Good day, and thank you for standing by. Welcome to the Aegon First Half 2023 Results Call. [Operator Instructions] Please note that today's conference is being recorded. I would now like to hand the conference over to your speaker, Hielke Hielkema, Investor Relations Officer. Please go ahead.

Thank you, operator, and good morning to everyone. Thank you for joining this conference call on Aegon's first half 2023 results. My name is Hielke Hielkema from Aegon Investor Relations team. With me today are Aegon's CEO, Lard Friese; and CFO, Matt Rider, who will take you through the highlights of the first half year, our financial results and the progress that we are making in the transformation of Aegon. After that, we will continue with a Q&A session. Before we start, we would like to ask you to review our disclaimer on forward-looking statements, which you can find at the back of the presentation. And on that note, I will now give the floor to Lard.

Thank you, Hielke, and good morning, everyone. We appreciate that you are joining us on today's call. Today, we present our results under the new IFRS 9 and 17 accounting standard for the first time. But first, let me run you through our strategic developments and commercial momentum. We have a lot to talk about. So let's move to Slide #2 for the achievements in the first half of 2023. We have started the next chapter in Aegon's transformation delivering a successful Capital Markets Day in London in June. We closed the transaction with a.s.r. in July and have started the €1.5 billion share buyback program associated with the deal, which we expect to complete before the end of June 2024. In addition, we still intend to reduce our leverage by up to €700 million in the same time frame, and we'll update you on that when appropriate. On the strategy front, we continue to take steps to transform our business. We have increased our financial stake in our Brazilian joint venture, we expanded our partnership with Nationwide Building Society in the U.K. and extended our asset management partnership with La Banque Postale in France. The sale of our remaining Central and Eastern European businesses have been closed, and we have announced the sale of our stake in our joint venture in India. We are now fully focused on 3 core markets, 3 growth markets and 1 global asset manager. We're also delivering on our commitments to continue to reduce our exposure to U.S. Financial Assets and to improve the level and predictability of capital generation. Transamerica has been able to execute an additional reinsurance transaction, encompassing 14,000 Universal Life policies with secondary guarantees. This will free up approximately $225 million of capital, which will be used for management actions…

Thank you, Lard, and good morning, everyone. Today, we are reporting our results under the new IFRS 17 and 9 accounting framework for the first time. It's been a huge endeavor over the past years to prepare for this shift. So I wanted to start off by thanking the many colleagues who are involved in this process. As you can see, we've provided a lot of new disclosure and it will likely take you some time to digest it and get comfortable with the new standard. Implementing the new framework also in the context of the a.s.r. transaction, has met some changes to our processes. For example, we're reporting a week later than we did last year and now half yearly. Beginning with our full year 2023 results disclosure, our financial reporting calendar will move even later to accommodate, bringing in the results of a 30% shareholding in a.s.r. on an IFRS 17 basis. We also will move our expense assumption review process to the fourth quarter for all business units in order to leverage our budgeting process. At this moment, we are not publishing IFRS 17-based sensitivities, but we will do so by the time we publish our 2023 annual accounts. So with that, I want to walk you through the overview of our financial results starting on Slide 14. The operating result increased by 3% compared with the first half of 2022. Increases in the U.S., the U.K. and the International segments were partially offset by a decrease in Asset Management. Operating capital generation before holding, funding and operating expenses increased by 13% compared with the first half of 2022. This was driven by the U.S. and reflects business growth of Strategic Assets and improved claims experience. Free cash flow in the first half of 2023 amounted to…

Thank you, Matt. Let me summarize today's presentation with the final Slide #24. Aegon has entered the next chapter of its transformation from a position of strength. We have concrete ambitions and plans to move forward with our strategy as we presented at the Capital Markets Day in June. Operating capital generation growth was strong in the first half of 2023. Commercial momentum remained strong in our U.S. Strategic Assets, in our U.K. Workplace activities and in our International growth markets. More work needs to be done on Asset Management and our U.K. Retail business. We will address our ambitions here with you in 2024. The next important milestone will be the Extraordinary General Meetings in September to receive shareholder approval for the transfer of our legal seat to Bermuda. We are convinced that the proposed move is in the interest of shareholders and provide stability for the group to continue to execute upon its announced strategy. If you have any questions on this process, we have published detailed documents on our corporate website. Feel free to reach out to the IR team if any questions remain. I want to be clear that the redomiciliation process will not distract us from what is most important: accelerating the execution of our strategy, driving growth and creating value by reallocating capital from Financial Assets to Strategic Assets. Let me conclude by reiterating my confidence that we will deliver on our strategic commitments and financial targets. We are committed to become a leader in investment, protection and retirement solutions, and we have a clearly articulated strategy to achieve this. I would now like to open the call for your questions. [Operator Instructions] Operator, please open the Q&A session.

Thank you. [Operator Instructions] We will now go to our first question. And your first question comes from the line of Andrew Baker from Citi.

So the first one is on the OCG. Are you Just able to provide moving pieces on the OCG versus the previous €270 million quarterly guidance and what we see the normalized run rate going forward? And I guess within this, can you just talk a little bit about the New Business Strain because my understanding from CMD was that this was expected to grow over time? It looks like 2Q specifically, it declined €20 million or so. So how should we be thinking about this going forward? And then secondly, just on the CSM growth. I look at the new business and interest accretion, this looks lower than the CSM release in the first half. So I appreciate some of this is driven by mix between Strategic and Financial Assets. So just wondering if you are able to provide a sense of the sort of normalized CSM growth expectations for the Strategic Assets versus the Financial Assets going forward? I'm just really trying to get a better picture of how you're positioning the growth story against sort of the CSM that's declining from the Financial Assets drag going forward?

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

Thanks for your questions, Andrew. I can pick up the OCG one, first. So the bottom line, I will just tell you, the guidance that we had provided for last quarter of around €270 million OCG per quarter is still the same guidance, and I can walk you through the moving pieces. So in the -- in the second quarter, we reported €328 million of operating capital generation. But within that, we had some very favorable claims experience, €35 million worth, vast majority of which is coming from mortality claims experience in the U.S. We also had that lower New Business Strain of about €10 million that I'll come back on in 1 minute. And then we also had about €10 million of favorable underwriting variances in the U.K. So if you do the sums, then you'll come to a -- what we think of as a clean run rate for the quarter of €273 million, which is pretty much spot on with the guidance that we gave for the first quarter. Now for your second question, you clearly noted the reduction in the New Business Strain, although it's actually coming from the Retirement Plans business. So we're still seeing continued growth in New Business Strain from life insurance, which is where we want to see it because we're issuing profitable new business there. But in the Retirement Plans business, you may have seen that we had like quite a large net deposit number in the first quarter, and it was lower in the second quarter, and we hold capital against that. So that's the reason for the lower New Business Strain. On the -- let's go through the CSM interaction here a little bit. And I want to call out -- and we'll do it at a group basis,…

We will now go to the next question. And your next question comes from the line of Michael Huttner from Berenberg.

I wanted to ask on the U.S. claims experience. Both of you can maybe split the mortality in the Long-Term Care. And you just said you didn't expect the mortality to remain this strong. So I just wondered if you can give some more granularity around that. So the numbers are -- I was thinking the numbers are lovely, but you, obviously, saying a lot going to carry on. And then the other question is, you did that Universal Life buyout program. Can you talk a little bit more about that? I remember it was a topic a little bit because I think you started it on the day of the Capital Markets Day or about then. And I was getting quite excited because you did similar programs in the variable annuities business. But I just wondered if it's done now and what more can be done -- just to get a bit more granularity around this.

Thank you very much, Michael. This is Lard. Just to clarify your second piece, is this also pertaining to what we disclosed today about the reinsurance transaction, the with secondary guarantees?

Yes, please.

Okay. So thank you very much. So on both questions, Matt, can I hand over to you?

Thanks, Michael. Yes. So on the first one on mortality, we have to look at it slightly differently between the way that it's reflected in operating capital generation and the way that it's reflected in the results for IFRS. But I think it's easiest to do it on the operating capital generation side. So we had a -- relative to our long-term expectations, we had about €34 million in the better claims experience on the mortality side and €1 million, so as I said before -- on the morbidity side. So as I said before, we had good claims experience, but the vast majority of it is sitting in the mortality result. One thing that you may want to think a little bit about when we report under IFRS 17, the way that we reflect mortality experience is somewhat different than the way that we had reflected it before. And here, we look at straight up basically the cash difference between our actual and our expected mortality based on our long-term management best estimate. And what you see in the first half of 2023, that it was basically €30 million worse than our long-term management best estimate expectations, which is actually not a lot given the size of the -- not a lot given the size of the book. One thing I would note -- or I would mention is that we did quite some assumption updates in the -- for the first half of the year. So what's going to happen now is we do our assumption updates as the last step in the process. We actually did some things from mortality, which would make our expectation worse. So what you're going to see in that experience variance number is that, that should be reduced now that we did…

And you can say a little about the SGUL as well?

Yes, I can talk about the SGUL deal. So -- I mean just let's frame it a little bit. So what we're talking about here is reinsurance of 14,000 policies representing about €1.4 billion of reserves. And I think as Lard has said in his opening remarks, that represents about 25%. So all the SGUL reinsurance we've done to date represents about 25% of the U.S. statutory reserves related to the block. Just to put it in perspective, it's also about 30% of the net amount of risk. So think of it as the face amount. So this transaction generates €225 million of capital and it's basically going to reduce the RBC required capital by about €50 million. Now importantly, it's also going to improve operating capital generation going forward because this block had a drag as the contracts get older and reserves increased, there was an OCG drag. So we'll get to see a benefit of about $25 million per year. But I got to tell you, that's all embedded in the Capital Markets Day expectations. We had baked all that in, but I just want to give you a framing for what that SGUL reinsurance deal does for us.

We will now go to our next question. And your next question comes from the line of David Barma, Bank of America.

Just to come back on what you just said about the OCG benefits from the reinsurance deal that you've announced today. So is that part of the €0.1 billion of additional OCG that you flagged at the CMD?

Yes, it is. Yes.

It is, okay. Okay. And then secondly, on the U.K., can you please talk a bit about the rationale for your recent extended partnership with Nationwide. And should we see this more as a retention tool for your existing book? Or is it part of a bigger strategy to increase advice, I take on U.K.?

Yes. Thanks, David. Yes, we're very pleased with -- I mean, your first question was answered by Matt, right? The answer was yes. So on the extension of the partnership with Nationwide Building Society, we're actually quite pleased with that. We have always been, for a very long time, the partner of Nationwide when it comes to their customers since 2016, right? We've been doing that for 2016. And what we did is basically provide access to our products advised by Nationwide's in-house financial planning service. Now this extended strategic partnership will continue, of course, will continue to be the provider of choice for the customers of Nationwide where it pertains to the ISAs and the general investment account. The providers will be the -- the provider will continue to be the provider of choice. But we're moving across the advisory teams from Nationwide Building Society. We moved that across to our side, which is actually playing to the strength of both partners even better. So this is really something that sets up and extends the partnership into the future, and therefore, it's something that we're very pleased that we were able to do.

And your next question comes from the line of Farquhar Murray from Autonomous.

Just 2 questions, if I may. Firstly, on the CSM roll forward on Slide 17. Please, could you just elaborate on the policyholder experience in the VA book. You mentioned lapse in utilization. But I just wonder if you can give us a little bit more color on which products are driving that in a sense of what's behind it and how it might develop? And then secondly, momentum in WFG looks solid in terms of license agents, but the multi-ticket one is slightly lagging that improvement. Can I just ask how long it is taking for a typically newly licensed agent to follow through into a multi-ticket one? And what kind of initiatives can you do to encourage conversion there?

Farquhar, I'm going to take your WFG question, and Matt will take the CSM roll forward. On WFG, yes, so we are in a -- we have said that we want to do a couple of things. We want to grow our agents to the 110,000 target by 2027, and we're well underway to get there. You noticed quite a nice increase year-on-year for that. And we also want to grow overall tickets and productivity of the agents. It depends a little bit on -- there's not 1 single rule for this on how long it takes from -- to move from a single ticket to multiple ticket agent. It takes time. I have to get back to you on how much time that exactly takes. But it's something that, that is not, let's say -- it requires a very targeted approach to make sure that the agents become more and more productive over time. We have seen this productivity improvement. We are measuring it, and we're reporting on it. So you can continue to see the progress in the near future. On the CSM?

Yes. So I'm looking at Slide 17, where you directed me and just to level set everybody, we see the minus €163 million and the CSM balance and on the right to see that it's related to U.S. Variable Annuities and Individual Life. It is generally related to on variable annuities. It's poor surrender experience and benefit utilization experience. And on the Life side, there is a little bit of a mixed bag of persistency and mortality in there. One thing to note is that I think we're all going to have to get used a bit to the geography of these things. So for example, on the variable annuity side, you have these experienced variances that are hitting the CSM, and that's in contracts that have CSM, which is mainly withdrawal benefits historically written -- withdrawal benefits rather than like the IB and DB business that we have, which doesn't have a CSM. So you see experience variances there going through the P&L rather than CSM. But if you call in IR, we can give you a little bit more detail on that one.

We will now go to the next question. And your next question comes from the line of Iain Pearce from Exane.

Just a couple on the CSM. Firstly, thinking about the CSM walk, I'm guessing you expect that the size of the decline on a normalized basis to be slowing. The expectation is that new business will be growing in its contribution towards CSM and the release of the CSM to shrink as the 80% in runoff declines. I'm just wondering on the sort of time frame of how long you expect that CSM to be declining for and if you expect a gradual switch over of new business becoming bigger than the runoff of the CSM? And if there's any sort time frame for what that might look like? And then the second one was just on the assumption changes that are made in CSM, flagging some deteriorating assumptions in Long-Term Care. Just wondering if this means that sort of profitability has declined in the Long-Term Care business? So I guess that would be quite surprising given the sort of rate creates that you've been putting through there and the sort of favorable morbidity experience that you've been having recently. So just those 2 questions [indiscernible], please.

Yes. Thank you, Iain. So, Matt, over to you.

Yes. It's hard to give a bit of a time frame on the -- on where we're going to get a crossover point where we get the new business added in CSM to cross the release of the release of the CSM, but it's certainly not in the short term or the medium term. The way to think about CSM release and just to kind of stick it in your models when you're starting to model this stuff, it's really -- what we're looking at is somewhere between 8% to 12% of the beginning balance of the CSM to be released every year and you can kind of walk that down. But I know it's not a perfect answer for now, and we'll come back with something a bit later on that one. With respect to the assumption changes on Long-Term Care, let's recognize what we're actually doing here. So you have it exactly right that in the CSM roll forward, you're seeing a big reduction in CSM as a consequence of the -- removing the morbidity assumption and increasing the inflation assumption. And that is only partially offset by the increase in the CSM as a consequence of the premium rate increase program that we're putting in. Now profitability, here's the thing. Had we not removed that morbidity improvement assumption, we could have, if we don't see morbidity improvement coming through, we would have seen a drag in that experience line for the block. Yes, you are right, we've had good experience for it in the past, and it's -- we expect that to continue in the future. But right now, by removing that morbidity improvement assumption to the extent that morbidity improvement actually improves, we're going to see that as good guys in the experience adjustment going forward. It's also -- and it's difficult to connect these 2, but you can imagine that we always do actuarially justified premium rate increases and part of that actuarial justification is the fact that we have removed the morbidity improvement assumption and increase the inflation. So what we would expect to see in our experience results going forward, if anything, it's going to be good guys rather than the possibility that future bad guys occur, if that kind of makes sense.

We will now go to the next question. And your next question comes from the line of Nasib Ahmed from UBS.

The first one on ULSG, generally. So you clearly have a drag. You've got €25 million on the block that you've reinsured. Is there anything you can do on the assumptions there similar to down on the Long-Term Care morbidity on persistency or mortality to make sure that, that drag is zero and take a hit on the stock of RBC ratio? That's the question one. And the second one is on the capital release from the reinsurance transaction. That's only €50 million of the €4.1 billion. I think you mentioned a few actions at the CMD that you could take to unlock further up to €4.1 billion. Are there any more actions that you're considering anything to update on versus the CMD?

So, Matt?

Yes. So the short answer is that there are additional management actions that we can do, either unilateral or bilateral actions as we said at the CMD. We also consider the potential for additional third-party transactions, but we're not going to comment on those at this moment in time. One of the questions that we sometimes get is we've now got approximately 25% of the stat reserves that are -- that have been part of reinsurance deals in the past. The question is, well, why don't you do another one? Well, we can do those. But we try to attack the blocks bit by bit. Every cohort, every issue year can be slightly different in terms of the character. So we were going to whittle away at this over time. I would not expect 1 giant reinsurance transaction. We've been successful in the past, and we expect to do that going forward to attack these blocks 1 bit at a time. But this last SGUL reinsurance deal was a very, very good one for us.

We will now go to the next question. And your next question comes from the line of Ashik Musaddi from Morgan Stanley.

Just a few questions I have. First of all on -- a bit of clarity on this reinsurance transaction. So how do we think about this ERU 225 million? Is this just like a €50 million release capital x4, which is ultimately freeing up the own funds that can be used? Or is it €50 million is the own funds released basically because of the SCR reduction and then on top of that, you have generated €200 million? That's the first one, a bit of clarification. Second one is, if I look at the U.S. holding company, there was a 20% drag in first quarter from the RBC calibration to the holding company calibration, but now that's 28%. So what is that 8% extra? And how does -- how should we view that? I mean does it matter from a capital perspective or we should just ignore what's going on in the U.S. holding company? Or do you need to fill it back if you have used it up something in that bucket? So that's the second one. Third one is, I mean, the CSM, I mean, how do we think about the CSM? Do we need to care about the CSM because see if we need to care about this, then there is a bit of a concern because if CSM is going down this fast, I mean if I look at first half, your CSM balance went down by 10%. And if we use 8% to 12%, whatever 10% release of CSM, then the CSM release, which is ultimately earnings, earnings are coming down by 10% every year for the next many, many years to come. That will be offset by your noninsurance business, WFG and Retirement, but probably that's not as big as the decline in CSM. So do we need to care about the CSM and these one-off items. There are so many negative one-offs. Do we need to care about those as well? Any visibility whether there are more in the future as you keep restructuring the book or -- that's 1 question I have is, how do you think of the CSM? Sorry, it's a bit broad question...

No, that's okay. So these were your questions, Ashik. Then I hand over to Matt.

Okay. Let's first break down the -- so the reinsurance transaction, we'll break down the €225 million for you. So basically, on a U.S. statutory basis, we have a gain on the transaction. We had a gain on the transaction. That amounts to about €355 million. We also had to -- because we had to transfer assets to the reinsurer, we took losses on bonds in order to be able to fund the transfer of assets and the losses on bonds were about €180 million. And then the balancing item here would be the release of the RBC required capital of €50 million. So hopefully, that answers your question. The second one related to the U.S. holding company, and I think you pointed out that in the, let's say, the normal conversion of our RBC ratio to our group Solvency II ratio, we had a few differences because there are some things that are happening, again, outside of the regulated entities, but they are happening in the holding company. So there are a couple in there. You may recall -- the first one is you may recall in the -- at the Capital Markets Day, we signaled that there was a -- that we were going to restructure an earn-out agreement with one of these WFG founding agents. And that -- so that has an impact on the holding company, which would not have been reflected in the RBC ratio. If you combine that with a couple other ones, there was also an impairment of -- I think it was a software asset that was sitting on the balance sheet at the holding company, and that was related to the project to bring in the TCS -- previously outsourced business into us. And then there was a contribution to the…

That's very clear. Just 1 follow-up. Is there any RBC benefit from this reinsurance transaction that we should care about?

RBC benefit, well, it's -- you will see the onetime capital implication coming through the results. But the important thing is here is that there'll be a benefit on the SGUL reinsurance but then we intend to use some of that in the purchase of institutionally-owned Universal Life contracts. So I would not put a plus in the column for RBC ratio.

Perfect. That was very detailed and clear.

We will now go to our last question for today. And the last question for today comes from the line of Michele Ballatore from KBW.

Yes. The first question is about the growth in U.S. Individual Life, which, of course, was strong. I mean, what kind of -- how should we think about the development in profitability from this growth? I'm talking specifically about capital generation. And the second question is about the Asset Management. Obviously, not a great half year, but I mean what is the outlook there? Or what kind of actions you're taking? And in general, what is the outlook for this segment specifically?

Yes, Michele, thank you very much. I'm going to talk a bit about the Asset Management business, and then I'll hand over to you on the profitability of the Individual Life segment to Matt, in the sales, there. On Asset Management. If you look at the half year, Asset Management is confronted with a number of reality that it needs to adapt to, right? I mean, over the last -- if you look at the year-on-year, we've seen, of course, quite an increase in rates, which have a large portfolio of fixed income investments that are your assets under management, you're obviously going to have an impact for the -- in the fees that you're generating. But also noticing, as I said opening remarks in China, given the, let's say, wobbly economic environment in China and the investor sentiment, which is not very conducive that we saw on the third-party business there of €60 million outflows. And so it's partly the environment, but that's a reality. So we got to adapt to it, right? So we adapt to it in 2 ways. First of all, we are reducing expenses. We are seeing that coming through already in the first half year. Did not, of course, completely offset the loss in revenues, but we continue to drive more expense reductions and we have plans for that, which we are currently executing. It's underway. It's already visible in the first half year. But you will see more of that coming through in the future. That's number one. The second piece of adaptation has to do with the focus that we have on those investment strategies that we believe are the strategies that we have a competitive edge and can compete successfully in the future. And those are alternatives fixed income strategies, real asset strategies, the CLOs, et cetera. And we're not only focusing on that in our sales efforts in getting new mandates in, but also, we actually have acquired a CLO platform, a CLO team to strengthen our CLO platform. We have expanded in the LBPAM, so La Banque Postale Asset Management business to also strengthen the capabilities there, and we will continue to do so. So it's adapting to a new reality, expense reductions and efficiency and focusing on those strategies that have -- that we have a competitive edge in, and increasing those capabilities and that attracts usually higher basis points over the assets managed. Matt, Individual Life.

So first, let's talk about the manufacturing side of this, which is I think where the question is really coming from. So what you've seen is, as Lard has said in his remarks, we have seen good growth in Individual Life sales in the U.S. We like that. We are seeing consistently increasing New Business Strain, which we also like. Why do we like that? Because we've been able to maintain price IRRs of greater than 12% on the overall Life book. So this is a business that is extremely profitable. We like to write a lot of it. We're doing more and more of it at younger ages. So this is extremely good business and it's -- so that one goes extremely well. The other one that I always mention is that the manufacturing is one side of the business. We also have the WFG as a distribution channel within the U.S. So capital generation and WFG is through really just distribution type earnings, which are also increasing in line with sales and even a little bit of a leverage effect there. So -- and on the Life side in the U.S., we are making some very good progress, able to maintain our pricing margins and you see things go generally in the right direction.

Thank you. This concludes the Q&A session. I would now like to hand the call back over to Hielke Hielkema for closing remarks.

Thank you, operator. This concludes today's Q&A session. On behalf of Lard and Matt, I want to thank you for the interaction. If you have any remaining questions, please do get in touch with us in Investor Relations. Thanks again for your participation in today's call, and have a good day.

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