Aegon - Earnings Call - H2 2022

Transcript

Speaker 0

Good day, and thank you for standing by. Welcome to the Airgain Fourth Quarter twenty twenty two Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Jan Willem Weidermar, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. Thank you for joining this conference call on Aegon's fourth quarter twenty twenty two results. Before we start, we would like to ask you to review our disclaimer on forward looking statements, which you can find at the back of the presentation. With me today are Aegon's CEO, Larte Vise and CFO, Matt Ryder, who will take you through the results for the fourth quarter and the progress we are making in the transformation of Aegon. After that, we will continue with our Q and A.

And on that note, I will give the floor to Lars.

Speaker 2

Thank you, Jean Michel, and good morning, everyone. We appreciate that you're joining us on today's call. I want to start by running you through our achievements on Slide number two. The fourth quarter closes out the year in which we accelerated our transformation and the execution of our strategy. During the quarter, we announced a transaction to combine our Dutch businesses with ASR, which was a historic milestone for the company.

We are very pleased that we have received broad based support from our shareholders for the transaction at our EGM in January, and we continue to be on track to close the transaction in the second half of this year. Despite challenging market circumstances, we also made significant progress in further strengthening our balance sheet and in improving our operating performance. At the twenty twenty Capital Markets Day, we launched our operational improvement plan with more than 1,100 initiatives together with ambitious but realistic savings and growth targets. The success of this program is evidenced by the fact that the benefit to our operating result has exceeded our target one year ahead of schedule. This year's commercial results underscore the importance of offering a broad range of products to our customers.

For example, as a result of the uncertain macroeconomic environment, we saw outflows in Asset Management and in The U. K. Retail channel. And in The U. S.

Workplace Solutions, we experienced net outflows as a consequence of the departure of one large customer. But at the same time, many of our strategic assets are performing well. Our life insurance sales increased in our growth markets and in The U. S, where individual solutions achieved the highest level of quarterly new life sales in the last five years. Furthermore, the workplace business in The U.

K. Recorded the highest level of net deposits in the past four years, demonstrating the improvements we are making to our U. K. Franchise. As a result of the progress we have made, both strategically and financially, we will propose a final dividend for 2022 of €0.12 per common share at our Annual General Meeting.

This brings the full year dividend to €0.23 per common share compared with a €0.17 dividend over 2021. Furthermore, we are announcing a new €200,000,000 share buyback program for the 2023, which underscores our disciplined capital management and commitment to return surplus capital to our shareholders. Slide three highlights the success of our operational improvement plan since its launch at the twenty twenty Capital Markets Day. We have now fully implemented almost 1,200 initiatives. This is more than we set out to do, and we continue to implement more.

The plan was not only aimed at improving the operating performance and propositions to our customers, but also has fundamentally changed the way we work at Aegon. For example, we have embedded a continuous focus on efficiency and operational execution in the organization with accountability clearly assigned, more granular planning and real time tracking. The increased operational rhythm has created a culture of transparency and a focus on developing talent to meet future challenges. On Slide number four, we show the financial results of the operational improvement plan. When we launched this program, we targeted an operating result uplift of €550,000,000 by the 2023.

As of year end 2022, the operational improvement plan has resulted in an operating result uplift of €627,000,000 outperforming our expectations and one year earlier than expected. Growth initiatives contributed €262,000,000 to the operating result. This is well above our target and required approximately €60,000,000 less of additional expenses than we originally envisaged. Compared with the base year 2019, we recorded a benefit from the expense savings initiatives of €366,000,000 or 92% of the savings targeted for 2023. Now if you combine this with the lower than expected spending on growth initiatives, the operational improvement plan has actually led to a net reduction in addressable expenses of €280,000,000 compared with a target of €250,000,000 communicated at the Capital Markets Day in 2020.

Given the overall success of the program and in light of upcoming changes to the group structure and reporting due to this transaction with ASR, we have decided to close out the reporting on the operational improvement program. Now it goes without saying that improving efficiency and driving commercial momentum remains key focus areas for us going forward. Moving to Slide five, we'll zoom in on the progress of our U. S. Strategic assets.

As you know, in Individual Solutions, we have the ambition to regain a top five position in selected Life products over the coming years. And as you can see, commercial momentum remains strong in this segment. New Life sales increased by 20% in 2022 compared with 2021 and have accelerated during the course of the year. This was supported by the World Financial Group, or WFG as an acronym, distribution channel, where the number of licensed life agents grew 20% compared with 2021 and now stands at a record high of over 62,000 agents in North America. In addition, our market share in this WFG channel has increased from 59 in the 2021 to 67% this last quarter on the back of improvements made to our customer service experience and continued competitiveness of our products.

We recently launched a new Index Universal Life product specifically designed for the brokerage channel, which complements our current product that is successfully marketed through the WFG channel. In the Retirement business, Transamerica aims to compete as a top five player in new middle market sales. Arisen sales were at USD 7,900,000,000.0 in 2022. This reflects the difficult market circumstances with lower equity markets and higher interest rates negatively impacting planned assets. Net outflows for the Middle Market segment were driven by one single large multiple employer plan exit and would have been positive for the year, excluding this discontinuance, driven by strong written sales in previous periods.

Turning to Slide six for the highlights of the performance of our U. K. And Dutch strategic assets. So let me start with The U. K.

On balance, it was a positive year for the Platform business. On the one hand, the workplace channel generated the highest level of net deposits on record in 2022. On the other hand, the retail channel recorded outflows on the back of weak investor sentiment in line with what we have seen across the industry. Over the year 2022, net deposits on the platform contributed positively to revenues but were more than offset by the anticipated gradual runoff of the traditional credit portfolio. Despite the unfavorable impact of adverse markets on assets under administration, we were able to keep the efficiency of the platform stable because of the steps we have taken to reduce expenses.

Now moving on to The Netherlands. Here, we clearly see signs that the housing market is cooling down, leading to lower mortgage sales. Nevertheless, the mortgages portfolio continues to grow and now amounts to almost EUR63 billion. Our workplace business and bank continue to show consistent growth, thanks to the commitment of our Dutch employees, who remain dedicated to deliver a high level of service to our customers in the run up to the transaction with ASR. So let's zoom in on asset management and the growth markets on Slide seven.

The challenging market conditions negatively impacted our asset management activities in 2022. Now despite the difficult economic conditions in China, our Chinese asset management joint venture, AIFMC, delivered another year of net deposits. Third party net deposits in strategic partnerships amounted to €3,600,000,000 These were more than offset by third party net outflows in Global Platforms of €3,800,000,000 as our customers freed up liquidity in a rising interest rate environment. The operating result from strategic partnership decreased by 29%, primarily driven by lower performance fees for AIFMC from elevated levels in 2021. In our growth markets, we continue to invest in profitable growth.

New Life sales from these markets increased by 15% to €248,000,000 in 2022, mostly as a result of business growth in Brazil. Summarizing on Slide eight. We remain focused on executing our strategic agenda and continue to maintain a high pace in transforming Aegon. We are closing out the reporting on the successful operational improvement plan. Expense savings initiatives have contributed EUR $366,000,000 to our operating results in 2022.

Operating capital generation was solid at €1,500,000,000 in 2022, above the outlook that we provided a year ago despite difficult market circumstances. Free cash flow amounted to €780,000,000 in 2022. In the last two years combined, we achieved €1,500,000,000 of free cash flow. This means that we have delivered one year early on our cumulative free cash flow target of €1.4 to €1,600,000,000 for the period 2021 to 2023. Our gross financial leverage is in line with the target we set ourselves two years ago, and we intend to further reduce our leverage by up to €700,000,000 using part of the cash proceeds from the ASR transaction.

Our proposal for the final dividend brings the total dividend over 2022 to EUR $0.02 3. And for the full year 'twenty three, we target a step up to EUR $0.03 0 per share, well above the level we targeted at the twenty twenty Capital Markets Day. In addition, we are announcing a new share buyback program of €200,000,000 after having just completed last year's €300,000,000 buyback program. On top of this, we still intend to return €1,500,000,000 of the cash proceeds to shareholders once the ASR transaction has closed. This is testimony of our commitment to offer attractive shareholder returns.

And finally, before I hand over to Matt, I kindly want to invite you to our Capital Markets Day on June 22 in London, where we will provide an update on our strategy and targets. The focus of the event will be on our U. S. Activities and our path to creating value through profitable growth and active management of the in force business.

Speaker 3

I now hand over to you of our financial performance over the last year on Slide 11. The operating result for the year was stable €1,900,000,000 The result was supported by expense savings, benefits from growth initiatives, improved claims experience and strengthening of the U. S. Dollar. This was offset by lower fees due to adverse market movements and outflows in variable annuities and asset management.

Operating capital generation before holding, funding and operating expenses amounted to €1,500,000,000 for 2022. The increase compared with the previous year reflects similar drivers of the operating result and the benefit from higher interest rates in The Netherlands. Cash capital at the holding increased to €1,600,000,000 at the 2022, supported by €780,000,000 of free cash flow for the year. Our gross financial leverage amounted to 5,600,000,000 or €5,400,000,000 based on a euroU. S.

Dollar exchange rate of 1 point dollars 2 which is the rate at which we set our deleveraging target in 2020. This means that we remain within our target range. Despite volatile markets, we maintained strong capital ratios with each of our three main units remaining above their respective operating levels. This underscores the effectiveness of the actions we have taken over the past few years to improve our risk profile and to reduce the volatility of our capital position. Transamerica, in particular, has taken several actions to strengthen its capital position and increase the predictability of its U.

S. RBC ratio. This includes setting up a voluntary reserve for variable annuities, achieving additional long term care rate increases and freeing up capital by reinsuring the legacy Universal Life portfolio of Transamerica Life Bermuda, our Asian high net worth business. Furthermore, the dynamic hedging program, which we expanded in 2021 to include all variable annuity guarantees, continued to perform well in difficult markets during 2022. Let me now turn to Aegon's quarterly performance, starting with the operating result on Slide 12.

In the fourth quarter, the operating result came in at €488,000,000 up by 4% compared with the fourth quarter in 2021. The operating result in The U. S. Increased by 26% or 14% on a constant currency basis to two thirty three million euros This was partly due to improved mortality claims experienced in Life. Unfavorable mortality claims experienced in the quarter amounted to €13,000,000 a significant reduction from the €83,000,000 of unfavorable experience we saw in the 2021 as the impact from COVID subsided.

Morbidity claims experienced continued favorable relative to our expectations and contributed €16,000,000 in the 2022. In addition, the result of The Americas benefited from recognizing the result from TLB for the 2022 following the reinsurance transaction between TLB and Transamerica that commenced retrospectively on July 1. There's a commensurate offset in the International segment. In The Netherlands, the 13% increase in the operating result was driven by our online bank, KNOP, and our Workplace Solutions business, supported by higher interest rates and a non life reserve release. The operating result of The U.

K. Increased by 3%. Lower addressable expenses driven by expense savings initiatives more than offset a decline in fee revenues as a result of unfavorable market developments and the runoff of the traditional product portfolio. When adjusting for the impact from the reinsurance transaction between TLB and Transamerica, Aegon International increased its operating result driven by improved claims experience and business growth in Brazil. Finally, the operating result of Asset Management decreased by 35% driven by lower fees in both global platforms and strategic partnerships.

This is a result of lower asset balances due to adverse market conditions and outflows in the global platforms. Let's move to Slide 13, where we show that the net loss for the quarter totaled €2,400,000,000 Nonoperating items totaled a loss of €445,000,000 mainly driven by realized losses on investments in The Americas. This was primarily from the sale of bonds at the beginning of the fourth quarter to maintain a robust liquidity position consistent with Aegon's strict liquidity framework and adjustments to Transamerica's interest rate risk profile following the increase in interest rates. Other charges amounted to €2,000,000,000 This was mainly driven by an impairment loss of €1,800,000,000 that was triggered by the classification of Aegon, Netherlands, as held for sale as a result of the transaction with ASR. This represents the majority of the previously announced expected reduction in equity as a result of the transaction.

Finally, the income tax position was impacted by a previously announced onetime tax charge related to the anticipated settlement of a tax position in connection with the transaction with ASR. It also reflects the fact that impairment loss I just mentioned is not tax deductible. On Slide 14, I want to walk you through the capital positions of our main units, all of which ended the quarter above their respective operating levels. The U. S.

RBC ratio increased by 24 percentage points over the quarter to four twenty eight percent. The main positive impacts were from previously announced management actions. Following the internal reinsurance transaction, Transamerica is now able to recognize its equity in TLB as available capital for solvency purposes. This more than offset the impact from setting up the voluntary reserve for variable annuities. Additional onetime items include a negative impact from industry wide updates to required capital for mortality risk.

Market movements had a positive impact driven by higher equity markets and interest rates during the quarter. The Solvency II ratio of the Dutch Life unit increased to 210% due to a positive impact from model and assumption changes, which included the favorable impact of a higher factor applied when calculating the loss absorbing capacity of deferred taxes. Market movements had a negative impact, mostly from lower real estate revaluations. The solvency ratio of Scottish Equitable, our main legal entity in The U. K, decreased by 10 percentage points to 169%, mostly driven by model and assumption changes, remittances and market movements.

Speaker 2

On Slide 16, you can

Speaker 3

see that cash capital at the holding increased to EUR 1,600,000,000.0 during the quarter, which is above the top end of the operating range. This allows us to announce a new share buyback program today of EUR 200,000,000. In the 2022, we returned €240,000,000 of capital to shareholders through dividends in the third tranche of the share buyback program announced in March. Free cash flow for the quarter was $318,000,000 consisting of remittances from The U. S, The U.

K. And our international activities. The proceeds from the sale of our stake in the joint venture with Liberbank also contributed positively. Remittances from The Netherlands were not included in cash capital at the holding following the transaction with ASR. Slide 16 summarizes the great strides we have made in recent months in maximizing the value of our financial assets.

In the fourth quarter, we continued our track record of successfully hedging the targeted risks embedded in our variable annuity guarantees, achieving a 96% hedge effectiveness. In long term care, our primary management actions are rate increase programs. We have obtained regulatory approvals for additional rate increases worth US21 million dollars The total value of approvals achieved since the start of the program now stands at $471,000,000 exceeding the increased target of $450,000,000 worth of rate increases. We will continue to work with state regulators to get pending and future actuarially justified rate increases approved. The Dutch Life business again paid a quarterly remittance of €50,000,000 TLB's reinsurance transaction with Transamerica freed up capital and strengthened Transamerica's capital position.

Disciplined capital management enabled TLB to contribute €57,000,000 to the free cash flow of the holdings in the fourth quarter. On Slide 17, I want to go into some of the reporting consequences of the transaction with ASR. First, we continue to expect the transaction to be closed in the second half of this year. Ahead of the closing, we intend to simplify the reporting of Aegon in Netherlands in the context of our group reporting. Beginning with reporting over 2023, the results of our Dutch business will be reported as non operating results for both IFRS segment reporting and capital generation.

Remittances from The Netherlands will not be reported as free cash flow and and will not be reflected in cash capital at the holding. We will reflect these as part of the €2,200,000,000 net proceeds at the closing of the transaction. After closing, strategic shareholding in ASR will be accounted for at the net asset value of ASR. We will include dividends received from ASR in our free cash flow. Obviously, Aegon will cease to report operational and performance metrics for the former Aegon the Netherlands operations.

The transaction also has consequences for a reporting cycle. ASR does not currently disclose quarterly financial results. As we need to include the net asset value of our strategic shareholding in ASR into our results, Aegon will adjust its reporting cycle so that we will provide trading updates for the first and third quarters. These trading updates will focus on key performance metrics. The half year and full year disclosures will encompass the full comprehensive set of IFRS financials and performance metrics.

Furthermore, we will also shift our reporting date to around a week later than ASR to allow for inclusion of our share in the net asset value of ASR in our results. This new reporting cycle will start effective immediately, meaning that the first quarter twenty twenty three results will be communicated in the form of a trading update on May 17. Before handing it back to Lard, I want to close out with an outlook for 2023 on Slide 18. Let me start with operating capital generation. We expect at least €1,000,000,000 operating capital generation from our units outside The Netherlands in 2023.

This reflects an expected increase in new business strain as we aim to profitably grow our U. S. Business. Free cash flow will exclude remittances from Aegon, the Netherlands, but will include the interim dividend that we expect to receive from ASR in 2023. On this basis, we expect free cash flow to amount to around €600,000,000 for 2023.

Over time, our free cash flow per share is expected to benefit from the planned reduction of our share count and an increase in dividends from ASR as synergies from the combination emerge. In addition, our funding costs will decrease as we reduce our gross financial leverage. As a reminder, we are targeting a dividend over 2023 of €0.30 per share, zero five more than we communicated at the twenty twenty Capital Markets Day, which is an attestation to the strength of the strategy of the company. Finally, we have decided to transition to a cash only dividend as of the final dividend 2022. This has several benefits for our company, including the fact that it removes the need to buy back shares to neutralize the dilutive effect of the stock dividend.

It also provides more room to execute the planned share buyback in relation to the transaction with ASR. And with that final note, I now pass it back to you, Lard, for your concluding remarks.

Speaker 2

Thanks, Matt. In summary, on Slide 20, we have significantly accelerated our strategy execution, and equally important, we have delivered on our financial commitments in 2022. Looking forward, we remain fully focused on executing our strategy. We are continuing to improve the performance of our company. We are investing in profitable growth by introducing new products and expanding our distribution footprint.

We are remaining disciplined in our capital and risk management, and we are continuing to provide attractive returns to our stockholders. Therefore, I'm confident in delivering on our financial and strategic commitments for the year 2023 and beyond. But above all, I'm very proud of all our colleagues who work hard every day to make our strategy a success and to continue to support our customers' needs. I would now like to open the call for your questions. Please limit yourself to two questions per person.

Operator, please be so kind to open the Q and A session.

Speaker 0

Thank you. We will now go to your first question. One moment, please. And your first question comes from the line of Andrew Baker from Citi. Please go ahead.

Your line is open.

Speaker 4

Great. Thank you for taking my questions. So the first is just on the new capital generation guidance, the at least £1,000,000,000

Speaker 5

Can you just give

Speaker 4

us some insight into what you're assuming for new business strain and how that compares to 2022? Then are you assuming anything for mortality within that? And then is there anything else worth highlighting in terms of material items that you are assuming within that £1,000,000,000 number? And then secondly, can you just give us a sense of where you are now relating to your top five aspirations in the retirement plan sales as well as those selected individual life sales that you've highlighted?

Speaker 6

And then

Speaker 4

how much additional new business strain would you expect above and beyond the 2023 level to get to those market positions? And over what time frame you would expect that to sort of work its way through? Thank you.

Speaker 2

Thank you very much, Andrew. Matt, over to you. Yes. With respect

Speaker 3

to the new business strain, all we've really said is that we include an increased level relative to where we ended up in 2022. But I think where you see it, you saw an increased pattern of new business strain during the course of the year. So you can think about the sort of the fourth quarter number as being a reasonable number. As far as mortality is concerned, I would say if you combine the mortality and the morbidity together, you're looking at about a neutral effect. So we've had pluses and minuses in the past due to mortality and morbidity.

We're thinking about a neutral effect for 2023.

Speaker 2

And on the top five positions?

Speaker 3

Yes. Well, I mean, think that we're doing well on our top five positions. However, I would say that we're going to I think you asked this question more in conjunction with if we increase those, what is new business strain going to do for 2023 and beyond. I think there, we're going to do a capital markets update in the 2023, and we can update you further there.

Speaker 7

Yes.

Speaker 0

Thank you. We will now go to our next question. And your next question comes from the line of David Barmah from Bank of America. Please go ahead. Your line is open.

Speaker 7

Good morning. Thank you for taking my questions. The first one is on the dividend. So you guide for in conjunction with the free cash flow guidance of $600,000,000 including the ASR final dividend in there, you'd be closer to 700,000,000 And your $2,023,000,000 targeted dividend cost will be somewhere nearly €200,000,000 less than that. So how should we think about the difference between the two figures?

And secondly, on asset management. So net flows were quite pressured and market movements didn't help last year. What's your outlook for flows so far in the year? And can you remind us what sort of uplift earnings we should expect from the different actions you've been taking on costs, asset diversification, the streamlining of the different platforms, etcetera? You.

Speaker 2

Yes. Thank you very much, David. Let me take the asset management questions. And then after that, Symet, can you take the free cash flow and dividend question? So on asset management, I think in line with what you've been seeing in the wider industry, the fact that both interest rates have been shooting up, reducing values of bonds and corresponding fees, obviously.

That's one thing. And secondly, having equity markets coming down, that entire market backdrop has been has not been helpful for, let's say, the asset management business in the last year. When it comes to the global platforms and you look at the third party net outflows, this is mainly also because our clients freed up liquidity as a result of all this volatility. However, it was offset positively by AIFMC, which is our Chinese asset management joint venture, which was able to bring in $3,600,000,000 of net positive net deposits over the entire year. That could not completely offset the loss that we have in the Global Platforms and the third party business, but it was something that came quite close.

Over the total year, the Global Platforms lost a net deposit of $3,800,000,000 while our Chinese joint venture came in with $3,600,000,000 So we could not completely offset it, but it was pretty close. And that's that. Of course, we're depending on the market back this year, we will see how the asset management flows and asset management business will continue. The start of the year, if you look at the markets, they've been but at the same time, it's early days. So I think it's far too early to call the market on this.

What we are doing to improve the asset management business structurally is a couple of things. First of all, we want we are implementing a new technology platform to support our overall asset management business. This is a very comprehensive change that we are implementing. We have worked on that for the last couple of years, and we aim to finalize that in the course of this year. And after which, we expect to be far more efficient, and we'll reduce costs after we've implemented that Aladdin technology fully.

So that will help to improve structurally the Asset Management margins. At the same time, we aim to push through, obviously, in the chosen investment strategies. And I also want to remind you that in the context of the ASR transaction, we've been able to strengthen the Asset Management business by basically becoming a strategic partner of the combined company, especially in particular investment categories like illiquid assets, etcetera, which, as we announced at that time, were accretive and are accretive to the overall asset management business. So 2022, it was a difficult year against a very difficult market backdrop. 2023, early days.

Markets are better now, but let's see how it goes. More importantly, what we have in our control, we are implementing to improve efficiency, reduce expenses and make sure that we improve the margins. And at the same time, we're pushing through with more commercial activity on selected strategies. With that, to you, Matt, on free cash flow and dividends. Yes.

So on the free cash flow, I want to

Speaker 3

do this as a basic overview. And if you have detailed questions, then you can come back to IR on this one. But in general, what we're telegraphing for 2023 is a $600,000,000 free cash flow that includes the interim dividend of ASR. So that gets you to about the $600,000,000 And then starting with about a $2,000,000,000 share count, slightly underneath that under that, Take into account when you do your math the fact that we've now announced a share buyback of $200,000,000 and we do intend to accomplish the $1,500,000,000 share buyback over the period of 2023. And I think when you do that math, then we're about maybe we're paying out about 500,000,000 and we're getting in about 600,000,000 So there is only about a $100,000,000 gap.

And then and I think that's kind of a normal sort of payout ratio.

Speaker 0

And your next question comes from the line of Michael Huttner from Berenberg. Please go ahead. Your line is open.

Speaker 8

Thank you very much and well done for achieving in 2022, which you set out for '23. I had two questions, please. One is, you just said and but I have a kind of close interest in this, that the 1,500,000,000.0 buyback you aim to achieve during 2023. I wonder if you can give a little bit more insight in that. If you were to do it just as normal buyback, I think you'd be accounting if you did it just in six months for, like, I don't know, 25% or 30% of daily volumes.

So I just wonder if you can give a little bit more in your thinking here. And then on The US business, which seems to be doing really well with the four twenty eight RBC ratio and your talk of new business strain, basically investing in growth. There is, here, I'm on not very solid ground, I think a negative outlook by Moody's. And I just wondered whether you can kind of comment on that given what looks like actually a very strong business with the TLB boosting capital, etcetera? Thank

Speaker 2

you, Michael, for your questions.

Speaker 3

Program, the intention would be to start the $1,500,000,000 share buyback program pretty much as soon as we complete the transaction. At this point, we're thinking that the vast majority is going to be taking is going to be done by share buybacks. And that will take a period of time. I don't think we've disclosed exactly how long we think it would take. It will be under a year, but as quickly as we can possibly do it.

Obviously, given the daily trading volumes, that's how we'll try to manage it. The so you are right. In The U. S. Business, we are we see a high solvency ratio.

We see the businesses, I would say, particularly the Life business is doing exceptionally well. So all the rating agencies like to have that good commercial activity there. What has happened is that when we announced the ASR transaction, we've been put on sort of negative watch by the rating agencies, and they will do their work on this. But even in the event, if indeed we were downgraded, it would not mean anything for our commercial activities or, frankly, our business. I thought it was quite interesting.

On the day that we announced the ASR transaction, we were sort of immediately put on negative watch. And then what happened to the value of our hybrids and debt? It just went up. So the rating agencies have their process. They will ultimately take us to committee.

They will work through it. But even if we were downgraded as a consequence of this transaction, it does not mean much to us commercially.

Speaker 8

Thank

Speaker 0

you. We will now go to our next question. And your next question comes from the line of Nazeem Ahmed from UBS. Please go ahead. Your line is open.

Speaker 5

Thank you. Good morning, and thanks for taking my questions. So first one on The U. S. In the OCG, the quarter on quarter OCG fell, but even on earnings, if you if you even exclude the TLB allocation of $55,000,000 the earnings improved.

So what is the difference there? Maybe it's new business strain. I guess related to that, the investment into The U. S. To get the top five, is that all coming from Transamerica?

Or do you expect some of that to come from the HoldCo? And then I guess second question is on the two strategic assets, well, three assets, UK, U. S. And asset management. Can you talk about what kind of learnings you can apply in The U.

S. And the from The U. S. To UK and vice versa? And how you think you're kind of the best owners of both assets at the same time and whether the asset management plays into them?

Speaker 2

Yes. So let me take the last one, and then, Matt, if you can thereafter do the first two questions for Najeeb. So thanks, Najeeb. Yes. First, on the learnings.

So the interesting thing is that in The U. S, in The U. K, but also our long history in The Netherlands, we have been running workplace solutions and retirement plan businesses for a very long time. And it's quite interesting to see what you can learn from the various geographies and the various markets that you operate. Now quite frankly, it starts with the realization that there's a lot of local differences, tax treatments of those retirement plans and also local preference and local different legislation.

So there's a lot that is different in these markets, but there is also a lot that is very similar that you can indeed learn from each other from. First of all, in The U. S, in the Workplace Solutions business, we have and you can see that actually in the numbers, we're seeing that the average margin per participant is increasing because the advice center that we have built up and managed advice in which we actively reach out to plan participants and help them plan for the decisions and for instance, of pension buildups that they have in various pension plans. I mean that has that is a practice that is very successfully built and implemented in The U. S, and we're learning from that.

And within the rules and regulations around that in The U. K, we are implementing similar activities. That's one example of it. The other one is that on asset management, in all our products, if you look at across the footprint, we have roughly Yasmeen, I'm looking at you now, roughly $900,000,000,000 at this moment, roughly $900,000,000,000 of assets that are flowing through our products because our products are basically are, to a large extent, asset accumulation products, be it pension plans or be it individual products, annuity products, etcetera. So we manage with our asset manager a piece of that, and then we have other asset managers who are external managers who are catering for the choice for our clients because we want our clients to have a full and comprehensive choice.

Now this creates two opportunities. First of all, it creates the opportunity to increase the share that our asset manager can build over time of that pie as a whole. That's number one. And number two, it also underscores how important it is, both to have an asset management capability that is strong. We can't be all things to all people with our asset managers, so we will always work with a collection of other asset managers as well in the platform.

But for our own asset manager, it is making sure that we not only keep the space but also try to expand that over time. And at the same time, it demonstrates how important it is that the asset management capability is something that we have in one of our core activities. But let me pause here and hand it over to you.

Speaker 3

So on the first one, on the OCG quarter over quarter relative to the operating result, there are a couple of pieces, but they're pretty simple. So the first is that we saw poor mortality experience on the, let's say, on the IFRS side on the operating result, but it was a bit worse on the operating capital generation side, frankly, just due to the reserving mechanics under the two bases. The second one is that we did see so new business strain is obviously a component of operating capital generation. And you'll probably see that it has picked up in the fourth quarter, which we like it to do, of course, because we are writing profitable new business. And that's why we I think we've done a very good job there during the course of the quarter and the full year.

With respect to the need of The U. S. To fund, let's say, the need of The U. S. For holding company cash to be injected.

They had so with a solvency ratio of 428%, first of all, they're in very good shape. And it's nice to have buffers that we have in the holding company. It is always a good reminder that we are still in restructuring mode. At the group level, we want to maintain our cash at the top end of the range. And to the extent that there are in force management actions that we would want to do in The U.

S, then we have a buffer that is sitting there in the holding company. So strictly speaking, we don't necessarily need it to fund growth. We'll have some insight into this when we do the Capital Markets Day in the second quarter of this year.

Speaker 5

Perfect. Thank you.

Speaker 0

Thank you. We will now take our final question for today. Sorry. The last but one question for today comes from the line of Steven Hayward from HSBC. Please go ahead.

Your line is open.

Speaker 8

Good morning. Thank you. One question, one one clarification here. The modeling assumption changes that have occurred in your Solvency II measures in both The Netherlands and The UK, can you give a bit more detail on these, whether they are company specific or industry specific as well? Then a clarification.

My line went a bit fuzzy when you're talking about the €1,500,000,000 capital return. Can you say what time scale this is done over? Thank you.

Speaker 2

Thanks, Stephen.

Speaker 6

Matt, do you want take a look?

Speaker 3

So on the first one, the model and assumption changes, they're really company specific. We talk about our annual review of all assumptions that are especially the most important ones, including expense, mortality, longevity and the like. So these are ordinary course of business. We do these assumption updates every year, and we run them through the fourth quarter for the Solvency II countries. On the $1,500,000,000 return of capital, again, as I mentioned before, we're it's going to be a vast majority of it through share buybacks.

We'll start immediately after we close the transaction. We'll get it done as quickly as possible. It will be under a year to get it done. Depending on daily trading volumes, we get it done as quickly as we can.

Speaker 6

Thank you very much.

Speaker 0

Thank you. We will now go to our last question for today. One moment, please. And the question comes from the line of Robin van den Broek from Mediobanca. Please go ahead.

Your line is open.

Speaker 6

Yes. Good morning. Thank you for taking my question. Just one clarification question. I think you mentioned in your answer to the 1,500,000,000 return that you'll be paying at $500,000,000 and you're getting in 600,000,000 Here, the €600,000,000 only includes the interim dividend of ASR.

So I guess if we look for and you mentioned that that is a normal payout ratio. So I was just wondering if we move towards 2024. So an automatic, yes, ticker basically on the dividend, yes, when also the final dividend of ASR will be included in the free cash flow for 2024? So that's my first question. And the second question is more on a like for like OCG run rate.

I'm not sure whether that has been addressed because my line got cut off during the call. Can you maybe make a comparison on the run rate on a like for like basis within your guidance?

Speaker 2

Robin, sorry to hear that your line you had problems with the connection at a certain point. So we'll help here. So Matt, can you take both?

Speaker 3

Yes. So with respect to 2024, we're effectively giving you a guidance for 2023. And I think when we get to our Capital Markets Day in the second quarter, we'll give you more updated guidance on the out periods. But I think if we leave it for them to give new targets at that point. With respect to the OCG run rate, I guess if you want to do it on a, let's say, we do it on the fourth quarter.

So we did overall $370,000,000 in OCG for the fourth quarter. There are some puts and takes. So if you sort of if you add back the poor mortality and, let's say, the poor mortality experience primarily, and then you sort of make adjustments for some of the good guys that we got during the course of the quarter, including some onetime releases in The U.

Speaker 2

S. And in The U.

Speaker 3

K, also in international, that gets you to a clean number of EUR $350,000,000. So if you look forward to the guidance, you think about EUR $350,000,000 as a clean number. Now take out what we did in The Netherlands during the fourth quarter, which was about EUR 100,000,000. So now you're at $250,000,000 times four gets you to about EUR 1,000,000,000. And yes, there are some other currency movements and various things you can talk to IR about.

But in general, you get to that's a clean number.

Speaker 0

Thank you. I will now hand the call back to Jan Willem for closing remarks.

Speaker 1

Thank you very much. This concludes today's Q and A session. On behalf of Lart and Matt, I want

Speaker 3

to thank you for the lively interaction. Should you have any remaining questions, please do get

Speaker 1

in touch with us in Investor Relations. We're here to help. Have a good day, and thank you for your participation in today's call.

Speaker 0

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.