Aegon NV Q3 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. My first question is just around the model assumption changes. And I was just wondering, going forward now, what kind of stricter controls have you put in place and how much more consistent are the assumptions across your different business units? And then second of all, I was just wondering, in terms of the UK business, you state that the cash flow generation is challenged due to ongoing regulatory changes. I was just wondering, has something changed since Q2 or is this more just along the lines of the continued transition of the business in the UK? Thank you.

Question: David Andrich - Morgan Stanley - Analyst : Okay. So no change in terms of the expected cash flow from the UK business going forward then?

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

Question: Ashik Musaddi - JPMorgan - Analyst : Yes, hi. Good morning everyone. Three questions. First of all, can you give a bit more color on what this EUR20m per quarter is and how do you arrive at this number? Secondly, it looks like all this assumption changes and model updates has no impact on your cash flows, i.e. is it fair to say that this is purely an IFRS accounting thing and has no impact on the capital position on a local basis, i.e. you don't have any concerns from the upstreaming dividend from US or Netherlands because of all these accounting assumption changes and model updates? And thirdly, basically can you give us a bit more color about these model changes? How much of that is driven by low interest rates? How much of that is driven by underwriting? So a bit more thought on that would be really appreciated. 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. NOVEMBER 13, 2014 / 8:00AM, AEGN.AS - Q3 2014 Aegon NV Earnings Call

Question: Ashik Musaddi - JPMorgan - Analyst : That's really very clear. But just one follow-up on that, the EUR300m of the total impact you flagged in third quarter itself, how much of that is actually going to cash, i.e. how much of that will weaken your cash position? And just a follow-up from that simple question again is how should we think about the trajectory of cash flows because if I remember correctly you mentioned that from US you should get roughly, give or take, 900m dividend to holding company from Netherlands. I think it's around 300m. So what changes today from the -- on these two numbers specifically?

Question: Ashik Musaddi - JPMorgan - Analyst : Yes. Okay. That's very clear. Thanks a lot.

Question: William Elderkin - Goldman Sachs - Analyst : Hi. Good morning everybody. I've just got two questions left, one following up from the previous one. Effectively if we're looking at US underlying capital generation, we should be lowering that, by my expectations, by around $100m a year, if I understood the answer to the previous question correctly. And then secondly, just on long-term care, a number of your competitors had a few problems there. I was just wondering if you could give us an update as to your position and whether there's anything there we need to be worrying about from your side.

Question: Albert Ploegh - ING - Analyst : Yes. Good morning. Thanks for taking my questions. The first one is on the Dutch mortgage impact, the change in basically in the fair value accounting thereof. What are the implications for that also on the cash flows going forward? It seems actually it probably will move up a little as a result. And will it also impact maybe your strategy to invest in Dutch mortgages going forward and whether there's potentially any impact or any difference in the impact between Solvency I and Solvency II rules 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. NOVEMBER 13, 2014 / 8:00AM, AEGN.AS - Q3 2014 Aegon NV Earnings Call Then the second question is on the business review of the lower performance -- performing assets, and in specific France. Is there anything to mention on the progress on that specific file? (Technical difficulty) pointing towards [the real]. Is there anything you can say on that? Thank you.

Question: Albert Ploegh - ING - Analyst : Sorry. The third question is on interest in the Dutch consultation to participate. Your local competitor made clear statements last week, so any color from your end would be welcomed as well.

Question: Albert Ploegh - ING - Analyst : Thank you very much for your answers.

Question: Nick Holmes - Societe Generale - Analyst : Hi there. Thank you very much. Two more questions on the mortality review, please. The first one is can you give us more color on the level of confidence that you have on your new assumptions? And I'm thinking things like how do you compare with the industry? And how much scope have you built into the assumptions for further deterioration in mortality? And then secondly, you mentioned options to mitigate the EUR20m recurring impact. I wondered what those might be and, in particular, I wondered is longevity something which might be a natural hedge to what you've got on the mortality? Thank you.

Question: Nick Holmes - Societe Generale - Analyst : Great. Thank you very much. I just wanted to come back to the options to mitigate the EUR20m. I think, Alex, you mentioned that. I just wondered what you were thinking of.

Question: Nick Holmes - Societe Generale - Analyst : So, sorry to labor this point, but just, very finally, does that mean there might be scope to offload some of this business, that kind of thing that you're looking at? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 13, 2014 / 8:00AM, AEGN.AS - Q3 2014 Aegon NV Earnings Call

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

Question: Farooq Hanif - Citigroup - Analyst : Hi everybody. I hope you can hear me. Thanks a lot. I want to just go over some topics again, if you don't mind. Firstly, on the RMBS assumption change, I would have thought that the reserve, with the additional valuation hit that you've taken for that, could come back quite quickly into capital, given the duration of the book. So could you give us an idea quantitatively of how much of the, I think the EUR500m or so, is going to come back into cash every year as a result of that? That's question one. Question two is on the upstream. I know it's early to comment on Q4 and next year, but it seems to me that you've got a very good surplus generation in the US and obviously a hit to IGD in the Netherlands. So I'm just wondering whether this is going to really change your policy on payout or level of upstream from these two businesses. Could it have an impact? And lastly, you talked about there being no capital impact from the assumption changes, but theoretically-speaking, if we had a Solvency II number, which I know we don't have, but if we had one, would there be any impact on Solvency II from any of the changes you've made? Thank you.

Question: Farooq Hanif - Citigroup - Analyst : It was the Solvency II impact of the assumption changes, yes.

Question: Farooq Hanif - Citigroup - Analyst : Yes, of course, yes. So it basically has no impact, does it? Of course. I wasn't thinking.

Question: Farooq Hanif - Citigroup - Analyst : Mechanical impact, yes.

Question: Farooq Hanif - Citigroup - Analyst : And just one, just to go back very quickly. So on the US business you very carefully didn't use any adjective when you were describing the fourth quarter's cash flow. You just said it was going to come. But you weren't saying if it was going to be better or worse because of the higher surplus.

Question: Farooq Hanif - Citigroup - Analyst : Okay. Thanks very much.

Question: Gordon Aitken - RBC - Analyst : Yes, morning. Just on, back on to this US mortality assumption change, understand it's 85 to 95 year-old male smokers are not living as long as you expected. I know you flagged this in Q2, but it is a surprising development given that the general increases in life expectancy, especially we've seen those at older ages. So firstly, why do you think you are seeing this in the US and not, say, in your UK business or your Dutch business? Second, to what extent is this a new development over the last 12 months or for several years have you seen more people dying versus your expectations? And finally, in Q2 you mentioned that you were seeing lower than expected reinsurance recoveries on this. Why aren't the reinsurers paying out?

Question: Gordon Aitken - RBC - Analyst : Reinsurance?

Question: Gordon Aitken - RBC - Analyst : Just at Q2 you seemed to imply that they weren't -- the reinsurance recoveries were down. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 13, 2014 / 8:00AM, AEGN.AS - Q3 2014 Aegon NV Earnings Call

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

Question: Francois Boissin - Exane BNP Paribas - Analyst : Yes, good morning everybody. I have two questions remaining, please. The first one, on Dutch mortgages, can you give a bit more detail on what drove the depreciation in value? And does this have an impact on your nominal value of mortgages or does this lead to a lower market value of mortgages only? That's my first question. The second question is on the market value -- sorry, market-consistent value of new business, you had quite a decline in Q3, mainly in the US and in the Netherlands. I wondered whether you could provide a bit more details on why that was and how you saw the outlook for that. Thank you.

Question: Francois Boissin - Exane BNP Paribas - Analyst : Okay. That's quite clear. In terms of outlook, should I understand that basically now your ability to write new mortgages for your own accounts has been limited? So should we expect lower margins or, let's say, should we not expect margins to recovery in the Netherlands going forward on the back of that?

Question: Francois Boissin - Exane BNP Paribas - Analyst : Yes, I understand this, but this is more a fee business than third party, but how should I think of your general account business in the Netherlands?

Question: Francois Boissin - Exane BNP Paribas - Analyst : Right. Thank you very much.

Question: Jan Willem Knoll - ABN AMRO - Analyst : Yes, good morning gentlemen. Thanks for taking my questions. Back on the model assumption review, you mentioned you reviewed 60 high-priority models. What percentage of your reserves has been covered by this review and what is the euro amount of reserves that will be covered by the ongoing review going forward? And then on Dutch non-life, you mentioned a negative impact of a number of large claims in general insurance. Maybe you can give a bit more color on the size and nature of these claims. And then lastly, on the Dutch pension buyout market, maybe you can comment a bit on the pipeline you are seeing there, any impact, let's say, of

Question: Jan Willem Knoll - ABN AMRO - Analyst : Thank you.

Question: Steven Haywood - HSBC - Analyst : Hi. Good morning. Thank you for taking the questions. I just wanted to clarify something. The model update for hedging costs on your GMWB VA book in the fair-value items, this EUR46m, what exactly does this relate to on this -- on the change in the model update for the hedging cost? I thought Aegon had implemented its dynamic hedging structure here fairly recently. And second question, I see there's an adjustment for lower yields of about minus EUR8m in the Americas line. Can you just clarify whether this is in addition to the EUR10m per quarter dollar charge that you disclosed or is it -- is this related to that?

Question: Steven Haywood - HSBC - Analyst : Thank you. Can I just follow up on the last one? The standing guidance, that's not changed either?

Question: Steven Haywood - HSBC - Analyst : Okay. 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. NOVEMBER 13, 2014 / 8:00AM, AEGN.AS - Q3 2014 Aegon NV Earnings Call