Good day, and thank you for standing by. Welcome to the Aegon Fourth Quarter 2022 Results Conference Call. At this time all participants’ are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jan Willem Weidema, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining this conference call on Aegon's Fourth Quarter 2022 Results. Before we start, we would like to ask you to review our disclaimer on forward-looking statements, which you can find at the back of the presentation. With me today are Aegon's CEO, Lard Friese; and CFO, Matt Rider, who will take you through the results for the fourth quarter and the progress we are making in the transformation of Aegon. After that, we will continue with our Q&A. And on that note, I will give the floor to Lard.

Thank you, Jan Willem, and good morning, everyone. We appreciate that you're joining us on today's call. I want to start by running you through our achievements on slide number two. The fourth quarter closes out a year in which we accelerated our transformation and the execution of our strategy. During the quarter, we announced a transaction to combine our Dutch businesses with a.s.r., which was a historic milestone for the company. We are very pleased that we have received broad-based support from our shareholders for this transaction at our AGM in January, and we continue to be on track to close the transaction in the second half of this year. Despite challenging market circumstances, we also made significant progress in further strengthening our balance sheet and in improving our operating performance. At the 2020 Capital Markets Day, we launched our operational improvement plan with more than 1,100 initiatives, together with ambitious, but realistic savings and growth targets. The success of this program is evidenced by the fact that the benefit to our operating results has exceeded our target one-year ahead of schedule. This year's commercial results underscore the importance of offering a broad range of products to our customers. For example, as a result of the uncertain macroeconomic environment, we saw outflows in Asset Management and in the U.K. retail channel. In the U.S. Workplace Solutions, we experienced net outflows as a consequence of the departure of one large customer. But at the same time, many of our strategic assets are performing well. Our life insurance sales increased in our growth markets and in the U.S., where individual solutions achieved the highest level of quarterly new life sales in the last five years. Furthermore, the Workplace business in the U.K. recorded the highest level of net deposits in the…

Thank you, Lard, and good morning, everyone. Let me start with an overview of our financial performance over the last year on slide 11. The operating result for the year was stable at EUR1.9 billion. The result was supported by expense savings, benefits from growth initiatives, improved claims experience, and strengthening of the U.S. dollar. This was offset by lower fees due to adverse market movements and outflows in variable annuities and asset management. Operating capital generation before holding funding and operating expenses amounted to EUR1.5 billion for 2022. The increase compared with the previous year reflects similar drivers of the operating result and the benefit from higher interest rates in the Netherlands. Cash capital at the holding increased to EUR1.6 billion at the end of 2022, supported by EUR780 million of free cash flow for the year. Our gross financial leverage amounted to EUR5.6 billion or EUR5.4 billion based on a euro-U.S. dollar exchange rate of $1.20, which is the rate at which we set our deleveraging target in 2020. This means that we remain within our target range. Despite volatile markets, we maintained strong capital ratios with each of our three main units remaining above their respective operating levels. This underscores the effectiveness of the actions we have taken over the past few years to improve our risk profile and to reduce the volatility of our capital position. Transamerica, in particular, has taken several actions to strengthen its capital position and increase the predictability of its U.S. RBC ratio. This includes setting up a voluntary reserve for variable annuities, achieving additional long-term care rate increases, and freeing up capital by reinsuring the legacy Universal Life portfolio of Transamerica Life Bermuda, our Asian high net worth business. Furthermore, the dynamic hedging program, which we expanded in 2021 to include…

Thanks, Matt. In summary, on slide number 20, we have significantly accelerated our strategy execution. And equally important, we have delivered on our financial commitments in 2022. Looking forward, we remain fully focused on executing our strategy. We are continuing to improve the performance of our company. We are investing in profitable growth by introducing new products and expanding our distribution footprint. We are remaining disciplined in our capital and risk management. And we are continuing to provide attractive returns to our stockholders. Therefore, I'm confident in delivering on our financial and strategic commitments for the year 2023 and beyond. But as a whole, I'm very proud of all our colleagues who work hard every day to make our strategy a success and to continue to support our customers' needs. I would now like to open the call for your questions. Please limit yourself to two questions per person. Operator, please be so kind to open the Q&A session.

Thank you. [Operator Instructions] We will now go to our first question. One moment, please. And your first question comes from the line of Andrew Baker from Citi. Please go ahead. Your line is open.

Hi, thank you for taking my questions. So the first is just on the new capital generation guidance the -- at least EUR1 billion. Can you just give us some insight into what you're assuming for new business strain and how that compares to 2022? And then are you assuming anything for mortality within that? And then -- is there anything else worth highlighting in terms of material items that you are assuming within that EUR1 billion number? And then secondly, can you just give us a sense of where you are now relating to your top five aspirations in the Retirement Plans sales, as well as those selected individual life sales that you've highlighted? And then how much additional new business strain would you expect above and beyond the 2023 level to get to those market positions and over what time frame you would expect that to sort of work its way through? Thank you.

Thank you very much, Andrew. Matt, over to you.

Yes. With respect to the new business strain, all we've really said is that we include an increased level relative to where we ended up in 2022. But I think where you see it -- you saw an increased additive new business strain during the course of the year. So you can think about sort of the fourth quarter number as being a reasonable number. As far as mortality is concerned, I would say, if you combine the mortality and the morbidity together, you're looking at about a neutral effect. So we've had pluses and minuses in the past due to mortality and morbidity. We're thinking about a neutral effect for 2023.

And on the top five positions?

Yes. Well, I mean I think that we're doing well on our top five positions. However, I would say that we are going to -- I think you asked this question more in conjunction with if we increase those, what is new business strain going to do for 2023 and beyond? I think there, we're going to do a capital markets update in the second quarter of 2023, and we can update you further there.

Thank you. We’ll now go to our next question. And your next question comes from the line of David Barma from Bank of America. Please go ahead. Your line is open.

Good morning. Thank you for taking my questions. The first one is on the dividend. So you guide for, in conjunction with the free cash flow guidance of EUR600 million, including the a.s.r. final dividend in there, you'd be closer to EUR700 million. And your ‘23 targeted dividend cost will be somewhere nearly EUR200 million less than that. So how should we think about the difference between the two figures? And secondly, on Asset Management. So naturally, it was quite pressured and market movements didn't help last year. What's your outlook for flows so far in the year? And can you remind us what sort of uplift earnings we should expect from the different actions you've been taking on cost, asset diversification, the streamlining of the different platforms, et cetera? Thank you.

Yes. Thank you very much, Dave. Let me take the Asset Management questions, and then half of that to Matt, can you take the free cash flow and dividend question. So on Asset Management, I think in line with what you've been seeing in the wider industry, the fact that both interest rates have been shooting up, reducing values of bonds and corresponding fees, obviously, that's one thing. And secondly, having equity markets going down. That entire market backdrop has not been helpful for, let's say, the Asset Management business in the last year. When it comes to the Global Platforms, and you look at the third-party net outflows, this is mainly also because our clients freed up liquidity as a result of all this volatility. However, it was offset positively by AIFMC, which is our Chinese Asset Management joint venture, which was able to bring in EUR3.6 billion of positive net deposits over the entire year. That could not completely offset the loss that we had in the Global Platforms in the third-party business, but it was something that came quite close. Over the total year, the Global Platforms lost a net deposit of EUR3.8 billion, while our Chinese joint venture came in with EUR3.6 billion. So it could not completely offset it, but it was pretty close. And that's that. Of course, we're -- depending on the market backdrop this year, we will see how the Asset Management flows and Asset Management business will continue. The start of the year, if you look at the markets, they've been better, but at the same time, it's early days. So I think it's far too early to call the market on this. What we are doing to improve the Asset Management business structurally is a couple of things. First of…

Yes. So on the free cash flow, I want to do this as a basic overview. And if you have detailed questions, then you can come back to IR on this one. But in general, what we're telegraphing for 2023 is EUR600 million free cash flow that includes the interim dividend of a.s.r. So that gets you to about the EUR600 million. And then starting with about a 2 billion share count, slightly under that, take into account, when you do your math, the fact that we've now announced a share buyback of EUR200 million, and we do intend to accomplish the EUR1.5 billion share buyback over the period of 2023. And I think when you do that math, then we're about -- maybe we're paying out about EUR500 million, and we're getting at about EUR600 million. So there is only about a EUR100 million gap. And I think that's kind of a normal sort of payout ratio.

Thank you. We’ll now go to our next questions. And your next question comes from the line of Michael Huttner from Berenberg. Please go ahead. Your line is open.

Thank you very much and well done for achieving in ‘22, what you set out for ‘23. I had two questions, please. One is you just said, and -- but I have a kind of close interest in this, that the EUR1.5 billion buyback you aim to achieve during 2023. I wonder if you can give a little bit more insight on that. And if you were to do it just as normal buyback, I think you'd be accounting, if you did it just in six months, for like, I don't know, 25% or 30% of daily volumes. I just wonder if you can give a little bit more and your thinking here? And then on the U.S. business, which seems to be doing really well with the 428% RBC ratio and your talk of new business strain, basically investing in growth. There is, and on not very solid ground, I think a negative outlook by Moody’s, and I just wondered whether you can kind of comment on that given what looks like actually a very strong business with the TLB boosting capital, et cetera.

Thank you, Michael, for your question. Yes Matt, do you want to take it?

No, thanks.

So on the -- just on the buyback program, the intention would be to start the EUR1.5 billion share buyback program pretty much as soon as we complete the transaction. At this point, we're thinking that the vast majority is going to be done by share buybacks. And that will take a period of time. I don't think we've disclosed exactly how long we think it would take. It will be under a year, but as quickly as we can possibly do it. Obviously, given the daily trading volumes, that's how we'll try to manage it. So you are right, in the U.S. business, we see a high Solvency ratio. We see the businesses, I would say, particularly the Life business is doing exceptionally well. So all the rating agencies like to have that good commercial activity there. What has happened is that when we announced the a.s.r. transaction, we've been put on sort of negative watch by the rating agencies. And they will do their work on this. But even in the event if indeed we were downgraded, it would not mean anything for our commercial activities or frankly, our business. I thought it was quite interesting on the day that we announced the a.s.r. transaction, we were sort of immediately put on negative watch. And then what happened to the value of our hybrids and debt, it just went up. So the rating agencies have their process. They will ultimately take us to committee. They will work through it. But even if we were downgraded as a consequence of this transaction, it does not mean much to us commercially.

Thank you.

Thank you. We’ll now go to our next question. And your next question comes from the line of Nasib Ahmed from UBS. Please go ahead. Your line is open.

Thank you. Good morning. And thanks for taking my questions. So first one on the U.S. In the OCG, the quarter-on-quarter OCG sell, but even on earnings, if you even exclude the TLB allocation of EUR55 million, the earnings improved. So what is the difference there, may be new business strain? And I guess related to that, the investment into the U.S. to get to top five, is that all coming from Transamerica? Or do you expect some of that to come from the holdco? And then, I guess, second question is on the two strategic assets, well three assets, the U.K., U.S. and Asset Management. Can you talk about what kind of learnings you can apply from the U.S. to U.K. and vice versa? And how you think you are kind of the best owners of both assets at the same time and whether the Asset Management plays into that as well? Thanks.

Yes. So let me take the last one, and then Matt if you can thereafter do the first two questions for Nasib. So thanks, Nasib. Yes. First on the learnings, so the interesting thing is that, in the U.S., in the U.K., but also our long history in the Netherlands, we have been running Workplace Solutions and Retirement Plan businesses for a very long time. And it's quite interesting to see what you can learn from the various geographies and the various markets that you operate. Now quite frankly, it starts with the realization that there's a lot of local differences, tax treatments of those retirement plans and also local preferences and local different legislations. So there's a lot that is different in these markets, but there's also a lot that is very similar that you can indeed learn from each other. First of all, in the U.S., in the Workplace Solutions business, we have -- and you can see that actually in the numbers, we're seeing that the average margin per participant is increasing because the advice center that we have built up and manage advising, which we actively reach out to plan participants and help them plan for the decisions and, for instance, consolidation of pension buildups that they have in various pension plans. I mean that has -- that is a practice that is very successfully built and implemented in the U.S., and we're learning from that. And within the rules and regulations around that in the U.K., we are implementing similar activities. That's one example of it. The other one is that in Asset Management, in all our products, if you look at across the footprint, we have roughly, your minimum looking at year now, roughly EUR900 billion at this moment, roughly EUR900 billion of assets…

So, Nasib, thank you. So on the first one on the OCG quarter-over-quarter relative to the operating result, there are a couple of pieces, but they're pretty simple. So the first is that we saw poor mortality experience, let's say, on the IFRS side, on the operating result, but it was a bit worse on the operating capital generation side, frankly, just due to the reserving mechanics under the two bases. The second one is that we did see -- so new business strain is obviously a component of operating capital generation. And you'll probably see that it has picked up in the fourth quarter, which we like it to do, of course, because we are writing profitable new business, and that's why I think we've done a very good job there during the course of the quarter and the full-year. With respect to that, the need of the U.S. to fund, let's say, the need of the U.S. for holding company cash to be injected. So with a Solvency ratio of 428%, first of all, they're in very good shape. And it's nice to have buffers that we have in the holding company. It is always a good reminder that we are still in restructuring mode. At the group level, we want to maintain our cash at the top end of the range. And to the extent that there are in-force management actions that we would want to do in the U.S., then we have a buffer that is sitting there in the holding company. So strictly speaking, we don't necessarily need it to fund growth. But we'll give you more insight into this when we do the Capital Markets Day in the second quarter of this year.

Perfect. Thank you.

Thank you. We will now take our final question for today. Sorry, the last but one question for today comes from the line of Steven Haywood from HSBC. Please go ahead. Your line is open.

Good morning. Thank you. One question, one clarification here. The model and assumption changes that have occurred in your Solvency II ratios in both the Netherlands and the U.K., can you give a bit more detail on these, whether they are company-specific or industry-specific as well? And then a clarification, my line went a bit fuzzy when you were talking about the EUR1.5 billion capital return. Can you say what time scale this is done over? Thank you.

Thanks, Steven. Matt, do you want to take over?

So on the first one, the model and assumption changes, they're really company specific. We talk about our annual review of all assumptions that are -- especially the most important ones, including expense, mortality, longevity, and the like. So these are ordinary course of business. We do these assumption updates every year, and we run them through the fourth quarter for the Solvency II countries. On the EUR1.5 billion return of capital. Again, as I mentioned before, it's going to be vast majority of it through share buybacks. We will start immediately after we close the transaction. We'll get it done as quickly as possible. It will be under a year to get it done. Depending on daily trading volumes, we get it done as quickly as we can.

Yes. Thanks very much.

Thank you. We will now go to our last question for today. And the question comes from the line of Robin van den Broek from Mediobanca. Please go ahead. Your line is open.

Yes. Good morning. Thank you for taking my question. Just one clarification question. I think you mentioned in your answer to the EUR1.5 billion return, you'll be paying up EUR500 million and you're getting in EUR600 million. Here, the EUR600 million only includes the interim dividend of a.s.r. So I guess if we look for -- and you mentioned that, that is a normal payout ratio. So I was just wondering if we move towards 2024, is there an automatic ticker basically on the dividend, when also the final dividend of a.s.r. will be included in the free cash flow for 2024. So that's my first question. And the second question is more on the like-for-like OCG run rate. I'm not sure whether that has been addressed, because my line of cut off during the call. But can you maybe make a comparison on the run rate on a like-for-like basis within your guidance? Thank you.

Robin, sorry to hear that you had problems with the connection at a certain point. So we will help you. So Matt, can you take both?

Yes. So with respect to 2024, we're effectively giving you a guidance for 2023. And I think when we get to our Capital Markets Day in the second quarter, we'll give you more updated guidance on the out periods, but I think we will leave it for them to give new targets at that point. With respect to the OCG run rate, I guess, if you want to do it on a -- let's say, we do it on the fourth quarter. So we did overall EUR370 million in OCG for the fourth quarter. There are some puts and takes. So if you sort of -- if you add back the poor mortality and, let's say, the poor mortality experience primarily, and then you sort of make adjustments for some of the good guys that we got during the course of the quarter, including some onetime releases in the U.S., and then the U.K., also in international, that gets you to a clean number of EUR350 million. So if you look forward to the guidance, you think about EUR350 million as a clean number. Now take out what we did in the Netherlands during the fourth quarter, which was about EUR100 million. So now you're at EUR250 million times 4, gets you to about EUR1 billion. And yes, there are some other currency movements and various things you can talk to IR about. But in general, you get to -- that's a clean number.

Alright. That’s very clear. Thank you very much.

Thank you. I will now hand the call back to Jan Willem for closing remarks.

Thank you very much. This concludes today's Q&A session. On behalf of Lard and Matt, I want to thank you for the lively interaction. Should you have any remaining questions, please do get in touch with us in Investor Relations, we're here to help. Have a good day, and thank you for your participation in today's call.

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