AEGON N.V. Q2 2009 Earnings Presentation Transcript

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

Question: Farquhar Murray - Fox-Pitt Kelton - Analyst : Hi morning gentlemen. It's Farquhar from Fox-Pitt here. Two questions if I may. Just starting with the capital rate. I just wondered if you could outline the rationale for going down the capital rate route to repay that rather than using internal resources. And, I think, you know you'd always said that it was attractive and that you'd repay the capital if it was feasible and responsible. I just wondered if it would have been feasible and responsible to have repaid the EUR1b out of the EUR3.5b excess capital. And if not, why not? And then the second question is, just turning to the de-risking or the reversing of de-risking strategy, I was just wondering if you could give us some color around how much earnings potential you think you could put back into the business by pursuing that strategy going forward. And those are my questions. Thanks.

Question: Farquhar Murray - Fox-Pitt Kelton - Analyst : Okay.

Question: Farquhar Murray - Fox-Pitt Kelton - Analyst : And in terms -- just to give us some color on that re-risking. I mean which kind of assets -- are we just looking at the top end of the investment grade spectrum or what?

Question: Farquhar Murray - Fox-Pitt Kelton - Analyst : Okay. Thanks a lot.

Question: Michael van Wegen - Societe Generale - Analyst : Yes, morning. Mike van Wegen, SocGen. I'm afraid I'm going to ask about the same topic. Indeed, quite surprised you raise the capital. And therefore EUR2.5b excess capital after -- yes if you would have paid it out of your own pocket, why is that still a buffer that you effectively don't feel comfortable with? How big does that buffer need to be? And secondly at the June Investor Day I think you indicated that you wanted to delay the decision to pay back the government as long as possible, effectively close to December. Why are you then announcing today already that you, effectively, want to issue shares. And why aren't you waiting? Secondly on the re-risking could you indicate how much capital you think, additional capital requirements you would get from re-risking the Company back again? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2009 / NTS, AEGN.AS - Q2 2009 AEGON N.V. Earnings Presentation And last question on, risk migration seems to be indeed very limited. Is that something you expect to continue? In other words, will it remain limited? Or do you expect for some reason risk migration to go up in Q3 or Q4? That's it thank you.

Question: Michael van Wegen - Societe Generale - Analyst : Okay. Thank you.

Question: Marc Thiele - UBS - Analyst : Hi. Morning. My first question is regarding the shareholding of the foundation. It's not in the slides here, but I think I've read somewhere that the foundation wants to keep its voting rights, or the share of its voting rights unchanged. Should we assume a proportion of similar increase in the preferred shares to make sure that the foundation remains with the same level of voting rights? And will that boost the 2.1b of preferred shares that's included in book value? And my second question is coming back to the de-risking, the EUR45m, and I got the impression from the Investor Day on 9 June that already reinvesting cash into corporate bonds, but maybe I misunderstood at the time. Shouldn't we assume higher normalized earnings level going forward, with the capital coming in? Should we be probably looking at north of EUR500m quarterly underlying run rate? But maybe you can make a few remarks on that?

Question: Marc Thiele - UBS - Analyst : So the EUR1b that you get, is not -- well, is that being redeployed in your operating business? Is that being invested? I would have thought that the --.

Question: Marc Thiele - UBS - Analyst : But that EUR1b probably hasn't been really redeployed in the business, but anyway. Okay. Cool. Thank you.

Question: Farooq Hanif - Morgan Stanley - Analyst : Hi there. This is Farooq Hanif from Morgan Stanley. I just want to come back on the various questions that you've had on the capital position. It sounds like you're still going to do the de-risking actions -- sorry, not de-risking, but the capital efficiency actions, but then you're also taking more risk. Net-net, are you still looking for more net capital releases from your business? So I refer to you talking in the past about having EUR4b to EUR5b capital release potential from your business in total. So could you just give a guidance on where, net, you see your capital release going and also the earnings impact of that? Second question is on this interest rate hedging impact that you had in the second quarter, could you just talk us through what the impact actually was in monetary terms and how that would affect the earnings going forward because that was probably something that, well, certainly I didn't pick up? And I guess the third question is when you look at this macro equity hedging that you've done in the US, is this a -- just a normal VA kind of delta hedge product-by-product approach, or is there something that will actually also make your fair value items a little bit more volatile? That's it.

Question: Farooq Hanif - Morgan Stanley - Analyst : If I may just interrupt there, because you use the word capital efficiency rather than de-risking, and does that imply that you're looking at actions that are not necessarily a major earnings impact?

Question: Farooq Hanif - Morgan Stanley - Analyst : Okay. And, I'm sorry, I know I'm asking lots of questions here, but what discussions are you likely to have? I know you're not talking right now, or you say you're not talking right now about the remaining EUR2b, but given that you're possibly going to release a significant amount of further capital, you're raising EUR1b, you would technically, I guess, if markets improved, be in a position to repay the future EUR2b quite quickly. But obviously it's not ideal to do so if you're going to have to get a penalty on that. Can you talk about that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2009 / NTS, AEGN.AS - Q2 2009 AEGON N.V. Earnings Presentation

Question: Farooq Hanif - Morgan Stanley - Analyst : So I guess what you're saying is that if you have steepening of the yield curve and long yields going up, and volatility, that's bad. But if --?

Question: Farooq Hanif - Morgan Stanley - Analyst : So interest rate volatility that's hurt basically?

Question: Farooq Hanif - Morgan Stanley - Analyst : Okay. Thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2009 / NTS, AEGN.AS - Q2 2009 AEGON N.V. Earnings Presentation

Question: Farooq Hanif - Morgan Stanley - Analyst : Hi there.

Question: Farooq Hanif - Morgan Stanley - Analyst : I guess it would be useful to have the earnings impact of equities rather than just the capital impact. But I think you've shown that before. It's just useful so that -- clearly it's an accounting issue, not an economic issue, but it just helps us not get a surprise.

Question: Farooq Hanif - Morgan Stanley - Analyst : Okay. Okay, thank you very much.

Question: Nick Holmes - Nomura - Analyst : Yes. Hi. My first question is on the dividend. You've raised the prospect of paying a dividend at the end of this year. And I wondered if you could take us through the economic rationale for paying a dividend at all. Isn't it better basically not to pay a dividend until you've repaid the government? Then the second question is for Eric. Corporate bond defaults haven't really increased that much so far. And I wondered what your view of the outlook is. Are we nearing the peak of corporate defaults, or is it too early to say that? Thanks.

Question: Nick Holmes - Nomura - Analyst : So you're basically saying that you will defer the decision about the linkage with the Dutch government debt?

Question: Nick Holmes - Nomura - Analyst : Okay. Thank you.

Question: Nick Holmes - Nomura - Analyst : So is your feeling that the corporate bond default experience this time round is going to be very different from 2001, 2002, when it really spiked to very high levels?

Question: Nick Holmes - Nomura - Analyst : Great. Thank you very much.

Question: Chris Hitchings - KBW - Analyst : Hi. Thanks very much indeed. A couple of issues. When we talked -- sorry, you were saying that one of the problems is you have lots of cash now which can be redeployed into corporate bonds to improve the yield, and that all sounds perfectly reasonable. When I talked to you guys at the June Investor Day, it was very much emphasized that high cash balances were there because of the expected outflows from the institutional business. Have you changed your view of what the outflows from the institutional business will be and if -- and give us some background there? Secondly, the -- I think we also asked questions at June Investor Day about whereabouts the capital that came from the government was, i.e. was it a certain holding company that had been deployed into operating companies? And could you just update us, has any -- given your intention to de -- to re-risk part of the business, is there an intention to put capital to work in the subsidiaries? Thirdly, yes, could you tell me what your US RBC ratio is now and what your solvency capital ratio is? I don't think I found that in the slides. Also -- yes, thanks.

Question: Chris Hitchings - KBW - Analyst : How much above 300%? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2009 / NTS, AEGN.AS - Q2 2009 AEGON N.V. Earnings Presentation

Question: Chris Hitchings - KBW - Analyst : Thanks very much.

Question: Chris Hitchings - KBW - Analyst : Hi.

Question: Chris Hitchings - KBW - Analyst : Okay.

Question: Albert Ploegh - ING - Analyst : Yes, morning all. It's Albert Ploegh from ING. Three questions. One is coming back to the decision to repay the government capital with an equity issue. You need basically proof from the Dutch Central Bank to repay so has there been any pressure from the Dutch Central Bank to repay with equity instead of internal sources? That will be the first question. The second one is on the dividend really and from one of your Benelux peers that said that it was possible to skip the coupon payments on the government securities two out of the three years but if you do it longer than you'll probably face pressure or scrutiny from the European Commission. Can you also confirm this? And then one operational question on the UK. You mentioned that your free-priced the annuity business, that basically we sold it in lower sales. So are you again ahead of the competition and what do you see in the market and should we expect a few more weak quarters there in terms of annuities? Thank you.

Question: Albert Ploegh - ING - Analyst : Okay.

Question: Albert Ploegh - ING - Analyst : But it's more than -- of course if you skip dividends then you don't pay the coupon of course. So for how many years you can do that without (multiple speakers)?

Question: Albert Ploegh - ING - Analyst : Okay, that's very good.

Question: Albert Ploegh - ING - Analyst : But in terms of repricing you're in line with the competition then basically or --?

Question: Albert Ploegh - ING - Analyst : Okay. Okay, thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 13, 2009 / NTS, AEGN.AS - Q2 2009 AEGON N.V. Earnings Presentation

Question: Johnny Vo - Goldman Sachs - Analyst : Yes, hi guys. It's Johnny from Goldman Sachs. Just a couple of quick questions. Just in relation to your excess capital, you say that you manage it to an S&P style model. Does this really translate to a statutory surplus in each of your jurisdictions? That's the first question. Second question is all the de-risking actions that you've undertaken, are they designed to relieve S&P capital requirements or are they designed to relieve statutory regulatory requirements? Third question is just in terms of your RBC ratio, the 305% looks very low relative to your peers. What do you target and have you completed an impact study in relation to VA (inaudible) at the end of the year for US business? And the final question is just in terms of your cash flow generation. Clearly if your normalized cash flow is about EUR1b a year and your impairments so far have been nearly EUR800m, it seems that your impairments are overtaking your cash flows. How long do you expect this to last for? If you can answer those questions that would be great, thanks.

Question: Johnny Vo - Goldman Sachs - Analyst : Okay. Thanks.

Question: Johnny Vo - Goldman Sachs - Analyst : Okay. That's great, thank you.

Question: William Elderkin - Citigroup - Analyst : Thanks. Morning everybody. Three questions. First one, can I just come back on the free capital generation that Johnny raised. Is this underlying EUR1b free capital generation a year guidance, does that still hold good given all the de-risking measures you've put in place? And I guess there's both positives and negatives there in terms of the capital consumption on new business. And also, if you could comment, obviously there's EUR200m of statutory earnings I think in the second quarter. I guess that's net of accrued defaults but before the capital investment in new business and capital release. If you can say anything about that that would be helpful? Second question is, of the expense savings achieved so far this year how much are inside that underlying operating earnings in the second quarter? So how much is inside the EUR404m? And then finally, could you just give us an update in terms of where the negative revaluation reserve has got to on the corporate bonds and structured credit? I think the first quarter positions were something like EUR6.3b negative and EUR6.4b negative on structured credit. It would be just interesting to know where those had got to.

Question: William Elderkin - Citigroup - Analyst : So basically those numbers you gave for $3.8b and $6.8m are in dollars rather than euros.

Question: William Elderkin - Citigroup - Analyst : Thanks.

Question: Ryan Palacek - Kempen & Co - Analyst : Hi, just a couple of short questions. Good morning. First of all on repayment to the government. Everyone seems to be talking now -- everyone at IG, sorry a peer of yours as well, is also talking about repayment to the government and no one's talking about conversion any more. And I know there's obviously some technical factors about where the share price is etc. But I'm wondering has conversion become scrutinized by the EU and the more favorable conversion conditions? Secondly I'm wondering if the more favorable conditions on the one third prepayment if that's also found scrutiny -- increased scrutiny in Brussels? Thirdly Eric, I'm wondering -- you've given us a watch list in the past of potential issues, I'm wondering what yours might be for the next quarter or two? And finally, the fourth question maybe to Darryl. I'm wondering what would be the impact of VA CARVM on the IRRs of the variable annuity product that you're writing today? Thanks. That would be it.

Question: Ryan Palacek - Kempen & Co - Analyst : Okay. Thank you very much, I appreciate it.