Farooq Hanif

Farooq Hanif inquired about the sustainability of Aegon's strong second-half 2025 operating profit and the company's long-term strategy regarding its ASR stake, specifically if ownership would change post-U.S. redomiciliation or due to proposed Dutch tax legislation.

Answer

CFO Duncan Russell confirmed the second-half operating result was a reasonable representation of underlying performance, supported by strong markets, and expressed confidence in achieving Capital Markets Day targets. Regarding the ASR stake, Mr. Russell stated there was no change in Aegon's position, with redomiciliation and tax legislation having no influence on ownership.

Farooq Hanif inquired about the sustainability of Aegon's second-half 2025 operating profit, given it was at the upper end of guidance, and the company's long-term stance on its a.s.r stake, particularly concerning U.S. redomiciliation and potential Dutch tax legislation impacts.

Answer

CFO Duncan Russell confirmed the second-half operating result was a fair representation of underlying performance, supported by strong markets, and aligns with Capital Markets Day targets. Regarding the a.s.r stake, he stated no change in ownership philosophy, indicating a sale would only occur if intrinsic value is met or alternative capital use arises, with redomiciliation and tax legislation having no influence.

Farooq Hanif from JPMorgan Chase & Co. asked for a deeper rationale behind the potential re-domiciliation to the U.S., questioning what had changed and if there was any regulatory pressure. He also asked for an assessment of how 'clean' the reported €845 million first-half operating profit was.

Answer

CEO Lard Friese detailed that the potential move is a logical next step in Aegon's transformation, now that the U.S. business constitutes 70% of operations and its strategy is showing clear execution success. He emphasized this was a company-led decision with no regulatory pressure. CFO Duncan Russell described the H1 operating profit as 'pretty clean,' noting that after adjusting for about €92 million in negative variances, the underlying result was strong at around €937 million, which normalizes to the guided range after accounting for FX movements and a recurring VA interest accretion.

Farooq Hanif asked about the potential for disposals or restructuring in the underperforming International business. He also questioned the source of recent negative surprises from onerous contracts in the US and whether more accounting-related issues could arise.

Answer

CEO Lars Frieser affirmed that the International businesses are core to Aegon's strategy, highlighting growth in Brazil and Spain/Portugal, despite headwinds in China. CFO Duncan Russell clarified the onerous contract impact was due to a reclassification, an internal reinsurance effect offset at the group level, and prudent assumptions on Universal Life premium variances, with no other major accounting changes anticipated.

Farooq Hanif from JPMorgan Chase & Co. inquired about how the current macroeconomic environment, particularly yield movements, affects Aegon's strategy for reducing capital in U.S. financial assets and asked for clarification on how the Q3 mortality experience translates from an OCG to an IFRS basis.

Answer

CFO Duncan Russell explained that Aegon's plan to reduce capital in financial assets primarily relies on unilateral and bilateral actions, making it less sensitive to the macro environment, though market movements have been favorable. He noted that the plans are mostly within Aegon's control. Regarding the mortality experience, Mr. Russell stated that there were very limited IFRS variances in Q3.

Farooq Hanif from JPMorgan Chase & Co. asked about the drivers of the high actual-to-expected claims ratio in long-term care (LTC) and whether future rate increase approvals are already reflected in the CSM. He also questioned when Aegon might increase remittances from the U.S., given the high RBC ratio.

Answer

CFO Matt Rider attributed the high LTC claims ratio primarily to catching up on a claims backlog, which is now resolved. He confirmed that expected future rate increases are already factored into the CSM, with regular true-ups. Regarding U.S. remittances, he stated that while the RBC ratio is high, the capital is useful during the transformation, and any change to remittance policy would be a future decision for the new management team.

Farooq Hanif from JPMorgan Chase & Co. asked about the potential for a significant increase in share buybacks in 2028, following an expected jump in free surplus generation. He also sought clarity on future trends for active agent numbers versus agent productivity, and the drivers behind the improvement in bank assurance margins.

Answer

CFO Ben Bulmer confirmed that capital generation will lead to higher free cash flow but did not provide guidance beyond 2027, emphasizing the firm's durable framework. CEO Anil Wadhwani noted that a 10% gain in agent productivity offset a decline in active agents and attributed improved bank assurance margins to a better product and geography mix, along with pricing actions.

Asked about surplus capital levels and dividend policy, potential cost efficiencies from the new operating model, agency growth targets, and exposure to China's local government financing vehicles (LGFVs).

Answer

The CFO stated they are "well but not excessively capitalized," with the 7-9% DPS growth guidance being a near-term view that considers the $1B strategic investment. The new operating model aims to leverage economies of scale and skill through centers of excellence, with results evidenced in expense variances. They aim to grow active agents from ~65,000 to 85,000-90,000 by 2027. Shareholder exposure to LGFVs is de minimis ($5 million), while the policyholder fund has a small, high-quality exposure of $1.1 billion at their 50% share.

Inquired about the definition of 'sustainably above 200%' Solvency II given reduced sensitivities, the status of the mortgage SCR model update, the outlook for 2024 OCG, and the potential for higher CSM growth.

Answer

The view on the 200% Solvency II trigger has not changed, and the company is not yet 'sustainably' above it due to market impacts and upcoming reviews. It is too early to forecast 2024 OCG. CSM growth is expected to be structurally positive and is understated in H1 results due to the accounting treatment of riders and top-ups; a reclassification would show ~2% growth for H1.