Aegon NV Q4 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. First of all, I was just wondering, in terms of the Netherlands, I understand that you didn't upstream any capital from the Netherlands in Q4 even though you're above your minimum target -- IGD target of 200%. And I guess I was just wondering how much capital do you think you need to retain there? And then how high do you think you need to build your IGD capital up in preparation for Solvency II, which I know the Dutch regulator is looking at more closely? And then second of all, a similar question for the UK. I see that your pillar 1 ratio at Q4 was 140% and you've a minimum target of 145%. And I guess I was wondering how that would impact the free cash flow guidance we've been given in the past in terms of the step up from the UK in 2015? And then finally, I was just wondering on Solvency II in terms of the key debates, if there had been -- and I don't think you're giving updated guidance on the range that you gave in June, but I was just wondering if you had any update on the key arguments behind your 150% to 200% range, if there had been a shift one way or another for any of the big arguments there. Thank you.

Question: David Andrich - Morgan Stanley - Analyst : Okay. So it sounds like a bit of a holding pattern then until you get the interim model approved in the second half of the year?

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. FEBRUARY 19, 2015 / 8:00AM, AEGN.AS - Q4 2014 Aegon NV Earnings Call

Question: Ashik Musaddi - JPMorgan - Analyst : Yes. Hi. Good morning, Alex. Good morning, Darryl. Thanks a lot for your update. Just all the questions related to Solvency, so slide number 23. First of all, what happened in the US? How come your capital stayed at $1.1b even though you streamed out $600m of capital? How much of that is driven by -- so that means there's implied capital generation of around $600m. How much of that is markets and how much of that is earnings? And also some clarity on what the sensitivity is on US capital on this particular basis with respect to markets. Any color there would be great. Secondly, any thoughts on what happened with that cash flow testing that you flagged in the past? Where are we on that now? Did anything new come up in fourth quarter or was it just as per plan? And thirdly is on the -- again with the Dutch regulator. Can you give us some color about what sort of dialogue you're having with the Dutch regulator, i.e. how are they looking at capital at the moment? I.e. are they looking at Solvency I, Solvency II or how they decide whether you should pay a dividend or not, or they just don't know as well? So how should we think about it at least? It would be great to get some color on that. Thank you.

Question: Ashik Musaddi - JPMorgan - Analyst : Sorry, not just Netherlands, but the Group overall as well, because ultimately they will be the local regulator for you. So how are they looking at that? When you upstream dividend from US, how do they look at whether you can pay to shareholders or not, whether you can do a buyback or not? Any sort of color. How are they looking at it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2015 / 8:00AM, AEGN.AS - Q4 2014 Aegon NV Earnings Call

Question: Ashik Musaddi - JPMorgan - Analyst : And with respect to the Dutch business only?

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

Question: Farooq Hanif - Citi - Analyst : Hi, everybody. Good morning. You won't be surprised. A quick question on -- well, a quick two questions on Solvency II and a question on margins in the US. So on Solvency II, can you just spell out for us what the deduction aggregation issue is? If you could just tell us in very simple terms what the kind of the bull case and bear case is. Secondly, could you talk about your interest rate sensitivity in the Netherlands? So my impression is that you're pretty solidly hedged and matched with hedging in the Netherlands, but if you could just confirm that for us. And lastly, you had very strong profitability in Q4 in the VA business and in employer solutions and benefits. So could you just talk about what's going on there in terms of what -- you're above margin guidance? Will that normalize? Thanks very much.

Question: Farooq Hanif - Citi - Analyst : Can I just quickly come back on the deduction and aggregation? So is it as simple as saying there's a, for laypeople like us, so is there a simple -- simpler saying there's a minimum RBC ratio at which you will bring in into the Group calculation your [US earnings]?

Question: Farooq Hanif - Citi - Analyst : And you don't know where that is. So currently is it 175% that you assume or 250% in your IGD ratio?

Question: Farooq Hanif - Citi - Analyst : Sorry, so would it be correct to say the bear case is they'll only look at what you can pay as a statutory dividend? And so anything below that is still minimum required capital. So that will be more like, whatever, 400%?

Question: Farooq Hanif - Citi - Analyst : And just very -- sorry to take so much of your time, but on the interest rate hedging, so correct me if I'm wrong, but you're -- are you hedging economically and therefore ignoring the UFR? Or are you taking into account that you had the benefit of the UFR and therefore under-hedging?

Question: Farooq Hanif - Citi - Analyst : Thank you very much. Thank you.

Question: Farquhar Murray - Autonomous - Analyst : Morning, gentlemen. Just two questions, if I may. Firstly, just coming back on Solvency II, we've seen some peers becoming more definitive on their Solvency II positioning. And I'm just trying to understand why Aegon is somewhat less happy about that. And I'm just trying -- I assume it's because the aggregation and deduction method is more significant for you than for other peers. But I'm just trying to understand whether there's anything else that just seems to explain why you're taking a slightly different approach there. And then just on the earnings impact from low interest rates on slide 33 of the presentation pack, can you just explain why the year-on-year guidance is essentially unchanged from the previous guidance you've given? I might have expected the drag effect to have increased given the fall in interest rates and just want to understand what's happened there. And actually just on a point of detail, are those -- is that guidance based on the year-end interest rate positioning or is it some kind of average 4Q or the full year? Thanks.

Question: Farquhar Murray - Autonomous - Analyst : Just as a follow-on on the Solvency II aspect then, has the range in any way particularly increased from what you indicated in June? And just directionally, where has the Solvency II ratio presumably developed since June?

Question: Farquhar Murray - Autonomous - Analyst : Okay. Thanks very much indeed.

Question: William Elderkin - Goldman Sachs - Analyst : Thanks. Good morning, everybody. A couple of questions. First a couple of follow-ups. With the headline Solvency II debate and importance of equivalence, what is the materiality of the Group-level Solvency II ratio to your ability to upstream capital and I guess ultimately return capital to shareholders, particularly if the underlying US regulations aren't changing? I can see why Solvency II uncertainty in the Netherlands is very important to that, but could you just spell it out again on why that headline Group level ratio is -- where that impacts things? Then secondly, I've got a couple of other questions. In terms of the UK business, you've had this GBP150m to GBP200m capital generation target. I got the feeling last year that you'd indicated that was going to be a challenge. Could you just give us an update of where we've got to on that? Thirdly, in your press release you referred to higher US operating expenses expected in 2015. Could you just give us a little bit of a quantification there? And then finally in terms of the evolution of the variable annuity portfolio, I think in the past you've talked about three buckets in terms of pre-2004, 2004 to 2007 or 2004 to 2008, and then the newer generation of products. And if we look at the overall -- the portfolio you report, roughly how big are each of those elements? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2015 / 8:00AM, AEGN.AS - Q4 2014 Aegon NV Earnings Call

Question: William Elderkin - Goldman Sachs - Analyst : Just one brief follow-up, and as the proportion of those new generation GMWB rises, will that continue to support the overall margin we see coming through quarter on quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2015 / 8:00AM, AEGN.AS - Q4 2014 Aegon NV Earnings Call

Question: William Elderkin - Goldman Sachs - Analyst : Thank you very much.

Question: Gordon Aitken - RBC - Analyst : Thank you. Just some questions on the Dutch pensions market, please. First of all, can you just update us on the persistency on your existing block of Dutch DB schemes? And second, are you seeing margins increase as these schemes really have nowhere else to go? I know competition is increasing, but you've still got a very -- relatively small number of providers offering DB in the Dutch market. And third, when I see your comment on potentially contracting a buyout market in 2015, I'm just wondering, would you offer buy-ins as is done in the UK? Thanks.

Question: Gordon Aitken - RBC - Analyst : And just the last question on buy-ins?

Question: Gordon Aitken - RBC - Analyst : It's just interesting in that the average solvency in the Dutch market is actually in the pension schemes is materially better than in the UK. And in the UK there doesn't seem to be a problem, schemes which are slightly under-funded offering them buy-ins on parts of the liability. Just wondering, is that a development that will happen in the Dutch market, do you think?

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

Question: Nick Holmes - Societe Generale - Analyst : Hi there. Thank you very much for taking my questions. Two questions. First is just wondered are you still intending to neutralize the dilutive effect of the pref share transaction this year? I think you've indicated in the past that you would like to do it this year. I just wondered what sort of timing you might envisage if this year is still appropriate, or whether you're thinking of pushing it out further. And then also wanted to come back on Solvency II. Apologies about this, but just wondered if you could remind us of the sensitivity to your 150% to 200% range, if, for example, you were to change the 200% Company action limit that is the basis of your current calculation to, let's say, 250%. What sort of effect -- I think you've given us this before, but I wonder if you could just remind us again. Thank you very much.

Question: Nick Holmes - Societe Generale - Analyst : Okay. That seems very reasonable.

Question: Nick Holmes - Societe Generale - Analyst : Okay.

Question: Nick Holmes - Societe Generale - Analyst : Okay. That's great. Thank you very much.

Question: William Hawkins - KBW - Analyst : Hello. Could you give us a bit more color on what you're thinking about the net inflows onto your UK platform, please? The figure's been quite stable over the past few quarters, and we all know about the regulatory uncertainty. But when and at what rate do you expect that aggregate figure to start to pick up? And then within that figure, I think, correct me if I'm wrong, you've been disappointed this year, but the good news is you've had a lot of money coming in from new customers. But the conversion from the back book hasn't been as high as you've anticipated. Could you maybe give us a guide for where we were in the fourth quarter relative to the previous nine months? Has there been any improvement in that? And again, allowing for the regulatory uncertainty, how you think that mix may change this year. 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. FEBRUARY 19, 2015 / 8:00AM, AEGN.AS - Q4 2014 Aegon NV Earnings Call

Question: William Hawkins - KBW - Analyst : Thank you.

Question: Steven Haywood - HSBC - Analyst : Hello, guy. Good morning. Can you just give us some indication in terms of the US sales, in terms of the VA product changes you've made and in terms of the universal life secondary guarantee product that you've pulled, can you indicate what kind of impression this has on future sales going forwards and what you're doing to offset this impact? And also, following up from a previous question on the sensitivity to the reinvestment rate, I just wanted to clarify that the minus $10m per quarter that you had on the last -- in the last results presentation, for an impact for 2014 versus 2013, now that's been rolled forward to 2015 versus 2014, does that mean it's a minus $20m impact on 2015 versus 2013? I hope that makes sense.

Question: Steven Haywood - HSBC - Analyst : Okay. That's perfect. Thank you.