Aegon NV Q2 2014 Earnings Call Transcript

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

Question: David Andrich - Morgan Stanley - Analyst : Hi. Good morning. Thank you for taking my questions. Just on the US mortality experience I was just wondering maybe if you could quantify a little bit what the drag on earnings has been the past few quarters just to give an idea if there's any potential uplift for earnings once additional reserving has been made. And maybe could you also quantify or give a little bit of guidance on what the potential impact is in terms of the actual quantum? Thank you.

Question: David Andrich - Morgan Stanley - Analyst : And just any guidance on the quantum or the size of those impacts?

Question: David Andrich - 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 14, 2014 / 7:00AM, AEGN.AS - Q2 2014 Aegon NV Earnings Call

Question: Farooq Hanif - Citigroup - Analyst : Hi everybody. I hope you can hear me clearly. I just wanted to ask a couple of questions on your free cash flow and dividends. I think I'm just about understanding how interest rates affect your earnings because you're looking at the delta between the recovery you're assuming in your DAC for future yields and the pathway that you're going through. But on cash you had a EUR25m market impact from the low interest rates in the Americas. Can you explain what the direct statutory driver is there that's hitting that, and then how we can think about the sensitivity going forward if one day we saw a more positive yield cover environment? That's meant to be question one. And question two is, you've mentioned here a rate of 50% dividend payout of free cash flow, which am I right in thinking is the first time you've shown that kind of ratio in the presentation? I don't know if it is. But if so, is this the right level? Is that how you would think about it going forward? Thank you very much.

Question: Farooq Hanif - Citigroup - Analyst : Okay. So is this asymmetric then? So we should not read too much into the 25 and look at it within the yields. Is it very difficult to give guidance on how it might improve? 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 14, 2014 / 7:00AM, AEGN.AS - Q2 2014 Aegon NV Earnings Call

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

Question: William Hawkins - KBW - Analyst : Hi. Thank you very much. I'm risking repeating a couple of questions, so forgive me. But just again on the dividend, Alex, in the first half of this year have you just gone back to the old policy of repeating the second-half dividend and only making decisions about incremental capital at the end of the year or is the EUR0.11 a genuine standalone decision and so in theory in the future interim dividends could change year on year? And then secondly, I appreciate you don't want to give guidance on what the US mortality charge would be, but I'm feeling like I'm swimming a bit in the dark at the moment about the range of possible expectations. So maybe the question would be can you tell us the size of the reserves for the specific buckets that you're reviewing? So what is the baseline reserves that you're actually starting with? And also if I can tag on to that, you've mentioned trends, you've mentioned reinsurance recoveries. And I just wanted to be clear to what extent is this review related to a genuine assessment of gross underlying trends in mortality and to what extent may it reflect changes in relationship with your reinsurers? Because you've mentioned reinsurance recoverables, which to my mind may have nothing to do with what's actually going on in underlying mortality. Thank you.

Question: William Hawkins - KBW - Analyst : Thanks.

Question: William Hawkins - KBW - Analyst : And there's no way we can be refining further the 15b? It's basically a review of mortality across that portfolio?

Question: William Hawkins - KBW - Analyst : Okay. Right. Cool. Thank you.

Question: Albert Ploegh - ING - Analyst : Yes, good morning all. A few questions from my end. First of all, on the normalized cash flows, you mentioned also there is a small negative impact or drag from the auto-enrolment in the UK. Can you give some more color on that and what your expectations are going forward? Second question is on the Dutch business also related to, yes, longevity basically. If I'm correct, by the end of this year we will have some new tables coming up. Can you maybe share some thoughts of that as well on whether that could be Q3 or more Q4, if anything negative? And if there would be a negative update, how will you account for that? Will you take a one-off charge or you will take it on a quarterly basis going forward, something you've done in the past as well? And the final question is basically on the UK. You flag also higher investments in IT in the second half. Can you maybe quantify a little bit the step up there that you might expect? Thank you.

Question: Albert Ploegh - ING - Analyst : Okay. Thank you. And to be sure, the 20m you mentioned for the UK, that's pounds or euros?

Question: Albert Ploegh - ING - Analyst : Pounds, okay. And maybe one, yes, final follow-up. On the review that will take place clearly typically in Q3 on assumptions, clearly the mortality has been flat. Should we also read into that that, let's say, on the other assumptions at this stage, no meaningful update or changes are expected?

Question: Albert Ploegh - ING - Analyst : Okay. Thank you.

Question: Albert Ploegh - ING - 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 14, 2014 / 7:00AM, AEGN.AS - Q2 2014 Aegon NV Earnings Call

Question: Nick Holmes - Societe Generale - Analyst : Hi there. Thank you very much. A couple of questions. First one is coming back on the dividend. I think to Farooq's question you said that the interim dividend was held flat partly because of your intentions with the neutralization of the pref share transaction, i.e. a share buyback. Wondered if you could give us more color on that. Are you basically saying that you're looking to do that in H2 and that's why the interim dividend was held flat? That's my first question. The second one is just looking at the US business. Wondered if you could give us a bit more color on both the variable annuities, which are doing very well, and also the pensions, which are doing perhaps slightly less well. And you cited margin pressure in pensions. I just wondered how concerned you are about that. Thank you very much.

Question: Nick Holmes - Societe Generale - Analyst : Alex, thank you very much for that very full question -- full answer. May I just follow up again, apologies about this, on the connection with the dividend, because you've described a very strong business performance. You're very happy with that. Why did you then keep the dividend flat rather than increasing it, say, 5% or something, given the strong underlying performance?

Question: Nick Holmes - Societe Generale - Analyst : Okay. Thank you very much.

Question: Benoit Petrarque - Kepler Chevreux - Analyst : Yes, good morning everyone. Just on the, on prior solutions again, sorry. The $4b net inflow, how do you see the margin on this new business? Is that above or below average on the stock? Could you give us a little bit of feeling about this new business?

Question: Benoit Petrarque - Kepler Chevreux - Analyst : Right. Thank you very much.

Question: Ashik Musaddi - JPMorgan - Analyst : Yes, hi. Hi. Good morning Alex and Darryl. Just two or three questions. First of all, can you just give us some color about your update on the Canada and French review that you mentioned at the Investor Day? Where are we on that? Any update on that? Secondly, can you give us some color about your net flows in workplace pension? You flagged in the press release around the net flows in the platform which remains very strong at EUR400m. So how is your workplace pension doing? Are you still getting net inflows? Because it looks like last year it was kind of net outflows from the whole UK pension book, so any update on that. And thirdly, I want to touch base a bit on your deleveraging plans. I know it may be early and you may think of giving those numbers maybe at the next business review, but any thoughts on what is the absolute level of gross debt are you looking to -- are you very happy with? Or after this deleveraging of a further EUR500m, which is already planned, do you further want to deleverage your book going forward? Yes, these three questions. 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. AUGUST 14, 2014 / 7:00AM, AEGN.AS - Q2 2014 Aegon NV Earnings Call

Question: Ashik Musaddi - JPMorgan - Analyst : That's very clear. Just one follow-up on the workplace -- on the pension net inflows. The positive net inflows that you mentioned is in workplace or is it the total pension?

Question: Ashik Musaddi - JPMorgan - Analyst : Okay. Sure. That's great. Thank you.

Question: William Elderkin - Goldman Sachs - Analyst : Thank you. Good morning everybody. Just one question on the UK and really following up from the earlier one in terms of the cash flow impact from the expansion of the auto-enrolment. Can you just explain how that affects the IFRS earnings you report? I know you've talked about how it impacts cash, but I was expecting that the underlying UK pension earnings to have at least remained stable quarter on quarter and they seem to have gone down. I just want to understand how that interacts. 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 14, 2014 / 7:00AM, AEGN.AS - Q2 2014 Aegon NV Earnings Call

Question: William Elderkin - Goldman Sachs - Analyst : Alright. Okay. Thank you.

Question: Jan Willem Knoll - ABN AMRO - Analyst : Yes, good morning gentlemen. A couple of questions from my side. First, can you explain the background and the impact of the model updates in the Netherlands mentioned on slide 16? And then secondly, can you update us on the impact of using the UFR on the Dutch IGD ratio? Lastly, operating expenses rose 8% in the Netherlands. Can you update us on what the normalized run rate, what sort of normalized run rate we should expect going forward? Thank you.

Question: Jan Willem Knoll - ABN AMRO - Analyst : Fair enough. Thanks. 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 14, 2014 / 7:00AM, AEGN.AS - Q2 2014 Aegon NV Earnings Call

Question: Gordon Aitken - RBC - Analyst : Yes, morning. Gordon Aitken from RBC here. Three questions please. First on your fee based businesses in the UK and the US, can you just tell us what the revenue basis points and the cost basis points are and where you see that spread going? Second, on the Dutch buyout market we're not seeing a lot of activity in Q2 really from anyone. I'm just wondering why this is. Is it the case that schemes are just not buying it at all or is it that they're sinking themselves into the industry funds? And third, on this US mortality, just to what extent are you using standard tables for reserving versus your own emerging mortality assumptions? Thanks.

Question: Gordon Aitken - RBC - Analyst : 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. AUGUST 14, 2014 / 7:00AM, AEGN.AS - Q2 2014 Aegon NV Earnings Call

Question: Steven Haywood - HSBC - Analyst : Hello. Good morning. I wonder if you could speak a bit about the US internal mergers and whether there's any update there, particularly in terms of the amount of cost savings possibly coming out here? And then secondly, with the 20m to 25m hit to the UK earnings, will there be any write-off charge in the future for this as well? Thank you.

Question: Steven Haywood - HSBC - Analyst : Okay. Thanks very much.

Question: Francois Boissin - Exane BNP Paribas - Analyst : Yes, good morning everybody. Three questions please. The first question is with regard to your model refinement in the Netherlands. I just wondered if you could give a bit more details of what you're doing there and what you can expect for the next quarter? Second question, in the UK you're talking about derisking initiatives. I just wanted to get a feel of what that means for your Solvency II capital base and if it could impact negatively your earnings going forward? And third question regarding the overall margin outlook on new business. You've had stable new business margins Q on Q which is quite an achievement given the fact that rates have gone down. Just wondered if it's reasonable to expect a drop in margins going forward? Thanks.

Question: Francois Boissin - Exane BNP Paribas - Analyst : And the impact in Q3 was close to EUR100m, right?

Question: Francois Boissin - Exane BNP Paribas - Analyst : In Q2, sorry, yes. EUR78m, okay.

Question: Francois Boissin - Exane BNP Paribas - Analyst : 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. AUGUST 14, 2014 / 7:00AM, AEGN.AS - Q2 2014 Aegon NV Earnings Call

Question: Michael van Wegen - BofA Merrill Lynch - Analyst : Yes, morning. It's Michael van Wegen from Bank of America - Merrill Lynch. I wanted to go to your slide 5 where you basically show a cost/income ratio. You talked about the improvements that you've made so far. You achieved 59% for H1. Despite the improvement I think that number is still well above what we consider to be the average for Europe. I suspect a large part of that is driven by the UK. Can you talk a little bit about how that ratio would look like for your main three regions? And if you were to be successful with the restructuring on the UK where that number would be heading to? Thank you.

Question: Michael van Wegen - BofA Merrill Lynch - Analyst : Thank you.