Good day and thank you for standing by. Welcome to Aegon’s Second Half 2024 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 everyone. My name is Yves Cormier, Head of Investor Relations, and I would like to welcome you to this conference call on Aegon’s second half 2024 results. Joining me to take you through our progress are Aegon’s CEO, Lard Friese; and CFO, Duncan Russell. 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 I now would like to hand over to Lard.

Thanks, Yves, and good morning, everyone, and thank you for joining the call today. Let me start today’s presentation by running you through our strategic and commercial developments before handing over to Duncan to address our financial results in more detail. Let’s move to Slide 2 to review the highlights of the year. In 2024, we made good progress with the transformation of Aegon and are on track to meet the 2025 targets. I will begin by highlighting some of our key financials. Starting with IFRS, we reported an operating result of nearly €1.5 billion over 2024, which is in line with last year’s results and with a clear improvement of claims experience following our assumption updates in the first half of 2024. Aegon reported operating capital generation before holding and funding expenses of €1.2 billion in 2024, in line with the guidance we provided. We also met our guidance on free cash flow, which came in at €759 million. Based on this progress, we proposed a final dividend of €0.19 per common share, which would bring the full year dividend to €0.35 per share, which is an increase of 17% compared with 2023. We also returned €1.4 billion of capital to our shareholders during the calendar year in the form of dividends and share buybacks. And furthermore, we are currently executing an additional €150 million share buyback program. These are testimony to our commitment to generating attractive returns for our shareholders. Turning now to our strategy and commercial momentum, I am also pleased with the progress that we have made. In the United States, we are building Transamerica into America’s leading middle-market life insurance and retirement company. World Financial Group, our affiliated insurance distribution network, continues to attract new agents and grow its business. In midsized retirement plans, we…

Thank you, Lard. Good morning, everyone. Let’s turn to Slide 8 for an overview of our financial performance. In the second half of 2024, the IFRS operating result increased by 14% compared to the prior year period, mostly driven by the Americas reflecting business growth in all 3 strategic asset segments. Operating capital generation before holding, funding and operating expenses was flat compared to the second half of 2023 as elevated required capital release was offset by higher new business streams. Free cash flow amounted to €385 million, following receipt of planned remittances from all units and including the capital distributions from a.s.r. Cash capital at holding stood a €1.7 billion at the end of December. The decrease compared with the balance at the end of June was driven by €728 million of capital returns to Aegon shareholders. Valuation equity, which consists of the sum of shareholders’ equity and the CSM balance after tax, on a per share basis, increased by 9% to €8.91 over the reported period. Gross financial leverage increased slightly to €5.2 billion following FX movements. And the group solvency ratio decreased by 2 percentage points since the end of June to 188% at the end of December 2024. Let’s now move to operating results, Slide 9. The group’s operating results increased to €776 million, driven by the U.S. Strategic Assets and Aegon Asset Management. In the U.S., the operating results increased by 15%, reflecting business growth in the Strategic Assets. The increase was partially offset by lower operating profit from Financial Assets as these blocks continue to shrink. In the U.K., the operating results decreased by 2%. Higher revenues from business growth and favorable markets were offset by higher hedging costs and lower interest income on own cash. In our International segment, the operating results decreased…

Thank you, Duncan, and let me recap today’s presentation with Slide #21. Looking back in 2024, I am proud of what the teams in our company have achieved, and I’m grateful for their very hard work. We have made significant steps in the transformation of Aegon, but the work is not done. We will remain laser-focused on executing our strategy and delivering on our commitments. We have met the financial guidance we previously presented to you and remain confident that we can meet our targets for 2025. We are growing our Strategic Assets, and we’re reducing our exposure to Financial Assets step-by-step. You can see this in our CSM development but also in how the quality and quantum of capital generation is shifting towards our more profitable and attractive businesses. Although we will speak before then, I look forward to providing you with an update on our strategy and new group targets at our next Capital Markets Day on December 10, 2025, in London. With that, I would now like to open the call for your questions. [Operator Instructions] Sharon, please be so kind as to open the Q&A session.

Thank you, sir. [Operator Instructions] Thank you. We will now go to the first question. And your first question comes from the line of David Barma from Bank of America. Please go ahead.

Good morning. Thanks for taking my questions. Can we start with the operating capital generation, please? And could you help me understand the moving parts leading you to reiterate your 2025 guidance? So maybe if you can run through the main building blocks and the offsetting factors to the pressure you are seeing in China?

Okay. I think – David, it’s Duncan here. Your question is around the guidance for next year, which, as you say, has been reiterated. So it’s very – simply, if you multiply our 4Q actuals and the underlying by 4, you’re getting to a run rate of around €1.2 billion currently, which is in line with our guidance. Compared to the original Capital Markets Day guidance, we have benefited from higher equity markets than assumed and from the dollar strength. So we’ve had some favorable tailwinds helping us. And in fact, if I look at our business units, I think the U.S., the U.K. and the Asset Management business are all running slightly favorably compared to the targets at the Capital Markets Day, reflecting those tailwinds with some offsetting headwinds. But the International is an offset, as you pointed out, and that’s running weaker than we originally assumed, which is mostly due to China. And if I go into the specifics, we have the tailwinds of the equity markets. Within the U.S., we have the drag from mortality. If you recall, we updated our mortality assumptions, which we reflected in IFRS but we have to take, over time, in OCG. But despite that, we think the U.S. is running quite well. But offsetting at the group level is the International business, where China is anticipated to be around €50 million lower in 2025, and that’s mostly due to the low interest rates, where we have a drag coming through as we have to amortize basically the difference between the assumed regulatory curve and the market curve through the OCG over a 3-year period. So if I take those two things net, I’m getting to a pretty stable outlook for 2025.

Thank you. And what kind of interest rate benefits are you modeling there? I think you said at Q3, you were reinvesting 130 basis points higher than your back book yield, that’s now probably 200. So how does that fit into the equation?

So we are – you are right, we are already investing higher than our back book, but we’re not seeing a huge benefit coming through in our – and we don’t anticipate a huge benefit coming through in our OCG. And the reason for that is we’re seeing some competitive pressure. So where we are earning a high yield, we’re actually passing some of that back on to the customer. And that’s because the two areas where we are reinvesting is in the RILA product, which is quite a competitive market at the moment, and also then in our stable value and the retirement plans. Even though that takes a bit longer to filter through, over time, we’re seeing that also coming down to more normalized levels. So yes, we’re reinvesting at a higher rate, so we’re passing that on to the customers. So I’m not anticipating a significant benefit in OCG as I look forward.

Understood. And my second question is on the big increase in the equity sensitivity of the RBC ratio. Are there any measures that can be taken to manage this or is it just dependent on the level of equity markets, so basically markets to go down or is there anything on the hedging that can be done to change the flooring level?

Yes, it’s a good point. And indeed, there was a significant change in our equity sensitivities and our sensitivities in general in the second half. There are three reasons for that – well, two reasons really, actually. The first was we’ve moved our sensitivities now to be on an actual tax position. And as interest rates rose and equity markets rose, we found ourselves reaching a limit on the amount of DTA we can include in our RBC ratio. And so we’ve adapted our sensitivities to now reflect the actual tax position. And that means basically all our sensitivities are now pretax as opposed to net tax, which means they are just higher. And then second reason, which is the point that you mentioned, is the flooring on the variable annuity book. Now that’s slightly counterintuitive, and it reflects the prudence in the regulatory system. As you know, we manage that book on an economic basis. But under the U.S. tax system, we’re only allowed to – we’re not allowed to reflect the full reduction in economic reserves. We have to floor them at zero. And as a consequence of that, we’re now pretty sensitive to up equity markets. The good news is that our ratio is at a pretty high level with 443%. So, even a 25% movement in equity still leaves us at around our commercial capital level. But it is something we will look into and see if there are ways of mitigating it. However, I doubt we would change our approach to the management of the variable annuity book, which is to continue to manage us on an economic basis and hedge out the risk we’re exposed to.

Understood. Thank you.

Thank you. Your next question comes from the line of Michael Huttner from Berenberg. Please go ahead.

Thank you so much. I have got two questions. I’ll do one, yes, one at a time. So China solvency, can you say what the solvency is now and what it would be if you – once you’ve – if you were to apply spot interest rates rather than the kind of smooth curve? What I’m really asking is, is there – what is the risk that you have to inject capital in China? And then I have another question on mortality.

Why don’t you – so Michael, why don’t you also do the mortality question and then we’ll...

Sure. So the – on the mortality, so I am hopeful that all these drugs that are coming through and the peaking of maybe mortality due to fentanyl and other stuff should mean that mortality going forward in the U.S. will improve. And I am just wondering what metrics should I use to kind of try and gauge whether how much a benefit of – relative to expectations could be? You just mentioned the face value figure for Universal Life of $47 billion, but my memory of mortality exposure was higher. So I just wonder if you can help me on these moving parts.

Okay. Thank you very much, Michael. So, Duncan?

So on the mortality first, Michael. So the one thing I look at it is the experience variances in the IFRS accounts. The reason I look at that is that the IFRS accounts reflect our best estimate. We took the update in the first half, whereas the capital position is often locked in. So I would focus on the IFRS accounts and look at the experience variances. And the good news is that in the second half of this year, we had a positive variance on mortality, which is pleasing. That happened – that variance was, both in the third quarter and in the fourth quarter, a positive, which is good and was across all product lines, which is also good. So, that’s what you should monitor is the variance, and we have a positive experience in the second half, which is good news. On the Chinese solvency, the – they have various metrics. The 4Q local comprehensive solvency ratio was 228%, and the core ratio was 177%. And just for your reference, the regulatory thresholds there are 120% and 60%, respectively. So, we are quite a bit above the regulatory thresholds. A couple of things of reference, firstly, as you pointed – as I pointed out, the curve that they use on a local basis is higher than the current interest rate curve. And the – we have to amortize that difference over – through the regulatory capital basis over a 3-year period. And that’s why we get – we are expecting a negative OCG or largely reduced OCG in China over the coming period as we basically pay that down. It’s all dependent on where interest rates are. So, interest rates in China have fallen a lot, and that’s why it’s particularly onerous at the moment. If interest rates continue to fall, that drag will increase. If interest rates go up, that drag will reduce, although our solvency ratio will come down. So, it’s something we are closely monitoring. We are looking into various management actions in order to protect our solvency position.

Thank you.

Thank you. Your next question comes from the line of Farooq Hanif from JPMorgan. Please go ahead.

Hi there. Thanks very much. Two questions, I am just going to start with international. The return on capital in international just seems really weak compared to the rest of the group. And given low interest rates in China, given perhaps the market possibly doesn’t sort of really look at the international business in a lot of detail, gives you a lot of value for it. What can you say about potential disposals or looking at restructuring that business going forward now that, obviously a lot of your U.S. restructuring and transformation is kind of in the bag and it’s just running? I mean is that the next area that you think you might turn to? That’s question one, and then I will wait for a question two if you answer that.

Okay, Farooq. Yes, so on the international, no the international businesses are core to the perimeter of the group. And if I look at – if I just – I will get to China in a second and Duncan has already mentioned quite a bit about that. But if I look, for instance, in our Brazilian business, that business is doing – that’s just doing well structurally well already for quite a long time. We have actually increased our ownership stake in that business in the course of last year because we have good expectations from that business. While sales this year for Brazil were slightly muted versus an exceptionally good sales year in the second half of the year last year. The gross written premium, so the overall size of the business, giving strong customer retention, has actually gone up more than 15%. So, we are quite pleased with that business, and we will continue to support it and to make sure that it continues to grow profitably. If you look at the joint ventures we have with Banco Santander in Spain and in Portugal, I mean they are chugging along very nicely over the years, if you look at the profitability of those businesses. And yes, there are some interest rates and mortgage-related sales that came down a bit. But if you also look at the overall growth of the written premium of those businesses, that also grows more than 10%, so quite pleased with that as well, it’s chugging along nicely. Now, then you go to China, and that’s – on TLB, by the way, which we shouldn’t forget, it’s our high net worth business in Singapore and Hong Kong, you may recall that we have put that in hibernation mode, if you will, a while back, but we have decided to start to grow, in a disciplined and moderate pace that business. And then we have China. And in China, life, which is included in the International segment because the asset management business is doing fine in China, but on the life insurance side, we are seeing those headwinds. I mean, Duncan already talked about the lower interest rate environment in China, which came down, of course quite dramatically in Q3 and Q4. We re-priced all the products. And as a result, we don’t see the sales that you would want to see there. So, we are monitoring the situation in China closely given that the environment for life insurance is not that great. But China is a very large market. That remains to be the case, and the dynamics are structurally in our favor. So, our international businesses are core part of our franchise. You had a second question, Farooq.

Yes. So, going to earnings, the IFRS earnings, so obviously, the onerous contracts in the U.S. have been a negative surprise. And I think there was a feeling the last time you spoke to us that some of these surprises would go away, especially around mortality that’s kind of come out of the blue. So, there are two parts to my second question. So firstly, is there anything else that you are looking at in your accounting and the way that you do it, given that it’s a new framework that we need to be aware of? And secondly, when I look at the buckets that contributed to those onerous contracts, it seems that two out of the three are probably going to continue. Obviously, one is offset at the holding. But what about the premium variances in Universal Life, if you could just explain that and what you can do about that? Thank you very much.

Thanks Farooq, so Duncan?

Okay. Just coming on to the surprises, so the good news is that the mortality experience variance was, as I mentioned, positive. We are tracking well on expenses, etcetera, etcetera. So, actually the – you are right to highlight that there was one area which negatively surprised in the second half, which is the onerous contracts, which we have to take all of the adjustment for onerous contracts through the P&L, to remind you, because these are contracts that we don’t have a CSM to get a magnified impact. If you look at that, part of that onerous contract was a reclassification. So, that’s where we have improved the quality of our operating profits as we have moved the item from below the line to above the line, which I think was appropriate, and therefore will recur, and that was about €35 million. But that’s just a reclassification with no impact on the net profit or the valuation equity growth. The rest of the onerous then, indeed in the U.S., part of it was an internal thing. So, we saw or we are seeing higher lapses in TLB as a result of the higher interest rates. That resulted in a drag in the U.S. business and then an offset in the holding. And net-net for the group, there was no impact on the operating profit. I would expect that kind of mismatch to continue at least into 2025, and therefore, we should see a – we are likely to see, I think another drag in the first half in Transamerica offset by a positive in the holding. Then the rest of the onerous then, there were some fairly small onerous on new business. I think you will always get a bit – bits and bobs on new business. So, I…

Okay. Thank you very much. Thank you.

Thank you. We will now go to the next question. And your next question comes from the line of Rhea Shah from Deutsche Bank. Please go ahead.

Two questions, but I will start with the first one. So, in terms of the UK business, I mean strong workplace flows in 2024. What are your expectations for this into 2025? Do you still expect to see growth in this number? And then I will move on to the second question after that.

Well, Rhea, we – this is Lard. We have indeed observed now already for quite a number of quarters, it’s not only limited to 2024, a quite strong commercial momentum in our workplace business, which – meaning that we are – we found with our propositions and the distribution that we have a good path to continue to grow that business and for 2025, I mean 2024 was a record year. While I have no reason to believe the commercial momentum will not sustain, we do need to recognize that 2024 was exceptionally high. But I think we are very well positioned to continue the growth in that business. When it comes to the advisor platform, which is the softer piece of the profile in the UK, we saw continued outflows during – it was anticipated by the way. You know that we have had a capital markets teach-in about the UK business where we have outlined our plans in the coming years to turn that platform experience for our IFAs around. And with that, we aim to grow it to €5 billion of positive flows by the end of 2028.

And then my second question is just looking at the IFRS result going from operating to net. The restructuring charges related to U.S. investments, is this a good run rate to use, the numbers seen in the second half of the year?

Yes, Rhea, let me ask Duncan to take that question.

The run rate for the second half of the year, let me just get that. I think it’s around $35 million – $20 million to $30 million per half year.

Okay. Thank you.

Thank you. Your next question comes from the line of Nasib Ahmed from UBS. Please go ahead.

Hi. Good morning. Thanks for taking the questions. So, firstly, on the financial assets, I think you have got a target of getting the capital consumed or capital deployed in that business to €2.2 billion by ‘27. There is no additional management actions today, what’s the pipeline looking like? How are you going to get down to €2.2 billion? So, there is another €1 billion-odd to go from where you are at the moment. So, yes, that’s my first question. I will ask the second one later.

Okay. Thank you very much, Nasib. Financial assets, the management actions to get down to the target, this first target…

Yes. Just to recap, so at the time of making that target, and we are making good progress on it, we said that we would use a combination of bilateral, which is where we have to engage with a third-party unilateral. And then we didn’t assume any major third-party transactions in that. So, it’s not that, that target is based off an assumption that we have to do a major transaction. It could be that transactions are supportive, but we are not baking in major transactions. And we continue to look at all options. In the fourth quarter, as I mentioned, we continue to buy institutional loan policies, which is a bilateral action. And we continue to explore if there are any transactions that could make sense. And if we find one, we will announce it.

I guess the follow-up to that one is, do you need a transaction to get to – sorry, not a transaction, a bilateral reinsurance or something like that to get to the €2.2 billion, or can you kind of just get it down through runoff? So, I will ask the second question as well. In terms of kind of – it’s related. In terms of the deals that you are seeing, particularly on retirement plans, I think Voya did a deal as well. Is that an area where you could potentially look to build up scale because it’s a fee-based business, its scale will give you operating leverage? Is that where you would look to acquire something? Thanks.

We are – so let me take that question, if you don’t mind. The – we are a company that – any acquisitions that we would be evaluating, we are more than happy to do so in those business lines, and it’s in line with our strategy, right. So, those business types and markets that we have defined as core to our group. And if we would see something that is attractive, that we strengthen the business, that we are ready to integrate and meet financial and non-financial criteria, we will seriously consider it, including retirement in U.S., and Duncan…?

Yes, I thought I had answered the question. But the – we did not assume material third-party transactions in the original target. And it could be the case that we need to do some transactions or reinsurance deals or whatever in order to get down there, but we did not assume any material third-party transactions. Whilst I am on, I just want to correct my answer to Rhea on the prior question on the restructuring charges. It’s actually $30 million to $40 million per quarter restructuring charges, the run rate you should assume.

Got it. Thank you.

Thank you. Your next question comes from the line of Marcus Rivaldi from Jefferies. Please go ahead.

Good morning. Can you – so away from, I guess the results today, but any update you can provide on discussions you are having with the BMA around the long-term regulatory capital value of your outstanding securities. I am thinking particularly of the about €1.4 billion of Solvency II grandfathered debt that’s due to lose regulatory capital value in Bermuda at the end of the year. Thank you.

Thanks Marcus. Duncan?

Yes. We – as you know, we have a transition period agreed with the BMA, whereby we, from a solvency capital calculation, continue with the method we were using under Solvency II until the end of 2027. And we are in continued discussions with the BMA on two items. One is the capital calculation post that period. And the second is on the treatment of our debt securities. And as we – as and when we have an update on that, we will come to the market with it.

Okay. Thank you.

Thank you. We will now go to the next question. And your next question comes from the line of Steven Haywood from HSBC. Please go ahead.

Good morning. Thank you. Two questions, obviously there was quite a negative net impairments on the IFRS profit line. But obviously – and you do it on an ECL basis now in line with the rules. Can you give us an indication of how conservative this is? What’s the likelihood of these ECLs materializing as actual impairments? My second question is more of a statement, I guess. It’s – if you look at your RBC sensitivities, they are showing that no matter what equity market moves up or down or whatever interest rate move up or down you have, it is negative on the RBC. How can you sort of give this better information on an economic basis to us?

Yes. Okay. On the ECL, which means expected credit losses, so – which is kind of like a bit of a forward-looking metric, I think. And most of the changes we saw reflected changes in our expectations around future losses rather than defaults that occurred in the period. So, we are not actually seeing significant defaults in the current period, but we did make our expectations more prudent, and that was mostly due to using more pessimistic assumptions around U.S. unemployment. To give you a bit more color, two-thirds of the ECL impairments in the second half were for bonds and mortgages as a result of those more pessimistic model inputs for unemployment. And the rest then reflected a small number of downgrades and defaults on mostly real estate assets. So, Steven, it’s mostly due to indeed a more prudent forward-looking expectation around the macroeconomic outlook. On the first – on the second question, which, remind me – the RBC sensitivity. Yes, it is counterintuitive. So, you have noticed that now our RBC capital ratio, basically if equity markets go up, it goes down. If equity market goes down, it goes down. And same on interest rates, but to a lesser degree. And as I explained earlier, is mostly or almost entirely due to this flooring of reserves under the variable annuity business we have. Now, this is quite a technical point, but I will try and explain it a bit better by using the sensitivities, which we disclosed. So, you see that in the up 10% equity market sensitivity, our ratio would fall by 18%, all else being equal and assuming that is an instantaneous shock. What happens in that scenario is that we would book the hedge losses in our capital base because we hedge the economic exposure…

Thank you. Very comprehensive.

Thank you. Your next question is from Michael Huttner from Berenberg. Please go ahead.

I have two, and they are both about 2025. So, €1.2 billion, does it – can you talk a little bit about moving parts? I think you have got a sensitivity on OCG in the Americas of €40 million in the group, €60 million if the equity market goes up 10%. So, I am just asking, have you included that because equity markets are up a lot? And then the second is a similar calculation on the free cash flow. So, you beat on free cash flow in 2024 partly because a.s.r. bought back some shares. And the €800 million, do you include in that the a.s.r. buyback? They announced yesterday, the €125 million, which they kind of indicated at the Capital Markets Day. Any help on the moving parts, please?

Okay. If I deal with the second one, first, Michael, which is easier, I think. Yes, we do include the a.s.r. Our portion of the a.s.r. share buyback, which they indeed flagged at their Capital Markets Day, which is when I think that became public. And that has a positive impact for us, which is helpful in us delivering the €800 million target. On the OCG, we reflect the markets as they were in the most recent quarter. So, if you take the 4Q underlying run rate, we are around €1.2 billion based on equity markets as they were, I think at the start of 4Q. The – and as we look forward, as I mentioned earlier, what I see is that the U.S. asset management and the UK are all turning quite well versus our original target. But the real – the drag is the international business, which is mostly China due to those lower interest rates. But also, we saw that back in 2024 [ph], and that’s why we are turning around to that €1.2 billion despite favorable performance in the other businesses.

Got it. Thank you.

Thank you. We have no further questions. I would like to hand the call back over to you, Yves Cormier, for closing remarks.

Thank you, operator. This concludes today’s Q&A session. Should you have any remaining questions, please get in touch with us in Investor Relations. On behalf of Lard and Duncan, I want to thank you for your attention. Thanks again and have a good day.

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