Aegon Ltd. New York Registry Shares

Good day and thank you for standing by. Welcome to Ergon's second 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, Operator, and good morning, everyone. My name is Yves Cormier, Head of Investor Relations, and I would like to welcome you to this conference call on Aegon's second half 2024 results. Joining me to take you through our progress are Aegon CEO Lars Friese and CFO Duncan Russell. 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. And I now would like to hand over to Lars.

Thanks Yves and good morning everyone and thank you for joining the call today. Let me start today's presentation by running you through our strategic and commercial developments before handing over to Duncan to address our financial results in more detail. Let's move to slide two to review the highlights of the year. In 2024, we made good progress with the transformation of AGON and are on track to meet the 2025 targets. I will begin by highlighting some of our key financials. Starting with IFRS, we reported an operating result of nearly €1.5 billion over 2024, which is in line with last year's results and with a clear improvement of claims experience following our assumption updates in the first half of 2024. AGON reported operating capital generation before holding and funding expenses of €1.2 billion in 2024 in line with the guidance we provided. We also met our guidance on free cash flow, which came in at €759 million. Based on this progress, we propose a final dividend of €0.19 per common share, which would bring the full-year dividend to €0.35 per share, which is an increase of 17%, compared with 2023. We also returned 1.4 billion euros of capital to our shareholders during the calendar year in the form of dividends and share buybacks, and furthermore, we are currently executing an additional 150 million share buyback program. These are testimony to our commitment to generating attractive returns for our shareholders. Turning now to our strategy and commercial momentum, I'm also pleased with the progress that we have made. In the United States, we are building Transamerica into America's leading middle market life insurance and retirement company. World Financial Group, our affiliated insurance distribution network, continues to attract new agents and grow its business. In mid-sized retirement plans, we are growing the portfolio and have a very strong pipeline of written sales. We continue to pursue our strategy in our protection solutions business with a focus on growing our life and indexed annuity business. In financial assets, we have reduced capital employed and made good progress in long-term care and completed the program to purchase institutionally owned universal life policies ahead of schedule, reducing our exposure to mortality risks. Moving to the UK, in June we updated you on our strategy to create a champion in the UK savings and retirement market. The results since then have been in line with our expectations. We have seen record growth in the workplace platform and while outflows continued in our advisor platform, we are executing a strategy to reverse the flow dynamics in this business that includes targeting our top 500 financial advisor firms. Our asset management business had a very strong year with solid net deposits in both the global platforms and the strategic partnership channels. Finally, in international, commercial results have been volatile this year in several markets, but mostly from pricing actions in China to reflect lower interest rates. I'm now turning to slide number three for an update on our strategic assets in the Americas. We remain on track to deliver on the transformation of Transamerica. Starting with WFG, compared with the end of 2023, the number of licensed agents increased by 17% to over 86,000. The number of multi-ticket life agents remained stable over the same period. Annuity sales through WFG network increased by 22% compared with 2023, while new life sales decreased by 3 percent. In the savings and investment segment, while large market retirement plans experienced net outflows, net deposits in the mid-sized segment amounted to $0.6 billion in 2024. Strong levels of new written sales in both mid-sized and large market plans point to solid growth of growth deposits going forward. In this segment, we also strive to increase profitability and diversify revenue streams by growing in ancillary products, as explained during the Capital Markets Day in 2023. Assets under administration in individual retirement accounts increased by 22% over the past 12 months to nearly $13 billion, while assets under management of the general account stable value product increased by 18% to $13 billion. In the protection solutions segment, new life sales decreased by 3% compared with the first half of last year to $473 million. New life sales were impacted by a number of factors within the WFG distribution channel. These included some attrition of senior producing life licensed agents higher levels of sales for third-party high-based value life contracts, which is a product segment that Transamerica is not focused on, along with a shift in the mix of sales towards more annuities. We are actively addressing these challenges, and in the fourth quarter, we noted an improvement of new life sales of Transamerica products versus the third quarter. We're also making good progress with the transformation of our life operating model, having completed major milestones in 2024. So let's now move to our UK business using slide number four. In the UK, trends remain consistent with the path we discussed at the strategy teaching. Commercial momentum in the workplace platform remains very strong, evidencing our strong position in this market. Net deposits during 2024 amounted to 3.7 billion pounds, more than double the level of 2023. In the advisor platform, net outflows amounted to 3.5 billion pounds in 2024. This reflects continued elevated levels of customer withdrawals and ongoing consolidation in non-target advisor segments. In line with our strategy, we are focusing our efforts on targeting our top 500 financial advisor firms, and improving the platform experience. At the end of 2024, the platform assets under administration amounted to 115 billion pounds, up 11% compared with the end of 2023, due to favorable markets and the net deposits on the workplace platform. I now turn to slide number five to address the progress of our international businesses. New life sales in international segments decreased by 15% compared with 2023. This was mainly driven by pricing actions in China to reflect lower interest rates. This more than offset the slightly elevated sales volumes generated ahead of a second regulatory change in October 2024. In Brazil, the decrease of new life sales is explained by unfavorable exchange rate movements and a very strong sales level in 2023. In Spain and Portugal, new life sales decreased mainly as a result of fewer mortgage-linked life sales, as higher interest rates dampened demand, especially in the first half of the year. This was partly offset by higher sales in single premium products linked to consumer loans. A similar reduction was observed for accident and health products. But we continue to profitably grow our books in these markets and have recorded solid increases in gross written premiums during 2024 compared to 2023. Moving now to slide number six. Agonass management reported solid results, very solid results over the year. In the global platforms business, we saw strong third party net deposits of 9.2 billion euros. This was driven by strong inflows in alternative fixed income funds, which also benefited from the asset management partnership with ASR. The other main contributors to net deposits were retirement funds in the UK and the Netherlands. In the strategic partnership segment, net deposits amounted to 4.5 billion euros, and that was mainly driven by our Chinese joint venture, AIFMC. These solid levels of net deposits combined with favorable markets and favorable currency movements increased the assets under management to 332 billion euros at year end 2024. Duncan, I will now hand over to you to discuss the financial performance over the second half of 2024.

Thank you Lars, good morning everyone. Let's turn to slide eight for an overview of our financial performance. In the second half of 2024, the IFRS operating result increased by 14% compared to the prior year period. mostly driven by the Americas, reflecting business growth in all three strategic asset segments. Operating capital generation before holding, funding and operating expenses was flat compared to the second half of 2023, as elevated required capital release was offset by higher new business strength. Free cash flow amounted to 385 million euros, following receipts of 500 remittances from all units and including the capital distributions from ASR. Cash capital at holdings stood at 1.7 billion at the end of December. The decrease compared with the balance at the end of June was driven by €728 million of capital returns to Agle shareholders. Valuation equity, which consists of the sum of shareholders' equity and the CSM balance of the tax, on a per share basis increased by 9% to €8.91 over the reporting period. Growth plans of leverage increased slightly to €5.2 billion following FX movements. And the group solvency ratio decreased by 2 percentage points since the end of June to 188%, at the end of December 2024. Let's now move to operation results, slide nine. The group's operating results increased to 776 million euros, driven by the US strategic assets and Avon asset management. In the US, the operating results increased by 15%, reflecting business growth in the strategic assets. The increase was partially offset by lower operating profit from financial assets, as these blocks continue to shrink. In the UK, the operating results decreased by 2%. Higher revenues from business growth and favorable markets were offset by higher hedging costs and lower interest income on own cash. In our international segment, the operating results decreased by 8%, predominantly as a result of a lower operating result from TLB because of lower investment income post remittances. The operating result from Aegon Asset Management increased by 34% thanks to business growth, favorable markets, and a one-time benefit in our Chinese joint venture. And finally, our holding reported a negative result of 68 million euros. The result included a benefit resulting from an international reinsurance transaction between Transamerica and TLB, offsetting a negative impact in onerous contracts in the Americas financial assets. I will elaborate on this item and the operating results of the Americas more broadly using the next slide, number 10. In the second half of 2024, the Americas operating results amounted to $599 million. The operating results from protection solutions increased by 35%. Growth in the portfolio drove higher CSM release and investment income. The savings and investment operating results increased 10%, mainly from increased revenues in retirement plans. The distribution operating results increased 25%, mainly due to higher net commission revenues and revenue sharing income from third-party product providers, both related to increased annuity sales volumes, both of which led to a higher operating margin. The operating results from financial assets decreased by $37 million due to the continued runoff unfavorably impacting the net investment results and the release of CSM. Claims variance was overall favorable in second half 24 and materially more favorable year on year But in second half 24, we had a negative 147 million unfavorable experience on onerous contracts. About one third of this was driven by premium variances in the universal lifeblocks. Another third resulted from last behavior in TLB because of higher interest rates. As this is related to an internal reinsurance transaction, this impact is eliminated in the holding segment. The remaining impact related largely to the reclassification of interest accretion for owner's variable annuity contracts from fair value items to operating results. Looking into 2025, the operating results should continue to benefit from the growth we are seeing in strategic assets and expense discipline, albeit with a lower anticipated operating margin in the distribution segment as we invest in our franchise. Taking into account the reclassification of the variable annuity interest accretion into the operating results, which is a mechanical drag, the overall America's operating results is anticipated to be in a half-yearly run rate of $650 to $750 million. This US run rate feeds into a 750 to 850 million euro run rate per half year for the group. Let me now turn to the net results of slide 11. Non-operating items amounted to a charge of 91 million euros in the second half of 2024. Fair value items resulted in a gain of 64 million euros, driven by the Americas, where gains on hedges offset the underperformance of private equity investments. This was more than offset by net impairments of 163 million euros. These mostly related to ECL balance increases for bonds and mortgages, following more adverse ECL economic scenario outlooks. Other income amounts to 159 million euros in the second half of 2024, mainly driven by the results of our stake in ASR, partly offset by restructuring charges and investments in the transformation of our businesses. After income tax, this leads to a net profit for the group of 741 million euros for the second half of 2024. Slide 12 talks to the development of Aegon's shareholders' equity in the second half of 2024. Shareholders' equity per share increased by €0.51 to €4.53 compared with the end of June 2024. The increase was driven by the net results, favourable currency movements, a reduction in the share count, as well as gains and revaluations in OCI, which in part offset losses within the non-operating items. These items more than offset the reduction in equity related to capital distributions to shareholders in the period. I am now moving to the CSM and valuation equity development in the second half of 2024 on slide 13. The CSM at the end of 2024 grew to 9 billion euros, helped by growth in our US strategic assets. Outside the US, the CSM decreased in the UK from unfavorable experience variances and the runoff of the traditional book. This was offset by the international segment. Valuation equity, which we define as the sum of shareholders' equity and CSM after tax, grew by 72 cents over the reporting period to 8 euros and 91 cents on a per share basis. I'm now on slide 15 to address operating capital generation, or OCG. In the second half of 2024, OCG from the units amounted to 658 million euros, a comparable level to the prior year period, Lower OCG in the US and international was offset by increases in the UK and asset management. Earnings on imports decreased by 1% to €793 million, driven by the Americas, partly offset by asset management, which benefited from growth in favourable markets. The release of required capital increased by 18% to €252 million, again driven by the US. An overall new business strain increased by 10%, mainly from business growth in US strategic assets. Overall favorable one-time items had a smaller impact in second half 24 than in second half 23. In the second half of 24, they amounted to around 52 million euros, of which around 15 million was in the fourth quarter. Using slide 15, I will elaborate on the OTG of our U.S. business. In the second half of 2024, Transamerica's earnings on imports amounted to $614 million, a decrease of 2% compared to the same period last year. Earnings on in-force in general benefited from business growth year on year, while the prior year period benefited from larger positive non-recurring items in financial assets. Claims experience variance was also an unfavorable $60 million in the second half of 24 compared to $70 million in the second half of 23. The release of required capital increased to $219 million in a period. This was mainly the result of non-recurring capital releases in the period following management actions to lower the required capital on investment assets and general accounts. New business strain in the second half of 24 amounted to $404 million. The increase was driven by larger deposits in the general account stable value product within the retirement plan business and growth in the rider product within protection solutions. Summarizing, OCG in the Americas decreased by 7% to $429 million in the second half of 2024. The decrease was largely explained by non-recurring items and high-earning business strain, which together offset the increased earnings unenforced from business growth. Using slide 16, I want to address the capital positions of our U.S. and U.K. units, which remain strong and well above their operating levels. The U.S. RBC ratio decreased by 3 percentage points to 443, compared with the end of June. As announced with the third quarter trading update, the termination of a portfolio of purchased universal life policies, including the return of part of the equity funding to finance those purchases, negatively impacted the RBC ratio with eight percentage points. Restructuring charges and a contribution to the own employee pension plan reduced the RBC ratio by another eight percentage points. The benefit from OCG was partly offset by remittances to the group, and market movements had a positive impact of 8 percentage points. Although the RPC ratio remains very healthy, it is important to note that the capital sensitivities have significantly increased in second half of 2024 compared with the prior period. This has been driven by higher interest rates and equity markets, triggering uneconomic flooring on our VA reserves, as well as deferred tax asset constraints starting to bite. Note that our published sensitivities now affect our actual VTA position in each relevant scenario, and I'm happy to go into further detail in the Q&A. In the UK, the solvency ratio of Scottish Exit will decrease by three percentage points over the same period to 186%. The positive impact from operating capital generation and the annual assumption updates was more than offset by remittances to the holding, a moderate refinement, and some smaller one-time items. Moving now to slide 17 for an update on our financial assets. We are making steady progress towards our goal of reducing capital employees in our financial assets to around $2.2 billion by the end of 2027. As of the end of 2024, capital employees had decreased to $3.4 billion. In variable annuities, annualized net outflows in the reporting period amounted to 9% of the account balance, in line with expectations for this runoff block. In fixed annuities, Analyzed net outflows amounted to 16% of the average account balance as the book gradually runs down. In long-term care, we have now obtained regulatory approvals for additional premium rate increases amounting to $571 million since the beginning of 2023, which is 82% of our target. Claims experience continues to track well with assumptions, with actual to expected claims ratio that was largely in line with expectations. Finally, in Universal Life, we have completed our program, which targets the purchase of 40% of the face value of institutionally owned policies that were in force at the end of 2021. As previously mentioned, funding remains available for additional purchases if these are economically favorable for Transamerica. And in fact, in the fourth quarter, we did purchase more policies. The runoff of the book and this program drove the reduction of the net face value of Universal Life policies At the end of the year, we have a net base value of $47 billion outstanding. Turning now to slide 18. Cash capital holding amounted to 1.7 billion euros at the end of 2024. The decrease from the end of June was driven by 728 million euros of capital returned to shareholders in the form of dividends and share buybacks. Free cash flow amounted to 385 million euros in the period, and includes remittances from all units and capital returns from ASR. Looking forward, and as a reminder, we are currently engaged in a €150 million share buyback programme, which is expected to be completed in the first half of 2025. My final slide is number 19 for a recap of where we stand relative to our financial targets for 2025. OCG for 2024 was in line with our updated guidance of €1.2 billion. reflecting not only solid business growth, but also several favourable non-recurring items, which totalled around 65 million euros over the year. For 2025, as communicated at the 2023 Capital Markets Day, we expect OTG to be around 1.2 billion euros. OTG in the US, UK and asset management are all trending well versus original guidance, but are being offset by lower than originally anticipated OTG from international markets. We also met guidance for free cash flow in 2024, which came in at €759 million and included a €30 million benefit from our participation in ASR's recent buyback program. For 2025, our target remains a free cash flow level of around €800 million on the back of increasing sustainable OCG from the business unit. Growth financial average of €502 billion increased slightly due to currency movements, but remains at our target level. Finally, we have increased our dividend over the year 2024 to 35 euro cents per common share, up 17% from the 30 euro cents per share over 2023. We are confident that we can continue to grow the dividend to our stated target of around 40 euro cents per share over the full year 2025. And with that, I hand it back to you, Lars.

Thank you, Duncan, and let me recap today's presentation with slide number 21. Looking back in 2024, I am proud of what the teams in our company have achieved, and I'm grateful for their very hard work. We have made significant steps in the transformation of Agon, but the work is not done. We will remain laser-focused on executing our strategy and delivering on our commitments. We have met the financial guidance we previously presented to you and remain confident that we can meet our targets for 2025. We are growing our strategic assets, and we're reducing our exposure to financial assets step by step. You can see this in our CSM development, but also in how the quality and quantum of capital generation is shifting towards our more profitable and attractive businesses. Although we will speak before then, I look forward to providing you with an update on our strategy and new group targets at our next Capital Markets Day on December 10, 2025 in London. With that, I would now like to open the call for your questions. Please limit yourself to two questions per person. Sharon, please be so kind as to open the Q&A session.

Thank you, sir. 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 one question and answer one question at a time before moving to the next question. Please stand by while we compile the Q&A roster. Thank you. We will now go to the first question. And your first question comes from the line of David Barmer from Bank of America. Please go ahead.

Good morning. Thanks for taking my question. Can we start with the operating capital generation, please? And could you help me understand the moving parts leading you to reiterate your 2025 guidance? So maybe if you can run through the main building blocks and the offsetting factors to the pressure you're seeing in China.

Okay, I think David is Duncan here. Your question is around the guidance for next year, which... as you say, has been reiterated. So it's very simply, if you multiply our 4Q actuals and the underlying by 4, you're getting to a run rate of around 1.2 billion currently, which is in line with our guidance. Compared to the original capital market state guidance, we have benefited from higher equity markets than assumed and from the dollar strength. So we've had some favorable tailwinds helping us. And in fact, if I look at our business units, I think the U.S., the U.K., and the asset management business are all running slightly favorably compared to the targets of the capital markets day, reflecting those tailwinds with some offsetting headwinds. But the international is an offset, as you pointed out, and that's running weaker than we originally assumed, which is mostly due to China. If I go into the specifics, we have the tailwinds of the equity markets. Within the U.S., we have the drag from mortality rates. If you recall, we updated our mortality assumptions, which we reflected in IFRS, but we have to take over time in OCG. But despite that, we think the U.S. is running quite well. But offsetting at the group level is the international business, where China is anticipated to be around 50 million lower in 2025. And that's mostly due to the low interest rates, where we have a drag coming through as we have to amortize, basically, the difference between the assumed regulatory curve and the market curve through the OCG over a three-year period. So if I take those two things net, I'm getting to a pretty stable outlook for 2025.

Thank you. And what kind of interest rate benefits are you modeling there? I think you said at Q3 you were reinvesting 130 basis points higher than your back book yield. That's now probably 200. So how does that feed into the equation?

So you're right, we are reinvesting higher than our back, but we're not seeing a huge benefit coming through, and we don't anticipate a huge benefit coming through in our OCG. And the reason for that is we're seeing some competitive pressure. So where we are earning a higher yield, we're actually passing some of that back on to the customer. And that's because the two areas where we are reinvesting is in the Ryla product, which is quite a competitive market at the moment, and also then in our stable value and the retirement plans. even though that takes a bit longer to filter through. Over time, we're seeing that also coming down to a more normalized level. So yes, we're reinvesting at a higher rate, but we're passing that on to the customers. I'm not anticipating a significant benefit in OCG as I look forward. Understood. Thank you.

My second question is on the big increase in the equity sensitivity of the RBC ratio. Are there any measures that can be taken to manage this, or is it just... Is it just dependent on the level of equity markets, so basically markets to go down, or is there anything on the hedging that can be done to change the flooring level?

Yeah, it's a good point, and indeed there was a significant change in our equity sensitivities and our sensitivities in general in the second half. There are three reasons for that, or two reasons really, actually. The first was we've moved our sensitivities now to be on an actual tax position, And as interest rates rose and equity markets rose, we found ourselves reaching a limit on the amount of DTA we can include in our RBC ratio. And so we've adapted our sensitivities to now reflect the actual tax position. And that means basically all our sensitivities are now pre-tax as opposed to net-tax, which means they're just higher. And then second reason, which is the point you mentioned, is the flooring on the variable annuity book. That's slightly counterintuitive, and it reflects the prudence in the regulatory system. As you know, we manage that book on an economic basis, but under the US SPAT system, we're not allowed to reflect the full reduction in economic reserves. We have to floor them at zero. And as a consequence of that, we're now pretty sensitive to up equity markets. The good news is that our ratio is at a pretty high level with 443. So even a 25% movement in equity still leaves us at around our commercial capital level, but it is something we will look into and see if there are ways of mitigating it. However, I doubt we would change our approach to the management of the variable annuity book, which is to continue to manage that on an economic basis and hedge out the risks we're exposed to. Understood. Thank you.

Thank you. Your next question comes from the line of Michael Hutner from Barenburg. Please go ahead.

Thank you so much. I've got two questions. So China's solvency, can you say what the solvency is now and what it would be if you were to apply spot interest rates rather than the kind of smooth curve? What I'm really asking is what is the risk that you have to inject capital in China? And then I have another question on mortality.

Why don't you... Michael, why don't you also do the mortality question?

Sure. On the mortality, I'm hopeful that all these drugs that are coming through and the peaking of maybe mortality due to fentanyl and other stuff should mean that mortality going forward in the US will improve. And I'm just wondering what metrics should I use to kind of try and gauge, you know, whether how much a benefit or relative to expectations could be. You just mentioned a face value figure for universal life of 47 billion, but my memory of militant exposure was higher. So I just wonder if you can help me on these moving parts. Thank you.

Thank you very much, Michael. So Duncan.

So on the mortality first, Michael. So the thing I look at is the experience variances in the IFRS accounts. The reason I look at that is that the IFRS accounts reflect our best estimate. We took the update in the first half, whereas the capital position is often locked in. So I would focus on the IFRS accounts and look at the experience variances. And the good news is that in the second half of this year, we had a positive variance on mortality. which is pleasing. That variance was both in the third quarter and in the fourth quarter a positive, which is good, and was across all product lines, which is also good. So that's what you should monitor is the variance, and we had a positive experience in the second half, which is good news. On the Chinese solvency, they have various metrics. The 4Q local comprehensive solvency ratio was 228%. And the core ratio was 177%. And just for your reference, the regulatory thresholds are 120% and 60% respectively. So we're quite a bit above the regulatory thresholds. A couple of things of reference. Firstly, as I pointed out, the curve that they use on the local basis is higher than the current straight curve. And we have to amortize that difference. through the regulatory capital basis over a three-year period. And that's why we're expecting a negative OCG or a largely reduced OCG in China over the coming period as we basically pay that down. It's all dependent on where interest rates are. So interest rates in China have fallen a lot, and that's why it's particularly onerous at the moment. If interest rates continue to fall, that drag will increase. If interest rates go up, that drag will reduce. although our solvency ratio will come down. So it's something we're closely monitoring. We're looking into various management actions in order to protect our solvency position. Thank you.

Thank you. Your next question comes from the line of Farouk Hani from JP Morgan. Please go ahead.

Hi there. Thanks very much. Two questions. I'm just going to start with international. The return on capital in international just seems really weak compared to the rest of the group and given low interest rates in China, given perhaps the market possibly doesn't sort of really look at the international business in a lot of detail, gives you a lot of value for it, what can you say about, you know, potential disposals or looking at restructuring that business going forward now that obviously a lot of your U.S. restructuring and transformation is kind of in the bag and it's just running. I mean, is that the next area that you think you might turn to? That's question one, and I'll wait for question two when you've answered that.

Okay, Baruch. Yes, so on international. No, the international businesses are core to the perimeter of the group. And if I look at, if I just, I'll get to China in a second, and Duncan has already mentioned quite a bit about that. But if I look, for instance, in a Brazilian business, you know, that business is doing, that's just doing well, structurally well, already for quite a long time. We have actually increased our ownership stake in that business in the course of the last year. Because we have good expectations from that business. While sales this year for Brazil were slightly muted versus an exceptionally good sales year in the second half of the year last year. The growth rate and premium, so the overall size of the business giving strong customer retention, has actually gone up more than 15%. So we are quite pleased with that business and will continue to support it and to make sure that it continues to grow profitably. If you look at the joint ventures we have with Banco Santander in Spain and in Portugal, they're chugging along very nicely over the years if you look at the profitability of those businesses. Yes, there are some interest rates and mortgage-related sales that came down a bit, but if you also look at the overall growth of the gross written premium of those businesses, that also grows more than 10%. quite pleased with that as well. It's checking along nicely. Now then you go to China and that's, on TLB by the way, which we shouldn't forget, it's our high net worth business in Singapore and Hong Kong. You may recall that we've put that in hibernation mode, if you will, a while back, but we have decided to start to grow in a disciplined and moderate pace that business. And then we have China. And in China, life, which is included in this national segment, because the asset management business is doing fine in China, but on the life insurance side, we are seeing those headwinds. I mean, Duncan already talked about the lower interest rate environment in China, which came down, of course, quite dramatically in Q3 and Q4. We repriced all the products, and as a result, we don't see the sales that you that you would want to see there. So we're monitoring the situation in China closely, given that the environment for life insurance is not that great. But, you know, China is a very large market. That remains to be the case. And the dynamics are structurally in our favor. So our international businesses are a core part of our franchise. You had a second question, Farouk.

Yes. So going to earnings, to IFRS earnings. So... Obviously, the onerous contracts in the U.S. have been a negative surprise. And I think there was a feeling the last time you spoke to us that some of these surprises would go away, especially around mortality, that's kind of come out of the blue. So there's two parts to my second question. Firstly, is there anything else that you're looking at in your accounting and the way that you do it, given that it's a new framework that we need to be aware of? And secondly, when I look at the buckets that contributed to those onerous contracts. It seems that two out of the three are probably going to continue. Obviously, one is offset at the holding. But what about the premium variances in universal life? If you could just explain that and what you can do about that. Thank you very much.

Thanks, Roop. So, Duncan?

Okay. Just coming on to the surprises. So, the good news is that the Mortality experience variance was, as I mentioned, positive. We're tracking well on expenses, etc., etc. So actually, you're right to highlight that there was one area which negatively surprised in the second half, which is the onerous contracts, which we have to take all of the adjustment for onerous contracts through the P&L to remind you because these are contracts where we don't have a CSM. So you get a magnified impact. If you look at that, part of that onerous contract was... a reclassification. So that's where we've improved the quality of our operating profits as we've moved an item from below the line to above the line, which I think was appropriate and therefore will recur, and that was about $35 million. But that's just a reclassification with no impact on the net profit or the valuation equity growth. The rest of the onerous then, indeed, in the U.S., part of it was an internal thing. So we saw or were seeing higher lapses in TLB as a result of the higher interest rates. That resulted in a drag in the U.S. business and then an offset in the holding, a net-net for the group. There was no impact on the operating profit. I would expect that kind of mismatch to continue, at least into 2025, and therefore we should see, we're likely to see, I think, another drag in the first half in Transamerica offset by a positive in the holding. Then the rest of the onerous then, there were some, fairly small owners on new business. I think you'll always get a bit of bits and bobs on new business. So I would factor in a small kind of recurring number there. But then the main big one was the premium paying variances on our universal life block, which we saw in the second half of the year. That's a flexible premium policy, which means that policyholders can vary how much they pay. And what we've done is when we see that behavior, we assume that that indicates more efficient policyholder behavior, which I think is a prudent thing to do. And we reflect that through the onerous movement entirely. It could be the case as this develops over time that it actually reflects not more efficient behavior, more lapses or something else, but for now we've assumed it's more efficient behavior. And I think, again, it's probably reasonable to assume that there will be some continuation of that into 2025, although I think it's more open-ended and it's something we'll just have to monitor. In terms of accounting changes, Farouk, the reason we moved the accretion from below the line to above the line is that we just felt that was the right thing to do, and it created a more robust operating profit. Could be the case that we continue to look at ways to make the operating profit more robust in the future, but at this point in time, I don't see anything on the horizon. Okay, thank you very much. Thank you.

Thank you. We will now go to the next question. And your next question comes from the line of Ria Shah from Deutsche Bank. Please go ahead.

two questions, but I'll start with the first one. So in terms of the UK business, I mean, strong workplace flows in 2024, what are your expectations for this into 2025? Do you still expect to see growth in this number? And then I'll move on to the second question after that.

Well, Rhea, this is Lars. indeed observed now already for quite a number of quarters is not only limited to 2020 for a quite strong commercial momentum in a workplace business, which meaning that we found with our propositions and the distribution that we have a good path to continue to grow that business. And for 2025, I mean, 2024 was a record year While I have no reason to believe the commercial momentum will not sustain, we do need to recognize that 2024 was exceptionally high. But I think we're very well positioned to continue the growth in that business. When it comes to the advisor platform, which is the softer piece of the profile in the UK, we saw continued outflows. This was anticipated, by the way. You know that we've... had a capital markets teaching about the UK business where we have outlined our plans in the coming years to turn that platform experience for our IFAs around. And with that, we aim to grow it to 5 billion of positive flows by the end of 2028.

And then my second question is, just looking at the IFRS result going from operating to net, The restructuring charges related to US investments, is this a good run rate to use, the numbers seen in the second half of the year?

Sri, let me ask Duncan to take that question.

The run rate for the second half of the year, let me just get that. I think it's around 35 million. 20 to 30 million per half year.

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

Hi, morning. Thanks for taking my question. So firstly on the financial assets, I think you've got a target of getting the capital consumed or capital deployed in that business to 2.2 billion by 27. There's no additional management actions today. What's the pipeline looking like? How are you going to get down to 2.2 billion? So there's another billion-odd to go from where you are at the moment. So, yes, that's my first question. I'll ask the second one later.

Okay, thank you very much, Nazeem. Financial assets, the management actions to get down to the target.

Yeah, just to recap, so at the time of making that target, and we're making good progress on it, We said that we would use a combination of bilateral, which is where we have to engage with a third party, unilateral. And then we didn't assume any major third party transactions in that. So it's not that that target is based off an assumption that we have to do a major transaction. It could be that transactions are supported, but we're not baking in major transactions. We continue to look at all options. In the fourth quarter, as I mentioned, we continue to buy institutional loan policies, which is a bilateral action. And we continue to explore if there are any transactions that could make sense. And if we find one, we'll announce it.

I guess the follow-up to that one is, do you need a transaction to get to, sorry, not a transaction, a bilateral reinsurance or something like that to get to the 2.2? Or can you kind of just get it down to runoff? I'll ask the second question as well. In terms of kind of it's related, in terms of the deals that you've seen, particularly on retirement plans, I think Boya did a deal as well. Is that an area where you could potentially look to build up scale because it's a P-based business, scale will give you operating leverage. Is that where you would look to acquire something?

Thanks. We are, so let me take that question if you don't mind. The, you know, we are, We are a company that any acquisitions that we would be evaluating, we're more than happy to do so in those business lines. And it's in line with our strategy, right? So in those business lines and markets that we define the score to our group. And if we would see something that is attractive, that would strengthen the business, that we're ready to integrate and meets financial and non-financial criteria, we will seriously consider it. including retirement in the U.S.

I thought I had answered the question, but we did not assume material third-party transactions in the original target. It could be the case that we need to do some transactions or reinsurance deals or whatever in order to get down there, but we did not assume any material third-party transactions. While I'm on, I just want to correct my answer to Ria on the prior question on the restructuring charges. It's actually U.S. dollars 30 to 40 million per quarter restructuring charges, the run rate you should assume.

Thank you.

Thank you. Your next question comes from the line of Marcus Rivaldi from Jefferies. Please go ahead.

Good morning, everyone. Can you, away from, I guess, the results today, but any update you can provide on discussions you're having with the BMA around the long-term regulatory capital value, the outstanding securities? I'm thinking particularly of the, about 1.4 billion of some of the grandfather debt that's due to lose regulatory capital value in Bermuda at the end of the year. Thank you.

Thanks, Marcus. Duncan?

Yeah, we, as you know, we have a transition period agreed with the BMA whereby we from a solvency capital calculation continue with the method we were using under Solvency 2 until the end of 2027. We're in continued discussions with the BMA on two items. One is the capital calculation post that period, and the second is on the treatment of our debt securities. And as and when we have an update on that, we will come to the market with it.

Okay, thank you.

Thank you. We will now go to the next question. And your next question comes from the line of Steven Hayward from HSBC. Please go ahead.

Good morning. Thank you. Two questions. Obviously, there was quite a negative net impairment on the IFRS profit line. Obviously, and you do it on an ECL basis now in line with the rules. Can you give us an indication of how conservative this is? What's the likelihood of these ECLs materializing as actual impairments? My second question is more of a statement, I guess. If you look at your RBC sensitivities, they're showing that no matter what equity market move up or down, or whatever interest rate move up or down you have, it is negative on the RBC. how can you sort of give this better information on an economic basis to us?

Yeah, okay. On the ECL, which means expected credit losses, which is kind of like a bit of a forward-looking metric, I think, most of the change we saw reflected changes in our expectations around future losses rather than defaults that occurred in a period. So we're not actually seeing significant defaults at this current period, but we did make our expectations more prudent, and that was mostly due to using more pessimistic assumptions around U.S. unemployment. To give you a bit more color, two-thirds of the ECL impairments in the second half were for bonds and mortgages as a result of those more pessimistic model inputs for unemployment, and the rest then reflected a small number of downgrades and defaults on mostly real estate assets. So Stephen, it's mostly due to, indeed, a more prudent, forward-looking expectation around the macroeconomic outlook. On the second question, which is to remind me, the RBC sensitivity, it is counterintuitive. So you've noticed that now our RBC capital ratio, basically, if equity markets go up, it goes down. If equity markets go down, it goes down. And same on interest rates, but to a lesser degree. And as I explained earlier, it's mostly or almost entirely due to this flooring of reserves under the variable annuity business we have. Now, this is quite a technical point, but I'll try to explain it a bit better by using the sensitivities which we disclosed. So you see that in the up 10% equity market sensitivity, our ratio would fall by 18%, all else being equal, and assuming that is an instantaneous shock. What happens in that scenario is that we would book the hedge losses in our capital base because we hedge the economic exposure we have, but we cannot take full credit for the reduction of the economic reserves back in the policies as they get flawed under the U.S. statutory scenarios. And these reserves that we cannot take credit for, they can be seen as a prudence in the system, and they'll get released over time as and when we earn the underlying fees. So they don't disappear. They come back, and it's kind of reflecting prudence. In a down scenario, though, you see that our ratio only falls by 6%. So that's quite a bit lower than the 18% on the up scenario. And the reason that this is less than the up sensitivity is in that scenario, we first release those reserves, those flawed reserves, that prudency, and that observes the third part of the hit. So it acts like a buffer. So consequently, what I'm trying to explain is that, yes, it's counterintuitive. But as equities move up, the protection we're building into our ratio from subsequent equity market corrections makes our ratio much more prudent and secure. And it means that even if our ratio falls, which it will do, we are at that point in time far less sensitive to equity market moves than otherwise, all else being equal. In terms of the economics, which I think is also a valid point, I think the IFRS basis is pretty economic. So we also disclose the IFRS sensitivities to rates, equity markets, et cetera. And I see that as a good representation of our economic exposure. And just to recap, most of our equity market exposure is actually due to fees. We fully hedge guarantees and we leave open fees on the underlying mutual funds. Thank you, very comprehensive.

Thank you. Your next question. is from Michael Hutner from Barenberg. Please go ahead.

They're both about 2025. So 1.2 billion. Can you talk a little bit about moving parts? I think you've got a sensitivity on OCG in the Americas of 40 million in the group of 60 million if the equity market goes up 10%. So I'm just asking, have you included that because equity markets are up a lot. And then the second is a similar calculation on the free cash flow. So you beat on free cash flow in 2024, partly because ASR bought back some shares. And the $800 million, do you include in that the ASR buyback they announced yesterday, the $125 million, which they kind of indicated at the Capital Markets Day? Any help on the moving parts, please?

Okay. If I deal with the second one first, Michael, which is easier, I think, yes, we do include the ASR. Our portion of the ASR share buyback, which they indeed flagged at the Capital Markets Day, which is when I think that became public, And that has a positive impact for us, which is helpful in us delivering the 800 million target. On the OCG, we reflect the markets as they were in the most recent quarter. So if you take the 4Q underlying run rate, we're around 1.2 billion based on XE markets as they were, I think, at the start of 4Q. And after we look forward, as I mentioned earlier, what I see is that the U.S. I think management in the UK are all training quite well. This is our original target, but the real drag is the international business, which is mostly China, due to those lower interest rates. But also, we're also dragging a lot of foreign, and that's why we're coming around to level 1.2, despite favorable performance in the other businesses.

Brilliant. Thank you.

Thank you. We have no further questions. I would like to hand the call back over to Yves Cormier for closing remarks.

Thank you, Operator. 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 Lardin Duncan, 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.