Aegon NV Q2 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 Darryl, good morning Alex. So just a couple of questions. Can you give us some thoughts about the capital generation and dividend upstreaming? It looks like the UFR benefit in Netherlands has gone up quite a lot, so what does it do to your guided EUR250 million of capital generation in Netherlands? And if rates don't go up or interest rates don't go up, then would you be comfortable upstreaming dividend from Netherlands in two or three years or do you think that because underlying capital ex UFR is very weak it will drag the capital remittance from Netherlands? Secondly, you mentioned in one of the slides that UK will start upstreaming capital next year. But how should we think about it? Shall we think about like GBP20 million a year because Cofunds cost savings will not come in two or three years' time? So how should we think about that? And third question is can you give us some thoughts about US capital as well because in third quarter you'll be doing this cash flow testing as well as updating your assumption. So what could be the drag on your US capital and are you feeling comfortable with your US capital at the moment? Thank you.

Question: Ashik Musaddi - JPMorgan - Analyst : Thanks. Just one follow-up on this dividend thing -- sorry Netherlands thing. One of your competitors said I think last quarter that based on first quarter interest rate decline their cash flows or capital generation went down by EUR100 million, and given what we have seen in second quarter, it would have been a lot more as well. And you're kind of guiding just a EUR25 million drop. So what are we missing here? Any thoughts on that? Just a quick one, sorry.

Question: Ashik Musaddi - JPMorgan - Analyst : Okay.

Question: Ashik Musaddi - JPMorgan - Analyst : That's very clear. Thanks Darryl.

Question: Albert Ploegh - ING - Analyst : Yes, good morning all. A few questions from my end. Sorry to come back to the Dutch cash flow outlook. You mentioned the UFR impact is only an additional EUR25 million, so the management actions taken itself in the first half, that will have done basically no structural negative impact on the cash flow outlook? That's my first question. The second question is if I look at the dividend upstreamed in the first half or in the second quarter, the around EUR600 million, I also saw of course contribution from asset management in Central and Eastern Europe of about EUR140 million. How should I see that number? Is that basically the majority that you expect from these units in the first half or can we still expect something for the second half? And then the question, a bit forward looking as also previously alluded in my previous question on the assumption reviews, you already gave some answers on the cash flow testing. We saw some US competitors making already some adjustments in the second quarter and some also material. How do you look at those reviews? With a certain element of confidence or can we expect maybe some material -- more of course non-cash items but some material impact in the third quarter from that? Thank you.

Question: Albert Ploegh - ING - Analyst : Okay. Maybe two small follow-ups, first of all on the -- looking back at the Capital Markets Day in January, if I'm not wrong I think you guided basically from a holding free cash flow of EUR1 billion post holding cost. I know your remark on the Netherlands that you do still expect some dividends in the second half of the year. So with all the moving parts in the first half, is there any need to update that guidance or do you still feel reasonably comfortable? And then on the revisions, I also saw one competitor mentioning some industry report, I think it was more on a GMIB book. I know it's not a material book at Aegon but do you -- what can you comment on 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 11, 2016 / 7:00AM, AEGN.AS - Q2 2016 Aegon NV Earnings Call

Question: Albert Ploegh - ING - Analyst : Okay, maybe we can take it offline but I thought there was some industry report on behavioral assumptions that took one of your peers to take some charges.

Question: Albert Ploegh - ING - Analyst : Okay, no worries. Thank you.

Question: William Hawkins - Keefe, Bruyette & Woods - Analyst : Hello. Thank you very much. Can you just be clearer now about what incrementally is under review in the US? I'm assuming long term care falls into that but if you could just be a bit clearer? And then specifically on long term care, can you just remind me of the size of the reserves you're currently carrying? Roughly what are the rate increases that you're asking for in these 20 states and do you have any issue there about what you think you're going to be able to achieve versus what you actually want to achieve on that, because clearly it's a highly regulated line? And then secondly, in the variable annuity book, if I'm not correct you're now no longer sticking with that 70 basis point margin that you guided to just in January. So you've already alluded to a couple of things b but can you just be clear about what's gone wrong in the past few months and what we should be thinking that 70 basis points should be in the future? I'll leave it at that for now. 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 11, 2016 / 7:00AM, AEGN.AS - Q2 2016 Aegon NV Earnings Call

Question: William Hawkins - Keefe, Bruyette & Woods - Analyst : Thank you. I'll probably come back offline, but on the variable annuity comment, I mean I can see very clearly that the world has changed since January and therefore there are incremental headwinds, but to the extent of the 70 basis point margin was effectively an in-force figure, I'm surprised that that would lead to such an apparently material and quick change in the in-force figure. Anyway, I'll come back offline on that, but I'm just a little bit surprised. 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 11, 2016 / 7:00AM, AEGN.AS - Q2 2016 Aegon NV Earnings Call

Question: William Hawkins - Keefe, Bruyette & Woods - Analyst : Okay. Thank you guys.

Question: Nadine van der Meulen - Morgan Stanley - Analyst : Good morning. With regard to the US RBC ratio, the drop in the RBC ratio, can you maybe elaborate a little bit more on the drivers behind that, apart from the equity market, perhaps? Because I was under the impression that lower rates, given the sensitivities that you've given before, would actually be a positive impact on that ratio? And maybe in light of US capital would you mind giving us an indication of where the surplus of the AA S&P requirement is in the US? Because a year ago you mentioned that that was EUR1 billion. You said that it was quite volatile. It dropped to I think around EUR600 million when we talked about it at the Investor Day. And last quarter no update was given, so I was wondering if you could give some details around that? Thank you very much.

Question: Nadine van der Meulen - Morgan Stanley - Analyst : All right. 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 11, 2016 / 7:00AM, AEGN.AS - Q2 2016 Aegon NV Earnings Call

Question: Mark Cathcart - Jefferies - Analyst : Yes, hi Darryl. I've got a couple of questions. First one is I just wondered if you can talk about your assumption of GBP70 million cash from the UK. Have you assumed further margin pressure in the platform industry as a whole, given the current headwinds in the UK? So I wondered if you could talk about your assumptions on how you expect margins to progress within the UK platform market generally, because they seem to be quite negative at the moment. Second, in relation to your interest rate sensitivity in the Dutch market, you had negligible interest rate sensitivity at the beginning of the year. This has exploded to, I think, largest in the entire sector. Was that mainly because you took off the hedge at the end of January? Third question is you talked about no comment in relation to the modelling review Q3. I think you said that on the call just earlier. But previously you've always voiced confidence that you wouldn't have any more modelling mishaps. I wondered if you could comment on that. And as an aside, can you confirm that the cash at the holding is actually all funded by debt elsewhere within the Group? Thank you.

Question: Mark Cathcart - Jefferies - Analyst : You've expressed confidence and I just wondered how confident you felt now, given what US peers have been saying?

Question: Mark Cathcart - Jefferies - Analyst : Yes. And in relation to the UK I still struggle there because you were suggesting that Retiready was going to break even and then break even again and then break even. How aggressive have you been in terms of those platform assumptions? Because I think in reality platform is regarded as a loss leader in the UK life industry, not a key business.

Question: Mark Cathcart - Jefferies - Analyst : Did you at any stage consider letting someone else become a market leader in platform -- i.e. exiting the UK entirely? Or was it always your intention to maintain a position in the UK?

Question: Mark Cathcart - Jefferies - Analyst : And in relation to Dutch dividends, Darryl said wait and see in relation to the decision on UFR. If the UFR is minus 20 bps, minus 20 bps, minus 10 bps, over the next three years, in that situation could you let us know or tell us whether you believe, in that situation you'll be able to upstream dividends, or is it just a general question mark over Dutch dividend paying capability? It seemed too ambiguous how you expressed it.

Question: Mark Cathcart - Jefferies - Analyst : But at some stage you do expect to go back to a [225] dividend paying capability?

Question: Mark Cathcart - Jefferies - Analyst : Okay, thanks Darryl. That was excellent. Thank you.

Question: Nick Holmes - Societe Generale - Analyst : Oh, hi there. Thank you very much. Three questions. First is just coming back on the mortality and long-term care losses in the US that have appeared in Q2, I just wondered if you could give us a little bit more color on those? And do you expect the rate increases you're filing to basically fix that problem? Then secondly, just very quickly, just wondered what your thoughts on the DOL reforms are at the moment, what is your latest thinking there? And then third and finally, perhaps more of a difficult question, I wondered if you could comment on your thinking about the variable annuity policyholder behavior assumptions that you have at the moment. Clearly MetLife has thrown this issue into the open as an industry issue. And I just wondered, Darryl, whether you could give us some thoughts, going into Q3, as to whether you feel comfortable with your assumptions? Thank you.

Question: Nick Holmes - Societe Generale - Analyst : Thank you for that. That's very reassuring. Just quickly on that last point, would you keep the SOP 03-1 basis, going forward? Is -- you won't do what Met did? 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 11, 2016 / 7:00AM, AEGN.AS - Q2 2016 Aegon NV Earnings Call

Question: Nick Holmes - Societe Generale - Analyst : Okay, thank you.

Question: Nick Holmes - Societe Generale - Analyst : And just very quickly, following up, Alex, your thoughts on the impact on sales going forward? Any --

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

Question: Bart Horsten - Kempen & Co - Analyst : Yes, good morning. I have a few follow up questions on some of the topics already addressed. First of all, on the interest rate sensitivity in the US, obviously the decline -- further decline in interest rates has a negative impact. But an increase in the interest rates obviously, according to the 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 11, 2016 / 7:00AM, AEGN.AS - Q2 2016 Aegon NV Earnings Call sensitivity table, has no impact, or at least no impact on your Solvency ratio. So I was wondering whether you could explain that mismatch between a downward and an upward change in interest rates? And what would be a potential impact if the Fed would decide to increase the short-term interest rates? Would that have any impact on your profitability or on your Solvency? And my second question also relates to the restructuring plan, the five-part plan of the US. Could you give a bit more financial detail? Because as far as I can tell, you have not changed your cost savings target, so could you give some more financial color on these plans? And my final question is a small one. On the net deposit growth in the US it was in the second quarter close to zero, where you had a gross inflow of $10 billion, I think you briefly addressed some Mercer impacts. Could you highlight what the impact going forward will be, what you expect on that? Thank you.

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

Question: Bart Horsten - Kempen & Co - Analyst : Okay. 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 11, 2016 / 7:00AM, AEGN.AS - Q2 2016 Aegon NV Earnings Call

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

Question: Bart Horsten - Kempen & Co - Analyst : Okay. Thank you. And maybe just on a set rate rise, would that impact your business immediately or is that a lagging effect?

Question: Bart Horsten - Kempen & Co - Analyst : Oh, no problem.

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

Question: Steven Haywood - HSBC - Analyst : Good morning guys. I think you've previously said about reviewing and disposing your runoff businesses that require interest rates to go up before you achieve any kind of attractive prices. Has this changed? Are prices going to be unattractive now and continue to be unattractive? And will you be able to sell these businesses or review these businesses, should I say, at the unattractive prices? And then my second question's on your holding cash capital buffer. I just wanted to work through one of the equations, one of the calculations you've done. There's a EUR200 million share buy back in Q2. And then you've paid EUR0.13 per share dividend to around 2 billion shares. Now that's around EUR300 million cost. So I'm just trying to work out why you've only accounted for about EUR400 million negative in your holding company cash capital buffer for the dividend and the share buyback in the second quarter. Thank you.

Question: Steven Haywood - HSBC - Analyst : Okay, so there's an additional bit to come out in the third quarter?

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