ASR Nederland N.V.

Good morning, ladies and gentlemen. Thank you for joining us today for this call. It's the ASR conference call on the full year 2023 results. On the call with me today are Jos Baten, the CEO, and Ewald Hollegien, our CFO. And Jos will kick it off as customary with the highlights of our financial results. He'll give a brief update on the Aegon transaction and discuss the business performance. After that, Ewa will talk about the developments of our capital and solvency position and our investment portfolio. After that, we'll open up a Q&A. We have ample time planned for this call, but we will stop sharply at 10.30 for you all to have time to tune in to the call of NM. And then finally, as usual, actually, I should say, we have a disclaimer at the back of the presentation. And I would appreciate it if you could take a look at it after this presentation. So having said that, Jos, the floor is yours.

Thanks, Michel, and good morning, everybody. As you may understand, 2023 was a special year for us. We closed the transaction with Ego Netherlands in July, and today it's the first time we present the figures of the combined organization. And as we will discuss in a minute, the business has performed quite successfully and we've been able to deliver a very strong set of results, and at the same time maintain a robust balance sheet. Investing in growth pays off. I guess that the transition to IFRS 17, and now including only half a year of Aegon Netherlands, without a 2022 comparable set of numbers, is not making it easier for you to see all the developments. In many cases, the inclusion of the Aegon Netherlands figures explains the majority of the movements. But happy to provide some additional insight into the numbers that we reported. And then reporting on the same day as we had planned already is certainly not making it easier for all of you. So let's go to slide two, where I will briefly discuss the key achievements. I assume you have read our presentation in detail this morning. since we are the first one to have an analyst call today. But maybe you're still recovering from the news about ideas yesterday. Let's talk about the operating results. We improved the operating results by almost 40%. On top of the addition of Ego Netherlands, we have seen favorable developments across all business segments. Our organic capital creation of 938 million is in line with our full year expectations. We are happy with the growth in the capital creation of the new combination and the strong underlying business performance. Our solvency ratio stands at 176. There is a lot running through that number. AWOUT is going to provide full detail on this. But the main item is, of course, the impact of the AGO Netherlands transaction. This is now fully absorbed, and we expect the balance sheet to gain further strength as we execute the integration plan and, of course, generate capital. The ratio also includes the impact of the unit link settlement and the additional provision we took for unaffiliated customers. And in addition, the impact from market movements, including the uneconomic spread widening of mortgages, is in there as well. Following a review of the strategic plans for the bank and carefully analysis of the offers we received from other parties, we announced on the 1st of February the agreement to sell our bank to BAWAG. The transaction will likely close in the second half of this year, and is expected to deliver approximately 13 solvency points to our ratio. So using today's ratio on a performer basis, we would now be at close to 190%. Operating return on equity amounted to 12.4%. Also under IFRS 17 stands on an attractive level. We propose a full year dividend of €2.89 per share, which is a 7% uplift from last year and consistent with our ambition of mid to high single-digit growth until 2025. Premiums received increased more than 35%, of course helped by the addition of EGON The Netherlands and a strong organic growth in P&C, disability, and pensions. In health, the growth was somewhat inflated. I will talk about that in a moment. Let's move to slide three. We are very pleased with the progress we have made this year in delivering sustainable value to all of our stakeholders. In the last year, we made progress on all five non-financial KPIs. Our reputation as a sustainable insurance company continues to rise, and I'm particularly pleased to see that appreciation of our positioning amongst younger people in the Netherlands, which is important for our future growth. We aim to become the best financial service provider in the Netherlands and are therefore happy to see a growing appreciation by our customers. This is reflected in our relational MPS improving from minus 11 to minus seven. And we are of course working on further improvements. We're also pleased with the engagement of our workforce, which has continued to perform well and above our target level. For this year, We anticipate some pressure on this metric, which is to be expected in a time of integration, and especially with regard to people whose office location will close over time and their travel distance will increase materially. The objective of 65% reduction of the CO2 footprint we have already exceeded this year ahead of the targeted date, and the reduction stood at 70% by the end of 2023. We're making good progress with our impact investments with an increase of 1.1 billion through a combination of new investments and positive revaluations. On slide four, I like to talk about the progress of the integration. And let me give a quick update on that. We are pleased with the progress that we are making. And you all have seen the 30 million uplift in our cost synergies targets to 250 million that we announced on our investor update in November last year. We're well on track with the submissions of requests for advice to the Works Council and approvals of the Works Council that we have received so far, which is an important condition towards the integration of functions and departments. With respect to the TSAs, the so-called transaction service agreements, we are ahead of plan, having phased out already around 20%, reflecting less dependence on original processes and systems of Aegon Netherlands. We migrated the group disability book and finished the rationalization of our individual live and remaining non-live books, fulfilling important condition for the migration. The conversion of DC pension products is to the targeted system of Plexus, which, by the way, is pension reform proof, is well on its way with a successful conversion of 300,000 participants in the beginning of this year. In the meantime, we keep on working on the implementation of the partial internal model to extend the AGON model to ASR live. in line with accelerated timelines as discussed at the investor update. We expect to have the live PIM implemented at our results over full year 2025. So let's now turn to the business performance on the next slide, slide number five. I'm pleased to see that in non-live, the premiums received went up more than 25%, driven by organic growth in P&C, disability, and health, and of course, from the contribution of EGLE Netherlands. For P&C, it's the first time in our history that on an organic basis, we achieved a triple-digit growth, so more than 100 million, and with that, I mean the absolute increase in the Euro amount. The operating result of the non-life segment increased by 122 million, mainly due to a higher operating insurance service results from improved underwriting results in disability and health, in addition to the contribution of EGLE Netherlands and a higher investment margin. In P&C, the combined ratio increased slightly to 93.6. On top of the intensified traffic and higher claim frequency, we are back to pre-COVID levels. We've also seen claims inflation picking up. And as you may know already, we've raised our pricing in personal lines in June last year by 5% and in commercial lines last December by 10%. For Q2 in this year, we plan further price increases regarding personal lines of an average of roughly 10%. This with the intention to being ahead of further eventual claims inflation, and this should also cover the higher reinsurance costs. Price increases kick in at policy anniversary date, as you know, and in personal lines, these occur evenly throughout the year. So it will take a full year before the portfolio is on an improved level. Operating results also reflect the benign impact from weather-related calamities in 2023. The profitability of our disability book is improving as a result of pricing improvements in group disability, which we implemented already in 2022. This is partially offset by some deterioration in the sickness leave portfolio as we experience some increase of people reporting ill for a longer period due to psychological factors. For 2024, we increased premiums already with 8% in sickness leave to reflect these developments. Growth in health in last year's season positively contributed to the result due to improved cost coverage from a growing portfolio and lower CPA expenses resulting in a decrease of the combined ratio to 98.9. In 2024, we will see a decline in our health portfolio due to disciplined pricing. On average, Over the two-year period, 2023 and 2024, the number of policyholder has increased with approximately 60,000 people. So let's now move to the live segment on slide number six. Premiums received and DC inflow increased by 48% to 3.5 billion, primarily driven by the inclusion of AGON Netherlands, adding roughly 1.2 billion, and the organic growth of Pension DC, which was driven by an increase of recurring premiums of our Werknemerspension and customer funds deposited in our Doonpension. Growth in funeral was mainly driven by inflation-related indexation. The increase is partly offset by the natural decrease in the pension defined benefit and individual life portfolio. Asset center management in the DC proposition increased to 22.6 billion, mainly driven by the addition of Aegon Netherlands, that added just over 12 billion, net inflow of ASR's DC products, as well as positive market revaluations. The operating result increased by 98 million to 688 million euro in total. The increase primarily relates to the addition of Aegon Netherlands. Operating insurance service results benefited also from the addition of Aegel Netherlands, reflecting a higher release of CSM and risk adjustment, which was partially offset by a lower benefit from experience variance, which reflects the fact that actuals are now more in line with what we expected. Operating investment and finance results increased by 34 million due to the addition of Aegon Netherlands and a positive impact from lower U of R drag due to higher interest rates. The increase is partially offset by higher investment expenses and a decrease of the investment margin due to lower asset valuation and negative impact from accrual of the balance sheet. Moving on to our fee-based business on the next slide. Operating result of fee-based business consists of two fee-generating segments. On one hand, asset management consisting of our mortgages, real estate and asset management business, and on the other hand, the distribution and service businesses. Operating result of the asset management more than doubled to 78 million as a result of the inclusion of Aegon Mortgage Business in the second half of the year. Mortgage origination increased by 800 million to 6.1 billion. The increase is mainly driven by the addition of Aegon Netherlands for an amount of 3 billion. There was less demand for mortgages as a result of higher mortgage rates. We ended the year with a stable market share of around 11% for the combined mortgage businesses. Total assets under management for third parties increased by 800 million to almost 30 billion. mainly by the addition of assets under management coming from Aegon Netherlands Pension DC business. This was partially offset by the third party assets under management that is part of the transaction with Aegon NV, which is yet to be transferred, and that's about 12 billion. The real estate portfolio, which is managed for third parties increased by 200 million, meaning more than 8% growth. Inflows in the real estate fund were partially offset by lower real estate valuations. Operating result of the distribution and services increased by 5 million to 30 million. Fee income increased as a result of organic growth, and the addition of the DNS entities of AECOM Netherlands, being Robides, TKP, and Nidasco. Let's move to slide eight before I hand over to Ewout. On this slide, we see the result of holding and the banking segment, reflecting the activities of KNAP for the second half year. The operating result of 139 million reflects the somewhat extraordinary interest margins driven by the higher interest rate levels. As a result of the announcement to sell KNAP, the bank will be labeled as held for sale and therefore no longer contribute to the operating result and OCC of ASR. And Ewout will come back to that in a moment. The decrease of the result of segment holding and other with 91 million was mainly due to the interest charges related to the 1 billion tier two capital instruments that we issued late 2022 to pre-finance the transaction of Aegon Netherlands, as well as the higher holding costs related to, for example, centralization of activities and brand rationalization of DITSO and ADANTA to the ASR brands. So with that, I will hand over to Ewout for his view on our solvency capital generation, the investment portfolio, and, of course, the strong balance sheet.

Yes, thank you, Jos, and good morning to everyone on the call. Today is a remarkable day. It is the first time we report full year numbers under the new IFRS regime, and at the same time, it is also the first time we report SOLSI numbers and IFRS numbers, including AECOM NL. And I'm very grateful to all the employees in the financial department that made this happen. At the same time, I appreciate that it is hard to see that all those developments. So let us together have a look at those numbers, starting with slide 10 for the movements in our solstice ratio. Our solstice ratio is composed of the impartial internal model for Aegon Life and a standard formula for the remainder. Our full-year 2023 Solstice II ratio amounts to 176%, which is after the full-year dividend. At H1, we mentioned a pro forma Solstice ratio somewhere above 185%. So we are a bit over 10 Solstice points down from that number. And if we look to the H2 developments, we see that the level of capital generation in H2 was in fact deployed in the full-year dividend. And in addition, we have seen the impact of the unit link settlements, adverse real estate revaluation and spread widening of mortgages. In addition, we have seen some final model changes as a result of the IFRS 17 implementation and harmonization of assumptions between Aegon and ASR. KNAP, our bank, is still part of the 176%. The announced sale of KNAP, which is expected to close in the second half of 2024, will add approximately 13 solstice points to the ratio. And this will further strengthen the balance sheet in 2024, together with a strong level of capital generation and capitalized synergies. As you all know, the impact from mortgage spread widening is not economic. I will talk about this in a bit more detail later on, but the time lag between interest rate movements and mortgage tariffs provide some volatility in mortgage spreads. You will see that mortgage spreads through the cycle will be between 80 to 100 base points. Looking at the year-to-date mortgage spreads tightening, I would assume that a large part of the negative impact of H2 has been reversed again and our ratio is positively impacted with roughly four points by this. 610 million capital distribution relates to a proposed full-year dividend and is 65% of the OCC. Let's now take a look at our OCC development in more detail on the next slide. The OCC came in strong around 940 million this year, also including the contribution of Aegon the Netherlands in the second half of the year. Within business capital generation, next to the Aegon Netherlands contribution, we see improved results in disability and health. Jos mentioned it earlier. And compared to 2022, the excess returns are low because of low contribution from real estate and expertise, and the higher average VA accrual. In addition, the holding and hybrid expenses increased related to the AGON and L-transaction. The release of capital increased with the addition of AGON, partly offset by negative impact from a lower average solstice ratio, which is used to get from an SCR to an OCC figure. The technical movements representing the UFRDRAC showed an improvement related to the higher interest rate environment, partly offset by the addition of AGON Nederland in H2. The interest rate of the sensitivity of the OCC has been updated for the inclusion of EGON NL and is still very manageable. Looking ahead for 2024, there are a couple of items you should account for. Of course, there are many moving elements by combining two businesses, but the main items are the exclusion of the contribution of the bank and also the mortgage servicing fees as part of the announced sale of KNAP to BAWAG, together around the 50 million. And in addition, you should take into account the negative U of R drag echo of around 25 million due to lower rates at the end of last year. For education purposes, the U of R drag methodology is presented on slide 13. Underlying, nothing changed. Business continues to perform well, and we keep commercial momentum despite large integrations, and we are executing our integration plan as planned. And we will, of course, provide you with more insights on the OCC at the CMD end of June. Moving to slide 12. As a result of the combination with Aegelden Airlines, the general account asset portfolio doubled to 82 billion. The investment portfolio remains a high quality asset portfolio with over 85% of fixed income when including the exposure to mortgages. Around half of the fixed income portfolio relates to government bonds that are for more than 95% AA or AAA rated. The exposure to mortgage cases increased to 31%, where it was around 25% at the year end of 2022. And the increase reflects the more heavyweight mortgages are having in the AGON and EL portfolio. The quality of the mortgage portfolio is underpinned by the low average value of the book of only 63%, and 24% of the total portfolio having a government guarantee. Also for the combined portfolio with Aegon, the payment arrears are very low at 0.07 base points and credit losses amounts to 0.04 base points. In the graph on the bottom right hand side, you can see the OCC mortgage spread development over time. As mentioned earlier, mortgage spread can be volatile because of the timing lag between interest rate movements and demortgage tariffs. This is just a timing thing and does not reflect the underlying credit risk of this asset category, which is and remains extremely low. The graphs show relative stability over a longer period of time with short-term volatility, which can lead to a spike up or down in the valuation on a given reported date. Looking through this cycle, an OCC mortgage spread of around 80 to 100 base points still look like a realistic number. A year-to-date movement shows an expected tightening of mortgage spreads of around 40 bps, as mentioned earlier, bringing the OCC mortgage spread in line with that range. Overall, I'm happy with the quality of the investment portfolio. And as mentioned earlier, we do see room for optimization of the combined balance sheet and will update the markets on our plans at our capital markets day in June. You might have noticed that I did not talk about real estate on this slide, which I will do in a bit more detail on the next slide. The real estate portfolio increased with $4 billion as a result of the transaction, which mainly consists of high-quality assets in residential real estate with only frictional vacancy and thus stable cash flows. This makes that roughly half of our real estate portfolio relates to residential real estate in the Netherlands. Following steep price increases in quite a number of years, we have experienced negative revaluations since interest rates and mortgage rates have started to rise in 2022. Also in H1 of 2023, house prices declined in the Netherlands. However, since that moment, we have already seen a cautious improvement in this market segment in the second half of 2023. And this has not yet been reflected in the value of rented houses. And we see in a historical context a large gap between fair value of houses and the fair value of rented houses. Having said that, we are also aware of the recent discussions on rental agreements and CPI indexation, which is in a very early stage and not something that's keeping us awake at night. But of course, we are closely monitoring that situation. Fundamentally, we see a very significant shortage of housing in the Netherlands, nowadays up to 300,000, which is actually growing. Our rural land portfolio represents 22%, which is a very stable category with long-dated inflation-linked contracts, which also in 2023 shows a positive revaluation of 2% compared to 2022. About 5% of our portfolio is invested in Dutch offices, and we believe we are relatively shielded from some of the international developments in the office space because our portfolio is very focused on offices that are located on prime locations near mobility hubs in the larger cities in the Netherlands and on university campuses. We believe this portfolio will continue to do relatively well through the cycle, and the fake-seer rates remain low and even improved over the last six months. At the end of 2022 and the beginning of 2023, we have seen negative revaluations coming through in our real estate portfolio, mainly related to the higher interest rate environments. In the second half of 2023, we still see, on average, an active revalidation, but this seems to ease off, and we are neutral for the coming year. Let's move to slide 14. This slide shows that our strong balance sheet with ample financial flexibility. The unrestricted T1 capital represents over 70% of the total owned funds, and we continue to have ample headroom available within the Sol C2 framework. The financial leverage decreased as a result of the increase in equity and CSM related to the ACOM transaction and also includes the green senior bond of 600 million we issued in December. The financial leverage is well below our limit of 35%. The interest coverage decreased as a result of the increased interest expenses, but still well above our minimum target level. And SAP recently reaffirmed our single A rating with a stable algorithm. Our debt maturity profile, as you can see, is nicely stacked, and the first goal date is in the second half of this year. Let's go to the next slide. This slide gives an overview of our holding liquidity and the solvency ratio of the main underlying entities. The holding liquidity at the end of 2023 stood at 700 million. It decreased to 1.5 billion, driven by the cash payments to Aegon Group. The remittance reflects a 500 million one-off upstream from ASIR live and non-live entities to fund part of the transaction. The bucket order shows the 2.2 billion cash payment to Aegon Group and the redemption of the British loan, partly offset by 600 million green bonds issued. The sole CO2 ratio of the ASIR entity shows a decrease to finance the Aegon NL transaction and unfavorable market and operational movements, mainly in life before instance mortgage spread widening and the unit length settlement related provision. This letter is also reflected within the Agon-Life-Solci ratio. And this brings me to the end of my presentation, and let's bring it back to you, Jos, for the wrap-up.