ASR Nederland N.V.

Good morning, ladies and gentlemen. Thank you for joining us today. Welcome to the ASR conference call on the full year 2024 results. On the call with me today are Jos Baten, our CEO, and Ewald Hollegien, our CFO. And Jos will kick it off with the highlights of our financial results and a brief update on the progress that we have with the integration of Agon. And he will discuss the business performance. Ewa will then talk about the developments of our financials, the capital position, and our solvency position. After that, we will open up for Q&A. We have ample time planned for this call, but we will start sharply at 10.30. Please observe a limit of only two questions, so everybody has a chance to ask their questions. And finally, as usual, please review the disclaimer that we have in the back of the presentation on any forward-looking statements. So, having said that, Jos, the floor is yours.

Thank you, Michel, and good morning, everyone. And thank you for joining this call. I'm happy to kick off the Benelux earnings season, especially with the strong set of results that we announced this morning. And as I mentioned to the team this morning, do we really need to have this analyst call? What is not to like about these results? But they convinced me to continue. And commercially, momentum remains strong. Financial and operational performance is right where we want it to be. Maybe a touch better, actually. We are clearly delivering on the promises that we made at the CMD last year. I will start this presentation with looking back at the promises we made at our capital market, say, in June last year, after which I will go through the financial highlights, our ESG performance, the integration progress, and business development before handing over to Ewout with a deep dive into solvency and the financials. A smooth and successful integration of Aegon NL businesses is of course one of our key priorities. All 2024 milestones have been achieved. We're really pleased with the progress that we are making, and this bolsters our confidence in the successful integration. This enables us to accelerate a part of the projected capitalized cost synergies. We're fully on track to implement the live PIM by the end of this year and to realize the strategic targets such as the cost synergies and OCC uplift for 2026. Secondly, we outlined our plans to deploy capital and pursue profitable growth. We continue to see strong commercial momentum in all business lines with an organic growth in non-life exceeding the target range and strong inflows in pensions. We also announced our first pension buyouts where we see a strong pipeline going forward and reaffirm our 8 billion assets under management target in the coming years. And thirdly, delivering attractive capital return for our shareholders. Dividend per share is up 8% compared to last year, driven by a 7% increase of absolute dividends and the execution of the 100 million share by back on the back of the bank sale in Q4. Total capital return over 2024 amounts 879 million, which translates to a 75% payout ratio of OCC So a very strong delivery on the premises that we made eight months ago. Let's have a look at some other highlights. Our OCC increased despite the sale of KNAP to almost 1.2 billion. Driven by strong business performance across all segments, favorable claims development in P&C and elevated spreads, for instance, in mortgages have been beneficial. The Solvency II ratio increased significantly with 22 points to 198, reflecting the strong OCC contribution supported by the sale of KNAPP and accelerated six points capitalization of cost synergies. This 198 includes the impact of the 100 million share buyback, which was completed in December, but not yet the 125 that we announced today. It does include the 8% higher dividend per share, which amounts to €3 and €0.12 per share. Our operating result increased with almost 50% to over €1.4 billion, reflecting an overall strong performance of our businesses, together with the additional six months of contributions of Aegon NL. operating ROE increased to 13.1% and continues to run well above our target level. Combined ratio of non-life, that is P&C and disability together, was 91.9%. This is an improvement versus last year and obviously ahead of our target range of 92 to 94. And importantly, we did this whilst growing our non-life premiums organically with 5.1% this year. So very profitable growth. Additionally, we see a solid increase in pension DC inflows and annuities as well. That together with the first pension buyout announcements shows that we are well on track to deliver our C and D growth targets. Let's turn to slide four and see how we are progressing on our non-financial KPIs. As we strive to create sustainable value for all our stakeholders, achieving our non-financial targets is important. We continue to be recognized as a sustainable insurer. The development of ASR reputation as a sustainable insurer has risen to 39%. This is within the target range of 38 to 43. And this was amongst others supported by our campaigns focusing on sustainable damage repair. The carbon footprint of the investment portfolio decreased by five percentage points, and we are making good progress with our impact investments, which now represents 8.7% of our investment portfolio, leaving us well on track to reaching our non-financial goals for the investment portfolio. Our KPIs on employee engagement and customer satisfaction have shown some expected decline due to the AGON-NL integration. We are confident that 2024 is a relatively low point on these metrics and will show improvement in the coming years. We already see some higher scores in our weekly e-mode survey for employees. Customer satisfaction remains strong, despite our NPSR score decreasing somewhat, but in line with the trend in the Dutch market. We see that our NPSC remains strong and that in disability, we have been voted again as the number one disability insurer in the survey across intermediaries. Our compelling ESG profile remains acknowledged by a broad range of international ESG indices and benchmark. This was confirmed by the inclusion in the Dow Jones Sustainable World and Europe indices for the third consecutive year, as well as a recognition from various other leading ESG benchmarks. Overall, we are very pleased with our performance and the value we create for all of our stakeholders. Let's move to the integration milestones. We're halfway done with the integration and are fully on track to achieve the €215 million cost synergy target in 2026. At the investor update of November 2023, we talked about the cost synergies being split across three main categories. 50% would come from staff-related initiatives, 30% from IT, and 20% from others. Within staff, we are more than halfway done, reflecting a strong reduction in FTEs already, with further synergies to be realized as the integration progresses. The synergies from IT system are naturally more back-end loaded in an integration, given that the IT decommissioning is usually the final step after migrating portfolios and making sure that everything runs smoothly on the target operating system. And we have made a lot of progress towards decommissioning systems from the Aegon IT landscape and reducing the dependencies. The synergies from the other category, reflecting a number of different actions from legal mergers to closing of offices, which is now largely done. For 2025, integration milestones are set for the business lines, individual life and mortgages, and of course the implementation of the partial internal model for ASR life. In 2026, we expect to finish the integration activities within pensions as the final business line. All in all, the integration is well on track and our confidence is also visible in the accelerated capitalization of cost synergies. With the six percentage points impact from capitalized cost synergies in 2024 on top of the 3% in 2023, we have now already capitalized 75% of the earlier guided 12% points uplift insolvency. Let's talk briefly about the status of the unit linked file on the next slide. We're pleased to announce that the unit linked file is definitely behind us. In 2023, ASR took the lead in devising a solution for this issue, which has been affecting insurers for too long. We were the first insurance company to achieve an agreement on a final settlement with the various claims organizations. And with that, we basically have created the standard for the entire industry. And today we are the first insurance company to announce that we have reached 90% support from all affiliated claimants. This means that the final settlement agreement will be executed as presented in November 2023. So all active collective legal proceedings will be dropped and we can make start paying out the final settlement for which we are already adequately provisioned. We can now also move forward with the non-affiliate claimants in the coming months. That being said, let's look at our different business lines and their performance. I'm pleased to see our premiums received in P&C and disability increased with over 12%, reflecting a strong organic growth and additional six-month contribution of Aegon Netherlands. Organic growth of 5.1% exceeds our medium-term target of 3 to 5% and was mainly driven by tariff adjustments and increased sales volumes in P&C. Combined ratio of our P&C and disability business combined improved with 1.7 points to 91.9, which is better than our target range of 92 to 94. So we're outperforming both on growth and profitability, absolutely maximizing our total profits. The combined ratio of P&C improved by almost three points, supported by the absence of weather-related claims and lower number of large claims. In disability, the combined ratio improved 0.5 points, driven primarily by a strong business performance in group disability. Combined ratio of our health business stands at 99.1%, stable compared to last year. In 2024, our premiums in health declined due to the loss of 175,000 customers for 2025 renewal season, which ended at mid 9th of the 31st of December. We see a net increase of 70,000 customers. So let's move to the life segments on the next slide. We're very happy with the solid commercial performance in our pension products. Our pension DC inflow of 2.8 billion benefits from the developments in the pension market due to the pension reform, as well as the addition of the AGON DC products. The pension DC assets and the management increase with more than 20% to almost 27 billion, partly reflecting positive revaluation of the investment portfolio. We see a growing premium volume from annuities as a result of the conversion of DC accumulation and the addition of Agon NL. Majority of annuities inflow comes from converting expiring DC assets from our own book, complemented by external inflows. Around 90% of the annuity inflow relates to fixed annuities, which, as you all know, is spread business. This puts us well on track to reach €1.8 billion of annuity inflow cumulatively in the planned period. In the pension buyout space, we continue to see strong interest in the solutions that we offer, and we have already received quite a number of RFIs and RFPs. So far, we have announced two buyout deals of in total €1.7 billion of assets under management, While decision making in these processes tends to take a lot of time, we have a very healthy pipeline and remain confident that we continue to report progress on this target later in 2025. After that, to reach to our 8 billion targets by the end of 2027. So let's move to our fee-based business. We've seen a strong increase of 45% in the fee income of both the asset management and distribution services businesses, reflecting business growth and the additional six months contribution from Aegon Netherlands. In asset management, we see improved performance in all three product lines, asset management, real estate, and importantly, mortgages. The mortgage production increased by 3.7 billion to 9.2 billion. helped by increased market demand, positive real estate valuation, as well as the additional investment by third-party investors, increased the fee income from real estate. Within our distribution and services, we see that our plan regarding a DNS holding structure, which we announced in the 2021 investor update, is bearing fruit. making it a more efficient operation and improving both top and bottom line. Since that time, we have acquired 20 smaller distribution companies, of which 11 in 2024. Not moving the needle from an operation and result perspective, but helpful from a longer term perspective as it enhances our footprint in the distribution space. The operating result increased with 39 million to 150. This is ahead of our CMD target because we classified the additional investments in TKP related to the pension reform in the meantime as an incidental outside the operating result. From this level, we expect stable results with the loss of fee income related to the mortgage administration that will transfer to BAWAG in 2026 to be compensated by improved business performance and, of course, synergies. Let's have a look at our capital return before I hand over to Ewout. Going back a little bit in time to the Aegon NL transaction announcement in October 2022, We did a step up by 12% in dividend per share before we actually closed the deal and Aegon NL would contribute to our results. Since then, we have been growing our dividends with 7% per annum or higher if you include the share buybacks. For 2024, our full dividend will be €3.00 and €0.12 per share. This is an 8% increase year on year, also reflecting the impact of the 100 million share buyback that we completed in December after the club closing. Together with today's announcement of another 125 million share buyback to be executed in the next three months, our total capital distribution related to 2024 will amount 879 million, reflecting almost 75% payout ratio of our OCC. Based on our market cap at the end of 2024, this 879 million represents a whopping 9.2% of capital return yield. For the coming years, we maintain our progressive dividend policy of growing our absolute dividend mid to high single digit and our share buyback program of 175 million over 2025 and 225 million over 2026. And we still have the intention to participate if and when Aegon Limited would decide to sell down their stake in ASR. We're willing to accelerate the existing SBB program if needed. We believe that preserving or some firepower of our balance sheet for the event of these sell-downs is really to the benefit of all of our long-term shareholders. Now, I will hand over to Ewout, and he will be talking enthusiastically about our capital position and financial details.

Yes, thank you, Jos. Well, I will try to be very enthusiastic again. Good morning to everyone on the call. I think one could say that in front of you, you have a very proud CFO. Thanks to all our colleagues in the organization, we have realized our commercial ambition. We have reached the financial goals and our balance sheet is strengthened materially. On top of that, the risk profile of the organization significantly improves in H2. We have made strong progress on the integration. The unit link file is now closed, and we had that positive advice on CPI plus from the high court, opening the door for valuation improvements in residential. Happy to talk you through underlying developments starting on slide 12. And I'm sure you will remember this chart on the left for my presentation at the Capital Markets Day. It reflects our view, ASR's view, about capital. The starting point of the capital wheel is a strong balance sheet that provides capital to deploy, which in turn delivers profitable growth and creates new, fresh capital. This can then be used for capital return to shareholders and to further bolster the balance sheet. And we do the rounds again. With the performance presented today, one could say that our capital wheel is spinning. We have strengthened the balance sheet as planned with the sale of the bank and the capitalization of a large part of the cost synergies. The capital that we deployed in growth and pensions, non-life and the re-risking of the investment portfolio resulted in an OCC of almost 1.2 billion in 2024, a bit better than anticipated. And we are really well on track to get to the target of 1.35 billion euros in 2026. And finally, We have increased dividends and share buyback resulting in a DPS accretion of over 8%. And combined, we are returning almost 75% of the OCC that we generated in 2024. As Hannibal in the A-Team used to say, I love it when a plan comes together. Let's have a look at the development of our Sol-C in 2024. Over the past year, we have been able to significantly strengthen our balance sheets. Our Sol-C now stands at 198%, providing ample flexibility for deployment. The 198% means an increase of 22 Sol-C points compared to last year. Let's have a look at the main drivers. As you all know, the sale of Knob added 17 Sol-C points. Our level of capital generation delivered another 19 percentage points to the Sol-C, and we will talk about this later on. The capitalization of cost synergies added six solvency points, leaving roughly three solvency points on the table for the next two years. And the acceleration of cost synergies recognition is triggered by the progress in the integration and the higher level of confidence that this brings in achieving our targeted cost synergies. The cost synergies are part of the market and operational movements in the waterfall, which combined showed a net impact of minus two percentage points. Next to cost synergies, this includes a small positive from revaluation of residential real estate, tightening of market spread compared to the full year 2023, and finally, a benefit from the harmonization of mortality rates of ASR with Agon ML. These pluses were offset by a 5% impact of re-risking, limited negative impact from 50 bps coffee spread widening, including an offsetting effect of 3 bps higher volatility adjustment, And lastly, the impact of lowering of the UFR to 3.3%. This altogether brings the Solstice 2 ratio to 211% before capital distribution to shareholder, and therefore 198% after dividends and the additional 100 million share buyback that we executed end of last year. And a strong Solstice is a good starting point for further deployment of capital, amongst other in buyouts. And we expect to close the announced 1.6 billion by our deal in beginning of Q2, further bolstering our level of capital generation in 2025. Let's turn to capital generation on the next slide. OCC increased with 319 million to 1 billion and 193 million euros. mainly driven by strong business performance in non-life and fee-based business, the benefit from re-enriching the investment portfolio, and the additional six-month contribution of Aegon, the Netherlands. Last year, we revised the mapping and methodology of our OCC to bring it even closer towards free cash flow and to closely align with IFRS 17 metrics. Firstly, business capital generation amounts to 390 million reflecting solid business growth and improved combined ratio in non-life, as well as the additional contribution of EGOM to the Netherlands. Secondly, finance capital generation is with $663 million, the largest component of OCC, reflecting higher excess returns being partly offset by higher finance expenses and a slightly higher UFR track. The execution of our re-risking plan is gradually coming into effect and is expected to further increase OCC in 2025. And lastly, net capital release amounts to 140 million euros and represents the release of capital from maturing books as well as the capital stream from new businesses. Now let's have a look at segmental OCC in the bottom graph of the slide. Segment life is the largest contributor to the OCC. This is consisting mostly of finance capital generation, reflecting the investment margin from the large investment portfolio and further supported by the capital release from the runoff of the book. The non-life segment contributed $273 million to our OCC, reflecting strong underwriting results in P&C and disability. And since we are growing our non-life book and we have a growing health book in 2025 as well, the OCC is subject to a new business strain. A new business strain drives seasonality in our non-life business OCC, particularly from group disability and health, as you all know. And of course, we are very happy with the new business capital strain. when it's positive because it brings future OCC as it leads to higher business capital generation and capital releases in the future. So taking everything into perspective, we are right on track to deliver on our 2026 OCC target. What are the major items on our radar screen if you look forward to the OCC for this year? Well, firstly, let's get the base to start from. A 2024 OCC of 1.193 million benefited from favorable weather and lower large streams in PNC. Normalizing towards the middle of the combined ratio 92 to 94 range would roughly mean 30 million deduction from the reported OCC. So that brings us to a normalized level of 1160 for 2024. In 2025, we would expect positive impact from four main buckets. We are growing the business, we are realizing synergies, we have higher excess returns from re-risking, but also from positive revaluation in real estate and equities, and the pension buyout, the 1.6 billion buyout that we announced in December, will start to contribute as from H2, and other deals will contribute to 2025 OCC, depending on the timing. In total, we expect that this will provide around, let's say, 80 to 100 million euro uplift compared to the normalized 2024 OCC, so getting towards the 1.25 billion euro level, well on track to deliver the 1.35 billion in 2026. And on the next slide, I will bridge OCC to the operating result. Although there are many differences between Solvacy and IFRS, bridging the OCC to the operating result can, high level, be done in three steps. Firstly, when looking at business capital generation, the OCC is lower. This reflects the way we have to account for the timing differences in insurance profit recognition. As in OCC, insurance profits flow directly into their own funds at the moment of inception and in the operating results during the contract expiration via the release of the CCM. This effect is largest and mostly in the segment life, where new business contribution is heavily outweighed by the CSM release of the existing book. Secondly, the finance capital generation where OCC is higher. Here the biggest difference is from the higher negative liability accrual from the illiquidity premium, what we call within ASR, the LIB. under IFRS 17 compared to the VA of SOLSI 2. And to give a sense, the LIB was on average 50 basis points compared to the 20 basis points of the VA. And this difference is caused by a LIB based on the own asset portfolio, while the VA is based on the European reference portfolio of insurance. And amongst other markets, exposure is included in the LIB opposed to the VA. And thirdly, and that's actually the easiest part, namely adjusting for the net capital release, which is not presented in IFRS. And of course, operating result is pre-tax, where OCC is the post-tax measure. Now, let us dive into the operating results on the next slide. Operating results increased with 47% to 1428, so almost 1.33 billion of euros. We see a step increase of €385 million in the operating results of Segment Life, reflecting the addition of Aegon to Netherlands, the benefit from re-risking and an increase in release of CSM. The total CSM of ASR increased by 10%, driving future profitability. The sharp increase is driven by the capitalization of cost synergies, and the update of the mortality rates based on our own portfolio experience aligning to AGO methodology. And in all life, as mentioned before, we have benefited from improved underwriting margin in combination with over 500 million euro increased premiums. As Josh already mentioned, the fee-based business also shows strong results, and this is different by increased fee income resulting in an operating result of 150 million euro for the full year 2024. Moving to the investment portfolio. This slide shows a high quality investment portfolio. And I'll start with the soft rent portfolio and then also briefly discuss market specs, development, and market circumstances for real estate. Soft rent portfolio, high quality, as you know, and well diversified, mostly within European countries. Although spread in our coffees portfolio widened with 50 bps, the solstice impact is partly offset by the countercyclical effect of the VA and the SCR effects from the partial internal model. On the top left on this slide, we show the development in our real estate portfolio. Especially the residential portfolio shows good momentum with a positive revaluation of 8% in 2024. And the residential property is about half of our real estate portfolio. And it's clear that the market now, uncertainty about CPI plus is out of the way, appreciate the strong fundamentals in residential real estate. A rural property also reported a solid increase as it appreciated 6%. Rural accounts for about 20% of the portfolio. For the other real estate categories, we have seen small negative revaluation, but in total, a good year for real estate leading to a revaluation of the total portfolio of about 5%. Lastly, turning to mortgage spreads, always a favorable topic to talk about. After extreme spread widening year end 2023, the spread movements on reported day during 2024 have been moderate. It is important to bear in mind that short-term volatility of mortgage spreads is uneconomical in the sense that it does not reflect a change of risk, but rather a timing difference between swap rates and the change in mortgage tariffs. As mentioned earlier to many of you, is on our agenda for 2025 to look whether we can adjust the methodology, making spread movements less volatile. In any case, risk return on mortgages is unmatched compared to other asset classes, not only as a model outcome, but also because the mortgage portfolio remains of very high quality, low amount of payment areas, and eligible credit losses. To give you an example, the efforts in loan-to-value amounts to 55% and 80% of the portfolio has an LTV lower than 65%. Finally, when it comes down to the investment portfolio, it's worthwhile mentioning the execution of our original plan. We optimized the sovereign bond portfolio where we shifted from AAA-rated bonds to more AA-rated bonds for additional spread. Moreover, we increased exposure to equities And we have invested around 500 million in the liquids to catch up on this one with competitors without aiming to follow this trend materially. In total, we have invested five source points. The benefits also because of the fact that we increased the exposure in equities. The benefits of re-risking will be further reflected in capital generation in 2025. Let's now have a look at the flexibility of the balance sheet on the next slide. In March last year, we issued a restricted Tier 1 instrument to refinance the maturing Tier 2 in September of 2024. By replacing the Tier 2 with an RT1, we have rebalanced our headroom over Tier 2 and Tier 3 versus the RT1, enhancing our financial flexibility. And as you can see on the bottom right-hand side, our debt maturity schedule remains nicely stickered over time. A financial leverage decreased to the comfortable level of 21.7% due to a higher equity value and the increased CSM. And lastly, which we are very proud of, it's good to mention that the outlook to the S&P IFS ratio has changed from stable to positive, awaiting a final decision. And we are very happy that also S&P is appreciating the progress that we are making both strategically, financially, and from the risk profile perspective. And we are looking forward to monetize the positive outlook. Let's have a look at our Haltcoin liquidity and remittances at the next slide. We have a very comfortable cash position. As you all know, we only remit enough cash from our entities to cover dividends, coupons, and Haltcoins expenses. Proceed of the bank sale led to a lower holding cash remittance from our operating companies. Especially the social ratio of Aegon Life increased significantly to the level of 194%, driven by excess OCC over remittance, positive revaluation on the large residential portfolio, and capitalization of cost synergies. Strong capital position at Aegon Life allow us to be an active player in the buyer market. And just as a final reminder, the solstice ratio of ASR life and non-life are determined on the basis of standard formula. When everything runs according to plan, we implement the partial internal model for ASR life in H2 2025, which will further raise the solstice ratio. And with this, I would like to end my presentation and hand back over to you, Jos, to do an enthusiastic wrap-up.