Good day, and thank you for standing by. Welcome to the Aegon Second 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, Yves Cormier, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning to everyone. Thank you for joining this conference call on Aegon's second half year 2023 results. My name is Yves Cormier, and I'm the Head of Investor Relations. Joining me today are Aegon's CEO, Lard Friese; and CFO, Matt Rider, to take you through the highlights of the year, our financial results and the progress 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.

Good morning, everyone, and thank you for joining us on today's call. I will run you through our strategic and commercial developments before handing over to Matt, who will run through the financial results in more detail. Let's move to Slide number 2 to review our achievements in the second half of 2023. 2023 was another important transformational year for Aegon. During the year, we completed the transaction with ASR, initiated a significant share buyback program, reduced our gross financial leverage, presented our ambitions for the coming years at our Capital Markets Day last June and moved our legal set-up to Bermuda. At the same time, we have remained laser-focused on improving returns from our businesses and generating value for shareholders, which we will continue to do. The second half of 2023 saw Aegon maintained commercial momentum, mainly driven by the strong performance of our U.S. business. We have exceeded our financial commitments for 2023 and remain committed to our targets for 2025. I'm very proud of everything the teams have achieved in 2023, and I'm grateful for all of their hard work during the year. We will continue to work hard executing our strategy in 2024 and I am optimistic about our prospects. In the second half of 2023, operating capital generation before holding funding and operating expenses was 16% higher than in the same period of 2022. Earnings on in-force rose by 16%, driven by business growth in U.S. strategic assets and management actions we have taken on the financial assets. Over the full year 2023, operating capital generation before holding funding and operating expenses was 14% higher than 2022 at nearly EUR1.3 billion, well above our guidance. The IFRS operating result decreased to EUR681 million in the second half of 2023, due in part to the impact…

Thank you, Lard. Good morning, everyone, and thanks again for joining us today. Let me start with an overview of our financial performance over this last half year, beginning on Slide 10. In the second half of 2023, the IFRS operating result decreased by 32% compared to the prior year period to EUR681 million mostly driven by the performance of the U.S. The operating result, however, should be interpreted in combination with other movements in the balance sheet under IFRS 17, such as the CSM and shareholders' equity. On a per share basis, shareholders' equity has remained stable over the period despite material distribution of capital to shareholders. At the same time, we are seeing good results in the financial metrics on which we primarily steer the business. First, our operating capital generation before holding funding and operating expenses increased by 16% over the second half of 2023, coming in at EUR660 million. This brings the full year amount to EUR1.3 million above our guidance. Free cash flow was strong as well in the second half of 2023, amounting to EUR429 million following the receipt of planned remittances from all units. Cash capital at the holdings stood at EUR2.4 billion at the end of December 2023. Proceeds from the ASR transaction and the remittances from the units were partially offset by capital return to shareholders and the redemption of a EUR500 million matured senior bond. This redemptions means that we have also achieved our target of having a gross financial leverage of around EUR5 billion. The group solvency ratio decreased by 9 percentage points since the end of June of 2023 to 193%. The impact of the ASR transaction associated share buyback and the incorporation of our stake in ASR were in line with the guidance we had previously provided.…

Yes. Thanks, Matt. Let me wrap up to today's presentation with Slide number24 before we move to Q&A. Aegon is fully engaged fully engaged in this next chapter of its transformation. We are moving forward with our strategy. We have concrete plans and are delivering on the commitments that we have made. Operating capital generation growth was strong in 2023 on the back of profitable business growth in our U.S. strategic assets and management actions previously taken on our financial assets. The operating results declined in part from dimension actions, which benefited capital generation as well as nonrecurring items in 2022. Commercial momentum remains strong in our U.S. strategic assets, the U.K. Workplace business and in our international joint ventures. Macroeconomic conditions remain actors in our U.K. Retail business and Asset Management businesses. The final dividend we proposed will bring the full year 2023 dividend to EUR0.30 per common share, in line with our guidance and on our path to a EUR0.40 dividend per common share in 2025. And finally, I'm turning to Slide 25. We would like to take this opportunity to invite you to attend the webinar on the strategy of our U.K. business set to take place on June 25 of this year. I'm looking forward to your participation at this event. And with that, I would like now to open the call for your questions. [Operator Instructions] Sharon, please [indiscernible] to open the Q&A session.

[Operator Instructions] And your first question comes from the line of Andrew Baker from Citi.

The first one is just on the operating capital generation. Really how much conservatism is built into the EUR1.1 billion 2024 guidance? [Indiscernible] we've seen a few quarters in a row now of positive one-offs, interest rates are now higher. And my understanding is that all the interest rate benefits were in the 2023 based Q2. So liquidity constraints and also received the S&P's rallied recently as well. So I guess, why should we expect that EUR1.1 billion to be higher in 2024? And then secondly, just on the long-term care risk transfer market. You've seen a period to a back book transaction in December. I appreciate there's mix differences and there were other products involved in that transaction. But do you see this as a positive signal for the wider long-term care risk transfer market going forward?

Yes. Thanks, Andrew. This is Lard. Let me take that last question and then give it back to Matt on the OCG. It was -- of course, we've taken good note of the transaction you're referring to in the U.S. But these transactions are all unique in their own nature with their own details. So while it's an interesting signal and we're watching the space very carefully, I cannot really comment on the -- on that in a broader sense. When it comes to the OCG, Matt, over to you.

Yes. Let me take you through a bit of the puts and takes, at least for the second half of the year. So what we reported was EUR306 million of OCG from the business units, and this was a beat relative to the analyst consensus. The main driver of this was some basically onetime benefits that we got from International. The results in the U.S. were actually pretty clean with some unfavorable mortality experience basically offset by other items, morbidity and favorable operating items. But in general, the U.S. was pretty clean. So if you think about -- you're coming to about a clean number of about, let's call it, EUR275 million for the quarter times 4, that gets you to about EUR1.1 billion, and that's effectively what our guidance is. There are a couple of pluses and minuses going into 2024, though. The first is that we do have some tailwinds. The equity markets ended up pretty high at the end of the year, and we generally do better on OCG with higher asset bases and the like. But the key thing here is that we would expect to see some additional new business stream over and above what we saw in 2023 and that kind of brings you back into that EUR1.1 billion range. I would say it's really the increase in the new business stream that's really driving the EUR1.1 billion forecast.

And your next question comes from the line of David Barma of Bank of America.

The first one is on remittances for the U.S. specifically. Could you please remind us what the trajectory is in terms of cash remittances there? I know you have a dollar amount target, but in the strong capital position and the sensitivities keep coming down. Is there any reason for you not to be able to remit more than the around 65%, 70% conversion of capital generation that you have currently? And then secondly, on retirement plans. So you've had good growth in your assets under management there over ‘23 and especially on the middle market segment. But the earnings distribution you show on Slide 5 has gone down. So could you remind us what the main building blocks are to get to the into EUR100 million target for 2025?

Thank you, David. Matt?

Yes. So on the remittances back at the Capital Markets Day we did just this past June, we said that we would try to grow the U.S. remittances in a sort of a mid-single digits kind of a range. And we would not expect to vary off of that. We did -- I think we took $550 million in remittances in 2023. So mid-single digits on top of that, that's what we would be expecting in 2024. I think the key thing here is that we really won our business units and obviously, including the U.S. to have enough capital to be able to invest for growth. And that's the big deal. They have a big transformation that they need to fund and we do expect higher new business stream going into next year. So at this moment in time, we would not expect to take out any additional remittances, let it sit there. They have plenty of uses for it that we're actually very, very happy to be able to achieve. On the Retirement Plans business, indeed, the operating result is down a bit. The building blocks are really the amount of money that we take off of record-keeping fees plus ancillary benefits plus other bits and, for example, general accounts stable value. We have seen some outflows overall in the Retirement Plans business. Our aim is actually to keep the AUM pretty stable over the planned projection period and really make up in the margin difference with these ancillary benefits. So those are the building blocks, but you can call Investor Relations for additional detail on that.

Just one follow-up on your first question to Andrew on the interest rate benefit in '24 in OCG. How much do you expect from that? Do you still have funding headwinds? Or do you get the full benefit of your reinvestment...

I would say in the near term, we're not going to see much of an impact from interest rate movements. I mean, the big thing for us in all frankly, all insurance companies over the last 1 year, 1.5 years has been more the volatility in interest rates and having to manage liquidity around that. So in the short term, we have pluses and minuses. So on the plus side, we're making more on, for example, cash balances in the U.K. business, cash amounts that are sitting on the platform there. We're making more on cash balances generally in the holding and you see that in our holding and funding expenses. But we have increased funding costs that we would be expecting in the U.S. business and at the holding over time. So there are a bunch of puts and takes for the, let's say, for the near term. But fundamentally, longer term, and we see this in our very long-term projections, cash flow testing forecasts and the like. The up interest rate environment having come off the bottoms in 2021, are actually very, very helpful for us moving forward.

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

First one on the holding company cash. I mean, it's pretty strong, but you've got a bit of the share buyback to go. And I think you've indicated you want to trend down towards the midpoint of the target range. So that gives me more than EUR1 billion of excess, if I kind of roll it forward. What are your uses of this excess cash that's sitting at the holding company? That's question number one. And then the second one is on the Bermuda Reinsurance entity. Could you bundle up some of your liabilities, put it in the reinsurance entity and go for a third-party solution? Would that be more attractive than doing it one by one? I'm just thinking if that's part of the plan because the fixed annuity reinsurance really release a lot of capital. So just thinking about that entity going forward, what's the plan for that?

Yes, Nasib, thank you very much. I'll take the first one, and I'm going to ask you, Matt, to do the second one. Yes. So first of all, we're in the market completing -- working hard to complete the EUR1.5 billion buyback that we have ongoing. And as we shared in the call, we still have roughly 24%, 25% to go. So first, we're concentrating on that. And so this means also that we will be buying back a substantial amount of trading volume in our own shares. As you know, we have a clear capital management framework and that has been consistent throughout the years. Should there be surplus cash capital above and beyond what we need to execute on the transformation as a company, we cannot invest in value-creating opportunities, then we will return it to shareholders in the most efficient form. That's been a consistent approach that we have and we're not changing that.

Yes, let me pick up the review to reinsure piece. So indeed, we saw this reinsurance entity in Bermuda. We reinsured the block of fixed deferred annuities to about $4.6 billion. But the reason why we do that is to align the, let's say, the capital framework for fixed deferred annuities with our economic view of the risk. So moving these liabilities for Bermuda and the separate entity has allowed us to do this. And as you said in your question, this does not release a lot of capital, but what it does do is that reduces potential capital volatility down the road. That's part of -- one of the things that we're trying to achieve as part of the management of these financial assets. I think you would agree that we've been pretty successful so far. We've been executing management actions to be able to do this. There will be further management actions. There's no question about it. We always say that we anticipate taking other unilateral and bilateral management actions and really establishing the Bermuda entity gives us a little bit more flexibility, but we're not in any way talking about announcing anything right now, but it does give us some flexibility to execute on management actions, just as we have done that in the past.

Thank you. We'll move to the next question. And your next question comes from the line of Farquhar Murray from Autonomous.

Just two questions, if I may. Starting with the commercial side. I just wondered if you had a target for agent recruitment of WFG this year on your path to 110,000. I presume actually something that similar is kind of needed this year again. And then more generally, how much do you expect new business strain to increase this year? And is that partly driven by that? And then the second question might be a bit more involved. That's actually just turning to IFRS 17 operating results. I just wondered if you could maybe walk us through to a sensible run rate there. I presume the bridges take the kind of claims and policyholder experience part of the expense variance maybe fade down the holding that I think I would be annualizing in about maybe EUR1.6 billion, EUR1.7 billion per annum. But obviously I would appreciate your views on that.

Yes. Targets. So on the path to the 110,000, yes, we have internal targets, obviously. But we are at the slope that we -- I think if you look at a longer period than just the period that we disclosed today, so I think you need to get to a formal presentation that we did. You will see that we are on the slope to get to 110,000 by 2027 and by 90,000 by 2025. So that's what we're tracking towards and we're well in the slope to get there. So 90,000 for 2025. And then two years later, we indicated 110,000. We're right now at the end of the year at 74,000. And if you then go back, you can see that we're -- the slope that we're on is actually pretty well on track, I would say. With that, Matt, the question on IFRS.

Well, first, let's do the new business stream. So maybe just as an idea. We did -- I think it was about 6 to 24 something like that in the full year in the U.S. for new business strain. I think you could think about something like a EUR700 million roundly as a pretty decent guidance. With respect to the IFRS operating result guidance. Yes, we would expect that a lot of those experience variances are going to be trending to 0 over time. I would say something in the area of maybe EUR700 million to EUR800 million for a half year basis, so maybe a little bit lower than the number that you came up with on an annualized basis. But the one thing that we tend to think about is we're coming out of COVID, so is there going to be some continuing short-term mortality fluctuations. So we kind of have some of that built in there. But that's the way that we're thinking about a run rate based on the second half results.

Okay. That's extremely helpful. Just as a follow-on on that, I mean, is there a time frame to which you kind of expect that mortality element to drop out? And similarly, is there -- what's the dynamic behind the onerous contracts component as well?

The onerous contracts, there's a number of things that are going on in the onerous contract component, and that's just a geography thing between how you split up the experience variances between the income statement basically CSM. So I hope you're listening carefully in the -- when I did my little readout here, many of the experience variances that you're seeing are actually offset in the CSM. So you also have to look at the CSM development. As for how long we would expect to see us come out of it on the mortality side of COVID, I don't know. These are expert judgment kind of things. But the most important point that I would make here is that our goal is to get those experience variances so that they average out at 0 and we get pluses and minuses. If we have long-term -- longer-term deviations, then that we can potentially do small model updates or assumption up to date. But we're always going to be tweaking the assumptions to try to get back to that mean of 0. But for right now, they seem to be more or less in line with our expectations. We see the big benefits coming through in CSM. We'll do our normal assumption update in the second quarter of next year for the U.S. business. So we'll see what that comes. But a lot of this really that coming out of the COVID environment is really is an expert judgment, and I could ask actuaries on what they think it is, and I would get 6 different opinions, including mine, by the way.

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

Just a couple of questions I have is, first of all, I mean, if I look at the flows momentum, especially in second half versus first half, it appears to be drifting down in most business lines, I mean, such as Retirement Plans, it was quite low, U.K. Workplace, Retail Asset Management. I mean, whenever I look at the flows momentum, net flows, net deposits was quite different. So any color on that you can give is it seasonality or just like second half macro last year. Or put it like this, I mean, can we get some color of what's -- what are you seeing year-to-date because macro has recovered, et cetera so as things got better again. So that's the first one. And secondly, I see that there's a big assumption change benefit in the CSM release because of changes in future life operating model. Can we get some color on what assumptions you're using for this changes in life operating model? And what drove that in second half instead of that happening in first half? Because I believe that you were already there with the plans in first half last year. So any color on that would be helpful.

Yes, Ashik, thanks for your question. I'll take the first one, and then Matt will go on the essential take benefits. So on the flows, we've got to do this line by line, Ashik, or [indiscernible], if you don't mind. So first, the Workplace Solutions business in the U.S. As we have announced at the Capital Markets Day, we are focused on the mid-market plans. So in that sense, we're quite focused in a particular market segment where we believe we have -- it's more attractive to us in terms of margins and also where we believe we have unique capabilities that can help us grow the business. And in fact, if you look at the new sales, it's 72% higher than the year before. And the -- we are the top player in that new sales. So that's number one. Number two, in that area, we have positive flows, EUR1.2 billion for the year. So in the target segment that we are really focused on, we're seeing actually the momentum is very good. Now why did we do that? There's one thing, by the way, to mention. The other thing to measure is the ancillary products that we are able to sell to improve the margins. So you may recall why that is important because at the Capital Markets Day, we outlined that the margin per participant, which we were able to, I think, which in 2020 and '22 to double. That's driving, let's say, the sales of general accounts stable value, the other ancillary sales like individual retirement accounts, et cetera, in these big market plans that will drive the profitability overall up. So I would say that strategy is really taking hold and coming through in the numbers. Now it's offset by outflows. And you've seen outflows…

Yes. On the expense assumption update, and in particular, the life operating model, indeed, we knew the -- so back when we did the Capital Markets Day, we had, had it all figured out kind of what our plan was to implement that improvement and what it would bring over the future. But what we did at the same time, as we said, let's change our cadence of doing the expense assumption update in the U.S. Previously, it had been done in the second quarter. Now we do it in the fourth quarter exclusively so that we can take advantage of our normal budgeting process. So there are really two things going on. Yes, the life operating model. We did what we intended to do, but also we did a pretty big activity-based costing study during the course of the fourth quarter, where you see expenses -- obviously, the lower expenses per policy reflected in -- on the strategic asset side of CSM thing that you see on page -- on Slide 16 of the deck. So there's elements of that, but also there was more expense allocated to the financial assets, and you see the negative impact the CSM on that side of it. In addition, there has been some more expenses allocated to Noninsurance businesses, which will roll through on an as-incurred basis. But the whole rationale is really to leverage on our budgeting process in the fourth quarter and we will continue to do that in the future.

We will now take the next question. And your next question comes from the line of Henry Heathfield from Morningstar. Please go ahead.

Just two from me, please. On Slide 5, just the lower earnings on in-force from higher expenses. Those expenses being related to, I think, investments in information technology and employees. It sounds like you're looking to kind of continue to grow that U.S. Retirement Plans business even further. I was wondering if you could just talk a little bit about that, so I can get a bit more color on those higher expenses. And then the second question is really great to see that you're hitting your financial targets. But I was just wondering if you could talk about -- I mean, I think it goes back to a question earlier about the volatility you have accounting earnings and the time frame that we might get to lower volatility within these, we have kind of a new accounting regime that should match the two kind of economic earnings and accounting earnings and it seems that there's still a lot of volatility. So I was wondering if we might get some color on kind of time frame of smooth earnings projection.

So on the lower earnings, [indiscernible], I think in the notes, we talked about higher employee expenses and higher technology expenses. Technology expenses or improvements that we're making in the customer and frankly, the employee employer sponsor proposition. The expense -- the employee expenses is a pretty simple one. The business performed very well during the course of the year. We did have an increase in incentive compensation accruals that went through those folks. With respect to the volatility of accounting earnings and when that could get a timer. I want to be very clear on this. So the first part is on the operating result we will see, over time, let's say, a convergence of those experience variances, hopefully to zero. How long will that take? You'll never hit it exactly, but we want to get it into a place where we're more pluses and minuses. And it's not going to take 5 years to get there. It will just -- you'll be able to see it in our published results every half year. So we'll get there in pretty short order. But the more important thing, and I really want to emphasize this, is that under IFRS 17, the operating result does not tell the entire summary. You really, really have to look at the development of shareholders' equity, and you have to look at that CSM development. So like we said in the slides that the shareholders' equity before for the distributions to shareholders increase $0.04 over the period despite the zero net income. So there's a good guide that's coming through the balance sheet through other comprehensive income. And that's kind of the number that you really want to focus yourself in on. In addition to the CSM development and the CSM development was pretty amazing, so that, that thing increased, I think, if you do it on a share -- per share basis increased 9% over the course of the half year. So we really have to look at the things in conjunction. It's really the entire balance sheet together with the movement in the CSM and that gives you the sort of the full IFRS 17 picture.

Thank you. We will now take our final question for today. And your final question for today comes from the line of Steven Haywood from HSBC.

Can I follow up on the previous question, and you talked about obviously focusing on shareholders' equity and CSM. So going forward, are you trying to say that for the most consistent approach looking at the company going forward, we should look at a sort of comprehensive equity per share development over time. This kind of goes against the fact that, obviously, a lot of your CSM business is running off and you're taking on board more fee-based IFRS 9-type business, I guess. Can you sort of discuss around this? And then secondly, within your original guidance for OCG, the CMD, you said that obviously new business strain is increasing going forward. So I wonder whether the increase in the new business strain has changed at all in your updated guidance analysis is the same? And is there anything else that's changed in your updated -- and then finally, just on the debt leverage side of things quickly on you expect further changes to your debt leverage going forward? Obviously, you have quite a few floating rates out there. Would you look to convert them across the fixed?

Thanks, Steven. Matt?

Very happy that you asked that question, in fact, because when we look at shareholders' equity and the development of it, you really -- a lot of it is taking into account the insurance books of business, the insurance book of business, but we have other businesses that are not insurance-based and don't have much of an impact on shareholders' equity. So we have WFG that made like EUR160 million pretax this year. We have the Asset Management business. We have the elements of the Retirement Plans business in the U.S. that is not insurance based. We have a lot of the U.K. platform business. So that's a valuation question. You're going to have to evaluate that. But in general, that shareholders' equity, the movement in the shareholders' equity is important. But it's not a question if you can translate our share price into x book percent of book value per share. There are many other things that are coming in there, and we would hope to improve our disclosure starting next year or this year rather, to be able to highlight some of those businesses better, but that are noninsurance businesses. So that's a Q1. On the CMD guidance, I talked before, we're looking at something like EUR700 million round numbers, new business strain for 2024 in the U.S. That's the number that was effectively communicated at the Capital Markets Day back in June. So we're not changing that one at all. With respect to the leverage, so we're sitting at EUR5.1 billion after having gotten rid of the EUR500 million senior in December. But we did announce in the press release that we are going to be calling the EUR700 million Tier 2 security in April of this year, which we will refinance, but we can't talk much about how we're going to refinance or what we're going to do there. So the point is here that we're always going to be making economic moves in that stack to take into account the, let's say, the interest of shareholders, the interest of bondholders and the economic environment. So we'll make at tweaks along the... But I guess the more of the story here is that in the main -- our deleveraging is pretty much complete now. We got it down to about EUR5.1 billion. That's good. And we'll tweak along the way, but nothing significant.

Thank you. We have no further questions. I would like to hand the call back over to Yves Cormier 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 your attention. Should you have any remaining questions, please do get in touch with us in Investor Relations. Thanks again, and have a good day.

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