Aegon NV Q2 2015 Earnings Call Transcript

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

Question: Farooq Hanif - Citigroup - Analyst : Hi. Thanks very much. I hope you don't mind me asking three questions. Firstly, I want -- I'm interested in the range of your Solvency II, the 140% to 170%, and in particular why there's such a large range for the Americas and other business units. So if you could explain qualitatively what's going on there. Secondly, what further capital management plans do you have to improve your position within that range or, if you're not willing to answer that, at least do you think there is material stuff that you can do in the near term to gain this thing in the right way? Maybe that's the wrong phrase, but just improve your probability of getting to the upper end. And lastly, what does not paying a dividend from the Dutch business do to your capital in the Dutch business every year. Thanks.

Question: Farooq Hanif - Citigroup - Analyst : I just wanted to go back, come back on the Netherlands. I think my question was more is it material to the Dutch solvency ratio you not paying a dividend every year? So the operational capital generation and the growth in that capital ratio, is that quite a big positive every year because you don't -- you decide not to pay a dividend?

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

Question: Ashik Musaddi - JPMorgan - Analyst : Hi. Good morning, Alex. Good morning, Darryl. A couple of questions. You keep on flagging this fundamental spread thing in UK, whereas not even a single UK company is flagging that. What is the problem there and why did you take 30-percentage-point hit on that? And just on the -- that same thing is what is the impact of that on the Group ratio? That's the first one. Secondly is if you think about just going back to the question asked by Farooq, are you really comfortable with your Dutch and UK capital position here or are -- will you be looking to address specifically these two geographies? And thirdly is what are your discussions with the regulator with respect to your Group dividend, i.e. a weak solvency ratio in Netherlands and UK, will that impact your Group dividends to shareholders? Thank you.

Question: Ashik Musaddi - JPMorgan - Analyst : Sorry, just to interrupt you on that one. UK companies are talking about the longevity being the biggest pain for them, which I don't think -- I don't think fundamental spread has anything to do with the longevity. I think that is to do with the credit spread part, whereas UK companies are talking about risk margin, which has to do with just longevity.

Question: Ashik Musaddi - JPMorgan - Analyst : All right. That's very clear. Thank you.

Question: William Elderkin - Goldman Sachs - Analyst : Hi. Good morning everyone. Alex, you've actually just answered the question I was about to ask. But I was slightly struggling to reconcile the declaration you made in terms of the interim dividend, your confidence in the future, but coupled with what sounded like fairly cautious commentary, certainly to me, in terms of the UK capital position and uncertainty in terms of the Dutch capital position. If you can shed any more light on that, though I think you've probably addressed most of that with your comments just now.

Question: William Elderkin - Goldman Sachs - Analyst : Yes, okay. All right. Thank you.

Question: Mark Cathcart - Jefferies - Analyst : Yes, hi. In relation to the EUR300m derivative loss in the second quarter, you said everything seemed to go against you. I think you had some sort of hedge rebalancing at a time when you had quite a lot of interest rate volatility. So I'm just wondering if it was bad luck or if there is some kind of risk control issue that needs to be looked at here. And also are you doing anything so that we don't have these blow-ups in future quarters? Are you likely to change anything on the back of what's happened this quarter?

Question: Mark Cathcart - Jefferies - Analyst : Okay. Thanks.

Question: David Andrich - Morgan Stanley - Analyst : Hi. Good morning. Thank you for taking my questions. I just had a question about your Solvency II ranges, particularly for the Netherlands and the UK. And I was wondering, the bottom end of the ranges for these two countries, and maybe particularly in others but it's probably typical of the UK too, I was just wondering, is this essentially a convergence with your standard formula Solvency II number or is there still kind of a gap there between where your standard formula number would be and where the bottom end of your partial internal model would be? And the second, it's likely you probably are not able to answer this given discussions are still ongoing, but can you give any indication of what kind of minimum Solvency II level the Dutch or UK regulators are looking for, any indication at all?

Question: David Andrich - Morgan Stanley - Analyst : Great. Thank you very much.

Question: Gordon Aitken - RBC - Analyst : Yes, morning. Three quick questions please. You mentioned in the Dutch market that you have undertaken a third longevity hedging and you said there are further options there. Just wondered if you could give us more details on those further options on the Dutch liabilities. And also, could you hedge the longevity risk you have in the UK or could you even sell that UK annuity block? That's the first question. Secondly, on operational risk, are you calculating capital for operational risk on an internal model or the standard formula? And if it's the internal model, is there a risk here that the regulator says you should use a standard formula? 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, 2015 / 7:00AM, AEGN.AS - Q2 2015 Aegon NV Earnings Call And just finally on fungibility, we've had equivalence clarified for the US at 250% but the US regulator will not practically allow RBC's to drop below let's say 400%. Are you concerned about how fungible the capital in the Group is? Thank you.

Question: Gordon Aitken - RBC - Analyst : Thanks very much.

Question: Nick Holmes - Societe Generale - Analyst : Hi there. Thank you very much. Two questions please. First, coming back to Solvency II, you've got quite a wide range of the Group, 140% to 170%. I wanted to ask what is your target level? And then looking at, Alex, you mentioned the share buyback is still very much on your agenda when you conclude the Solvency II, can you give us some sort of sensitivity for the share buyback. If you were at 140% would you still do the buyback? And then second question is on something completely different which is the DOL proposal. Wondered if you could give us a little bit more color on this? I know that you and the industry are obviously discussing it and you're not happy with the proposal as it stands, but wondered if you could just give us a bit more color about the products that you see affected. Is it your retirement services products as well as your variable annuities that could be affected? And what sort of proposals are you making to the DOL to ensure that there is not an adverse effect on your business? 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, 2015 / 7:00AM, AEGN.AS - Q2 2015 Aegon NV Earnings Call

Question: Nick Holmes - Societe Generale - Analyst : No, that certainly does. Thank you very much. Just a very quick follow-up on the DOL proposal. A lot of people have focused on the negatives, the unintended negative consequences, as you describe, of less advice, less sales. Do you think there is a potential for a positive in the sense that more constraint on things like advisor commission/remuneration might actually be positive for profit margins, there could be a more disciplined approach to distribution? 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, 2015 / 7:00AM, AEGN.AS - Q2 2015 Aegon NV Earnings Call

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

Question: Steven Haywood - HSBC - Analyst : Hi. Good morning everybody. With regards to the US mortality adverse impact you saw this quarter, I know the absolute size of it is lower than in the first quarter but is this do you reckon a continuation of the trend seen in the first quarter or more of a one-off related item? And do you think this will come under particular scrutiny at your yearly review in the third quarter? Also I just wanted a question on the ALSO program. You say there was a 30m loss in the second quarter. Is this dollars loss and also do you expect any further losses going forwards? And then just a small question on the non-life business and how is the review of this business going and how is the run-off of the proxy channel going as well? Thank you very much.

Question: Steven Haywood - HSBC - Analyst : Okay. Thank you very much.

Question: William Elderkin - Goldman Sachs - Analyst : Thank you for taking the follow-up question, two ones. If the dividend trajectory you seem to be indicating, which is upward, and also just thinking about the comments you've made on a buyback, is that sustainable from your US and other operations if the Solvency II ratios from the Dutch and UK operations are at the low end of the range and hence, judging by what Darryl said, won't be upstreaming? That's question one. And then in terms of the UK life Solvency II coverage ratio you've provided or the guidance range you've provided, are you making use of transitional relief when you're calibrating that number and that range?

Question: William Elderkin - Goldman Sachs - Analyst : Okay. So just to be absolutely sure I heard that correctly, so the dividend trajectory and the buyback aspiration is sustainable even if the Solvency II ratios of the Dutch and UK entity are at the low end of the range and are not upstreaming for some time? I just want to check I understood what you said correctly.

Question: William Elderkin - Goldman Sachs - Analyst : Very clear. Thank you.

Question: Matthias de Wit - KBC Securities - Analyst : Yes, good morning. I have a few questions left. First of all is on the market impact on your operating cash flow which were EUR677m negative. I wonder whether you could break this down between the different components? And it would also be helpful if you could provide an indication on why these losses are larger than the IFRS losses linked to these non-recurring or market impacts? Second question I had is on the Solvency II treatment of your US captives. Could you provide some indication on how you've dealt with them currently and whether there is any remaining uncertainty in this respect? Thank you.

Question: Matthias de Wit - KBC Securities - Analyst : Are you in this respect talking about a change in the IFRS liability or is this also relevant for the statutory accounts?

Question: Matthias de Wit - KBC Securities - Analyst : And I guess part of that's reversed since the start of the third quarter or is that the wrong assumption?

Question: Matthias de Wit - KBC Securities - Analyst : Yes.

Question: Matthias de Wit - KBC Securities - Analyst : No, no, since start of this quarter.

Question: Matthias de Wit - KBC Securities - Analyst : Okay. And on captives please?

Question: Matthias de Wit - KBC Securities - Analyst : Got it. Thank you.