Q4 & Full Year 2010 AEGON N.V. Earnings Conference Call Transcript

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

Question: Farooq Hanif - Morgan Stanley - Analyst : Good morning everybody. I've got three questions. Firstly, can you describe in a little bit more detail what's driving this 30% increase in free cash flow and what the shape of the increase will be between now and 2015? Secondly, you made a statement about capital fungibility saying that there's a meaningful increase in the fungibility. Could you explain where that's from? I'm guessing it's mainly the US. And just are there any numbers you can give us around that? And thirdly, your ROE target, how much of it is dependent on you making disposals of existing businesses that you don't want to be in anymore? Thank you.

Question: Farooq Hanif - Morgan Stanley - Analyst : Just coming back on one point very quickly, on the fungibility issue, the fact that it is fungible, does that mean you're going to exploit that or would you rather keep buffers closer to the operating companies?

Question: Farooq Hanif - Morgan Stanley - Analyst : Right. Thank you very much.

Question: Johnny Vo - Goldman Sachs - Analyst : Yes, morning. Just a couple of questions. I know you said the dividend relates to the cash flows and the capital position of the Group. But is it that, the idea that the dividend policy should be a progressive policy or is it purely linked to those things that you've identified? And just in terms of the impairments, can you just give us a feel of what's going on there because obviously it's at a reasonably high level? Is this the normalized trend or are we expecting this to come back down again? Thanks.

Question: Johnny Vo - Goldman Sachs - Analyst : Okay. Brilliant.

Question: Michael van Wegen - Bank of America - Merrill Lynch - Analyst : Yes, good morning. Mike from Bank of America Merrill Lynch. A couple of questions as well. First one, you're talking about increased fungibility. That to me sounds like you might as well have waited until later in the year and upstream capital rather than do a 10% capital increase today. Can you talk me through the logic of this? And secondly, with the capital raising that you announced today effectively continue to de-lever the Company, how should I read that combined with the targeted improvement on return on equity? Not entirely sure how we should get to 11% or 12%. Thank you.

Question: Thomas Nagtegaal - RBS - Analyst : Good morning gentlemen. Thomas Nagtegaal, RBS. A couple of questions. First of all, on your minimum capital buffer, now that you need to keep EUR900m at holding level, does it change your target of about EUR1.5b for the whole Group? Second, on your core capital target, could you please elaborate a bit on why you chose an equity issue? Do you also have some room for organic debt reduction driven by your strong capital buffer on that side? And finally on again a bit on the ROE, what kind of capital buffer do you include in the calculation? So it's based on the current capital base or at the optimal capital buffer, and which we need to use to calculate the ROE over? Thanks.

Question: Thomas Nagtegaal - RBS - Analyst : Okay.

Question: Thomas Nagtegaal - RBS - Analyst : Okay. That's very clear.

Question: William Elderkin - Societe Generale - Analyst : Thanks. Good morning everybody. It's William Elderkin from Soc Gen. I've got three questions please. First one, I see in terms of your ambition for your geographic earnings mix, you're talking about that in earnings terms rather than capital terms, which I think you've used previously, 15% to 20% new markets compared to 30% to 35% of capital. Should we be reading anything into that, particularly in terms of your appetite for acquisitions as opposed to organic growth? Second question is in terms of the free cash flow, referring to slide 14. Of I think the EUR700m you show, how much is really available for dividend payments? In your mind is some of that effectively reserved for investing in other projects and so on? I believe in the past you talked about EUR200m to EUR400m for those kind of purposes. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. And then the final question is, within that 7% to 10% underlying earnings growth assumption, can you give us a sense of what you're assuming in terms of the balance of the US fixed annuity portfolio development in terms of how that account balance will be, say, 2015 compared to where we are at the end of 2010?

Question: William Elderkin - Societe Generale - Analyst : Would -- sorry, would it be fair to then to characterize that as a material change in guidance? My impression previously was very much that you were saying we will be doing acquisitions to get to that new market capital allocation target. And now you're saying this is an organic story.

Question: William Elderkin - Societe Generale - Analyst : Could I just come back on the second point in terms of the normalized free cash flow? And of that EUR600m to EUR700m, can you give us a sense of how much we can assume of that is available for paying dividends to common shareholders?

Question: William Elderkin - Societe Generale - Analyst : I mean broadly are you saying 50% to 60% of that might be a number to work with?

Question: William Elderkin - Societe Generale - Analyst : Thank you very much indeed.

Question: Jan Willem Wiedema - ABN Amro - Analyst : Good morning gentlemen. A question on what you've assumed in your guidance, in your ROE guidance, what to do with the excess S&P source. Have you also included, for instance, assumptions on buyback of hybrids or what kind of returns you have assumed then under the amount? And also what are you assumptions on impairments and other items of you're earnings there? And finally, on slide seven you mentioned more than 6% from internal resources. On my numbers you arrive at 6% already just from net profit so could give a range there what you think that will be including divestments?

Question: Jan Willem Wiedema - ABN Amro - Analyst : Yes, on the back of the envelope here you've EUR3.8b excess S&P capital. You will do an equity raising, sell Transamerica Re and pay back the State so you probably have significant excess solvency. What have you assumed in your ROE guidance what to do with that excess solvency?

Question: Nick Holmes - Nomura - Analyst : Good morning. Yes, I have just one question, which is with the capital raising today and also the potential disposal of Transamerica Re, plus all of the de-risking that's happening in your business, is there do you think a possibility that you will become basically over-capitalized? It looks as though this could happen within a year or two and in that context would you then start to look at returning capital to shareholders? Thank you.

Question: Nick Holmes - Nomura - Analyst : But looking at the ROE target, one easy way of meeting that is to return capital to shareholders. Is that something that you've considered?

Question: Nick Holmes - Nomura - Analyst : Okay, thank you very much.

Question: Chris Hitchings - Keefe, Bruyette & Woods - Analyst : Good morning gentlemen. A couple of issues. Firstly just to clarify, you said quite specifically that you're paying EUR0.10 for the second half of 2011. Are you indicating that that is a 20% per annum indication? Secondly, have you made any changes to the value of new business assumptions in these figures? I know you only produce the annual actuarial valuation in the first quarter. Thirdly, can you comment a little bit about ROE target over the medium term? What medium term? Presumably you don't intend to get there in 2011 or probably even 2012, but is this 2013? And in particular are there any tying of management remuneration into achieving these targets? And secondly --- sorry, thirdly, fourthly, can you explain why you're doing the Dutch State in two tranches because if you have enough money now, why not do it all now? Is it dependent on Transamerica Re? Is it dependent on what's going to happen in the second quarter? And what is the basis of what you've been -- or is it depending on what rating agencies say? Thank you.

Question: Chris Hitchings - Keefe, Bruyette & Woods - Analyst : Thank you.

Question: Chris Hitchings - Keefe, Bruyette & Woods - Analyst : Sorry, can I just come back to you on two things? On the VNB, I said have you made any changes in assumptions for the fourth quarter relative to the previous quarters. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Chris Hitchings - Keefe, Bruyette & Woods - Analyst : And just with the Dutch, with the regulator, was there ever an option of you raise the capital now so you can pay it all EUR2.25b now or what was the restriction on you not paying the EUR750m until June?

Question: Chris Hitchings - Keefe, Bruyette & Woods - Analyst : Okay, fine. Sure. Thank you.

Question: Hans Pluijgers - CA Cheuvreux - Analyst : Yes, good morning gentlemen. A few questions. First of all, going back on the 75% quarter one and the structure how you want to raise that, especially internal 6%, still I'm puzzled a little bit because, making some calculations, you are targeting a normalized free cash flow of EUR1b to EUR1.2b annually, of which about EUR600m will go to the holding, so EUR600m of that free on an annual basis. So that means about EUR1b to EUR1.2b over two years, which is -- and then deduct the dividend. Then you come to about EUR1b on a two-year basis, which is again about 5%. And then also TA Re which could also fetch up about 2% to 3% or even 4%. And then some additional capital-release programs you also still are running. I come clearly ahead of the 75%. Are there any -- do you want to have some additional capital available of acquisitions because you just mentioned that you're mainly focused on organic growth, or you capital release programs have been ended? Could give a little bit give some more feeling on the 6% internal generation? I'm still a little bit puzzled about it that maybe you're looking for some additional amounts for acquisitions. Secondly on the DNB, in this respect they support the repayment mid of this year you said based purely on the state of the financial markets. So must I reason that you don't need a divestment of TA Re, that they already agreed upon it without a TA Re divestment? And thirdly, on the agreement with respect to the core capital --- or the excess capital at holding level, the 1.5 times, that's I assume a number, a percentage or a ratio you want to have or they agreed for the longer term, also if the costs on the holding level go up you still have to apply the 1.5 times instead of the EUR900m. And the last, a detailed question on Spain, the acquisition. Could you give some feeling on what that has as an impact on the capital? Is there some substantial amount or relatively low? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Hans Pluijgers - CA Cheuvreux - Analyst : Okay.

Question: Hans Pluijgers - CA Cheuvreux - Analyst : One follow-up on the second tranche of repayment. It's good -- I understand correctly that you don't need TA Re, so it is not a precondition that you should sell TA Re, that's already discussed with DNB?

Question: Hans Pluijgers - CA Cheuvreux - Analyst : Okay, thank you.

Question: Benoit Patrarque - Kepler Capital Markets - Analyst : Yes, good morning gentlemen. Yes, on the 75%, the 6%, what is your assumption there in terms of dividends until 2012? And just to clarify, it includes your net profit and the impact of TA Re on the book value, just to clarify that. And then on the ROE target, 10% to 12%, what is your realized gains assumption there? This year you have booked quite large gains. In the lower interest-rate environment and decreasing IFRS reserve, what can we assume there for the run rate on '11 and '12? And lastly, how much capital can we expect to be upstreamed to the holding in 2011 from your operating units? Thanks.

Question: Benoit Patrarque - Kepler Capital Markets - Analyst : Thanks.

Question: Albert Ploegh - ING - Analyst : Yes, good morning gentlemen. Two questions from my side. Unfortunately I want to go back once more to the core capital ratio slide and especially related to Transamerica Reinsurance. We're all probably aware that you will sell it below book value so that will set you back some more in reaching the target. So how did you include that in this projection? I assume that's part of the divestments and in this time a book loss? So should I also read in this statement that you also will do additional divestments than on what has already been announced there so far? And the second question is a bit more operationally on the US pension business and variable annuity business. US pensions you saw again a very strong quarterly inflow. Can you update us a bit about the pipeline and about the pricings you made there? And also on the variable annuities as well can you update us a bit about the pricing environment there as well? Thank you.

Question: Albert Ploegh - ING - Analyst : No sorry. On the core capital ratio, what do you include there in terms of book losses for the divestment of Transamerica Re? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Albert Ploegh - ING - Analyst : So you do agree that it's likely to be sold below book so that will be more challenging to reach the 75% then.

Question: Albert Ploegh - ING - Analyst : Okay, I understand.

Question: Albert Ploegh - ING - Analyst : Again, if I may, one follow-up on Transamerica Re. You mentioned that you're in discussion I think with one party currently. Should I read into that statement that this one's probably interested in all the books and the other ones are more interested in only specific parts of the portfolio?

Question: Albert Ploegh - ING - Analyst : Okay.

Question: Marc Thiele - UBS - Analyst : Good morning. I have two questions please. My first question is, on slide six you give us the slip in terms of excess capital between the holding and operating units, can you provide us a split for both these numbers into the cash component and the intangible element? My second question is then related to Transamerica Re. I think you mentioned a book value a EUR1.6b for 2009. What's the book value number for 2010? And is the normalized ROE still in the 5% ballpark?

Question: Marc Thiele - UBS - Analyst : Okay.

Question: Marc Thiele - UBS - Analyst : And the book value is unchanged or --- still in the EUR1.6b range? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Marc Thiele - UBS - Analyst : Alright, thank you.

Question: Francois Boissin - Exane BNP Paribas - Analyst : Good morning gentlemen. Just two questions on my side. The first one is on your return on equity. What is the capital base you were talking about as the denominator? Is it the EUR17.2b you report at the end of 2010 or is this the EUR15b which excludes preferred shares? And the second question is with regards to Transamerica Reinsurance. You raised EUR1b equity. Do you feel you need to sell this division or would you consider keeping it and running it in runoff in case you do not get a favorable price?

Question: Francois Boissin - Exane BNP Paribas - Analyst : So we're talking about the EUR15b number then?

Question: Francois Boissin - Exane BNP Paribas - Analyst : Okay.

Question: Francois Boissin - Exane BNP Paribas - Analyst : No. Basically the question is do you feel that you need to sell Transamerica Reinsurance now that you've raised capital? Would you -- are you sell her at any price or would you consider running off the business if you do not get a sufficient offer on that?

Question: Francois Boissin - Exane BNP Paribas - Analyst : Okay, thank you.

Question: Duncan Russell - JP Morgan - Analyst : Good morning. Thanks very much. First question, on the fixed annuities the running yields dropped quite substantially in the fourth quarter. I you did an accounting thing I think in the third quarter. But the drop in the fourth quarter, could you just comment on that and what your new money yield is on the fixed annuity book please? And then secondly then, in your asset portfolio you still have quite substantial growth in unrealized losses on the banking holdings and also on the neg am book. Don't you think you should be writing those things down or what gives you confidence that those things will actually come back to par? Third question then is on the dividend. I notice you're giving an optional stock or cash. Just wondering what the rationale for the stock component is please? Thanks.

Question: Duncan Russell - JP Morgan - Analyst : Is it a level now Darryl which will stay where it is or will it keep dropping?

Question: Duncan Russell - JP Morgan - Analyst : Okay, thanks.

Question: Robin Buckley - Deutsche Bank - Analyst : Yes, good morning. Could I just return to the holding company capital please? Typically I guess I think of about EUR600m being upstreamed in a year, so EUR300m in the half year. I'm just wondering if you could give any further comment on what we can expect to be upstreamed in the first half of 2011 given you were talking earlier on about the increased fungibility that we're seeing in capital? Then just secondly, just returning to Transamerica Re, were you to sell that for a significant amount of money following the capital raising that we've got, is there anything in particular that you would be earmarking that for or would it just be increased flexibility? Thank you.

Question: Robin Buckley - Deutsche Bank - Analyst : Okay, thank you very much.