, thanks, Matt. And let me recap today's presentation with slide 22. The transformation of Agon continues at pace. We have seen continued momentum in the majority of our businesses. growing our strategic assets, and we are making progress in reducing our exposure to financial assets in line with our strategy. Both the operating capital generation and the operating result were impacted by unfavorable underwriting experience. Nevertheless, we remain well on track to meet the guidance we have set out for 2024, and we reaffirm our commitment to our targets for 2025. The capital ratios of our units remain above their operating levels, and in addition, cash capital at holding of $2.1 billion is also above the operating level. We do expect this to decrease in the third quarter of 2024 as a result of capital returns to stockholders in the form of dividends, but also as a result of the progress we're making on our ongoing $200 million share buyback program. This buyback program and the increased dividend are a testimony to the progress we are making in transforming Agon and our commitment to generate attractive returns for our shareholders. Before we move to the Q&A, I would like to say a few words about the upcoming changes in our management team. We announced this morning the appointment of Sean Johnson as CEO of Agon Asset Management, effective September 23rd. Sean's appointment comes at a natural moment for Agon Asset Management, following the completion of some key milestones. He brings extensive expertise in asset management, having spent more than 25 years in the industry, combined with his strategic consulting and leadership acumen. This makes him uniquely qualified to guide Agon Asset Management through the next phase of its transformation. And as you know, today is also Matt Ryder's last set of results, and he will be succeeded by Duncan Russell on September 1st. Again, Matt, I would like to thank you for the great partnership over the last four years. At the same time, I wish Duncan all the best in his new role. With that, I would now like to open the call for your questions. Please limit yourself, as usual, to two questions per person. Operator, please open the Q&A session.

Thank you. As a reminder, to ask a question, you will need to slowly press star 1 and 1 on your telephone and wait for your name to be announced. Please be aware that we will take and answer one question at a time before moving to the next question. Please stand by while we compile the Q&A roster. This will take a few moments. Thank you. We will now go to our first question. And the first question comes from the line of David Barmer, Bank of America. Please go ahead.

Good morning. Thank you for taking my questions. The first one is on back book management. So you've made several assumption changes in the U.S. during the period. To what extent may these make it easier for you to do a third party enforced management action in the future? And just linked to that, can we expect you to look at more enforced deals in universal life or is this this part of the book in a good place after the previous reinsurance deals and the buyouts? That's my first question. Thank you.

Thank you very much, David.

Matt, you want to take these?

Yeah, so your first question was, you know, on the impact of, let's say, assumption updates on BackBook, and will that, you know, improve or not the ability to do some kind of a transaction to mitigate the experience that we've seen there? The short answer is no. We have just simply made an assumption update that we reflect our best estimate experience. It would have no real impact on any kind of management action that we would see in the future. On the InForce UL book, universal life is considered a financial asset. And in fact, this is one of the books that we really want to run down over time. In fact, we saw A lot of our negative mortality experience in the course of the first half of the year was really in that universal life book. So that's one that we really want to reduce over time, and Lars spoke to that, where we're actively reducing the capital deployed to that book of business over time. Yes, the reinsurance deal that we've done with Wilton Re is helping there, and it's also a good reason why we are continuing with our program to repurchase institutionally-owned contracts from institutional investors, which should hopefully tame some of the mortality volatility there. But in general, that UL block is one that we expect to want to run down over time.

Thank you. And then secondly, on cash. So you keep adjusting assumptions and strengthening the quality of the capital in the U.S., but at the group level more generally. But solvency in cash keeps going up. So what do we need to see for you to be comfortable to reduce the holding cash towards the midpoint of the target range, which you said you would over time? Thank you.

So let's step back one minute. So right now, at the end of the first half of the year, we've got cash capital at the holding of roughly $2.1 billion. If you do the math, with respect to the dividend payments that we expect to make, the completion of the share buyback program that we've instituted for the second half of the year, and those kind of things. You get to a number that is more like near the top end of our range, so we have that range of $500 million to $1.5 billion, and we're going to be near the top end of that range by the end of the third quarter. And again, if you do the math throughout the end of the year, you might come up to a number that is a little bit north of that number. And it's only really at that moment that we would consider, again, do we want to reduce the level of cash at the holding? We have always said that we would reduce the cash at the holding over time as the transformation continues. And I expect that that would be a continuous reevaluation. that Lard and Duncan will do over time. And the next time to sort of reflect on that is probably going to be year end this year.

Thank you.

Thank you. We will now go to our next question. One moment, please. And your next question comes from the line of Steven Hayward from HFTC. Please go ahead.

Good morning. Thank you very much. There is obviously a lot of items to consider here, one-offs and below the line. The first question from me is starting on the IFRS operating below the operating line. Can you give us some more color on both the alternative investments portfolio performance and on real estate and land, the negative valuation here, is this a trend you're concerned about? And also on the impairments side of things with bond rating downgrades and mortgages model changes here. Is there anything really concerning here? I remember you used to give a chart out about impairments and showing the average yearly impairment basis points over the last 20 years or so. Can you give us an update on that as well? Sorry, it's a very long first question, but if you could give us some more color, it would be very helpful.

Yeah, thanks, Stephen.

Matt, over to you. Not really a long question. So your question on the performance of the alternative assets, I guess the main driver of that is we have real estate, effectively, that is... that is linked to oil and natural gas prices. So we saw a revaluation of those real estate holdings on a market value basis that reflects lower energy prices effectively. Is it a concern? No concern whatsoever. This is a non-cash item. It does not affect our, let's say, our ability to generate capital in the US. So that is just mark-to-market noise, I would say. The impairments, and this is a new one, frankly, for the industry as we record impairments as a consequence of IFRS 9, where you're using external models and establishing an expected credit loss, largely driven by external market environment. But again, this is just market value noise. It does not really impact our our ability to generate capital in the businesses at all, so that was only a modest increase. The one that you didn't mention, but it is a below the line item for our IFRS results is the charge, obviously, that we've taken mainly related to the assumption updates, and again, mainly related to mortality assumption updates that we've made during the quarter. So that one on an IFRS basis, we take roughly round numbers, $400 million, charge for that one. It reflects our ongoing sort of thinking as to mortality experience as we emerge from COVID. But the upshot is that we're able to increase, so because we're increasing our expectation of mortality in the U.S. business, we're able to increase our expectation for the ongoing operating result for the half-year results of something between 700 and 800 million a year. And that's where we kind of, because we updated our assumptions, it means that we've taken a chunk out of what we had systemically been seeing as a, over the last six or eight quarters or so, negative mortality experience variances. So now we take a chunk out of that. And that allows us to increase our expectations for the IFRS operating result for the U.S. to 700 to 800 million dollars per year. and it allows us to increase the operating result expectation for the group in a commensurate way to something like 800 to 900 million euro, again, per half year.

Thank you.

That was probably the long-winded answer to your reasonable question.

That was going further than I thought and led me to my second question, which was actually on the operating profit guidance uplift. Does the changes you've made here have any impact impact on the operating capital generation as well? I know, obviously, two different counting regimes, but is there any uplift to the guidance for your operating capital generation because of what you're seeing in the mortality and underlying trends here?

So let's hit the mortality underlying trends first. So we say on the, and again, and you called it out, the frameworks are somewhat different. So on an IFRS basis, because we have updated our mortality assumptions, there will be an uplift in our expected operating result going forward, full stop. In the statutory framework, in the capital framework, it's a little bit of a different impact. It actually creates a small drag on the operating result going forward, but it's actually quite small. You can think of it as, okay, $400 million is a is kind of a big number, but it's also present value of all these future expectations over time, whereas the OCG comes through kind of year by year. So there'll be a small drag on the OCG, but importantly, and if you do the math, you can kind of figure this out, what we are seeing is uplifts in OCG as a result of the business performance. And that's where we've seen there have been improvements both in the U.S. and at the group level of the strategic asset sides of the business. We see it in increasing fee income. We see it in increasing investment income and other areas. So it does come in different, it does hit the frameworks in a little bit different ways, but the important part is that the business growth that we're seeing is impacted in both frameworks in one form or another.

That's great. Thank you very much.

Thank you. We will now take our next question. And the next question comes from the line of Michael Hutner from Barenburg. Please go ahead.

Hi. Thank you. Congratulations. I think they're lovely results. And well done, Matt. And thank you. And I hope Egon will keep you busy in some way. Anyway, on the results, I'll give you my two questions. I know I'm only allowed one at a time, but I'll give them both because they may be related. Can you talk about the... the large lives miss in terms of mortality and also in the context of your investment in reducing the institutionally owned outstanding. I know it sounds like noise, but it sounds like recurring noise. That's why I'm a little bit unsure how to kind of gauge it. Any insight you have would be hugely... And then the second one is... There appears to be almost like a structural offset from long-term care. So every time you have a negative in mortality, long-term care seems to pop up and say, oh, we'll give you some reserve releases. Is that how I should think about it, given that, you know, I know that there are slightly different cohorts, but the underlying principles are roughly offsetting? That would be my two questions. Thank you.

Thank you very much, Michael, and also thanks for the congratulations. You know, the underlying business is indeed doing very well. And on Matt, we're going to keep him busy. I want to remind everybody that Matt's going to continue as a board member, a non-executive board member at Transamerica, our largest business in the U.S. So we are happy that he's willing to take that on and continue in that capacity. Matt, two questions for you.

So on the mortality myth, yeah, we had mortality experience variances, and we are going to continue to see volatility in the results. There's no question about it. But importantly, what we've done is we've knocked a big chunk out of that in terms of the assumption update that should reduce it going forward. So what we're saying for the U.S. business on an operating result basis is We think that, how do you want to say it, like a central expectation for operating results for the half year might be around $750 million. And then, yeah, mortality is going to vary. It will be maybe plus or minus $50 million. We'll see how that comes over time, but we are right now on the central scenario, and that is a fundamental part of the business. We are exposed to mortality fluctuations. In the context of the first half of the year, as I said in my remarks, yeah, we were punished by a relatively, an unusual, frankly, large number of high face amount claims. And that goes immediately to your second question, what are we doing about high face amounts? So one of the things that we do is we continue to progress reducing the amount of insurance that we have among institutional investors. And we've made good progress, more than 30% or actually far more than that done by the end of the first half of the year, and we're on track easily to be on target for our 40% reduction over time. So that's what we're doing there, and that continues to progress well. Oh, yeah, sorry, the LTC offset. And this is a little bit of accounting, but you've got to bear with me a little bit here. you know, the mortality assumption updates are really occurring in the context of contracts that are already onerous. So that means that, you know, if you have a mortality assumption update and onerous contracts become even more onerous, it comes through an other charge. It comes through an other charge and that's reflected in the P&L. On the long-term care, the assumption updates actually did result in a negative but it more happens in the CSM. And the reason it happens in the CSM is because there's a lot of CSM in the long-term care book that can absorb these fluctuations. Now, having said that, there was some negative experience that was updated in the CSM for the long-term care book, but it was offset for about half by anticipated future rate increases that we think we can get from insurance departments because now our expectations have changed, really as a result of claims utilization and incidents that have come through the assumption update. So it's not all coming through other charges. Some of it comes through CSM. But in this case, it can absorb a lot of CSM. And you see that reflected a bit in the CSM walkthrough that we had provided in the slides. Thank you.

Thank you. Your next question comes from the line of Farquhar Murray from Autonomous. Please go ahead.

Morning all and obviously best wishes for your time and many thanks for the help over the years. If I turn to my questions, two of them. On the new operating result guidance of 800 to 900 per half, two elements there. Could you explain the walk from, say, today's 750 to that 800 to 900? It looks to be more than just the $50 million step, and I wonder if it's the commercial performance on top. And perhaps related, how quickly do you think we can grade into that 800 to 900? I think previously you were suggesting maybe a bit of a graduated increase into a run rate. And then on the Assumption Model Updates of 373 million, please can you just decompose that between the term and the UL components? And in particular, is that focused on a particular cohort of policies, again, akin to the experience variances? Thanks.

Thank you very much, Farquhar.

Matt? Okay, so on the first one, on the operating result guidance for the group, the 800 to 900, the short answer to your question is yes. Reminding you the question that you asked, is business growth really the one that's driving that thing up? Yes, it is. So 50 million, think of it as the additional uplift that we'll get from resetting mortality assumptions and the like, and the balance of it is from business growth. And you see that actually coming through in the in the strategic assets where we're emphasizing. So the life business in the U.S., you see it in retirement plans, you especially see it, frankly, in the general account stable value, driving investment income margin up, and in other parts of the business too. So that 800 to 900 is not a, hey, that's what it's going to be in three years. No, that's what it's sort of going to be for the next half year. So there's not really a grade in that. There's not really a grade in there. And the second question, oh, the term in the life mortality assumption updates roughly 50-50, roughly 50-50, maybe skewed a little bit more to the traditional blocks, but it's very small. So think of it as a 50-50 thing.

And is it specific to a particular cohort, again, i.e., high value, high age?

Well, the mortality assumption updates, I mean, when we went through it, it's really, we really more focused on the older age mortality. That was the, let's say, the crux of the, or the biggest driver, unless you want to talk about it by product. But it's really older age mortality. We increased our expectation for older age mortality. It's just as simple as that. Great. Thanks a lot.

Yes. Thank you. Your next question comes from the line of Nazib Ahmed from UBS. Please go ahead.

Morning. Thanks for taking my questions. Firstly, on the financial assets, you've got 3.5 billion of locked-in capital in there. How much of that reduction since 2022 has been delivered by your actions versus markets? Because I think a big proportion of the reduction is the markets. And then you're targeting 1.2 billion. to management actions, I guess any market movements will come on top of that. And then kind of sub-question is, is the $1.2 billion more back in Lotus towards the 2027, or you'll chip away at this as and when you get attractive pricing in the market? So that's question number one.

Okay. As far as a split between the markets versus management actions, I must say, I don't really have a good split for you, so we'll have to get back to you on that one. And in terms of how much is it going to reduce and by what time, we have that $2.2 billion target out there. It'll quite depend on the pace of management actions that we will take in the future, which we continue to work on, of course, but we're not ready to talk about those things yet.

Perfect. Thank you. And second question, it's a quick one. US GAAP reporting, I think you've indicated in the past that you will look into it now that IFRS 17 is embedded. Any update on that?

So basically, no. We can say IFRS 17 is embedded. We are dutifully reporting the figures. I think we have a good handle on the sources of earnings and those sort of things, the various movements. We still do need to work, frankly, as well as everybody in the industry, I think, on speeding up the close process. So we continue to work on that one. Work has not begun on US GAAP. We still want to make sure that we are really rock solid on our RFRS 17 figures together with having a really, really good projection capability under that accounting framework. The US GAAP implementation is going to be a decision for the future. We still think it might be valuable in terms of being able to compare against US peers. But that's something, of course, that Duncan and Lard will be able to handle going forward.

Okay, thank you, Matt.

Thank you. Your next question comes from the line of Jason Kalambasis from ING. Please go ahead.

Yes, hi. First of all, I wanted to thank Matt and wish him indeed a very happy next phase of his life without the analysts, us, Besser and human results, finer details. And of course, welcome to Duncan. Congratulations in his new role, where I hope that you will do an excellent job like you did in the past, already at Aegon. Moving on, I have just a couple of quick questions. On the OCG guidance, Matt, you said that, yeah, normally we should assume zero going forward. And, you know, if anything, we'll have a small drag from the change in assumptions. But effectively, you're more likely to see positive as you had in the past. We're seeing, for example, in the U.S. mobility, you had many years of positive experience. So is it fair to say that at the end of the day, there is going to be somewhere an up list? It's just that, you know, you assume it at zero. You guide us, you know, in OCG with a zero in mind. But effectively, we're more likely to see if anything positive experiences. So I would like your thoughts on that. and also an OCG in the US on the financial assets. Could you help on what you would expect in the second half of the year? And then a couple of small things. In Spain, I assume that, you know, given that now interest rates are going down, we should see a bounce in the second half. So this is maybe more of a statement, but just looking to confirm that. And on the cash market, You said probably the next update for share buybacks is the full year. My calculation shows that you will be north of 1.7 billion at year end. So I just want to make clear that we're not going to have any surprises with the third quarter trading update. And you're looking at the next date, February 25, for any capital updates. Thank you very much.

Let me, yes, thank you very much, Jason, and I will hand over for Matt in a minute, but I'll take the last two. So in Spain, first of all, in Spain, as we mentioned in our presentation, we have seen slowdown in sales because, you know, as you know, we are working there with our partner, our bank distribution partner, and because of the rates up, basically there was less demand for The life insurance and products that are usually bought in conjunction with mortgages because there's just lower mortgages now with rates coming down We do expect of course then trend to to reverse gradually because the race are not plumbing Plummeting so it is all this will come back gradually and at the meantime by the way There's a lot of other product lines that we are developing so we're pushing forward to reverse the picture in the in the second half of the year and Then, when it comes to any capital returns, Jason, let me remind you that we've done a $1.5 billion buyback, which we completed. We've announced a $2.5 billion buyback, which we're currently repurchasing in the open market. We hope to be able to get that done before the end of the year. Matt just took you through the movement of the cash capital position, also taking into account the interim dividend that we would need to pay out, etc., We are well capitalized. The operating units are well above their operating levels. We have a strong cash capital position, the holding company, which we like to have because this company is in a large-scale transformation effort, and as a result, we like to be that way. We have a policy that any capital that we have in excess of the half a billion to 1.5 billion range has and that we cannot use for value-creating opportunities We'll go back to stockholders over time, and this is something we evaluate on an ongoing basis.

Okay, let me get to your OCG questions. So first of all, I think you were trying to link assumption updates to the OCG guidance that we are giving. And just to refresh your memories right now, we reported a second quarter, and I talk in group terms, we reported a second quarter OCG of 332 million. That embedded a bunch of negative mortality and morbidity experience variances that you need to add back. There were various one-off items in international and in the UK. And when you boil it all down, you end up with a run rate of about 290 million per quarter for the group. We are not changing our guidance for the full year. We've said something in 1.1 billion range. The basic math would get you somewhat higher than that, but we will see. We still have mortality volatility. But the big thing is that the change in assumptions does not have a big impact on the run rate expectation for OCG. It's very minor, and it's more than made up for in terms of business growth. You second asked a question about OCG and financial assets in the U.S. We don't generally give guidance at that level of detail, but we look at perhaps $205 million a quarter for the overall U.S. business. Again, that's going to be subject to mortality fluctuations and the like. The question on Spain interest rates, Lard already covered it, so we don't need to do that. And cash, Lard already covered that one as well. So I think that's about it.

Thank you very much.

Thank you. We will now take our final question for today. And your final question comes from the line of Farooq Hanif from JPMorgan. Please go ahead.

Thank you very much. And thanks, Matt, too. Question one, can you please talk about in long-term care the driver of the really high actual to expected because obviously we you know we probably expect higher old age mortality to be to be positive but for that and related to that you know when are you expecting the next for price increases, and if you do get those price increases, am I right in thinking that in the CSM you've already taken that into account, it's not really going to uplift? So that's question area number one, and I'll wait for your answer and give you my second one.

Okay. Thank you very much, Farouk.

Matt. The higher actual to expected ratio in the long-term care business that we saw in the first half of the year, I'd say the majority of it is due to just simply a claims backlog that was caught up in the first half. We also had minor updates relative to incidents and claim amounts. But frankly, those are taken care of in the assumption updates, so we would expect that to come back to zero over time. So actually, there's not really a lot happening in the long-term care book. In terms of the expected approvals of price increases, we get these all the time. These stagger in. We have 50 states for which we have sought increased prices for the long-term care book, and those are trickling in all the time. And you have it exactly right that our long-term expectation of of the approvals of these rate increases are already reflected in the CSM. And frankly, every half year, every quarter when we do our financial results, we true up to what did we expect for the quarter of the half year versus what approvals did we get in for the quarter of the half year. So we're constantly monitoring that one. But you're right, you're not going to see an uplift in the IFRS results except to the extent that we get more approvals than we than we thought we were going to get in the main. But I think the best way to think about it is just in terms of our 700 million guidance, we track that dutifully for you guys and let us handle the accounting. But there are no big movements really anticipated there.

Thank you. And my second question, I suspect you might not be able to answer fully yet, but your RBC ratio, is clearly well above target levels. It feels to me like you're much more positive now on experience and assumptions. But you've given us this impression that as you release capital from financial assets, you'll reinvest it in strategic. But it feels to me that balance is net positive. So at what point as a group, as an organization, do you think you'll decide to maybe increase remittances from the U.S.?

Thanks. Matt? So, one, I have to correct one thing, and that is that we planned, we've always said that as we release capital from the financial assets, then we will redeploy that to reduce capital even further on the financial assets. We really want to work those books down We have plenty of capital to invest in the strategic assets. You've seen, by the way, that our new business strain in the U.S. has increased relative to the prior year, last year, and we actually expect that to continue, which I frankly love because we're effectively planting seed corn in terms of putting profitable business on the books that will ultimately come through capital generation in the future. But, yeah, I mean, look, the RBC ratio is at a, you know, it's at a pretty high level today. But that will be really up to Duncan and Lard here to, you know, to think about what happens in the future. But for right, you know, for right now, you don't know what headwinds are coming. You know, we saw a blip in the equity markets there. Credit markets are still benign. And we're in the middle of a transformation in the U.S. So for right now, I would say we're pretty okay where it is. But that could obviously change in the future.

Thank you so much. Thank you.

Thank you. This concludes the Q&A session. I would now like to hand the call back over to Yves Cormier for closing remarks. Please go ahead.

Thank you very much. This concludes today's Q&A session. Should you have any remaining questions, please get in touch with us in Investor Relations. On behalf of Lard and Mark, I want to thank you for your attention. Thanks again, and have a good day.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.