Good day, ladies and gentlemen, and welcome to the Aegon 3Q 2017 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Willem van den Berg, Head of Investor Relations. Please go ahead, sir.

Thank you, Barbara. Good morning, everyone, and thank you for joining this conference call on Aegon's third quarter 2017 results. We will keep today's presentation short, leaving plenty of time to address all your questions. We would appreciate it if you take a moment to look at and to review our disclaimer on forward-looking statements, which you can find in the back of our presentation. Our CEO, Alex Wynaendts, will first provide an overview of our third quarter results and will then be joined by CFO, Matt Rider, to answer your questions. I'll now hand it over to Alex.

Thank you, Willem, and good morning, everyone, and thank you all for your continued interest in Aegon and, of course, also for joining us today for today's earnings call. So let me begin by providing you with an overview of this quarter's key developments. I'm pleased with the clear improvement in our operating results, with underlying earnings increasing 20% to €556 million, driven by improved claims experience, by increased fee revenue resulting from favorable equity markets and low expenses in our U.S. business. As a result of our strong underlying earnings, our group return on equity increased by 120 basis points to 8.9%. Net income was also strong this quarter even though it was impacted by assumption changes and model updates. Our Solvency II ratio increased to 195%, which is at the upper end of our target range of 150% to 200% for the group. This increase was mainly the result of strong capital generation this quarter, which amounted to €324 million, excluding €485 million of market impacts and onetime items. And finally, sales were very strong year-over-year, rising by more than 50% to €4.5 billion. This increase is mainly a reflection of our continued successful strategic shift to fee-based businesses, in particular, our U.K. platform and our Asset Management business. Let's now take a closer look at our underlying earnings for the quarter on the next slide. I'm very pleased that our underlying earnings are up for the fifth consecutive quarter. This reflects growth across our businesses, expense savings and management actions. During the third quarter, we saw significantly improved claims experience in our life and health businesses in the U.S. compared with the same quarter last year. This improvement is a result of the management actions we have taken to improve profitability as part of our 5-part plan.…

[Operator Instructions]. We will take our first question today from Benoit Petrarque from Kepler.

It's Benoit from Kepler Cheuvreux. Three questions on my side. The first one will be on the Dutch business. I know you have an update -- strategic update on the 1st of December. But could you kind of update us on your view on the consolidation of the Dutch life market? There have been some rumors in the market recently. I know you don't comment on the rumors, but what is your ambition on this market? You have not been very active up until now. So could you update us briefly on that? Also, second question, on the Dutch ratio, which is clearly well up 15 percentage points, I think, Q-on-Q. Could you clarify a bit what the move has been over the quarter, breakdown between organic capital generation, impact of model updates and also impact of the markets in the quarter? And then just finally, sorry to stay on the Dutch side, but the release of the guarantee provision in the Netherlands, could you just clarify what has been the driver of this change? I think you referred to excess prudency. But just wanted to know a bit more about the driver of the release.

Benoit, let me take the first question, and then I'll let -- pass it for the second and third one to Matt. Benoit, as you know, we've been very consistent in saying that our focus -- our strategic focus in the Netherlands is on organic growth. And we're saying this because we have a very strong position in the key markets in which we want to operate and, in particular, the markets of pension, worksite, helping people securing a financial future. And that strong position effectively already gives us a very important market position. I think we've mentioned that, and you'll get much more color when you see the whole management team later here in The Hague, out of every two Dutch households, 1 is a customer, a pension customer of the Netherlands. The second thing I want to say on this subject is that the new government that has just been installed right now is also taking measures that will very much support the business areas in which we are in and effectively support them by accelerating the shift of responsibility to individuals, where, as you know, the Netherlands, in the past, pension provision was very much something which was done by the employer, by the government. More and more, we see a shift to individual responsibility. Effectively, the government has now also announced measures to facilitate the creation of individual pension books, and it's exactly the area where Aegon has been focusing on for quite some time. So we feel very comfortable that we have there a strong position. But again, I'm sure our management team will do a much better job than I do right now in showing how well we are positioned in that area with our defined benefit plans, with our DC plans, but also with Stap where we are -- we were the first one to come in the market and we're also now market-leading in providing that offer. Matt, do you want to take the 2 other questions, please?

Yes. On the group solvency ratio, you did see the strong improvement in the ratio from 185% in the second quarter to 195%. I think the presentation does a pretty good job of laying it out. But you think of it as 4 percentage points coming from normalized capital generations, that will be the total capital generation excluding onetime items and market impacts. And then you have 6% -- 6 percentage points coming from one-time items and market impacts, including model changes. And this actually bears quite a lot on the Solvency II ratio for the Dutch business, especially as there were some changes to our internal model that were recently approved by our college of supervisors. So that had a good impact on the Dutch ratio. And then, importantly, we were able to complete the L&G Part VII transfers that were related to the previous sale of the U.K. annuity block. And because we're released from some contingent capital risk, we were able to add 2 points to our solvency. And add those numbers up and then take away the interim dividend, the interim dividend was about 3%, and then you get to about 10%. Now for the Dutch ratio, Alex mentioned that we had improved it to around 190% for the quarter. This reflects those model changes, but also importantly, the injection of the €1 billion dividend into the business. I would also mention that the UMG transaction has just recently completed, so that has not yet been incorporated into that figure.

And on the release of the guarantees in the Netherlands?

Yes. So the number that we referred to related to mainly it's an IFRS change. There was, in fact, a small solvency position change in that one, too, but this just relates mainly to mortality updates.

Our next question today comes from Farquhar Murray from Autonomous.

Just two questions, if I may. Firstly, going back actually probably to Slide 10. Please, could you just decompose the fall of €0.7 billion in the SCR, ideally, obviously, between the U.K. and the Netherlands? And then secondly, the slide indicates the model changes have a limited impact on capital generation in the near term, which is obviously very helpful. This is probably nitpicking, but can I just doublecheck whether there's any more material impacts longer term? And in particular, are there any changes in the decomposition of capital generation between the geographies? I think you've indicated that U.S. doesn't really change. I presume nothing is really changing.

Maybe to talk about the SCR reduction. So we had about €700 million reduction in SCR in the quarter. Part of it is related to just revised modeling of currency risk and related diversification at the group level. That has no impact on capital generation. But also, I think importantly, for our internal model improvements that have been recently improved, in the Netherlands primarily, we revised our method for doing credit risk shock for non-safe haven sovereigns, and that's basically it.

And how much was that?

I don't have the breakdown, but I'm sure that we can get it to you. As for the model changes, I'm sorry, the balance of the question...

You just said that it had a limited impact, even so...

Yes, the model changes for the quarter mainly related to -- it was -- basically, the impact comes from reserve increases. So we will not expect that this would have any kind of an earnings impact in the short term. And in fact, in the longer term, it actually reduces what would have otherwise been a drag on earnings. So -- but that's on the very long term. These are long-duration contracts.

Okay. So that's positive very further out?

Yes.

Our next question today comes from Farooq Hanif from Crédit Suisse.

Three questions, if I may. First one, do you have any other sort of modeling improvement that you think you can -- that you'd like to put through in the Netherlands particularly? So I'm thinking sort of further refinements in the internal model, and that's obviously on top of the disposal gain that you're going to get. So that's question one. Question two, are you -- I get that you don't really want to a possible consolidation in the Netherlands. But are you seeing any positive impacts from the consolidation that's happened elsewhere in terms of profitability? So are there any early signs that, that could help you? And the last question is, you referred to reinvestment yields improving, but could you just update us on the current U.S. ALM gap, the typical question you get when -- if yields remain where they were -- where they are, sorry, what implications that might have on earnings and capital generation?

Farooq, let me take your second question, and Matt can take the first one on the impact of model improvements on our Solvency II position in the Netherlands and provide you with investment yields. So see, I think we've been clear, and I've just said it in one of the previous questions, that for the Netherlands, with the position that we have in that segment of the market, which we believe is a segment of the market where we see really the future growth very much driven by the shift of responsibility to individuals, the need for people to save more for the future, people living longer and being less dependent on governments or employers, that, that trend is really the area we want to be. But we have a market share, as you know, of over 30%. I just mentioned that out of every 2 Dutch households, 1 is a customer of us. So there is no need for us there to be bigger. In terms of other areas, I want to remind you, mainly our Cofunds and Mercer acquisitions, and explain here that we are not so much acquiring companies and taking cost out. The objective really of these transactions was to acquire customers. And let me take you to Cofunds example. We have a state-of-the-art, recognized, as you know, by the players in the U.K. market, platform capability. That is, by the way, very scalable. So for us, it's all about trying to get as much customers on that platform as we can with as low as possible in acquisition cost. So the Cofunds acquisition was effectively moving 900,000 customers for which we paid £150 million, which effectively is -- or £140 million to be exact, effectively means that we acquire the customers for £150 per customer. That's another way of looking at it. If you look at the acquisition of the Mercer pension plan, it is very much similar. And we will continue to be looking as where we can leverage very specific technology that we have in place, that is scalable by attracting customers on our technology. And what we expect going forward is that, since we have invested in specific areas, technology, the 401(k) business in the U.S., I think you're well aware of that, the U.K., I just mentioned, we will continue to look at ways of bringing customers to our platform. And this is a more effective and a cheaper way, I can assure you, than go in the market and go and chase 900,000 customers. So you see more of that happening because we also see that the scale means that those players that are smaller or mid-sized will just not be able to play the game. So we see more opportunities in that area going forward. Matt?

Maybe with respect to the modeling improvement. So we've just had what we call IMAP 2, so this is major model improvements that have been submitted to DNB and have been approved by the college of supervisors. I would expect that we will continue to basically improve our modeling. But I would not anticipate any major model submissions to DNB in the very near future. With respect to your question on U.S. reinvestment yields, currently, we're -- new money yields are at about 4.05% for the quarter, and that is below our long-term expectation, but we would think that, that has quite a limited impact on near-term capital generation.

Our next question comes from Nadine van der Meulen from Morgan Stanley.

The first question is on the holding excess capital position. You've upstreamed quite a significant dividend out of the U.S. in the third quarter. What should we expect for the full year or in Q4 in this slide? Is it just that you brought that forward? And then the second question is, on the assumption changes and the model updates, the one-time charge, as you put it, of €198 million, do you mean to say that we should not expect any further charges from model updates? Or if there are, what region we could expect because this is an ongoing thing? And then, I suppose, lastly, in the U.S. life sales, they were down, and new business margin was also a bit lower. Could you talk about sort of the main drivers and how would you think about the outlook for the profitability here on new business?

Let me maybe take you to questions 2 and 3, and then Matt will take your first question on the movement of excess capital position to the holding. I think it's good to remind everybody in the context. As you know, we've announced at the end of '14, 2014, that we were undergoing a very thorough model validation, model review process of all the high-impact models. And I think we've been very clear that this model, which is related to the universal life policies in the U.S., was kind of the last of the large models, and that we said we would do and make all the efforts to ensure that we could get this model validation concluded by the third quarter so we can bring it all together with model validations in the Netherlands and assumption changes. So yes, in the U.S., it has led to a charge. I'd like to point out that in the Netherlands, actually, it has led to a gain. So this model changes is for high-impact models not effectively concluded. It doesn't mean that we will not continue to do model refinements and model changes for the rest of our business. Actually, in fact, we have done and performed quite a number of what we call medium-impact and low-model changes and updates in the course of all the quarters. But as these low and medium impacts also suggest, the impacts are very small and have been quite limited and have actually also offset each other. So you will -- we do not expect to see significant impacts going forward now that we have effectively concluded this high-impact model. Also, I want to make sure that you see that the IFRS loss here of the U.S. model was more than offset by fair value gains…

Yes. On the excess cash in the holding, you've seen that at the end of the third quarter, we're standing at about €900 million, which is slightly below our target area of €1 billion to €1.5 billion. Now I'll tell you that, that was corrected just a few days after the end of the quarter when we received the special dividend from the U.K. in the amount of £131 million. And then for the rest of the year, as Alex said in his opening remarks, we would expect to be at the top end of the range, in part from additional dividends from the U.K., but mainly from dividends that we would expect from the U.S. following the close of the BOLI/COLI transaction.

Sorry, can you say that again? So at the end of the year, you expect to be at the top of the range, including the special dividends from the U.K.?

Yes.

Our next question comes from Mark Cathcart from Jefferies.

Congratulations, Alex, on what I thought was a really good underlying set of numbers. And having followed this stock for many years, it's the most cheerful I've felt, I think, since the 1990s. I think things are really heading in the right direction. So on that basis, can you give some sort of indication on how much further you believe you can get costs down across the group. You must walk around the Aegon offices thinking there's more costs that can be cut and more efficiencies. And the second point is, because you're moving towards the high end of your capital range within the holding by the end of this year and with nice capital generation repaired across the group, where do you think you're going to be most keen to put that capital at work, say, over the next 12 to 24 months?

Mark, thank you for your very kind words. That is appreciated. You have followed us indeed for a long time. And I can tell you that I am also, made it hopefully clear in my introductory speech, pleased to see that we have strong earnings, strong capital generation, but also strong growth because strong growth is what is going to define the future of our company. That is going to create the cash flows of the company going forward and, of course, paying the dividends. So in terms of expenses, we have in place a plan that we've communicated a number of times to effectively generate €350 million of expenses between '16, '17 and '18. So by the end of 2018, we have committed to reduce expenses further from the €170 million that I announced we have not achieved at the third quarter to €350 million. So there still is another €180 million to go. Now as you will appreciate, I cannot be more precise in saying exactly what plans will be announced when and where. But what I said in my speech and I can reiterate, we have very clear plans to achieve that additional €180 million of cost reductions, in particular, in our large businesses where the impact will be most. But in all of our businesses, we're looking at ways to be more efficient. That efficiency is absolutely required, not only because we need to get the returns to a level where we need to get them, but also because we need to create the room to invest in the future. We need to have a more lean, efficient, technology-driven organization that not only serves the customers in a more efficiently, but serves also our customers in a cheaper way and in a way our customers have the money for. So the plans are in place. They will be communicated on the due time. And I can assure you, we are working very hard and I feel confident that we will achieve the €350 million of promised cost reductions. Now in terms of capital position, we've given and set ourselves a clear target and a priority that is to return €2.1 billion to our shareholders over a 3-year period. Still, we have achieved a significant amount of that. But the capital that has been generated will be returned to shareholders for us to meet our target of €2.1 billion. Thank you.

Yes, yes. Okay. So you can't say geographic arenas where you may be looking to make fresh investment. You mentioned about Asia being a real critical component of your earnings going forward.

Well, in all our countries, we continue to grow. And I hope you see, Mark, that with the sales we're showing is that we're not holding back on growing our business. Obviously, we want to do that in an efficient way. We want to make sure we make our returns. And we will continue to commit capital to those businesses that not only generate our returns, but also fit strategically where we want to grow. Now in Asia, just to take the point, is we shared with you also previously that instead of having a capital drain of 100 million, which was kind of the old position, we have, as a result of management actions and decisions we have taken to be more efficient, shutting down certain businesses, taking expenses down, actually turned it around where Asia is effectively a small capital generator. We also mentioned that in Asia, we are not going to chase growth in the, I would say, traditional way where you would build up agencies which require very significant amount of upfront capital. Now we are looking at modern ways, new ways where we can deploy the skills we have, the technology we have to enter the market digitally, which, as you know, will have much less of capital requirements because upfront expenses, in particular, acquisition expenses like such as commissions, will not be the case here. So there's no reason to believe that, that will require significant capital investments. It's a very different business model.

Our next question comes from Albert Ploegh from ING.

The first one is on the illiquid investment program in Holland. Can you update us what has been done in Q3 and what are the plans for the remainder of the year and what type of assets have been bought? And the second question is again coming back to Slide 10. There's always an explanation on the development of the SCR. And I noticed that the own funds went down. I know of the dividend impact, but of course there has also been capital generated. So yes, what happened basically on the own funds development during the quarter in relation to the, potentially, model changes also on the group level there? And the final question is on the macro sensitivities on the Solvency II ratio. I know it's only disclosed two times a year. But given the model changes and the changes in the hedging, yes, are the [indiscernible] in the midyear still valid? Or have you've been positioned more to, let's say, rising interest rates or rising equity markets compared to the first half? Thank you.

On the first point, I think the illiquid strategy, I think it's a little bit slower than we had expected, several hundred million, but no more than that. We would expect this to accelerate during the back end of this year and going into 2018. With respect to the SCR and the own funds, so you rightfully pointed out that own funds reduced by about €300 million, and that related to dividend. And the balance of it is, yes, it's market movements and obviously, the normalized capital generation comes through. I think the big story in the Solvency ratio was the reduction in SCR, and the major model improvements had a major impact there with 6 percentage points. And yes, for the rest of it, we just have to recognize that our position for own funds going forward is we recognize that this is an important valuation metric and that we are committed to growing own funds in the future. With respect to the sensitivities on the macro hedging, I think we're just going to update that in due course at the end of the fourth quarter.

Our next question comes from Bart Horsten from Kempen.

Well, first, on the Solvency II position. And at the half year numbers, you gave us more guidance on your group capital zones. And well, from the positive development we've seen, you're now already close to your opportunity bucket in this capital zone. And I was wondering, could you please remind us what this would mean if you would above the 200% level and what we can expect there? Secondly, you have a very impressive gross deposit growth. Unfortunately, still, the lapses from the Mercer account made that you come out with the net, well, net decline. I was wondering, we know about the decline at the Mercer, but what's the absolute amount you still expect to lapse at the Mercer so that we can see some net growth going forward? And my final question relates to your decision to stop publishing quarterly results. I was wondering what's the reasoning behind that? And well, that's the question.

With respect to the Solvency II position, yes, the top end of the range is 200%. We're approaching that now. Technically, that puts us -- if we get above that level, then it puts us into what we call the opportunity zone. Opportunity does not mean immediate deployment. So we will take the opportunities as they come and decide what we want to do with the excess capital once we get over that level. With respect to the gross deposits, yes, you're right in saying that it was a fantastic gross deposit quarter. But obviously, on the net side, we lost about USD 13.6 billion in assets related to the Mercer outflows. We would expect something on that order to occur again in the fourth quarter. And then after that, it should be -- that should be done. Now with respect to publishing semiannual results and moving away from quarterly results, I think basically, all European insurers or most of them have recognized that this is an extremely long-term business. And certainly, our investors and other stakeholders are long term in nature. So we think that we can do a better job in giving you more substantive information on a semiannual basis and not have to deal with such quarterly fluctuations. And in the meantime, we can take the time that we will save to actually improve running the businesses, and I think that's an important thing going forward.

So you will also, sorry.

I just want to say it's for sure not the reason, not that we don't enjoy having these calls, Matt, don't know we?

All right. But you're also not planning to give trading updates and high-level development in terms of group solvency or other items.

No, no.

Our next question comes from Arjan van Veen from UBS.

Most of my questions have been answered. Just 2 follow-ups. Firstly, on cost savings. You highlighted you're halfway into that program and you're confident in terms of achieving your target. I just wanted to just follow up in terms of how it's flowing through the P&L? I assume there's a bit of a lag, so just a bit of color around how it then flows through and how we should think about the underlying earnings with those things coming through. And the second question was on the U.S. tax reform. Given the proposals that have now been put out, can you give us a bit of a color how it impacts your business, i.e., where your effective tax rate is today, whether that improves and also, the impact on your deferred tax assets you may have on the balance sheet in the U.S. business?

Yes, I just said, Arjan, we are halfway of what I think is a very ambitious cost-reduction program, €170 million out of €350 million. We have also now -- we've made good progress in defining and setting the plans for the remaining €180 million, of which, of course, the big part is in the U.S. As you know, we have 100 -- €300 million of cost reductions for the U.S. What I can say on how they will flow through earnings is that we expect that the remaining parts of the cost reduction, particularly those in the U.S., will, for a big part, flow back through earnings. So you'll see them coming through to earnings. And that will support, obviously, not only earnings, but also our targets in terms of return on equity.

Is it fair to say that the margin achieved today does not fully sort of flowing through, that's...

It's safe to say the demand -- actually, it's fair to say the demand that we've seen today is probably for flowing through earnings for around half of it. I think that's a fair assessment. And then the remaining, as I said, we expect a bigger part, clearly, a bigger part to flow through earnings. We'll provide you, obviously, with more updates when we come with plans and when we announce them also to the market. But as you can imagine, we got to deal with this first internally before we do that externally. In terms of taxes, unfortunately, I wish I could say more, and I also wish we would know more. It is a very fluid situation. Yes, there's been a headline proposal for a tax reduction in corporate tax rate, which I think we will all agree is a positive. It's a positive for the economy, therefore, it's a positive for our business. It's going to be meaning less taxes on earnings, less taxes on our cash flows. But what we're also seeing is that there's a lot of discussion back and forth about how these tax cuts are going to be financed. And to what extent the insurance industry is going to be impacted from that, it's way too early now to give you any impression, and it's a very fluid situation which we are following very closely. I can also say that not only are we following very closely, but the CEO of our U.S. business, Mark Mullin, is the Chairman of ACLI, so he's directly involved. It's important for us as it is important for the whole sector. But with the situation right now, there's actually nothing more we can say other than that lower corporate tax is a positive. And we need to make sure that the way it gets financed is not going to impact our industry. That's really where we are today.

Is it possible to give us some indication where the effective tax rate is, because just looking at it historically, it does bounce around a bit from the U.S. business?

Yes, I think that's a good point. The effective tax rate, effectively, is 27%. So what you see in many cases when taxes are coming down, and by the way, the same applies to the Netherlands, they take the headline number down, but they take away deductions. So ultimately, it's very important to see what all the rules are and exactly how they get applied to understand what the impact is, because even from 35% to 27%, as you see, there is already quite a big gap because we are running now at 27% roughly.

Our next question comes from Gordon Aitken from RBC.

I have three questions, please. First, on the U.K. platform business, the flows are good and then you see assets now in excess of £110 billion. But pensions and earnings were just £8 million in the quarter. Is this the run rate or were there once-off effects in that number? And second question, on the Dutch market. And obviously, you've been looking at assumptions. But can you talk a bit about mortality assumptions you're using? And is there potential gains to come there still from moving to a new table due to the slowdown in life expectancy improvements that we've seen in the last few years? And the final question is on the Dutch and defined benefit pensions book. It's obviously a spread business, and you've been talking about your -- you moved away from spread. What proportion of the Dutch reserves at the moment are in spread or defined benefit? And could you offload that book and would you want to offload that book?

Yes, on the platform, Gordon, yes, we are making, I think, really good progress with the platform in terms of getting flows. Equally importantly, we also are making good progress of moving our Cofunds customers onto our platform. As you can imagine, it is kind of a big exercise. I think it's important that you look at flows into the platform in a positive sense, but also looking at the fact that we've seen outflows being very limited. Actually, where the Mercer deal, we were expecting outflows and anticipated that we see in the Mercer deal more outflows than we are anticipating. Here, with Cofunds, it's been the other way around. I think the customers, being really the eye face that are dealing with the customers, are very pleased with what they're getting from us, from Aegon. We are, therefore, seeing less outflows. Yes, in terms of the splits between what is we call pension and life, I would refer you back to IR. But I think that you can say that the earnings, which we have shown in the third quarter, are a pretty good indicator of what we would expect the run rate going forward. But you should also take into account that we also announced that the integration of Cofunds onto our platform is going to yield additional cost savings. So the run rate will start increasing when these cost savings are being realized over the course of 2018. And the amount which we put in the presentation when we did the acquisition of Cofunds shared with you was around £60 million, and we're still committed to deliver on that £60 million. On the U.K., yes, I think you were talking about improvements in mortality, people living less long. That is, in particular, a positive impact for annuity business rather than it has an impact on the business we have because, as you know, we have actually disposed of our annuity business. By the way...

The question was about the Dutch market.

Oh, the Dutch market in the Netherlands. So in the Netherlands, we've seen improvement. I think what we see is too early now to say there is a reversal of the trend. Yes, we have seen an improvement. We have apparently some colder winters. We have more flu than usual. I mean, this is the kind of explanations I'm getting, and these explanations are, in my view, too early to say there's a reversal of the trend. But it's clear that we have indeed effectively had benefits from, call it, improved longevity, in other words, people living a little bit less longer than we have anticipated. But I would caution really on trying to get a sense that this is a longer-term trend. It's too early to say that. In any case, we have built up the right reserves. And I think your final question was about, where is the earnings coming in the Netherlands? The biggest part of earnings is indeed still coming from our defined benefit book. That is, by far, the biggest part. We are seeing there the positive impact of what you just mentioned, some improvement indeed in the longevity, people living less longer. We have a significant book that is going to run off over time. Actually, we haven't had many new customers and buyouts on our book. In particular, with very low interest rates, it makes it very challenging to make that an attractive proposition. But I'd also like to point that for us, it's important to not only have this book, that is a very positive book that's running off, is that we are building the capabilities for the future, and that is our defined contribution business. You'll see you'll hear more about that when you get the presentation. Hopefully, you'll be here…

I mean, just to follow up on that. I mean, you sold your spread business in the U.K., I mean, there was buyers for that business, I mean, more than one. I mean, would you sell your spread business in the Dutch market? Is it because there's no buyers? Or is there another reason you like that business?

Well, I would say that in the U.K., we were pleased to sell our annuity business, spread business. We were pleased also with the price we got for it. I would say there are buyers. But I think that the universe of buyers is probably smaller than everybody believes there is. And therefore, seeing in the Netherlands at this point in time, we have not really seen buyers in this universe. And again, we're always looking at the best way of allocating our capital. If there would be options effectively to offload some of it and create capital synergies, we certainly consider that. But I can tell you at this point in time, I have not seen anything viable that we should be looking at. Not surprised because effectively, in our pension business, you get underwriting risk, you get market risk. And we talked about quite significant exposures, which we haven't seen any other players at this point in time being interested.

Our next question today comes from Andy Hughes from Macquarie.

On the €2.1 billion by the end of 2018, I think that's about €900 million that you'll return to shareholders. I'm just wondering, does that mean you're expecting €900 million to be upstreamed to the holding company between now and the end of 2018. And given the way in which the operating earnings appears to be developing, are you sort of thinking more about increasing the kind of dividend level -- base dividend level as a way of returning that? Or is it going to be mainly through some sort of capital return? And are you planning further disposals to get to that? Or is that kind of entirely organic? And I think the final question is, on the half year, you obviously put in the higher cash flow target for 2018. Looking at particularly the market movements, the increase in fee income which should be recurring, I guess, depending how is the market going forward -- is it fair to say that you're ahead of where you thought you would be on that target so far?

So Andy, thanks for your question. The €2.1 billion is a commitment and a target we have set. And we will take our dividend in 2000 -- I would say, the final dividend in '17, interim for '18, to the level that is required to bring it to the €2.1 billion. I think it's very easy to calculate it back. That is very much supported by flows which we are getting from our business units. As you know, in the U.S., we have a capital generation of $1 billion, of which 90% has been upstreamed, and with an excellent record for which we are very pleased. The Netherlands, we've also guided you on our dividends. We have mentioned there would be a €100 million interim dividend in the first half of 2018. The U.K., now that we have addressed, I would say, the sale of the annuity book and we are integrating Cofunds with our platform, we expect, actually, with the level of solvency in which we are at, and I guided you to the £200 million level, to effectively upstream most, if not all, of the cash that has been generated, so there's around £100 million, as you know. And for the rest, we've been quite consistent of upstream and dividends from asset management of around €100 million. And the rest of Europe has been around €5 million. And in Asia, well, we used to be consuming capital at the tune of 100 million a year, we actually had a one-off dividend, and we are now capital-generative. So if you add it all up, you, I think, will see very easily that the flows that we are expecting from our units will more than cover what is needed for the dividend and will also actually increase the buffer we have at the holding and, therefore, increase the flexibility we have. Now we've given you an indication of our cash flow targets for 2018. These are supported, as you rightly point out, at good market conditions, more fees, but also are supported with by management actions we're taking to take our expenses down because they will not only flow in earnings, but they will, of course, also flow into the capital generation. But I think it's now about delivering on 2018. And yes, I hope we can over-deliver.

Our next question comes from Robin van den Broek from Mediobanca.

I would just like to circle back to the tax reform in the U.S. because you've mentioned an effective tax rate of 27%. But I think for your required capital, you're using a 35% tax rate. And I would say that also assuming the DTA write-offs that's connected to a potential tax cut, you could see a hit to your RBC ratio between 75 and 100 percentage points, which is also consistent with what 2 peers in the U.S. have indicated as a potential hit. Is that a number you recognize, first of all? And secondly, do you think the NAIC will provide any tools to navigate through this potential hit for the industry? And thirdly, yes, what could the Dutch central bank do? You've just been through a process where the calibration of the RBC ratio basically has been changed. I was wondering how did that process exactly look like and how difficult was it to get approval of the Dutch central bank to revise that. And how does all of this feeds into your -- yes, you're close to your opportunity buckets of 200%. Is there any buffer you want to keep with regard to this potential capital distortion coming from the U.S.?

I think maybe the first point is a tax bill does not a law make. So we are still early stages here with respect to even looking at what the proposed bill might be, how that is going to be treated. So you mentioned quite a number of effective tax rates and DTA write-offs and implications for the RBC ratio, but I think it's a bit too early to comment on that kind of thing. One thing I would say, and we've commented on this before, that if there was a change to the DTAs and, in fact, RBC ratios came down, I think the first reaction would be in the U.S. life industry would be sort of a rebasing of what is acceptable capital for U.S. life insurance companies. So that would be the first point. The NAIC, ultimately, may make changes to required capital in response to that. But again, that's sort of a second-order effect, and we wouldn't comment on it. At this point, we don't think that there would be any -- we're not holding any extra buffers for tax reform changes, nor would we expect to see any changes in dividend repatriations from the U.S. or to -- or what we give to our shareholders. In terms of the calibration that we did with DNB, I think that what we had shown at the time was that we basically looked at European peers and how their conversion was coming into Solvency II. And they were quite interested in understanding how other European regulators were treating it. So we did a kind of a balanced approach. The idea was level playing field. Now one thing we did agree with them is to the extent that there are substantial changes to, let's say, the structure of U.S. risk-based capital, then we would go back and then we would rediscuss what the appropriate effect on our own conversion would be. And I think that should be about it. Thanks.

Our final question today comes from Ashik Musaddi from JPMorgan.

Just a couple of questions I have. One is, I mean, it looks like your solvency ratio is 195%, on the top end of the range. So would you say that the capital debate is now more or less over? And in a couple of quarters, you can stay there, this will not become an issue, at least in your internal discussions, et cetera, so we move away from capital debate. Will that be a fair expectation? Second thing is, can you just remind us about capital generation and how much will that capital generation convert into cash? I mean, the numbers keep on changing, so just a reminder would be great as to what is the conversion from that. And thirdly, can you give some color about what is your hedging policy at the moment for the Dutch business? I remember you had a Solvency II ratio-based hedging rather than cash flow hedging. So if you can remind on that. The only thing I'm trying to look for is, if interest rates were to rise here in Europe, will that feed through in your capital benefit or not, i.e., if your Solvency II base has rising interest rate is a very good news. So any color on these three questions would be great.

Ashik, I think that you say it rightly, the capital debate is over. With 190% in the Netherlands, the capital debate is certainly over and behind us. This was our objective in Q2. I think we wanted to make it very clear, Matt and I, to the regulator, to all our stakeholders internally, externally, including you, of course, saying that discussion on capital is a distraction from where we need to focus our efforts in growing our business and serving our customers. So to me, the debate is over, and I also expect it to remain over for the foreseeable future. On capital generation, a thought I have just expressed earlier is -- you're well-aware of the numbers, and I'll repeat it very quickly then, if you want. We said $1 billion capital generation in dollars for the U.S., $900 million upstreamed. For the Netherlands, we've mentioned the €100 million interim dividend. The U.K., we said the cash flow of around £100 million should be entirely tangible and, therefore, sent to the holding. And the other asset management in the rest of Europe are unchanged, effectively dividends in the holding of respectively €150 million. And the difference being that we are not anymore expecting to put amounts of capital in our Asian business, where the minus 100 million a year, which, as you know, we had kind of indicated a year ago, has turned into a slight positive actually as a result of the management actions we are taking. So I think that picture hopefully is clear. Now in terms of hedging, you're right, we do hedge our capital position in the Netherlands and interest rate from a Solvency II point of view. But you never hedge all the impacts, the secondary order impacts, which you don't hedge; there is the risk margin that you don't hedge. So the answer is that when rates, and hopefully rates will start moving up in Europe, you will see a very clear benefit in both our capital generation and in the level of capital; capital generation because the drag in relation to the UFR is going to reduce, and the Solvency II capital because we are not entirely hedged on a Solvency II basis where we only hedge our capital and, therefore, big parts are not hedged. It will also mean that there is a positive sensitivity to interest rates. So let's hope for these interest rates to move up.

Thank you. This was the last question. Thank you for, again, your interest in the company. I really hope to see you next time in our offices here in The Hague when we'll have the Dutch management because I can tell you they have a very exciting story to tell about the opportunities we have here in the Dutch business, the pension business and the steps we are taking here to really also work on innovation. That's going to be a big part of the presentation. So I look forward to seeing you there in The Hague, and take care for today.

Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect.