Aegon Ltd. · EURONEXT:AGN
Aegon — Analyst & Investor Conference - London 2016
33 slides from Aegon's conference presentation, Jan 13, 2016
Slide 1: Returning capital to shareholders
Returning capital to shareholders Darryl Button CFO Analyst & Investor Conference - London - January 13, 2016
Slide 2: Today's storyline
Today’s storyline • Group Solvency II ratio of ~160% Solid capital • Main country units at or above target capital levels position • Low sensitivity to capital market movements allows for a Solvency II target range of 140-170% at group level • Dividend pay-out ratio of 50% of free cash flows after h
Slide 3: Solid Solvency II capital position
Solid Solvency II capital position 3
Slide 4: Managing capital across multiple frameworks
Managing capital across multiple frameworks Local regulatory framework Solvency II Group level Asset The United States United Kingdom Other Management Netherlands Group Solvency II Standard formula Partial internal Partial internal RBC* ICAAP** & local regulatory model model frameworks Rating agenci
Slide 5: Solid capital position under Solvency II at year-end 2015
Solid capital position under Solvency II at year-end 2015 Own funds 20.0 • Approval for the use of the partial Group ~160% internal model in NL and UK received Solvency Capital Requirement in December 2015 12.5 Cash buffer 1.4 Senior debt (1.9) • No diversification benefits at the Holding Holding fo
Slide 6: High quality capital structure
High quality capital structure Solvency II capital (EUR billion) • High quality capital structure, Tier 1 ~160% accounts for 80% of own funds 20.0 • No capital benefit for EUR 1.9 billion of Tier 3: ~10% senior bonds under Solvency II Grandfathered sub debt Tier 2: ~10% - EUR 500 million senior bond
Slide 7: Local units strongly capitalized
Local units strongly capitalized US NL UK Other Own funds Own funds Own funds Own funds 8.7 5.9 3.7 2.4 ~160% ~150% ~140% ~200% SCR SCR SCR SCR 5.4 3.9 2.6 1.2 • SCR based on US • SCR based on • SCR based on • SCR based on RBC (at 250% CAL) partial internal model partial internal model standard form
Slide 8: Well diversified risk exposures
Well diversified risk exposures • Approximately 50% of required capital not regulated on a Solvency II basis • Well diversified risk exposures, both under Solvency II and RBC - Aim to further reduce required capital due to improved ALM and additional longevity hedges in NL SCR by category SCR by ris
Slide 9: Low market sensitivities support capital framework
Low market sensitivities support capital framework • Limited market sensitivities as a result of Solvency II sensitivities hedging of guarantees and geographical (in percentage points) diversification Scenario Group US NL UK • Exposure to rising interest rates in the Capital markets Americas is caus
Slide 10: Capital management policy – group level
Capital management policy – group level Low market sensitivities allow for 140-170% target Solvency II range at Group level Group EEA country units Opportunity SII ratio Target: 130% – 150% SII Ratio 1 170% SCR Aegon Group Target 140% SCR Americas Target* 350 – 450% life RBC US holding** -50% 2 Caut
Slide 11: Capital management policy – local units
Capital management policy – local units EEA units US* Local capital management zones Opportunity Accelerated growth and/or additional remittances to the group 150% SCR 450% RBC Target Capital deployment and remittances according to capital plan 130% SCR 350% RBC Caution Capital plan and risk positio
Slide 12: Cash and capital deployment
Cash and capital deployment 12
Slide 13: Substantial capital return to share- and bondholders achieved
Substantial capital return to share- and bondholders achieved Capital deployment strategy 2013-2015 Target EUR Achieved EUR 3.5 billion +0.9 billion EUR 4.4 billion EUR 1.1 billion EUR 2.0 billion 1 Deleveraging • • Planned deleveraging: EUR 1.1 billion Additional deleveraging: EUR 0.9 billion EUR
Slide 14: Leverage and fixed charge coverage strongly improved
Leverage and fixed charge coverage strongly improved • Gross financial leverage of ~27% in lower half of 26-30% target range - Leverage cut by ~25% since 2011 • Fixed charge coverage of ~7x in the middle of 6-8x target range - Fixed charges reduced by more than 45% - Preferred dividend eliminated Gr
Slide 15: Recalibrated cash flows to Solvency II framework
Recalibrated cash flows to Solvency II framework • Americas operational free cash flows expected to grow after 2018, as growth of the fee businesses more than offsets a lower contribution from fixed annuities and run-off businesses • Netherlands remains stable despite shift from DB to DC • Investmen
Slide 16: Investments in new business important driver of future cash flows
Investments in new business important driver of future cash flows Normalized OFCF 2016-2018 (EUR billion) • Gross capital generation in the Americas and NL (4.2) benefits from cost savings 8.4 CEE, Spain & Portugal • Rising contribution to free cash flow generation Asia from UK, Asset Management, CE
Slide 17: Capital deployment strategy focused on capital return
Capital deployment strategy focused on capital return • 70% of EUR 3.0 billion deployable capital allocated to dividends and share buyback - NL to start paying dividends to the holding of EUR 250 million in 2016 - UK to start paying dividends to the holding in 2017, increasing to EUR 140 million in
Slide 18: Capital framework supports sustainable and progressive dividends
Capital framework supports sustainable and progressive dividends • Solid capital position under Solvency II • Growing operational free cash flows and resumption of dividends from NL and UK resulting in rising remittances • Remittances support progressive dividends and investments in strategic priori
Slide 19: Improving returns and performance
Improving returns and performance 19
Slide 20: Aligning accounting with inforce management
Aligning accounting with inforce management Scope for • Move from DAC recoverability testing on legal entity level to testing on portfolio level UK DAC DAC policy • Upgrade to platform considered substantial modification of contract leading to DAC derecognition for upgrading • Allows for value-added
Slide 21: Simplified reporting underlines focused approach
Simplified reporting underlines focused approach • Asset management reported separately as importance for the group increases • Clear geographical reporting segments • Continue to provide details of underlying earnings by lines of business Americas Europe Asia Asset Management Underlying earnings 9M
Slide 22: Comprehensive program to review all our models
Comprehensive program to review all our models 2013/2014 • Model review program launched worldwide • Sets standards for development, testing and validation of models • Scope covers all models: IFRS, regulatory, economic capital and pricing P&L charges mainly • Phased approach with priority for most
Slide 23: Reduce expenses by simplifying the business
Reduce expenses by simplifying the business Strong expense Additional annual cost …by simplifying track record savings in 2016-2018… the business 2010-2015 EUR 150m savings net of investments US ~2,600 (200) ~2,500 • Transforming into one ~50 Expenses up only 1% while ~50 Transamerica growing sales
Slide 24: Continue to generate strong profitable sales growth
Continue to generate strong profitable sales growth • Sales growth resulting from focus on fee products - Strong growth prospects in US retirement plans, indexed universal life products and Asset Management • MCVNB margin improvement due to product improvements - Improved margins in the US due to ad
Slide 25: Strong earnings growth supports 10% RoE target
Strong earnings growth supports 10% RoE target Strong increase in earnings driven by Earnings growth supports RoE target organic growth and EUR 200 million cost savings • Americas: Cost savings and growth of fee businesses • Europe: Cost savings in the Netherlands as well as earnings growth in CEE a
Slide 26: RoE target of 10% in 2018
RoE target of 10% in 2018 • Target to reach a RoE of 10% in 2018, from an adjusted base of 8.5% in 2015 • Achieved through organic growth, cost savings and capital return RoE (in %) 6.8 1.1 0.6 8.5 0.4 (0.1) 1.0 0.2 10 Q3 2015 Assumption Accounting Adjusted 2015 Cost savings Investments Organic grow
Slide 27: Concluding remarks
Concluding remarks Conference a w~/
Slide 28: Strong Solvency II ratio 160%
Strong Solvency II ratio 160% €2.1bn Attractive capital return in form of dividends and share buyback RoE driven by cost savings and organic growth 10% 28
Slide 29: Appendix
| Appendix Conference
Slide 30: Maturity schedule and Solvency II treatment of debt instruments
Maturity schedule and Solvency II treatment of debt instruments • Solvency II treatment of outstanding debt instruments ► Perpetual securities are grandfathered as Tier 1 capital* ► Dated subordinated notes are grandfathered as Tier 2 capital • Trust pass-through securities and senior debt instrumen
Slide 31: Main economic assumptions
Main economic assumptions Overall assumptions US NL UK Exchange rate against Euro 1.10 N.a. 0.71 Annual gross equity market return 8% 7% 7% (price appreciation + dividends) Main assumptions for financial targets US NL UK 10-year government bond yields Develop in line with current forward curves Main
Slide 32: For Investor Relations please contact
For Investor Relations please contact +31 70 344 8305 [email protected] For Media Relations please contact +31 70 344 8344 [email protected] Analyst & Investor Conference - London - January 13, 2016
Slide 33: Disclaimer
Disclaimer Cautionary note regarding non-IFRS measures This document includes the following non-IFRS financial measures: underlying earnings before tax, income tax and income before tax. These non-IFRS measures are calculated by consolidating on a proportionate basis Aegon’s joint ventures and assoc