Aegon - Earnings Call - Q1 2024 TU

Transcript

Speaker 0

Good morning, everyone. Thank you for joining this conference call on our first quarter twenty twenty four trading update. My name is Yves Cormier, Head of Investor Relations. Joining me today are Aegon's CEO, Lars Frieser and CFO, Matt Reider to take you through our results. After that, we will continue with the Q and A session.

But before we start, we would to ask you to review our disclaimer on forward looking statements, which you can find at the back of the presentation. And now I would like to give the floor to Lars.

Speaker 1

Yes. Thank you, Yves, and good morning, everyone, and thank you for joining us today. I will start today's presentation by running you through our strategic and commercial developments before handing over to Matt to address our first quarter results in more detail. So let's all move to Slide number two to review the highlights of the quarter. The beginning of the year was marked by continued commercial momentum in The U.

S. And Brazil as well as net inflows at our asset manager. In the first quarter of the year, we reported €256,000,000 of operating capital generation and included seasonally higher mortality in The U. S. We remain on track to meet our guidance of around €1,100,000,000 for 02/2024.

The capital ratios of our main units in The US and The UK remain healthy and well above their respective operating levels. Furthermore, cash capital at the holding amounts to €2,000,000,000 well above the operating level despite making good progress executing the €1,500,000,000 share buyback program. At the end of last week, we had completed 92% of this program. As we indicated earlier, we expect to complete the share buyback program by the June. Today, we are announcing a planned new share buyback program of €200,000,000 which we expect to start at the July and to complete by the 2024.

Commercially, the 2024 saw Aegon maintain commercial momentum. The UK workplace business and our business in Brazil are performing well, and we recorded net deposits in both segments of our asset manager. At the same time, we continue to see challenges in our UK retail business. The U. S.

Business again performed well. We continue to execute on our strategy to transform Transamerica into America's leading middle market life insurance and retirement company while continuing to reduce exposure to financial assets. Before discussing the commercial results, I would like to address the changes we have made to segment reporting in order to better reflect Transamerica's strategy and business model on slide number three. We have decided to regroup Transamerica's businesses from two to four business segments that are fully aligned with our strategy. To reflect the importance of the World Financial Group or WRT for our strategy, we have created the distribution business segment.

The business segment savings and investments includes the asset based businesses, retirement plans, mutual funds, and stable value solutions. The third strategic assets business segment is protection solutions, which consists of the insurance products, including indexed annuities. This is a central focus area for further growth in The US middle market. Finally, all financial assets have now been grouped together in one reporting segment. This includes variable annuities, fixed annuities, including single premium group annuities, the legacy universal life book, and long term care.

This resegmentation provides more transparency on our growth areas while presenting the results of financial assets separately. Finally, the new business segments also take into account the applicable IFRS accounting standards with the insurance businesses included in protection solutions and financial assets and the non insurance businesses grouped into distribution and savings and investments. Let's move now to Slide number four to discuss the recent commercial performance. Starting with WFG, our ambition is to increase the number of WFG agents to 110,000 by 02/1927, while at the same time improving agent improving agent productivity. We remain on track with the number of licensed agents increasing by 13% compared with the March to 76,000.

Agent productivity also continues to improve, thanks to the measures WFG has taken. The number of multi ticket agents, which are agents selling more than one life policy over the last twelve months, increased by 12% compared with a year ago. Within the savings and investment segment, let me zoom in on our progress in mid sized retirement plans. Here, net deposits amounted to $1,200,000,000 in the 2024, an increase compared to the same period of last year. Net deposits in the reporting period were amplified by a large full plan sale that we wrote in the first quarter of last year.

In this segment, we also recorded continued growth in ancillary products such as the general accounts table value product as well as an individual retirement accounts. In each of these products now, $11 of assets are invested by our customers. In the protection solutions segment, we are investing in both product manufacturing capabilities and in the operating model in order to position the individual life insurance business for further growth. New life sales increased by 5%, largely driven by higher index universal life sales, partially offset by lower traditional life sales. WFG represented 71% of total Transamerica individual life sales in this quarter, And we continue to write this business with attractive IRRs in excess of 12%.

So let's move now to The United Kingdom on slide number five. In The UK workplace channel, we continue to see solid levels of inflows driven by new schemes and net deposits on existing schemes. Net deposits in the 2024 amounted to £546,000,000 and were slightly lower than the same period last year due to outflows related to the exit of a single low margin scheme. In the retail channel, we continue to see net outflows as investor sentiment across the industry remains weak due to the macroeconomic environment. Annualized revenues lost in net deposits amounted to £5,000,000 over the reporting period, and this was driven by the gradual runoff of the traditional product portfolio and the net outflows in the retail channel.

Combined, these more than offset the revenues gained on net deposits in the workplace channel. On Slide number six, I want to address the progress of the international segment with our joint ventures in China, Brazil and the Iberian Peninsula as well as the TLB businesses in Singapore and Hong Kong. New life sales decreased by 15% compared with the 2024. While we recorded continued good growth in Brazil, this was more than offset by weaker sales in China and Spain. Non life new premium production decreased by 12% with weaker demand in Spain.

Operating capital generation in the international segment decreased by 23%, reflecting asset mix changes in China. So let's turn to Slide number seven to comment on our asset management business. The Global Platforms business reported net deposits of EUR 2,600,000,000.0 in the 2024, returning to positive net deposits after recurring net outflows over the last two years. Strong fund performance and a large contract win in our UK fixed income business drove that result. We also recorded good inflows in alternative fixed income products, one of our focus areas.

In addition, the global platform segment is benefiting from the asset management partnership with ASR. In the strategic partnership segment, we also recorded positive net deposits over the reporting period amounting to EUR 2,100,000,000.0. This was especially driven by our Chinese joint venture, AIFMC in part due to a successful collaboration with a consumer finance platform for money market fund. Operating capital generation increased by €26,000,000 compared with the 2023 to €43,000,000 in the first quarter of this year. This was a result of higher earnings, especially in AIFMC, our Chinese asset manager, which benefited from a onetime expense item.

I will now hand over to Matt to discuss the financial performance of Aegon in more detail, which starts on Slide number eight.

Speaker 2

Thank you, Lard, and good morning, everyone. Let me start with an overview of our financial performance over the last quarter on Slide nine. I want to start with operating capital generation before holding funding and operating expenses, which amounted to €256,000,000 in the 2024. This is 12% lower than the same quarter of last year, mainly reflecting a onetime benefit in the release of required capital in the prior year period. Free cash flow amounted to €14,000,000 during the reporting period, driven by remittances from our international business.

Cash capital at the holdings stood at €2,000,000,000 at the March 2024. The decrease compared with the balance at year end 2023 was almost fully explained by progress made during the period on the €1,500,000,000 share buyback program. Gross financial leverage was largely unchanged at €5,100,000,000 and remains at our target level of around €5,000,000,000 On Slide 10, I want to talk about the capital ratios of our main operating units. The US RBC ratio increased by nine percentage points compared to the 2023 to 441% and remains well above the operating level of 400%. Operating capital generation and market movements each contributed six percentage points to the ratio and more than offset a remittance from an operating company to an intermediate holding company.

The favorable impact of market movements was primarily due to good equity markets. The solvency ratio of Scottish Equitable, our main legal entity in The UK, increased 192% and is above the operating level. This reflects the positive impact from operating capital generation and some smaller favorable onetime items. Let's now turn to Slide 11 to address operating capital generation in more detail. In the 2024, operating capital generation before holding, funding and operating expenses amounted to €256,000,000 a decrease of 12% compared with the prior year period.

Lower operating capital generation in The U. S. And international businesses was partly offset by an increase in asset management. Earnings on in force decreased by 5%. Adverse underwriting experience in UK and higher mortality in The US were partly offset by onetime expense benefits in Asset Management and at Transamerica.

The release of required capital was 25% lower following a onetime capital release in The U. S. In The 2023. New business strain increased by 9%. Higher new business strain in The U.

S. As a consequence of higher sales in individual life and retirement plans. This was more than offset by lower levels of new business strain in The UK due to the impact of the sale of the protection book to Royal London and in China due to lower sales. With EUR $256,000,000 of operating capital generation from the units, reflecting seasonal mortality in The U. S, we are on track to meet our guidance for 2024 of around EUR 1,100,000,000.0.

On Slide 12, I will elaborate on operating capital generation in our U. S. Business. Over the 2024, earnings on in force in our U. S.

Businesses amounted to $285,000,000 an increase of 1% compared with the same period of last year. Earnings on in force benefited from higher fee revenues in the retirement plans business as favorable equity markets increased account balances. Furthermore, earnings on in force benefited from the favorable timing of expenses, which is expected to largely reverse over the remainder of the year. This was partly offset by unfavorable claims experienced in this quarter compared with the prior year period, mainly from some adverse mortality in the Protection Solutions segment. Earnings on in force from our financial assets decreased compared with the same period of last year due to a lower release of voluntary reserves in variable annuities.

For the quarter overall, operating capital generation in Transamerica amounted to $165,000,000 a decrease of 27% compared with the 2023. This was driven by a lower release of required capital from a nonrecurring release of capital in the prior year quarter and from higher new business strain in individual life and retirement plans as we grow our strategic assets. I will now turn to Slide 13 for an update on our financial assets. We are steadily progressing toward our goal of reducing capital employed in our financial assets to around $2,200,000,000 by the 2027. At the March 2024, capital employed decreased to $3,700,000,000 driven by favorable market impacts on variable annuities and the earlier expansion of the variable annuities dynamic hedge program to include the lapse in mortality margins of the riders.

Operating capital generation from financial assets declined in comparison with the 2023, driven by the decrease in earnings on in force. In variable annuities over the 2024, we achieved 99% hedge effectiveness. Annualized net outflows in the reporting period amounted to 9% of the account balance, in line with expectations as the book gradually runs off. In fixed annuities, annualized net outflows as a percentage of the average account balance amounted to 11% as surrender and withdrawal rates increased, although they remain below our long term best estimates. In long term care, we have now obtained regulatory approvals for additional actuarially justified premium rate increases worth $335,000,000 since the 2023.

This represents 48% of the target that we announced at the Capital Markets Day. Claims experience continues to track well with assumptions with an actual to expected claim ratio that was mildly unfavorable at 102%. Regarding the universal life portfolio, by 02/1927, Transamerica aims to have purchased 40% of the $7,000,000,000 face value of institutionally owned universal life policies that was enforced at the 2021. Progress remains steady. And as of the March, we have bought policies for an amount of $1,200,000,000 representing 34% of the face value of the targeted policies.

I'm now turning to Slide 14. Cash capital at the holding amounted to €2,000,000,000 at the end of the first quarter. The decrease from the beginning of the year of about €400,000,000 was driven by the progress we have made on the ongoing share buyback program. Free cash flow during the period amounted to EUR 14,000,000 as remittances predominantly from the international businesses were partially offset by holding and funding and operating expenses. To remind you, we received the bulk of our remittances from the units in the second and fourth quarters.

The remaining difference is largely explained by the net proceeds of the previously announced sale of Aegon's business in India. We expect the current €1,535,000,000 share buyback program to be completed before the end of this quarter. As we are anticipating that our cash capital at holding will remain above the target range of EUR 500,000,000.0 to EUR 1,500,000,000.0 even after the payment of the dividends in the third quarter, we are announcing a planned new share buyback program of EUR 200,000,000. This new program is expected to start at the July and to be completed by the 2024. Let's now move to Slide 15 for a recap of where we stand relative to our financial targets.

We are on a good path to achieve our financial targets for 2025. In April, we have called a €700,000,000 Tier two secondurity and have refinanced this with a $760,000,000 senior unsecured note. This leaves our gross financial leverage relatively unchanged from the EUR 5,100,000,000.0 at the end of the first quarter and at our target level. Operating capital generation before holding funding and operating expenses this quarter was impacted by seasonally higher claims experience, but remains on track for our guidance of around €1,100,000,000 in 2024 and on a path to achieve our target of around €1,200,000,000 in 2025. We remain confident in achieving our free cash flow guidance of more than EUR 700,000,000 in 2024 and our target of around EUR 800,000,000 in 2025 on the back of sustainable operating capital generation growth.

Finally, the progress we are making on our strategic agenda gives us confidence that we can grow the dividend to our stated target of 04/00 per share over 2025. And with that, I hand the floor back to you, Lard, for your concluding remarks.

Speaker 1

Thank you, Matt. And let me recap today's presentation with Slide number 17. We had a good start to 2024. We've seen continued momentum in our strategic assets, and we are making progress in reducing our exposure to financial assets in line with our strategy. We remain laser focused on implementing our strategy and further improve the performance of our businesses.

The transformation of Aegon has many chapters and we are just at the beginning of the next chapter to lead to create leading businesses in investment protection and retirement solutions. I'm confident that we will deliver on our strategic commitments and on our financial targets. On slide 18 of today's presentation, I want to remind you that we will be hosting a webinar on the strategy of our UK business in the afternoon of June 25. I look forward to your participation at this event. Information on how you can attend this event will be published on our corporate website in due course.

Finally, and before we move to q and a, I would like to say a few words about the other announcement we made this morning. First, I am delighted that Duncan Russell, our chief transformation officer, is stepping up to become our chief financial officer. But this is also a bittersweet moment as MedRider, our current CFO, is transitioning into retirement at the August. I've had the privilege of working with Matt over many years, and he has been a marvelous colleague, aspiring partner, and a true confidant in the past four years since I rejoined Aegon. Matt is retiring after more than seven years of exceptional service as CFO of our company.

At the same time, I'm happy we will benefit from Matt's expertise beyond August as he will continue to serve as a nonexecutive member of Transamerica's board. The transition between Matt and Duncan will be effective as of 09/01/2024. Matt will continue to assume the CFO responsibilities until that date, including external engagement with analysts and investors. With that, I would like now 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.

Speaker 3

Please stand by while we compile the Q and A roster. This will take a few moments. You. We will now go to the first question.

And your first question comes from the line of Ian Pearce from Exane BNP Paribas. Please go ahead.

Speaker 4

Hi. Morning, everyone. Thanks for taking my questions. The first one was just if you could go through the normal sort of process of going through the normalized run rate for capital generation, that'd be very useful. Just going through the moving parts there.

The second one was just on the earnings on in force from the financial asset from The US business. That was negative in this quarter. I'm guessing that's just down to some elevated mortality in the seasonality that you would assume there. But what would you say the run rate to the earnings on imports is in a normal quarter?

Speaker 5

If you could just sort of

Speaker 4

talk us through that as well, that'd really useful. Thank you.

Speaker 1

Yeah. Thanks, Ian. Two questions. Matt?

Speaker 2

Yes. So let me take the run rate first. So we did so for the quarter, we did EUR $256,000,000. And then to get to a normalized run rate, you have to make some make few adjustments. So we had some unfavorable claims experience in The US that amounted to amounted to 37,000,037 million euro, mostly as mortality

As I said in the opening remarks, the actual to expected on morbidity was 102%, so that amounted to about $6,000,000 We also had some operating expense variances. So I guess the first one is we had some favorable timing of expenses in the quarter. We would expect those by the way to unwind in the course of the year, but that was for about $21,000,000 favorable. And then we had a higher than average or expected new business strain of about $16,000,000 during the course of the quarter. So those are the puts and takes.

If you also have to take into account some differences within the other businesses and asset management, as Lard had mentioned, we did have a onetime good guy expense thing in the AIFMC, a Chinese joint venture of about 17,000,000 And then we had some bad guys in China, mainly in international of around 9,000,000. If you do all the puts and takes here, you get to a clean run rate of about €280,000,000 which puts us on track to get to the 1,100,000,000 by the end of the by the end of the year.

Speaker 1

And there's a need for

Speaker 2

us for financial assets? Yeah. Financial financial assets are just gonna be choppy. I mean, you you are gonna get that from time to time, and there are there are various variances that are coming in. But in general, we're looking at OCG guidance for the for the financial assets of around of around 200,000,000 a year through kind of 02/1927.

Speaker 4

Okay. Thank you.

Speaker 1

Thank you, Ian.

Speaker 3

Thank you.

Speaker 4

We will now go to the next question.

Speaker 3

And your next question comes from the line of David Balmer, Bank of America. Please go ahead.

Speaker 6

Good morning. Thank you for taking my questions. The first one is just a follow-up on OCG. So you're now tracking fairly in line with your yearly target. I would have expected equity markets, higher reinvestment rates, maybe a faster buyout in Universal Life as well to all be supportive this year and more supportive than we thought the middle of last year.

So is there any reason that all of these items shouldn't help you outperform the €1,100,000,000 target? I'm aware that the new business strain is going up, but is that the only factor offsetting the benefit, the positive items? And then secondly, have a question distribution risk in The U. S, please. So we've had a pickup in market concerns over insurance agent distribution practices in the last few months.

So could you share your thoughts in this context about the such risks for WFG, please?

Speaker 1

Yes, David. Good morning. I'll take the second one first, and then we'll go to your OCG. So I'll I'll talk about the distribution. We're very pleased that we have WFG as a very strong and well established distribution franchise as we aim to grow into the segment of middle market America, so middle market retail households.

And this is particularly the area where the 76,000 agents are focused on. It is a well established sales force with licensed agents with strong compliance processes in place and practices in place. So we are very pleased to have and proud to have that capability to underpin the growth that we aim to achieve in the life insurance business.

Speaker 2

Matt? Yeah. With respect to the respect to the market movement, so what I gave you what I gave you before was sort of what's a clean run rate for the first quarter of the year and it works out to be about EUR $280,000,000. But what you've got going on is you had equity markets in The U. S.

Up about 10% in the first quarter of the year. So that's going to bode we've got a little bit of tailwind behind us for performance throughout the balance of the year. And you might think something on the order of maybe EUR 50,000,000 round numbers for the benefit of that for the remainder of the year. Maybe back bake a little bit of that into your forecast, but it really depends on what equity markets do for the balance of the year. It still gets you to, again, around $1,100,000,000 but you can do the math on it.

Speaker 6

Thank you. Laurie, can I just follow-up on the first point? There's also linked to distribution, but slightly different. There's a there could be a new set of fiduciary standards coming into force later in the year for retirement products. What would be the implications for Transamerica if that were to come through?

Speaker 1

Actually, you're talking about the Department of Labor fiduciary rule, and that's what it's Yeah. Exactly.

Speaker 7

That's called

Speaker 1

how is it called in a colloquial language? Well, first of all, you know, we are all in favor of of appropriate regular in effective regulation around around advice. At the same time, we also believe that that regulation needs to always be balanced to ensure there's proper access that clients can have to good advice. And this rule, it's a 500 page document, so we're still trailing through it and try to fully understand it. But where we are taking it as we stand today that we are very well positioned to deal with this.

We already have quite extensive practices in place and documentation practices in place. So we need to adapt here and there some documentation and some processes, but nothing that we believe will have a material impact on our ongoing business or on our distribution company. I do wanna remind you of one thing though, David. I don't know to to what extent you're familiar with that. Something similar was introduced in 2016 and was subsequently in court thrown out.

And what we are observing since this rule came out a couple of weeks ago, ten days ago, is that indeed a legal action like we saw in 2016 is has started to commence already. So we also need to evaluate whether depending on how that goes, what this rule if and when and how this rule will be indeed effect implemented. Let's put it that way.

Speaker 6

Understood. Thank you.

Speaker 3

Thank you. We will now take the next question. And your next question comes from the line of Farooq Hanif from JPMorgan. Please go ahead.

Speaker 7

Hi, everybody, and I hope you can hear me. I just wanna say congratulations to both Matt and Duncan, please. But just two questions. Firstly, on the the STOLI, the institutionally owned life policies, will there be an ambition to go beyond the 40% if you think there's appetite for this? What are your views on that?

And the second question is on the on the choice of €200,000,000. Is it just a number that you think is appropriate to get down to your cash target or, you know, what was the thought process around 200 specifically? Thank you.

Speaker 0

Take

Speaker 1

Let me take well, we first will do this. We Matt, let just go first. I'll take take the

Speaker 2

targeted policies, the $7,000,000,000 face amount by the 2027, but we're already sitting at 34%, which is really good, right? So we had invested about $700,000,000 into the program. Currently, we've been able to recycle a lot of that. So we've actually been able to purchase contracts worth about $1,200,000,000 so far. So I would say it all depends on pricing.

40 is a it's a good ambition. We'll look at it as we go forward. But we want to make sure that we get the good returns that we're expecting out of this before we get ahead of our skis here. So for right now, we're going to keep the 40% target out there. We'll see what the market gives us, and we could go beyond that maybe, but right now we're just making good progress.

Speaker 1

Yes. And Farooq, very kind of you. Congratulations to Duncan and to Matt are well received. Thank you. On the share buyback, well, it derives from our capital management framework.

Simply put, if there is surplus cash capital beyond what we need to execute on the transformation as a company and if we cannot invest it in value creating opportunities, then we will return it to shareholders in the most efficient form. This is our capital management mantra since the beginning of my tenure here. And we are, as you know, in the market with a $1,500,000,000 buyback. We are at the tail end of that. Still need to do a little bit, but it's going to be finished before the summer.

We are above the target operating range for our cash position. So it's very and we've observed that it's very likely that our cash position will still be above the range. So we said, okay. We evaluated and said that we're announcing a new buyback program today of 200,000,000, which we will complete by the end of until before the end of this year.

Speaker 7

And may I just ask, and I'll understand if you don't answer this, but, what the nature of your conversation is with ASR about how they would like to progress going forward. So, I mean, what would your preferred option be if ASR decided, for example, to start its own share buyback program?

Speaker 1

We well, first of all, I'm on the board of ASR, so any discussions that take place there is something that that I think is not appropriate for me to comment on. But, you know, with I don't know where you're pertaining to the stake itself or but about any other comments around ASR and and its own policies around this is something that I leave to you also.

Speaker 7

Okay. I'll take it offline. Thank you very much.

Speaker 1

Thank you.

Speaker 4

We will now go to the next question.

Speaker 3

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

Speaker 8

Hi there. Thank you. And just like Fug said, congratulations, Matt, on a very successful performance and also to Duncan to make it to CFO. I had to just like the others. Protection Solutions, you seem to stress that a couple of times in growth.

Can you say if you're looking at deals and what kind of deals, what's your thinking there? And then I'll go back to the question, which was about the operating capital generation, but I'll frame it more broadly. Normally, when you have a quarter, you kind of raise guidance with this target or that target will be one of the many targets you have. This time, you haven't raised any single target, which is I think it's that's actually a one off. Is is there something in the background we should which is running more slowly or you're more worried or you're kind of thinking, well, actually, Duncan can take the glory when it happens?

I'd be interested. Thank you.

Speaker 1

Hey, Michael. Good morning. I see two gentlemen with a smile on their face. So thank you for the congratulations to them. And frankly, from my personal perspective, as you know, I know both gentlemen for a very long period of time, and I couldn't have wished for a more flawless transition quite quite frankly.

So when it comes to protection solutions, this is the segment that encompasses in The US the life insurance and annuity business. We are growing that now a number of quarters already quite pronounced. And in this quarter, you could see an additional pattern of growth continuing. That is, of course, largely powered by our efforts to grow the licensed professional sales agency that we have, which has now increased to 76,000 agents. We are aiming to do a couple of things here, increase the number to 210,000 in North America.

Number two, increasing the the number of agents that sell multiple tickets and increasing and increasing as a result the overall the overall growth of the platform. By the way, it may be good to note that when she wants to evaluate the strength and the power of that platform, there's two things that you need to look at, which is in the future, which is the protection solution segment, which picks up the earnings on the manufacturing of the products and then the distribution segment, which will now highlight the earnings that we are making as a distributor as well. So I think it's important to combine the two to appreciate the full attractiveness of that business. Separately, we're also of course having other distribution channels than WFG and we're focusing our efforts on that as well to continue to grow and make sure that in the annuity and life insurance product lines that we progress further. When it comes to the OCG, Matt?

Yeah. Mike, I wouldn't read anything into this. You know, it is

Speaker 2

the first quarter of the year. We're just, you know, we're just off to a start. We just set the guidance out there, you know, in the fourth quarter. So no, we're not we're not changing the guidance on the operating capital generation. Although I would say that perhaps the the $200,000,000 share buyback was partly unexpected in the first quarter.

So we're maintaining, I think, good momentum on the capital generation side and obviously returning capital to shareholders. So I think we're still in pretty good shape here. And by the way, Michael, thanks and Farooq, thanks for your kind words. I really do appreciate it.

Speaker 8

May I have a follow-up or not? The follow-up is very simply, did you look at the Manulife deal with RGA and or or is it something you could do?

Speaker 1

Oh, that's what you're that's that's what you're referring to, Michael. Well, when it comes to to to m and a, I might we're looking I mean, yes, we have taken note of that transaction. We actually take try to follow the market in general on on on the transactions that's happening. But, of course, the number one focus that we have is on improving our businesses and being very disciplined capital allocators to make sure that we create value for stockholders. But if we see opportunities in the in in the present themselves, then it's always where opportunity meets discipline.

And where I look what we what we what we are always evaluating is very strict financial and non financial criteria. Things like, does it fit strategy? Does it are we ready to integrate and operationally ready to extract the value that it creates? And will it really create value for our stockholders? So focused on operating our businesses organically, being very disciplined allocators of capital, but looking at opportunities when they arise, but we will evaluate those against very strict financial and non financial criteria.

Speaker 8

Super. Thank you so much.

Speaker 3

Thank you.

Speaker 4

We will now go to

Speaker 3

the next question. And your next question comes from the line of Nazeem Ahmet from UBS. Please go ahead.

Speaker 5

Perfect. Thank you. Thanks for taking my questions. So first of all, I mean, similar to the others, thanks, Matt, for all your help over the years, and congratulation, Duncan, on the new role. Two questions, both on WFG.

I'm trying to dig a little bit deeper on the responses. Firstly, if if we look at the NAIC data on the company complaints index, TIFFlic and TLIC, they're two x, five x, the the average. Is that something that you track, something that we should be tracking, something that you're trying to get down in terms of the number of complaints that you've got there? And then on WFG, in terms of the contract that the agents have with WFG, I think there's two types of contracts that are typically signed with agents in The US. Is WFG does it have both types of contracts, one or the other?

Thanks. Those are my two questions.

Speaker 1

Yes, Najeeb. Thank you very much. When it comes to complaint, I don't quite understand what you're referring to. When it comes to complaints, of course, we register complaints and look at them across our businesses and also in The United States. If you're asking about the complaints and how they evolve vis a vis WG and other distribution channels that we use, in fact, we're seeing on a relative basis that the complaints we're getting through the different distribution channels are low actually for WFG.

So if you compare for agents, it's a very large agency sales force, but if I could compare on a relative basis, the number of complaints we're receiving from our clients from WFG vis a vis other channels is actually relatively low. So that's one thing to bear in mind. And yes, we do track, of course, those things very carefully alongside many other things that we do. The second point is about the contract. So WFG is a insurance agency.

They are independent contractors that sign an agency agreement with WFG. They are not WFG employees. They work by the way, we are not a closed shop. It's an open architecture platform. So it means that they are selling our product, but they're also selling products from many other insurance companies.

So I think it's important to note that that as well. I guess that's what I can say on these contracts. That's how it works.

Speaker 5

Perfect. Thanks a lot. Sorry. If if I can clarify the first question, I was more talking about the complaints data against insurance companies by NAIC. I think there's a company complaints index, whereas you've got both Telekin and TipFlex there.

I'm not sure if that's something that you track or you're trying to get done.

Speaker 1

I think these are service level details. Is that correct? What are you talking about? I think that's what the other issue monitor refers to. But let's take this offline.

We we do measure service levels, obviously, through all our channels. And as I said, where it pertains to complaints, WFG per agent complaints are relatively low.

Speaker 5

Perfect. Thank you. Thank you.

Speaker 4

We will now go to the next question.

Speaker 3

And your next question comes from the line of Jason Kalambosos from ING. Please go ahead.

Speaker 9

Yes. Good morning. I have to also congratulate both Duncan for his new role, Matt for his outstanding, really, help over the years, and also love for this new the smooth continuity transition. So I've got a couple of quick questions for me. The one is why are you the best owner of WFG?

If you can remind me. Why do you need to own it? And a bit of a separate question, I mean, you look at Primerica, it's trading as a p of 13 times. They are at a low because of the bear article. So wouldn't it make sense at some stage to consider even if you think you're the best owner that maybe at the end of the day, you know, trading at such a higher multiple, you would be you would you would have a benefit that, you know, eventually decide to separate?

And the other thing was on the share buyback. I can see that there are things that, you know, you also have to answer, but I'm coming back to the question that Farooq asked. You did announce I mean, it's almost like you are preempting, and you are announcing a 200,000,000 share buyback. You could have easily done that in August where eventually, you know, the 1,500,000,000.0 would have ended. What makes you a bit reluctant at this stage to actually do in August, for example, to have done an announcement for the full twelve months and also to reduce a bit the state just at least to give an indication that that's the direction?

So we're not looking for any significant reduction, but you could have done a small one just to indicate the direction. If you could comment on that, that would be great. Thank you.

Speaker 1

Yeah. Jason, thank you for your questions. And again, thank you very much for your kind words to Matt and to Duncan. Let's start with the discussion around ASR. We're happy holders of the company's stock.

I mean, the the stake allows us to benefit from, what I would regard, a unique synergy potential that this combination brings. So in in the and this this stake does not have a definite time frame. We have said, and we're consistent in that, and we maintain that view that in principle, we will hold the stake until the ASR share price reflects the intrinsic value or until value creating opportunities present themselves that require the capital. So we're happy holders of the stock, and we've been consistently saying that. And let's not forget that the integration process of the combination is at the early stage of it given time.

So again, we're happy holders of the stock. When it comes to the share buyback, well, this is pretty simple actually. As I said before, we have a state of capital management policy. We take that policy seriously as we have demonstrated multiple times throughout the years. And, you know, we're nearly done with the tail end of the 1,500,000,000.0 buyback, so that would be done before the summer.

We looked at the cash capital position, which is nearly 2,000,000,000 right now. We said, you know, this this the the the total analysis that we did, except for justifies that we stay true to our capital management policy. And as a result, we launched the buyback now and not in the half year. That's basically that's where we we didn't see was necessary to to wait till the half year. That's that's that's what I would like to say about that.

Then on the WFG franchise, we are, as I said, very pleased with and privileged to to be the owner of this business, and it is absolutely critical to our company's objective. Transamerica aims to become to to to transform itself into the leading insure life insurance and retirement company for Middle America. Middle Middle America retail households. And this is an underserved market of 68,000,000 households in The United States with a massive opportunity. And, you know, we are privileged to have such a large capability in that area that will allow us to fulfill our strategic objective with Transamerica.

And the progress that we're showing over the last couple of quarters and is that we are, progressing very well in our growth, so we're very pleased to have it. Now the good news is also that, you know, given the segmentation that we are now, going to do, you will have more visibility on the power of this platform. It is not only we're not only generating value by manufacturing life insurance products and sell that through this massive distribution platform, But also that distribution platform is selling products from other companies, and that generates distribution income for us. And what you can see over the full year 2023 is that the total earnings involved were 161,000,000. So this is coming from a base of two of of 37,000,000 in 02/2020.

So think a little bit about this and try to Jason. So in 02/2020, the earnings that we had at that time were 37,000,000. In 02/2023, it's under the 61,000,000. And let's not forget, we're growing that franchise, and we're selling more product through that franchise. So we believe that the new segmentation will allow you to evaluate the progress that we're making there and appreciate the value of this franchise as a whole.

So we believe we're great owners of this. It is actually core to our mission of Transamerica's growth in The United States. So we're pleased with that platform.

Speaker 5

Many thanks. That was very clear.

Speaker 3

Thank you. We will now take the next question. And your next question is a follow-up from David Barman from Bank of America. Please go ahead.

Speaker 6

Hello again. Thanks for taking a follow-up question. I have two small ones. One, just coming back on M and A, and I appreciate your comment, Maart, about strict financial discipline. But would you be able to talk a little bit about what you see as strategic for Aegon today when thinking about M and A?

Is it more distribution capabilities? Is it books of retirement plan assets? Is it wealth management or asset management? Are you able to talk a little bit about your preference in in terms of business lines, please?

Speaker 1

Core market. Core markets. So let me be simple about this. When when we look at we we have we have been very clear about the markets that we focus on. So when we talk about potential m and a opportunity, we would evaluate that to strengthen and accelerate our strategies in core markets.

Speaker 6

Right. Thank you.

Speaker 1

Yeah. Sorry. I think you had maybe another question. Right?

Speaker 6

Yeah. Secondly, on on new business strain, I don't know if I'm missing something on this, but just can you remind us where the what's driving the new business strain increase? The sales and individual life don't seem to have picked up that much in q one. And maybe more broadly, if you could just give us a bit of color on what product lines are you're particularly excited about for this year in terms of sales activity?

Speaker 1

On the exact detail of the business training, I'm gonna ask Matt. But if I but let me take you a little bit the the product lines that we believe that we're focusing on because we believe they're very attractive. So in The US, it's again are you Index Universal Life product is making returns with an IRR above 12%. So it's profitable product line that we are growing and expanding, especially through the WFG franchise, but also other distribution channels. Then we look at annuities, especially what we call registered index linked annuities, which is a particular form of annuities that, you know, provide kind of a buffer on the downside while capping the upside, if you will.

So these are structured products. They're not annuities with high interest rate sensitive guarantees, but it is an annuity line that has a big demand in The US marketplace that we're capturing or capitalizing upon that demand as well. Then on the retirement side in The U. S. It is retirement plans where we particularly focus on the middle market, so medium sized plans and pooled plans.

There's not many companies that have really the capability to also run plans in a pooled format in The U. S. We are one of those that are known for it, and therefore, we we we are capitalizing upon that opportunity. But obviously, if we can do a deal in the large market that that is profitable and and that we can get good good fees for that, we will also participate in that. What we what we're also focusing very much on is the participants in these pension plans in The US where through ancillary products, the stable value solutions, in IRAs, particularly we, which are now $11,000,000,000 each.

We aim to grow the, profitability per plan per plan participant. That is something that we're focusing on. Then outside of The US, it's really you know, Brazil has been I keep I keep reminding everybody, Brazil has been a business for us that over the many years has a consistent track record of double digit growth profitable growth in protection life insurance products. The workplace business in The UK is continuing to see very strong momentum. I think we're now number three in flows, number four in the market as a whole.

And I would say the asset management business is is getting a reversal of momentum. We had our first bad year, bad half year, the first half year of 2023 that you saw in the back end of twenty twenty three flows coming back and that persisted in the first quarter. But it's these kinds of product lines, and I can go on if you will, but these kinds of product lines that really believe that we're aiming to allocate a lot of resources and time and effort to increase our distribution progress and also increase the overall volumes. Matt, on new business strain. Yeah.

Speaker 2

For the for The US, business strain was a $192,000,000 for the for the quarter, which is somewhat above our what we've guided for about, like, 175,000,000 for the quarter. But we're getting it in areas that we like. So we're basically getting it in the life individual life insurance protection business. And we typically have a little bit higher new business strain in the first quarter of the year. So we're getting it in that area.

We like that. We're still able to maintain our pricing margins north of 12. And then the other area that we like is the retirement plans business where part of the big strategy for The U. S. Business is to grow in what Lark calls these ancillary businesses.

General account stable value is one. It's basically a bank account that savers can use for retirement plans. But that, we expect that to grow. And indeed, we have grown that about 8% from the prior year quarter to about $11,300,000,000 And because we are growing that, then it does require additional capital for that. But again, these are these are good things.

This is very much according to plan.

Speaker 6

Thank you very much.

Speaker 3

Thank you. We have time for one further question. And will now take the last question for today. And the question comes from the line of Michael Huttner from Berenberg. Please go ahead.

Speaker 8

That's it. I'm very lucky. Thank you very much. On U. Mortality, so seasonality in Q1 may be a touch higher than maybe the normal run rate.

Can you give us your feeling about mortality going forward? And here, I think there are two strands, a fourth one, maybe less volatility because you bought back a big chunk of that institutional portfolio. But also, when I heard from a client two days ago, what about the new wonder drug from The Nordics? Does it mean suddenly mortality people live longer now?

Speaker 2

Yes, let me pick that one up. So indeed, we did have unfavorable mortality It's largely it's seasonality mostly. It did not come, by the way, from institutionally owned contracts where the or let's say, the life insurance contracts and the financial assets. It was just more from traditional our traditional portfolio and a little bit in a variable universal life portfolio.

I would call this normal claims fluctuation. Your specific question was around what do we expect in the future? And that's really kind of anybody's guess. As we come out of COVID, we still expect to see maybe elevated mortality. People have not sought care during COVID.

Perhaps we're going to see some elevated claims for a period of time. But honestly, this is really just claims volatility in the first quarter mainly due to seasonality. As for the Wonder drug, given my impending retirement here, I certainly hope so. But I don't know what that's but I don't know, obviously, for sure.

Speaker 8

Lovely. Thank you so much.

Speaker 3

Thank you. I will now hand the call back to Yves Cormier for closing remarks.

Speaker 0

Thank you, operator. This concludes today's Q and A session. Should you have any remaining questions, please get in touch with us in Investor Relations. On behalf of Lard and Matt, I want to thank you for your attention. Thanks again, and have a good day.