Aegon NV Q1 2016 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ashik Musaddi - JPMorgan - Analyst : Yes. Hi. Good morning, Alex. Good morning, Darryl. Just a couple of questions from me. First of all, can you give us a bit of update on the UK business? It looks like your capital dropped from 140%, which should be 155% post the disposal of UK part business, and it's again back to 140%. What's going on there? And I still don't understand what's the point of -- at what point would you decide whether this is a business issue or not, because it looks like it continues to remain a drag on your earnings or capital at some point every quarter? So that's first one. And secondly is in terms of Netherlands, can you give us a bit of color about the capital drop in that as well, how much of that is related to mortgages, mortgage spread widening, how much of that is related to the, say, just general interest rate movements? That would be the second question. And thirdly is can you give us an update on your capital return? Are you comfortable with that? Are you having a debate with the regulator in terms of is this buyback still okay to do, or any sort of worries you're getting on your capital position now? Thank you.

Question: Ashik Musaddi - JPMorgan - Analyst : Okay. That's very clear. Just one thing on UK, going back to the UK. So is this a problem mainly to do with the annuities business, or are you facing that same issue with your other pension business as well? Because what I want to understand is given that you have sold or reinsured a large part of your annuities already, would that be a risk going forward, or is it pure -- so that's what I wanted. Is it purely related to annuities or other businesses, like pension, or maybe your small with-profit is also having a bit of impact?

Question: Ashik Musaddi - JPMorgan - Analyst : All right. That's very good. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2016 / 7:00AM, AEGN.AS - Q1 2016 Aegon NV Earnings Call

Question: Farooq Hanif - Citigroup - Analyst : Hi there. Thank you very much. Can you comment on what risks you see in the remittance from the Netherlands? Given where the ratio is, do you plan to start remitting capital from the Netherlands this year, and what would the timing of that be? Secondly, you've had various acquisitions, disposals, reinsurance in the UK, accounting change. I don't know if it's useful to talk about it now or offline, but just think that it would be useful to get a guide on what happens to earnings now. So what's the BlackRock impact minus the annuities, just in the round, all of these impacts? And my last question is on DoL. You've given a lot more information than some other companies. It sounds like there's still some things in the air. What actual costs are you going to incur now and what kind of product changes, distribution changes, are you contemplating? Thank you.

Question: Farooq Hanif - Citigroup - Analyst : Thank you very much.

Question: Nadine van der Meulen - Morgan Stanley - Analyst : Yes. Good morning, everyone. The HoldCo cash buffer I believe is around EUR1b. Can you give an indication of what the excess capital is in the US over the AA requirement? So that's the first question. And the other question I had was at the Investor Day you guided to excess cash generation of -- I believe it was around EUR600m over a three-year time period. It was based on the EUR1b free cash generation expected over the year or over a typical year. The run rate that you show now this quarter, I suppose, is EUR0.2b, so that's a bit lower. Can you comment on that expectation going forward? And I suppose that links in with Farooq's question around the EUR250m that can be upstreamed out of the Netherlands. And then the last question I had was with regard to the yield assumption, the current 4.25% yield assumption that you have. Currently, the 10-year is at 1.7%. What's the risk of lowering the assumption and hence taking quite a big DAC charge on that? That's it. Thank you.

Question: Nadine van der Meulen - Morgan Stanley - Analyst : Thank you very much.

Question: Farquhar Murray - Autonomous - Analyst : Morning, gentlemen. Just one question from me, actually. Most of them have actually been already dealt with. Just coming back to the operational free cash flow in the quarter, you're reporting that as a rounded EUR0.3b. I just wondered if you could actually just help me quantify that in millions, as in previous quarters, partly because actually if I look at slide 6, I think, if I took that number of 2 percentage points, which I presume is post their holding costs, I'm looking at probably something more like EUR250m. So just a little bit more detail would be helpful there. Thanks.

Question: Farquhar Murray - Autonomous - Analyst : Okay. Super. Thanks very much.

Question: Gordon Aitken - RBC - Analyst : Yes. Morning. Thank you. First question on -- if you could talk about your Dutch DB experience in the first quarter. So how many schemes are up for renewal? How many are continuing to go down the DB route for future accrual? How many are -- I know you're trying to shift to future accrual to hybrid or DC. What's the experience there? Are you losing any to competitors because people just won't take your prices? So that's the first question. Second one, on the UK and the BlackRock deal, just talk a bit about the revenue bps and the cost bps as is at the moment. And if you won't tell me the actual numbers, if you can tell me is it currently profitable, that book? And I'm assuming that there's a big chunk of that which is invested in BlackRock tracker funds, and maybe what percentage that is. And what's your target? Presumably the goal here is to increase the proportion that's in your own asset management product. So that's the second question. And the third question, on the US, on the DoL, you said -- I think in this presentation you said no meaningful impact. In the text you actually said no impact on the back book. How can you be so sure that advisors won't revisit maybe even some recent sales? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2016 / 7:00AM, AEGN.AS - Q1 2016 Aegon NV Earnings Call

Question: Gordon Aitken - RBC - Analyst : Okay. Thank you.

Question: William Hawkins - KBW - Analyst : Hello. Thank you very much. Good morning. First of all, that slide 7 where you talk about reviewing the IFRS curve in the third quarter, can you just clarify? Presumably that is whether you move it to the Solvency II curve or not, so it's binary. And I'm afraid I'm no good on the maths on this. If you were to move to the Solvency II curve, what exactly would be -- or directionally, what would be the impact? Given that there's a change in the shape of the curve, I'm not even sure about the directional impact, positive or negative. And then secondly, the US dividend, I think that's slated to be $1b for this year, as a round number. How should I be thinking about that second quarter versus first quarter? I'm basically assuming 50/50, but obviously fourth quarter was low last year because you didn't need the cash. So I'm not sure about whether it's reasonable to assume 50/50 or if there could be some skew. And then finally, I hope briefly, given the point you were making about the weakness of VAs because of daily averaging, presumably it's a statement of the obvious that the second quarter should be stronger as a result of that, if you could just confirm. And if we were starting at the -- where the markets have been in the first month, what would be the natural bounce-back of moving from the daily average to where we began the quarter? Thank you.

Question: William Hawkins - KBW - Analyst : That's very helpful. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2016 / 7:00AM, AEGN.AS - Q1 2016 Aegon NV Earnings Call

Question: Mark Cathcart - Jefferies - Analyst : Yes. Hi. It's Mark Cathcart from Jefferies. I've got three questions for Darryl. The first one is, if at the January Investor Day you'd have been presented with the financial market evolution that then happened between that date and March 31, would you have been able to predict the Dutch solvency ratio at 135%, or would it have been better than that on your analysis, what you knew at that stage of time on your sensitivities? The second question is a year ago I think you commented on this conference call that you were positive or you thought there was going to be a benign outcome for Q3 modelling charges, and obviously it wasn't benign. Would you say you're more or less confident than you were at the first quarter last year on the outcome for Q3 this year? And then the third question is you operate in 25 countries. If we knock that down to 22, so we knock off the UK, the US and the Netherlands, of those 22 countries, how many are you actually generating cost (technical difficulty)? Thank you.

Question: Mark Cathcart - Jefferies - Analyst : Okay.

Question: Mark Cathcart - Jefferies - Analyst : Yes. Okay. So the question was how many -- in how many countries are you generating your cost of capital above in those 22 countries?

Question: Mark Cathcart - Jefferies - Analyst : You mentioned about singularity was difficult, I think. So is your comment that singularity was difficult? I'm just trying to work out if you knew what the outcome was going to be. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2016 / 7:00AM, AEGN.AS - Q1 2016 Aegon NV Earnings Call

Question: Mark Cathcart - Jefferies - Analyst : No. Sorry, Darryl, the question is if you'd have known what was going to happen in the first quarter, would you have come out with that number of 135%? In other words, given what happened, was the 135% predictable? That's what I'm trying to get to.

Question: Mark Cathcart - Jefferies - Analyst : So your sensitivities performed as you expected them to?

Question: Mark Cathcart - Jefferies - Analyst : I'm just trying to get a handle on how much in control you are of your Solvency II ratio for the Netherlands. And what you're suggesting is cross-term impacts are something that you're not really too sure how they're going to involve, so you're not quite in control of your Solvency II ratio outcome from the Netherlands.

Question: Mark Cathcart - Jefferies - Analyst : So if your Solvency II ratio did go below 135% by, say, the end of Q3, was at 128% or 132%, would you still upstream that EUR250m of cash? I presume not.

Question: Mark Cathcart - Jefferies - Analyst : Okay. Thanks. That's the first question.

Question: Mark Cathcart - Jefferies - Analyst : The reason I asked that question is because the new way that you're showing your numbers, which is now done on a continental basis, so it's US, Europe, Asia, suggests that you're seeing yourself as a global company rather than a US/Dutch/small UK company. And I'm just wondering how on top you are in terms of the delivery of all of these countries in which you operate. That's the reason for the question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2016 / 7:00AM, AEGN.AS - Q1 2016 Aegon NV Earnings Call

Question: Mark Cathcart - Jefferies - Analyst : I'm sure the reasons are good, but other companies have put (technical difficulty) from non-core periphery operations, and just wonder if Aegon might go down that path.

Question: Mark Cathcart - Jefferies - Analyst : Thanks.

Question: Matthias de Wit - KBC Securities - Analyst : Yes. Good morning. Three small questions, please. First, on the Dutch capital position, I just wonder whether there's anything you could do to optimize the ratio. In the past, you concluded a number of longevity swaps, but to my understanding you did not yet get any capital credit for them. So is this still something you would expect, and is there anything else you could do to optimize or boost the ratio going forward? So that's the first question. Secondly, on the DoL, you guided for an impact on VA sales and higher implementation expenses. Is there anything -- is there any offset from cost savings? And could you maybe share whether you see any net negative impact on earnings and also comment on the timing of any such impact? And then the last question is on the US capital position. Is there anything you could share on how much of the quarter-on-quarter increase in RBC was driven by the drop in interest rates? Because to me that looks like a non-economic gain to the capital position, and I just wonder how much of that you could remit to the HoldCo form of dividends going forward. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2016 / 7:00AM, AEGN.AS - Q1 2016 Aegon NV Earnings Call

Question: Matthias de Wit - KBC Securities - Analyst : Okay. That's very clear. If I could just come back on the Dutch capital position, on longevity swaps, for example, do you have any idea when we could expect any news in terms of capital credit you might get, and what are the discussions you're currently having with the DNB in that regard?

Question: Matthias de Wit - KBC Securities - Analyst : Okay. Thanks a lot. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2016 / 7:00AM, AEGN.AS - Q1 2016 Aegon NV Earnings Call

Question: Bart Horsten - Kempen & Co. - Analyst : Good morning. Thank you for taking my questions. First of all, on the Dutch capital position, add-on question, do you exclude the possibility that you may have to do a capital injection for your Dutch life activities? My second question regards the holding cash position. Could you remind me on the target level you have there? And in the press release it also said that there was a capital contribution to the operations of EUR100m. Could you tell us which activities that related to? And will the holding cash position going forward also still be impacted, for instance, by the purchase price you paid for the BlackRock activities? And my final question is on the alternative investment portfolio, where you mentioned a write-down. Could you tell us the size of that portfolio and what we can expect going forward from that portfolio? Thank you.

Question: Bart Horsten - Kempen & Co. - Analyst : Okay. Thank you.

Question: Nick Holmes - Societe Generale - Analyst : Hi there. Thank you very much. Just two very quick questions. The first is, coming back on DoL, do you expect any boost to VA sales in the next 18 months, before the new regulations are implemented? And secondly, just looking at the variable annuity book, if hypothetically the S&P 500 US equity markets were to be flat for a couple of years, how well positioned do you think you are? And I'm thinking the net amount at risk, if you look at it, for your book is actually good by comparison with peers. And I wondered, do you feel fairly comfortable if there is pressure in equity markets? Thanks very much.

Question: Nick Holmes - Societe Generale - Analyst : Okay.

Question: Nick Holmes - Societe Generale - Analyst : Okay. That's very useful. Thanks very much.