Aegon - Earnings Call - Q1 2023 TU
May 17, 2023
Transcript
Speaker 0
Good day, and thank you for standing by. Welcome to the Aegon Q1 twenty twenty three Trading Update Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Speakers' presentation, there a Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Dan Willem Beidema, Head of Investor Relations. Please go ahead, sir.
Speaker 1
Thank you, Sharon, and good morning to everyone. Thank you for joining this conference call on Aegon's first quarter twenty twenty three trading update. Before we start, we would like to ask you to review our disclaimer on forward looking statements, which you can find at
Speaker 2
the back of the
Speaker 1
presentation. With me today are Aegon's CEO, Lars Frieser and CFO, Matt Ryder, who will take you through the highlights of the first quarter and the progress we are making in the transformation of Aegon. After that, we will continue with our Q and A session. On that note, I will now give the floor to Larf.
Speaker 3
Thank you, Jan Willeman, and good morning, everyone. We appreciate that you're joining us on the call today. The format of today's disclosure is different from what you are used to. As previously announced, we have changed the reporting format for the first and third quarters to trading updates. These will focus on sales and capital metrics, and we will also update you on the progress that we are making on our strategic priorities.
We will, of course, report full IFRS results for the first half year and second half year to align with ASR's reporting cycle. Moving on to Slide number two. I want to start by highlighting our achievements this quarter. Aegon has had a good start to the year. In the first quarter, we demonstrated strong commercial momentum and advanced on our strategic priorities.
I am especially pleased with the progress that we're making in light of the continued global volatility, specifically in financial markets. Preparations for the closing of the ASR transaction continue at pace, and I am confident that we will be able to complete the transaction in the second half of the year as planned. On the strategy front, we continue to make steps in optimizing our portfolio. We have sold our UK protection business and divested and liquidated several non core activities in Asia. At the same time, we strengthened our capabilities in the alternative asset management space.
Turning to our commercial results, we delivered strong sales growth in all of our U. S. Strategic assets and in our life insurance businesses in China and Brazil. Our UK workplace business is gaining traction as growing numbers of new customers are entrusting their retirement savings to us. However, Aegon Asset Management and our UK retail business were affected by reduced investor confidence as a result of the challenging market conditions.
Against this challenging macroeconomic backdrop, we maintained a strong balance sheet. This is testament to the work we have done to improve our risk profile over the past years. Therefore, I am confident that we will deliver on our strategic commitments and on our 2023 financial guidance. I look forward to updating you on our strategic plans and medium term financial objectives at our upcoming Capital Markets Day on the June 22 in London. So let's move to our strategic assets on Slide number three.
First, I would like to highlight the progress made in our individual solutions business. As you know, we have the ambition to regain a top five position in selected life insurance products over the coming years. And as you can see, commercial momentum remains strong. New life sales increased by 21% this quarter compared with the 2022, largely driven by higher index universal life sales. For this flagship product, we have been consistently achieving internal rates of return north of 12%.
We further improved the service experience for agents of World Financial Group, or WFG. Combined with the continued competitiveness of Transamerica's products, this allowed us to increase our market share in the WFG distribution channel from 58% to 64%. WFG also expanded its distribution reach by growing the number of licensed agents to a record level of close to 67,000, an increase of more than 10,000 agents compared with the prior year quarter. On Slide number four, we show the decent progress we have made in The U. S.
Workplace solutions business. In the retirement business, Transamerica aims to compete as a top five player in the new middle market sales. Sales momentum remained strong in the 2023 with written sales of US2.6 billion dollars double the amount realized in the same quarter last year. The main driver was a pooled plan contract win of US1.7 billion dollars that included 1,400 individual employer plans. Net deposits for the middle market segment benefited from strong written sales in previous periods and lower withdrawals in this year's first quarter.
So now let's move to The UK on Slide five. Net deposits in the workplace channel rose by 5% compared with the first quarter of last year to GBP $733,000,000 this quarter as the sales momentum remains strong. In the retail channel, on the other hand, the macroeconomic environment continues to negatively impact investor sentiment. In addition, higher interest rates have reduced the attractiveness to transfer from defined benefit to defined contribution pension plans, reducing gross deposits in this channel. As a result, net outflows amounted to GBP $413,000,000 compared with net deposits of GBP $323,000,000 in the 2022.
Annualized revenues lost on net deposits amounted to GBP 3,000,000 for the quarter, predominantly due to the gradual runoff of the traditional product portfolio, partly offset by revenues gained on net deposits in the workplace channel. I'm now turning to Slide six for the highlights of the performance of our asset manager. Market conditions remained challenging, which led to third party net outflows in both Global Platforms and Strategic Partnership segments. Within Global Platforms, we attracted net deposits in the Dutch Mortgage Fund, which were more than offset by net outflows in other asset classes. This was in part driven by redemptions in light of the persistent market uncertainty.
Third party net outflows in strategic partnerships amounted to €1,300,000,000 and mostly occurred in our Chinese asset management joint venture, AIFMC. This reflects subdued investor sentiment and less demand for new fund launches. Operating capital generation in the 2023 was negatively impacted by lower revenues as a result of lower assets under management, mainly due to adverse market movements. Let's move on to our growth markets on Slide seven. We continue to invest in profitable growth as evidenced by the 27% increase in new life sales from these markets.
This growth was in part driven by our business in China following the relaxation of the country's COVID-nineteen measures. Operating capital generation of the international segment, excluding TLB, increased by 57% as a result of business growth. On Slide number eight, you are seeing that we continue to maintain a high pace on the transformation of Aegon. Starting with the ASR transaction, we are making good progress with the disentanglement of Aegon in Netherlands from the group. We are confident that the necessary regulatory approvals in order to close the transaction will be received in the 2023 as planned.
In The UK, we have announced the sale of our individual protection book to Royal London. The transaction supports a strategy to focus on further improving and growing The UK platform activities by freeing up resources and management time. Outside of our core perimeter, we continue to exit non core businesses and manage capital tightly. We sold the Aegon Insights activities in Japan and Hong Kong and decided to liquidate our remaining e broker activities in Indonesia. In our asset manager, we've also made progress on our strategic agenda with two announcements regarding our collateralized loan obligation, our CLO franchise.
In The U. S, we entered into a strategic partnership with Lakemore Partners to further strengthen our successful and growing U. S. CLO management activities. Aegon will originate the CLOs and Lakemore will provide the necessary equity behind these transactions.
In Europe, we agreed to buy NIBC's European CLO management activities. The move allows Aegon to expand its successful U. S. CLO franchise into Europe. These transactions cater to asset management's capabilities in the alternative investment space, which is the strength of the business.
I now hand over to Matt Ryder for the capital update for the 2023.
Speaker 4
Thank you, Lard, and good morning, everyone. Let me start with an overview of our capital position on Slide 10. As a reminder, operating capital generation and free cash flow for this quarter and for the comparative period last year exclude the contributions from Aegon the Netherlands following the transaction with ASR. Operating capital generation before holding, funding and operating expenses amounted to €292,000,000 for the 2023. The increase compared with the prior year's first quarter reflects business growth and improvement in claims experience and lower expenses.
Free cash flow of €47,000,000 mainly reflects remittances from Aegon's asset management joint venture in China. As a result of the previously announced share buyback, cash capital at the holding decreased to €1,400,000,000 at the end of the first quarter as planned. Our gross financial leverage amounted to €5,600,000,000 or 5,400,000,000 based on a euro U. 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. Against the continued volatile backdrop, the group Solvency II ratio increased by two percentage points over the first quarter to 210%, driven by capital generation and an increase of diversification benefits. For our three main units, we maintained strong capital ratios with each of them remaining above their respective operating levels. Let me talk to the movements of the capital ratios on Slide 11. U.
S. RBC ratio increased by 11 percentage points over the quarter to 436%. This is mainly driven by strong operating capital generation for the quarter, partly offset by dividends to the Intermediate Holding Company. There was a positive impact from market movements and onetime items. These were primarily driven by a tax benefit.
As in the previous couple of quarters, the impact of credit impairments and rating migrations on the RBC ratio was negligible. The Solvency II ratio of the Dutch Life unit decreased to 191, mainly due to a refinement of the internal model. We adjusted the correlation parameters, which led to an increase in required capital. This is a stock and flow impact because the required capital will be released over time as the business runs off. Market movements also had a negative impact, mainly as a result of lower real estate revaluations and spread movements.
The solvency ratio of Scottish Equitable, our main legal entity in The U. K, increased by two percentage points to 171%. Let me now turn to Slide 12 to give you more detail on Aegon's operating capital generation in the first quarter. Total operating capital generation before expenses for holding, funding and operating expenses was €292,000,000 this quarter. This is an increase of 5% compared with the 2022.
Earnings on in force before holding expenses contributed €355,000,000 to operating capital generation, an increase of 17% compared with the prior year's quarter. The increase was driven by Transamerica and reflects improved claims experience, reduced expenses and growth of our strategic assets. The increase in earnings on in force was partly offset by higher new business strain compared with last year, mainly from profitable business growth in The U. S. Individual Life and Retirement Plan businesses.
This is in line with our ambition to allocate capital to those businesses where we can build leading positions and generate attractive returns. The release of required capital was higher than usual, mainly as a result of the repayment of a short term loan. This reduced collateral requirements, which in turn led to a release of required capital. All in all, we remain on track to meet our guidance of at least €1,000,000,000 operating capital generation from the units in 2023. On Slide 13, you can see that cash capital at the holding decreased to €1,400,000,000 during the quarter, which is in the upper half of the operating range.
In the 2023, we spent a total of €152,000,000 on share buybacks. Euros 109,000,000 of this was a consequence of the €200,000,000 share buyback program that we announced at our fourth quarter earnings release. The remaining 43,000,000 related to buybacks needed to meet our obligations resulting from share based compensation plans. Free cash flow for the quarter was mainly driven by a dividend from our Chinese asset management joint venture, AIFMC. This was largely offset by capital injections into country units, mainly related to our business in India.
Let me now turn the page for an update on our financial assets on Slide 14. Here, we summarize the continued value creation from our financial assets where we increasingly benefit from the actions we have taken on these books over the last years. In the first quarter, we continued our track record of successfully hedging the targeted risks embedded in our variable annuity guarantees, achieving 97% hedge effectiveness. In long term care, our primary management actions are rate increase programs. We have obtained regulatory approvals for additional rate increases worth US42 million dollars in the first quarter.
The total value of approvals achieved since the start of the program now stands at $513,000,000 and we will continue to work with state regulators to get pending and future actuarially justified rate increases approved. The Dutch Life Insurance business generated 111,000,000 of operating capital generation, more than covering the €75,000,000 in remittances that the business paid to the Intermediate Dutch Holding Company. Let me conclude with some words on the strength of our balance sheet on Slide 15. The start of this year has been volatile as a result of issues in the banking sector in both Europe and The U. S, following continued interest rate hikes from central banks to curb inflation.
We have navigated this market environment well, benefiting from the actions that we have taken to improve our risk profile and strengthen our balance sheet. We have significant financial flexibility with strong capital positions in the units and cash capital at the holding near the upper end of the operating range. Next to this, Aegon maintains a conservative and well diversified fixed income portfolio. Our U. S.
Corporate bond portfolio is defensively positioned with an overweight to higher rated bonds relative to the benchmark and is diversified across industries. For the banking sector specifically, Transamerica has limited exposure to U. S. Regional banks and within this subsegment has focused on higher rated banks and instruments. In addition, we have a robust liquidity management framework.
And as a consequence, we are overweight liquid assets compared to other U. S. Life insurance companies. In The Netherlands as well as in The U. S, we are invested in mortgages.
The Dutch mortgage book is focused on residential housing with a low loan to value ratio of 54% and is known for its very low delinquencies even in unfavorable economic environments. Similarly, the commercial mortgage loan portfolio in The U. S. Has a low loan to value ratio of 50%. More than half the book is invested in multifamily residential properties and the book has limited near term maturities.
Our direct real estate exposure in The Netherlands and in The U. S. Total €6,000,000,000 This is a defensively positioned portfolio with significant investments in residential properties, especially in The Netherlands. The overall direct real estate exposure to office properties across our portfolio is very limited at around €200,000,000 or less than 20 basis points of our combined general account in The U. S.
And in The Netherlands. As we look ahead, our financial flexibility and disciplined investment approach put us in a strong position to navigate the current macroeconomic environment and execute on our strategy. And with that final note, I now pass it back to you, Lard, for your concluding remarks.
Speaker 3
Thank you, Matt. Thanks, Matt. In summary, we are consistently delivering on our strategic and financial objectives. We are on track for closing the transaction with ASR in the second half of the year. We have further optimized our business portfolio and sharpened our strategic focus.
We are delivering on new business growth in the strategic assets and growth markets. And last but not least, we maintain a strong balance sheet and deliver on our commitments to shareholders despite the volatile environment. Therefore, I'm confident that we will deliver on our strategic commitments and on our 2023 financial guidance. And finally, I kindly want to remind you of our Capital Markets Day on June 22 in London, where we will update you 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. We will discuss the next chapter of our strategy, and I hope you will all join us for the event. I would like to open the call for your questions now. Please limit yourself to two questions per person.
Sharon, please open the Q and A session.
Speaker 0
Thank We will now go to your first question. And your first question comes from the line of Andrew Baker from Citi. Please go ahead.
Speaker 5
Great. Thanks for taking my questions. So the first one is just on the Aegon Netherlands closing. You stay on track for the second half. Are you still thinking this will be July?
And then when the deal closes, should we expect a lower holding company cash target range and also lower holding company costs? And then the second one relates to the foundation. Vlad, I know both you and Matt actually were on the executive committee of the foundation. Just wondering whether there's been any discussions around the foundation's long term ownership stake in Aegon when you no longer have any operational presence in The Netherlands. Thank you.
Speaker 3
Yes. Thank you, Andrew, for your questions. I think I'll take most of it, quite frankly. The let me start by the closing. We're on track.
We've always given guidance that we plan to or we hope to close the transaction in the second half of the year. Last time I checked, July is in the second half of the year, And we are on track to do what we need to do. Now obviously, we are dependent on the regulators to provide their regulatory approvals, and we are working hard to try and obtain them. We're also progressing well with disentanglement activities. As you may appreciate, that also is a lot of work.
But I would say we're on course for closing the transaction as planned. When it comes to put the situation post transaction, we are we have a cash capital target range of half a billion to a billion 5, which we have set up. It's quite a wide range. We we realized that, and we set that up at the time of the Capital Markets Day in 2020 because we are Aegon is undergoing a a very substantial transformation and restructuring. And that's a path that will take multi years in order to ensure that it is delivering the ultimate objective, which is a well managed, respected company with advantaged businesses in chosen markets.
So we are operating within that range, and we are standing now at 1,400,000,000.0 Post closing, in terms of lower holding company costs, there will be a number of employees that are currently working at the corporate center that are working predominantly for The Netherlands. They will move to ASR post closing as part of the transaction. That is what I can say about that. When it comes about when it comes to the foundation, let me just remind you that the association Aegon it's not a foundation, actually. It's an association.
The association Aegon is a stockholder of Aegon NV and with, you know, a stock holding in the range of, let's say, 14%, 14.5%. The origin of that goes back to the creation of Aegon, where Aegon was formed by a mutual company and a listed company, where the mutual company contributed its sold basically its business activities to the listed company without creating Aegon and and receiving stock in that listed company. That listed company is now called AegonMD. So that's so that's where where the where the association is. Matt,
Speaker 6
anything to
Speaker 4
add to this? No. No.
Speaker 5
Thank you.
Speaker 0
Thank you. We will now go to your next question. And your next question comes from the line of Michael Huttner from Berenberg. Please go ahead.
Speaker 7
Fantastic. Thank you. And thank you for these smooth results. I think you said steady as she goes, I'd say, I don't know, American smooth, maybe. Anyway, two questions.
One, the €225,000,000 I think, of new business strain, which looks like a huge number, if I realize it, that's 1,100,000,000.0, that's a big investment. Can you share a little bit the characteristics of the payback period for that or the profitability of the IR, just to get a feel for how much profit this will generate? And then the second question is you beat on U. S. Mortality, which is lovely.
And I just wondered if you can give a a little bit of a a feeling for how you see US mortality. You are exposed to US mortality developing. It has in the past been you you've done lots of hedging in the past, I think, years ago, two and a half years ago. And of course, at the start during COVID, had very big costs related to that. I just wondered if you can get a feel for how you see the situation now, whether mortality could now become a positive.
Thank you.
Speaker 3
Thank you, Michael. Matt? So let me
Speaker 4
so maybe on the new business strain, let me talk about the in terms of U. S. Numbers. So for the, you mentioned the two twenty five number, which is for the group. But for the 2023, new business strain in The US was 168,000,000, which is significantly up over, I think, in first quarter of the previous year, we're at 122.
So a significant increase in new business strain, but it is very much in line with the increase in the sales. So given the fact that, you know, typically for the for The US Life business, we're pricing for internal rates of return at a minimum of 10%, but we've typically been getting more than 12%. So this is exactly where we wanna be, in a position where we're generating profitable new business, and that's reflected in the, in in the strain that you see in the, in the '23. The next one on the beat on mortality. Mortality results in The US overall were about $18,000,000 worse than our long term management best estimate expectations.
However, I think you'll recall that in the first quarter, we typically have some some, some bad seasonal mortality. So what's happened in the first quarter is it has not been as bad as what we would typically expect. And of that eighteen million, about half of it, only half of it came from direct COVID claims. So what we're seeing is the the the code the direct cause of death, mortality gradually really winding down. And and well, you know, you you asked the you know, what the outlook is for the remainder of the year.
Our outlook is that we would get on our management best estimate for the full year in total, which would imply a little bit better for the last three quarters of the year.
Speaker 7
And just on the new business trend, can you just say that what is the payback on this business? Is it really short or long?
Speaker 3
Well, we we price
Speaker 4
so the the the minimum requirement that we have is less than ten years, and we're we will we'll be below well below that for the full year. Brilliant. Thank you.
Speaker 0
Thank you. One moment for your next question. And your next question comes from the line of Nazeem Ahmed, UBS. Please go ahead.
Speaker 2
Thanks. Good morning. First one is just a confirmation, on the IRR, the greater than 12%. Is that also for retirement plans, or is that just for individual solutions? Second, Lars, you've been consistent in kind of saying that the transformation for Aegon Group is continuing.
And on portfolio optimization, you've taken lots of small actions over 1Q, and The US market still seems to be active with some players taking actions, derisking actions there. Can you talk about what optionality you have, across the core businesses, to further, optimize the portfolio? And then on World Financial Group, have you done some analysis that you can share on how the agent numbers track versus peers and how productivity track versus peers? Thanks.
Speaker 3
Yes. Good good good morning. The first question I'll take the last two, but the first question to Matt.
Speaker 4
Yeah. So on the the number that I gave you really relates to the to the individual life. And and, really, the the main product that we're selling is in is in indexed universal life products. So we're getting you know, we've typically been getting far over 12%. But on retirement plans, we actually actually get even higher than that given the nature of the business.
Speaker 3
Yes. When it comes to the other two questions, let me start by the last one, WFG. We're very pleased with the progress that this very sizable agency network is making. If you compare the current 67,000 of agents that we licensed agents that we have that they have versus the same period last year, it's 10,000 more. If you would look across the industry, we are the fastest growing, WFG is the fastest growing network in that sense and also very productive.
So in that sense, we are very pleased with the progress that they're making, and it's underpinning given the partnership we have with them. It's underpinning to a large extent the sales growth that we are observing in the traditional life business, especially with the IUL flagship product that we have. The on the other question you had regarding transformation. So the when we started out this journey, I think Aegon was in 20 markets or something like that. And we said that we would focus on a number of core markets and growth markets.
So we said we'd focus on The US, UK, The Netherlands, and then Spain and Portugal, Iberian Peninsula where we have a partnership with Banco Santander, Brazil, China, and the global asset management business. We've said that all the other activities and businesses that we have are in a bucket called run type capital and bias to exit. And what we've basically been doing since the start of our journey is we've been working diligently on on that last bucket, if you will, of activities to restrain its consumption of capital and exit where we can. And also this quarter, we've been demonstrating progress there to ensure that we basically maintain that ultimate focus, which have set ourselves out to do at the Capital Markets Day. Now these are smaller things that we're doing.
We're next to that, we've made a clear distinction between product lines that we want to grow and expand. We call those strategic assets. And then financial assets, the objective of which is to reduce the cost of capital or to reduce the risk profile of the cash flows from these financial assets and make them emerge quicker wherever we can. And also there, we I think over the last years have made a lot of progress in managing very actively those financial assets and reporting every quarter on the progress that we're making. We will continue to do so with the financial assets through rate increase, for instance, in the, how do call it, long term health book, but also to continuing all activities that we can do to improve the back book of these financial assets and its risk profile and the emergence of the cash flows.
We have a framework for that, unilateral actions, bilateral actions, and we will continue our work there. And we still have work to do on the businesses that are noncore. So in that sense, this work is still ongoing, and we're making progress every quarter.
Speaker 6
Perfect. Thank you both.
Speaker 0
Thank you. We will now go to your next question. And your next question comes from the line of Sudarshan Butchra from Societe Generale. Please go ahead.
Speaker 8
Hi. Good morning. Two questions from my side. First is on the lapse of the surrender experience in The U. S.
Business. I mean, comments on that would be very helpful. Second one is on just a clarification with regards to the, you know, the dividend upstream to the US intermediate holding company. Now, I mean, is this something that you've been doing recurrently in the past, or is this something of a more recent development? Because, I think over the only over the last I think Q3 and now in Q1, we are hearing about this.
So what is the rationale behind this? And why is this happening? Those are my two questions. Thank you.
Speaker 3
Yes. Thank you for your quick questions, Sudarshan. I will hand it over to Matt.
Speaker 4
So on on lapses in The US business, let's divide it into two things. One is in the the life insurance business, and the other one is in, let's say, fixed annuities where we look at surrender experience. So on the on the life insurance side, it's pretty much exactly in line with our ex expectations. So there's nothing, nothing really new there. Fixed annuity side, you know, a topical thing is that with the interest rate rise, you know, are we seeing increased surrenders there?
We are, to a certain extent. We've been typically running around 4% annualized, over the last several quarters. We've ticked that's ticked up a little bit to to about 8% annualized. But given the fact that this book is it's down significantly, I think the the account value on it is down to about 8,000,000,008 billion dollars from, like, 30 a number of years ago. This is this is this is quite easily managed.
With respect to the dividend upstreaming, this is something that, you know, that we always have to control the timing of in The US businesses. Typically, dividends can be paid out of The US like car companies less frequently than they could be in Europe. So for example, you I think you recognize in the life company, we've gone to, like, a quarterly dividend. It's more typical to do annual dividend. So we just retain it in the holding company, and that that'll be upstreamed in the second quarter.
Speaker 8
Okay. And just one more question, if I may, on the commercial mortgage loan book, actually. I mean, in your own book, have you seen any kind
Speaker 2
of adverse developments in the
Speaker 8
first quarter or during April and May? I mean, that's the question. And how comfortable are you with your book given all the concerns that are there in the market? So sorry, that was just one follow-up.
Speaker 4
I think we're very comfortable with
Speaker 2
the book. Maybe just to give
Speaker 4
a little bit of background on this one. We have about 11,000,000,000 of commercial mortgage loans. About 54% of that is sitting in multifamily. It's got, on average, a 50% loan to value ratio in the in the it's got basically occupancy rates north of 90. And in more let's say, more recent times, we we currently have a loan loss provision of only about $12,000,000, on this book, currently, and there have been no delinquencies in the 2023.
So I think we're pretty solid on the CMO book.
Speaker 7
Alright. Thank you very much.
Speaker 0
Thank you. We will now go to our next question. And your next question comes from the line of Jason Kalambosas from ING. Please go ahead.
Speaker 9
Yes. Hi. Good morning. A couple of things. The one is on capital generation.
Excluding the one off, it looks like the run rate is about €270,000,000 so running higher than the $250,000,000 that you're targeting live. Do you think that this will be the case throughout the year? Should we assume that, or do you think that it may have been a bit higher in the first quarter? And, also, the strain, should we assume that the what we are seeing in q one is indicative in The US for the remaining of the year? The other thing, final thing, just on OCG, is the international operation.
It was 70,000,000. Last year, q one was 65. Now they were one offs. You have the TLD deal. So should we assume that going forward around the 20,000,000 ballpark is what we should be expecting per quarter?
And the other thing is just on Canaba. The net there has been a net deposit outflow of that has been much higher in q one and a reduction of the customers, which is the two things that you you put out in your trading update today. Is there any comments, additional comments you could make on on it? That would be helpful. Thank you very much.
Speaker 3
Yes. Jason, good morning. The first three, Matt maybe I can do Knapp first, then and then he'll he'll take the rest. Also, on Knapp, yeah, the outflows, yeah, it has to do, quite frankly, with the fact that Knop is a bank which caters for the smaller part of the SME sector and self employed people with a package package of services, all kinds of payment services, and and the like. We are not a price fighter with KNOP in when it comes to savings rates.
So that has led when the market was repricing and basically savings rates went up, we were not the ones who were in the top top ranks of that, so that has led to some some outflows. But that's it. That's the explanation for that. Matt, the other three, please.
Speaker 4
Yeah. For the for the OCG guidance, you you have our number pretty much spot on. So about $270,000,000 is a clean number for the quarter, and that gives us quite some confidence that we'll be able to meet our guidance that we've given of over $1,000,000,000 for the full year. On the new business strain that we saw in the fourth or in the first quarter, we would actually think that that's going to go up. Really, sales growth has been continuous here.
We like what we are seeing there. We like that we are writing the profitable new business. So I would expect that to go up a bit as the year progresses, pretty much in line with what you would expect out of the out of the sales growth. OCG on international, there's some noise in the there's some noise in the number, and it relates to the reinsurance transaction that we did between TLB in in Asia and the Transamerica Life Insurance Company in The US. If you if you sort of adjust for that anomaly, you would see OCG in the international businesses up about 50% over the last year.
So that's a that's a I think that's a that's a good result. But there is some noise in the in the quarter. The $20,000,000 is a pretty decent ballpark number, I think, for the remaining for the as we look forward. I think that's it.
Speaker 3
Okay. Thanks. Very helpful. Thank
Speaker 2
you.
Speaker 0
We will now go to your next question. And your next question comes from the line of Ashik Musaddi from Morgan Stanley. Please go ahead. Hello, Ashik. Is your line on mute?
Speaker 6
Can you hear me now? Sorry. Hello?
Speaker 0
We can hear
Speaker 6
Yes. Thank you. And good morning, Lad. Good morning, Matt. Just a couple of questions from me.
I mean, if I look at the development in net inflows in U. S. And U. K, I mean, it's a bit different picture. In U.
S. Workplace, you have seen a very significant pickup in net deposits in first quarter this year versus last year, whereas in UK, if I look at the retail side, it's just the opposite momentum. I mean, yes, workplace is still pretty strong. So can you just give a bit of dynamics what is playing out in the market on the net deposit side, both in U. K.
And U. S? And any visibility you have for the rest of the year? So that would be very helpful. And similar thing, I would say, in the asset management as well.
I mean you had a pretty big outflow in asset management as well. So what's driving that would be good to know.
Speaker 3
Ashi. Good morning. This is Lard. On the let's start with the asset manager. The asset management outflows are really driven by the sentiment that we're seeing in the market.
The market volatility is not helpful, obviously, and we've seen, in that sense, a continuation actually what we saw over the last the last quarters. Where I think the difference is that in this this time, in this quarter, we're also seeing that our joint venture in China, AIMC, has also seen outflows, and that's the first. And it has to do also with subdued investor sentiment in China and the lack of demand for a new fund launches there. The way we the way we respond to that is that we aim to redo to improve the margins by by improving efficiency on the asset management side, specifically in the global platforms business, which an example of that is that we're implementing a new technology system. We started that project two years ago.
We aim to finalize that this year, post which we will be able to run the platform in a much more efficient manner. And as a result, that would help margin. The second the second thing we're doing is making sure that our asset manager is focusing on those strategies where it has a, let's say, a strong capability and where it can be distinctive, which is more in the alternative fixed income space, multi asset, fiduciary for the retirement side, and responsible investment strategies. And that's and private debt and real assets. That's basically what our asset manager is focusing on, and that's also how you need to see the acquisition and the and that we made on the NIBC CLO platform and the partnership we have with we've we've we've we've put in we've put in place with the Lakemore in The US.
Now when it comes to the outflows in The US and in The UK. Indeed, different picture. In The U. S, we're seeing strong sales momentum, as we've discussed. We also saw less withdrawals and past in the retirement business line.
We already noticed a written sales up a number of quarters. And if you have a number of quarters in which you see the written sales increasing, then, of course, that builds the base for for for better flow profiles, which we're seeing coming through. So, basically, what you're seeing in this quarter on the commercial side of The US, it should not be looked at in a stand alone basis. You should actually look back at the last quarters, and what you will see is that the life insurance side already was growing quite a lot over the last year. And also our mid market retirement sales plans activity has been ticking up nicely quarter by quarter by quarter.
And this this quarter, we're now seeing we're we're we're actually reaping the benefits of building a bigger base of flows. And that's, I think, very helpful picture. Now on The UK, we noticed it's like a tale of two cities, if you will, tale of two cities. One is the workplace solutions business where, again, we did not only see growth this quarter, but also past quarter was actually the best quarter the Workplace Solutions platform had since 2018. So that business is ticking along pretty nicely.
What we're seeing on the retail platform is that we still need more time, frankly. We have said at Capital Markets Day that the retail platform requires additional investments and technology improvements to ensure that we maintain preference from the IFAs that are using it and that we are improving. So we are seeing new customer journeys and better performance, which is helpful. What is not helpful is the volatile backdrop in the market, which for retail investors makes them cautious, and that is something that we're seeing across the sector and also in our business. And that's driving the flow profile in The UK.
I hope that helps.
Speaker 6
Yes, that's very clear. Thank you. Thanks a lot, Luke.
Speaker 0
Thank you. We will now take our last question for today. And your last question comes from the line of Benoit Petrarque from Kepler. Please go ahead.
Speaker 10
Yes, good morning. So my questions are the following. So the first one will be on dividend upstream for 2023 and the free cash flow, ultimately. I think you've guided for free cash flow of roughly CHF 600,000,000 for 2023, putting the total remittance at around CHF 900,000,000 for 2023. I was wondering, we are mid-twenty twenty three now.
How do you see this free cash flowremittance figure for the year? And also for The U. S, I think you had a EUR 500,000,000, 600,000,000 in mind for full year. I saw that you reserved some dividends at all in level in The U. S.
So are you still in line with what you had in mind earlier this year? Second one will be on the Dutch Solvency II ratio, 1.91%, weaker than expected. I was wondering if you've seen more positive trends in the second quarter, thinking about also on the market side. And could you detail also the market movements for The Netherlands in the first quarter in the different parts? Then the final one would just be on the fixed annuity business.
We've seen rates are kind of stabilizing at much higher levels in The U. S. Do you think this business is more attractive also looking at internal rate of returns on these products? Thank you.
Speaker 3
Matt, maybe it's good if you take the first two questions. Yes. What do want me to do immediately the fixed index annuity business? Anything you want. Yes.
I'll do that first, Benoit, and then Matt will do the other two questions. So on the fixed annuities, yeah, I mean, this is indeed indeed correct that that, you know, rates are up. It is a more conducive environment for for for fixed index annuities. We we we we however, we have a strategy, and we focus very much on the product lines that we have chosen. You know, we're seeing the early shoots of progress in The US on the life insurance side, on the retirement side, and that's really what we're focusing on.
I think focus is always quite important, so that's that's that's what we do. But in general, I would agree with you that fixed annuity fixed annuities in a higher rate environment are are are a potential, but we're focused at the at the current product lines. So, Matt, over to you.
Speaker 4
On the dividend upstream point, we're not changing our guidance. So we've said around $600,000,000 free cash flow for the full year. You mentioned the I think the remittance that we got from AIFMC, the asset management joint venture. And I would say that gives us more confidence that we're going to be able to meet or exceed that 600,000,000 target. But at this point, we're not changing the guidance.
With respect to the Dutch Solvency II ratio, so yes, there was a decline over the course of the quarter. And just to maybe walk you through it, at the end of the last quarter, they were at 205%, and this and this quarter reported one ninety one. The breakdown is that model and assumption updates that were and and I mentioned it in the in the brief notes in the presentation related to correlation coefficients that got changed. This is a normal course of business update that we do. And again, that will come back as an additional flow as the business continues to run down.
There was one impact where we were in a slightly more than usual over hedge position at the end of the first quarter, and it accounted for an additional amount of required capital that we needed to hold. And that accounted for about five percentage points of the drop in the solvency ratio. But we've already seen you asked, what have we seen in the second quarter? How is it developing? So that has already gone away.
So that has already reverted back in the during the course of the second quarter. And for the balance of it, I mean, really, had operating capital generation, which was offset by the remittances paid by Aegon, the the life company in The Netherlands. And then there were some small market movements. But in general, I think that, that explains it reasonably well.
Speaker 0
Thank you. We have received one further question. One moment, please. And your question comes from the line of Michel Ballotore from KBW. Please go ahead.
Speaker 11
Yes, thank you for taking my question. So the first question, if we look at your banking bond portfolio, mean, considering the current situation with regard and sentiment with regard to especially the regional U. S. Banks, I mean, what is your view? Are you happy with your current asset allocation with regard to specific asset?
And also, if you can give some color in terms of any rating migration, what is the impact on capital? Thank you.
Speaker 3
Thank you, Miguel. It's Matt. Yes. On, let's say, overall banking exposure, and
Speaker 4
this is this is the entire amount of banking exposure in the the general accounts in the in The US. We have about 4,800,000,000.0 of total exposure. About two thirds of that is rated a rated a or better. With respect to regional banks, we only have 230 some odd million of exposure. We have no exposure to Silicon Valley Bank.
We have no exposure to Signature Bank, nothing in First Republic. So it's actually very, very minimum. The other the other question that we typically get asked is, you know, what do we have in preferred shares or AT one in in the portfolio? And that's actually a very low number, 156,000,000. So overall, the, the banking the let's say, the the corporate bonds that we have in the banking portfolio are defensively positioned.
And I think we're we we have no cause for concern. We have no cause for concern there. What's the next question? Oh, rating migration. You will notice, in the in the disclosures in the appendix, we gave, some new guidance with respect to, sensitivity of the US RBC ratio to rating exposure and credit defaults.
Previously, we had lumped those two together, and now we've split them out. So what you see is a, basically, a one in 10, one in 10, kind of shock, and that's what's being reflected in the in the figures now. So we have broken that out. The way that we have done that is in the, let's say, in the credit migration, we say a one in 10 shock is basically 10% of the whole portfolio gets downgraded by one big letter. That's the way that's the best the best way to think about it.
And then for end, defaults are are are pretty obvious, but it's a but it's a one but it's basically a
Speaker 1
one in 10 shock.
Speaker 4
Alright. Thank you.
Speaker 0
Thank you. We will now go to the next question. And your next question comes from the line of David Balmer from Bank of America. Please go ahead.
Speaker 12
Yes, good morning. Thanks for the additional disclosure on the assets and real estate. Just to come back on real estate specifically, can you just remind us what the treatment is for revaluations in the RBC framework and whether we should be expecting some of that later in the year? And then secondly, on sales and U. S.
Individual Life, do you think you outperformed the markets in the first quarter? And more generally, you talk about product competitiveness. What does that mean in practice? How do you Transamerica's products differ? And how do you think that played to your advantage in Q1?
Thank you.
Speaker 3
Yes. Thanks, David. Let me do the growth side, and Matt's going to take care of the real estate treatment and the RTC billing. I would say that so it's too early to say what we have done versus the market because the the the usually, the market data takes a bit of time before it is consumed by the industry. So I can't get can't help you there, David.
But what we have been seeing from other peer disclosures is that we're doing pretty well in this in in in the individual life side. And let me remind you, we have a, you know, ambition to be a top five player in that in that area. Now we we sell actually pretty plain vanilla term life, final expense, whole life, predominantly also index universal life. We we I think the strength the underlying strength of our sales profile is not, you know, because our products are markedly different or because we price differently. Not at all.
This is really distribution strength. So if you look at WFG, 67,000 agents, 10,000 more than last year, licensed agents. Productivity of that agency channel has gone up. I mean, that's really driving. That's the that's the core underlying driver of that growth.
The second thing is that we are also we've also launched the IUL product, the Unix Universal Life product in the brokerage market, which is an adjacent distribution market where where we aim to obviously sustain the growth that we are currently observing by expanding in other channels with the same product. So that's that's how you need to
Speaker 6
look at it. Now when it
Speaker 3
comes to real estate, Matt.
Speaker 12
Thank you, Lara. Just on the just on the on on on this topic, how how much do you need in terms of sales to be in the to achieve your your ranking target?
Speaker 3
That's still a way out. We're not we're not yet that not yet there. So we need a couple we we need we need some time to get there, but we're on our way.
Speaker 2
Let me let me pick up the
Speaker 3
We're now we're now we're now in the top 10 somewhere, but we we want to be in the top five player. So we've got some some room to go there. Yeah.
Speaker 4
I I can pick up the real estate one. So I I think you're asking how is it reflected and how often do we revalue? So we we revalue the real estate portfolio in The US on a quarterly basis. And the way that that is reflected in the statutory books for capital purposes is that it is market, so we carry it at market value. But on the other side, there's a very high risk based capital charge.
So it works out that if there are there if there are fluctuations in the value, a lot of times, it's offset in the in the risk based capital charge. So there's not really a lot of sensitivity to that in the RBC ratio itself.
Speaker 12
And what was the movement in in q one?
Speaker 4
Degligible. On
Speaker 8
the asset side? Degligible. Okay.
Speaker 3
Thank you.
Speaker 0
Thank you. I will now hand the call back to Jan Willem. Please go ahead.
Speaker 1
Thank you, Sharon. This concludes today's Q and A session. On behalf of Lark and Met, I want to thank you for the lively interaction. Should you have any remaining questions, please do get in touch with us of Investor Relations. We are 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.