Aegon Ltd (AEG) 2007 Q2 法說會逐字稿

Thank you for holding, ladies and gentlemen. Welcome to the AEGON second quarter 2007 results conference call on the 9th of August 2007. (OPERATOR INSTRUCTIONS)

I will now hand the conference over to Mr. Don Shepard. Please go ahead, sir.

Thank you very much and thank you for joining us today to talk about our second quarter results. Joe Streppel is with me and Michiel van Katwijk, and on the phone, Darryl Button, the CFO of AEGON America's. And we actually asked Eric Goodman, Chief Investment Officer of AEGON USA to call in as well, so he'll be available to answer questions.

We realize it's a busy day, so we'll keep the presentation short, and then take questions from you. So let me just start out by asking you to review our disclaimer regarding forward-looking statements.

Let me begin with slide three, and mention that during the quarter we continued to invest in our growth initiatives, particularly in the pension market, in both our established and our emerging markets. In Central and Eastern Europe now, we're going to have close to 1.6 million pension fund members and we expect that to increase to about 2 million by 2010. We continue to look to strengthen our distribution capability, and we made good progress during the quarter, particularly by adding some distribution through bank channels in the U.K.

And in Asia, we've signed a memorandum of understanding with Taishin Bank, one of the stronger retail banks in Taiwan. And of course, we just announced the new partnership Spain with Caja Cantabria, and so now we have about 1,800 bank branches across Spain.

We continue to look for good opportunities to expand our presence internationally and I can mention that at the end of June, we actually signed our final agreement with Sony Life to get our joint company up and running. And we expect this time next year to actually be operational.

Let me go to the next slide. In addition to releasing our second quarter results for 2007, we announced our intention to purchase EUR1 billion of AEGON's common shares. We've executed an agreement with the bank today to purchase the first EUR0.5 billion in shares and will purchase the EUR0.5 billion by year-end. Also, we increased our interim dividend by 25%, all reflecting our continued strong cash flow and our strong capital position. Even with our share buy-back, we continue to have sufficient room for add-on acquisitions and to finance the growth of our existing business.

Let me go to the next slide on our results in the second quarter. Our business continued to perform well. Net operating earnings were up 22%, and that would have been actually 27% if it wouldn't have been for the weakness in the U.S. dollar. And last month, we introduced underlying operating earnings, which reflect the underlying performance of our business, excluding the volatility of the fair value items.

Net underlying earnings were up 9%, and on a constant currency basis about 14%. The increases in life sales and deposits resulted in further growth in the value of new business for the group, which was up 28% for the quarter.

Next slide. As a result of the accounting change that we put through in the Netherlands last month, we're providing a pro forma number so you can get a reasonable comparison of our 2007 results. In the pro forma numbers, we've assumed that AEGON the Netherlands had its hedge program to offset fair value movements of certain guarantees in place for 2005 and 2006. This change in accounting ensures that our financial statements reflect the matching of assets and liabilities. I might mention again here that this accounting change doesn't change the economics. It only changes the volatility in the presentation.

On this basis, the 22% increase in net operating earnings for the group year over year was the result of good performance in our investment portfolio, favorable financial markets, and the growth of our business. In addition, we had a one-time tax credit in the United Kingdom.

The weakening dollar had a dampening effect on the increase, and I already mentioned that the increase would have been 27% at constant currency. Excess returns over the long-term expectations on our fair value items (inaudible -- technical difficulty) was about $90 million U.S. As you can see on the slide, we are experiencing consecutive quarters of year-over-year growth.

Go to the next slide. We had sales growth in our businesses during the quarter. Life sales increased 9%. That was primarily driven by a record quarter in the U.K. and continued strong sales in other countries. I think I can mention particularly Poland. And also, sales in Taiwan have accelerated after the introduction of our unit-linked products, and we've had good performance there. In the Netherlands, our pension sales were up by 26%, and in the U.S. retail variable annuity deposits increased 12% during the quarter. Pension deposits in the U.S. also were up about 16%.

Next slide. Let me spend a moment reviewing the 28% growth in our value of new business in the second quarter. All regions increased their value of new business, with an increasing proportion coming from our developing markets. Our businesses in Central and Eastern Europe, Asia, Spain and France accounted for 27% of our total VNB. You might mention we put our -- might remember that when we put out our VNB target, we said that we were looking to get about 30% of our VNB from countries other than our three major markets, and so we're getting close. All of the regions met our internal hurdle rate of 11%, minimum 11%.

Next slide. Let's spend a moment on subprime mortgage exposure in the U.S. First of all, we don't originate subprime mortgages. We only invest in securitizations. And we believe we've structured our portfolio to weather a stressful environment. The majority of our subprime exposure is backed by fixed-rate mortgages, and they're rated AAA. The recent downgrades announced by the rating agencies did not affect any of our holdings, and none of our holdings were put on the watch list.

Additionally, we don't have any significant exposure to collateralized debt obligations backed by subprime. Our exposure to securities by Alt-A collateral is about $1.1 billion, and it's all rated AAA. I might remind you that under IFRS, we would only take impairments when the future cash flow of an asset is expected to be lower than we originally assumed. And we continually monitor developments in the market, but we don't foresee any material impairments to our investments in subprime mortgages, and we don't have any subprime related investments in the U.K. or the Netherlands.

Next slide. Let me just summarize by saying it was a good quarter for AEGON. The fundamentals of our business remain good with increasing new life sales, net operating earnings, and the value of new business. We continue to invest in our businesses internationally to enhance distribution and strengthen our position in the important pension markets. And finally, we will use the share repurchase to manage our capital more efficiently.

So with that, let me open it to your questions. Thank you very much.

First question?

We've got a question from Mr. Mark Cathcart. Please go ahead, sir.

This is [Mark Zatcart] calling from Deutsche Bank.

Hi, Mark. He was just on television, actually.

I know, I'm looking forward to the weekend.

Anyway, I was just wondering, in the past you've said that AEGON has got a never-say-never approach to an equity funded or equity financed acquisition. I'm just wondering, does this buy-back strategy actually represent a departure from a never-say-never? Or would AEGON have a never-say-never approach to having a buy-back and also, within say the next 12 or 18 or 24 months, still have fresh equity funded acquisition?

I would suggest that if there was an acquisition that met our financial disciplines and made sense for us from a strategic standpoint, we would go to the market to finance it. We do have room to do --in our present capital structure, we could do a fairly decent sized acquisition, but a real large one would mean we'd have to go to the equities market.

So post the buy-back, inclusive of the EUR0.5 billion which hasn't yet been done, what is your financing power at the moment? I mean, what size acquisition could you make without going to markets and without scattering your share buy-back?

Okay, a fair question. With the amount of room we have in our capital structure for some additional debt, we could probably do in the EUR1 billion range, maybe even a little over that, actually.

EUR1 billion. A bit lower than that, did you say?

No, a bit over that.

Over that, okay. And what sort of led you to deciding to do this buy-back? And could we expect one again, say, next year?

Well, I think that, as we said earlier in the year, that our intentions weren't to hoard capital and to keep increasing it, and we've had strong results, good cash flow and a good strengthening of our balance sheet. And we've not been able to complete --you know we've been interested in some fairly large deals over the past year, which we weren't able to get done because of our pricing disciplines. And so in line with our commitment not to hoard capital, we're using a share buy-back as part of one of the arrows in our quivers, to be more efficient in the management of our capital. And we'll look at that again next year.

Okay. And then just finally, how confident are you in the sustainability of growth trends in your other markets, inclusive of Taiwan, France, Spain and so forth? And particularly in Taiwan, where there seems to be a good quarter of growth and then it doesn't follow through in the next quarter and then a good quarter. I just wondered, can we really expect the current level of growth in these new markets to continue? Or it just an exceptional convergence of opportunity at the moment?

Well, I think if you take Taiwan specifically, the big growth that we had a couple of years ago was because we were changing commission structures due to a new reserving policy, and we had kind of a fire sale. And then things kind of went back to more normal. But I think the bigger issue here now is that, with the introduction of our unit-linked product, we're seeing better sales. And I'm personally pretty optimistic about our memorandum of understanding that we've executed with Taishin Bank, which is a very strong retail bank in Taiwan. And I would expect to get good sales growth there.

If I move over to Central and Eastern Europe, areas like Poland and Hungary and our new operation we're going to do in Romania, if you look at penetration rates relative to other countries, they're very low and yet economic growth is good. And then with the advent of the mandatory pension funds, we think that we can continue to get pretty decent growth rates in Central and Eastern Europe. The La Mondiale people continue to do well on the pension fund, who was our partner in France, and Spain continues to do well with the mutual savings banks. And our hopes are that we'll be able to add some more.

Okay thanks, Don.

Thank you, Mark.

Thanks.

The next question comes from Mr. Trevor Kalcic. Please go ahead.

Yes, good afternoon. Actually just a question or a couple of sub questions, if you like, on your investment portfolio. Could you just clarify whether you have any exposure to second-lien mortgages, and if so, how much? Then secondly, could you just clarify the situation with regard to credit protection? So have you in fact got derivatives overlaying or anything like that giving credit protection?

And then the third question on this would be, you have some direct investments in mortgages in your U.S. business. Could you just tell us a little bit more about that? So how does that break out in terms of, for example, risk or credit rating? And also in terms of, let's say for example, reset of rates on those mortgages, please. Thank you very much.

Okay, thanks, Trevor. First of all, on the direct mortgages in the U.S., which is what I think you're talking about, we have about 14 or 15 billion of commercial mortgages that have been very pristine in terms of performance. We've had very little difficulty for a long period of time with the commercial mortgage operation. And those are direct mortgages and we're extremely comfortable with those.

When you talk about credit protection, I assume you're talking about the monoline insurance coverage?

Yes.

We have I think about a $1.5 billion of our subprime is covered by monoline insurance. I'm looking around to make sure my number's right. Eric, you're on the phone, is that about--?

Yes.

That's about right. Okay, so about $1.5 billion covered by the monolines. And in terms of second-liens and second mortgages, I think we have very limited exposure to that, Eric, would you like to answer that?

Let me characterize the exposure. We have $226 million in our subprime portfolio of unwrapped second-lien exposure, meaning there's no insurance involved. That 93% of that is AAA, and we're comfortable with all the rest that's not AAA. There's an additional $680 million of second-lien exposure that is wrapped by monoline insurers to a AAA standard. So you might consider that exposure to the second-lien market, but you might consider that exposure to the monoline insurers, because they guarantee principal and interest payments.. So the unwrapped exposure is $226 million but, again, that's 93% of that's AAA.

Trevor, did I catch all your questions?

That's [brilliant], thank you very much.

Thank you.

The next question comes from Mr. Marc Thiele. Please go ahead.

Hi, it's Marc Thiele here from UBS. Three questions on subprime and the other investment. On page nine, you are indicating you don't expect any material impairment. Is that because you've classified everything as available for sale? And do you have a market value corresponding to the $4.5 billion that you're quoting on that slide?

The market -- I'm sorry, go ahead.

And then secondly, it looks like you've been buying more subprime exposure in the second quarter, I think there were $300 million. Do you have more appetite of increasing that exposure, let's say over the coming quarter, depending on the pricing in the market? And then thirdly, maybe you can make a general comment on how you look at the market in general. We had some negative comments from other players. We had some more positive comments from others. I'm just wondering what your stance is in general.

I think I'll let Eric, since I've got him on, answer all those. Eric?

The first one was about our market values. First of all, the subprime ABS market has become very illiquid and selling large blocks of bonds is not really a practical option, so price discovery is extremely challenging. With that caveat, we do price our portfolio monthly using third parties, and the results for July month-end, using those third-party marks, were that we had an unrealized loss of about $97 million.

And with regard to the purchases, $300 million of purchases, we had a lot of issuance by some of our business units, particularly IMD, of raising [allideal] cash to be invested. At the time, we thought that the AAA and AA securities in the subprime market offered reasonable value, and so $300 million of a much larger number was invested in the subprime market.

Going forward, we haven't purchased any bonds recently, for example in July. As the market entered its most stressed mode in July and liquidity vanished, especially in the subprime market, we've been reassessing the bidding implications of that unfolding scenario.

So I'd say that we'd be willing to opportunistically buy securities if very attractive opportunities present themselves, which fully discount very high subprime default rates within extra margin safety. Having said that, we don't have any buy program in place, and, as I said, haven't bought anything in the last month.

Is there another part of the question here?

Well, I think Marc asked whether you had kind of an ongoing view. But I might mention that, Marc, that our investment guys started improving the quality of the subprime and in the corporate bond market a couple of years ago, and started believing that it made sense that -- we weren't getting paid for the risk in some of these areas, so we started improving overall quality at least two years ago. So now that spreads are widening, there may be some opportunities to get good value in some securities going forward. Eric, do you want to add anything to that?

No, that's true. If you looked at our portfolio four or five years ago, you would have seen a portfolio with a third of it assets in A or lower securities. All of those were sold and repositioned in AAA and some AA securities. So we were concerned that delinquencies would rise, as they have, and we repositioned our portfolio to avoid impairments that would result. Obviously, our opinion was and remains that defaults won't rise enough to impair AA, AA plus and certainly not AAA tranches of these securitizations, or we would have gotten out of them altogether. So we think we're conservatively positioned for a stressed environment. And also, to reiterate, we have no ABS CDOs to speak of, except for a $40 million legacy position that we bought before 2001.

And I think that $40 million was an already written-down amount, wasn't it, Eric?

Yes, it's being held essentially at market value.

Marc, anything we didn't answer?

Excellent, thank you.

Thank you.

The next question comes from Mr. Christopher Hitchings. Please go ahead.

Hi, thanks very much indeed. Just tell me what's going on with the margins in Taiwan? If I look at the sales profit to APE, the margin seems to have gone up, and yet your IRR has gone down.

Also again, what's going on in Spain, where the margin has gone from 20% -- or the IRR has gone from 20% to massively higher than that on sales going up? And are there any accounting changes there behind that?

And secondly, or thirdly perhaps, in the U.K., are you talking at all now about -- is the 10% growth second quarter on second quarter representing something that you see as underlying? Or is there still some carry-on over from the A-Day effect? And finally just a point of clarification, you mentioned $1.1 billion of Alt-A exposure, is that included in the $4.5 million? Or is that in addition to the $4.5 million?

The Alt-A is an addition to the $4.5 million, and the Alt-A is all AAA, and I believe it's all fixed.

Yes, it's all fixed and it's all prime FICO scores. So it's not considered part of the subprime portfolio.

Okay, fine. Well, it might be.

In the U.K., we were just with Otto Thoresen yesterday, and he feels that most of the new production from A-Day is pretty much out of the numbers. And so there's a lot of concentration on selling risk products and bonds, as well as the normal pension plan. And they're just doing very well in terms of new production, so I would expect that we'll continue to have a strong year in the U.K. in terms of production.

In Spain, one of the things that's difficult about the IRRs is that, when we have these joint ventures with the mutual saving space, with the exception of CAM, in the rest of them we also are the administrator. So there's an administrative charge and there's no capital requirement for the administrative fees that we get on business, which drives up the IRR quite a bit.

And on Taiwan, I would either have to ask you to get back directly to our unit, or I could -- I think actually just if I could ask you to call our IR department and we'll try to dig some numbers. I don't have them at the top of my head. Actually, we'll call you on that.

Thanks so much.

Thank you.

Next question.

The next question comes from Mr. Michael van Wegen. Please go ahead.

Yes good afternoon, (inaudible), two questions please. First of all, in the U.S., your VA sales increased 12%. If you look at the breakdown by channel, then particularly the broker/dealer wirehouse channel went up by more than 40% year over year and more than 30% versus Q1. That channel you have been investing in quite a lot, didn't show what you would like to have seen in earlier quarters. Now the big increase. Is that because you have done some special marketing and you got a new big distribution deal? Or is finally your investment starting to pay off? Could I get a bit of color on that?

The second question is on your value of new business in, let's say, the emerging markets, so Taiwan and Eastern Europe and Spain. Margins clearly outside Taiwan , for the other regions, very high. Are you willing to, just like Taiwan, basically increase the volume a bit at the expense of margins? Or do you think that basically it's not possible to push it much more by lowering margins?

Okay, I think on the margin issue, that in most cases those margins have more to do with how much capital is required to put the business on the books. So we don't think that changing our hurdle rates is necessarily going to get us any significant increases there.

In terms of VA sales in the U.S., I think we added 20 wholesalers to the wirehouse market over the past year, and I would like to be able to say -- and I think it's true -- that it's just improving our wholesaling capabilities. And as we mentioned earlier, although it took longer than we expected, the wholesalers just don't get up and get successful overnight. It takes some time. So we're quite pleased, and we've also made some good hires in terms of management of our wholesaling team.

So there were no special actions or one big new wirehouse where you started to trade with?

No, nothing special.

Okay, thank you.

Thank you. Next question please?

The next question comes from Mr. Nick Holmes. Please go ahead.

Yes, hi, it's Nick Holmes at Lehman. Three questions. Firstly, coming back on the share buy-back. I just wanted to ask, could you share with us how you came to fix on EUR1 billion, and whether you think that more share buy-backs are possible, while still reaching the 2010 growth target?

The second question is, coming back to the VA sales. I wondered, could you update us on your product roll-out? Is it correct that Income Select is now fully rolled out in all of your distribution channels? And do you have any new products in the pipeline?

And then thirdly, just turning to the U.K., I wondered if you could update us on your strategy for bulk annuities? It figured in Q2 but not very much, and I wondered, is this an area that you would characterize that you would like to see become an important part of sales? Thanks.

Thank you, Nick. On bulk annuities, as you know, we're pushing for the smaller to mid-size operations, and we have a lot of quotes out, but it takes a while to get them coming through. I think we had 30 million this last quarter in terms of new sales, and we don't expect that to be a huge increase type thing, we think we'll get our fair share going forward and tend to make our margin on it.

In terms of VA sales and new products, I think the Income Select is basically rolled out, but we'll continue to tweak the product line and look for ways to improve the product, make it easier to sell, and make it more interesting for particularly the guys in the wirehouse to sell it.

I guess, sorry, sort of following up on that question, how satisfied are you with the performance of Income Select? Has it met your targets?

I think we're a little below our expected targets, but we're going to keep pushing to get it higher. We keep believing that we've got more good, solid room for growth in that market. So I hope that I can come back and tell you that we've continued to get some growth.

Right.

And I think that we're looking at later this year, where we'll roll out some new product features. I think it's November or so.

Share buy-backs, how did we come up with the number? We looked at the amount of capital that we had available, and redundant capital I guess is the way to think about it. And went with an amount that we were pretty comfortable with, still leaving us room to do add-on acquisitions, left us some room for a buffer, and enough to be able to continue to finance the growth of our organic business.

So it wasn't very scientific beyond that. We thought we'd do a -- you know, it's the first time we've done one. We thought we'd do EUR1 billion. And it'll be an arrow in our quiver to look at capital management going forward.

So you'd say that your 2010 target is easily within the capital plans that you have.

Yes, we have adequate capital plans -- or adequate capital to continue to finance growth to get there. I might say too that before, looking at that, we did stress-test our capital in terms of things happening in the equity markets and the bond markets and everything. So we did some pretty significant homework.

Okay, thank you very much.

Your next question comes from Mr. Farooq Hanif. Please go ahead.

Hello, Farooq Hanif from Morgan Stanley. It's pretty good timing, because I had a question on the share buy-back program as well, just following up on Nick's question, maybe putting it a slightly different way. You've talked about the capital that you have now and the buffer, and you've talked about how things are going to develop over time. You've obviously got a dividend policy in mind over time. Could you just give us a feel for how much surplus you think you're generating after funding growth each year, after paying your dividend, and after meeting your growth on an organic basis?

I'm going to let Michiel, who's done some work on that, Michiel, do you want to jump in and handle that?

Sure. We have been increasing our dividend over the past year, really, this quarter and also a half year ago with our final dividend of '06. Basically to get to a level where the inflows into the holding from the dividends that we are receiving from our country units would be more or less in line with the outflows on interest payment and dividends. And so we are generating, probably in the current circumstances, a couple hundred million in excess of what we're paying out annualized, and that's because we looked at the ongoing normalized basis for outflows. And currently, as you know, for instance, credit defaults are still running at very low levels. So there is a couple hundred million that we're generating, in excess of what we're paying out as dividends and interest charges.

And that's presumably in excess of the growth as well, because it's the dividend that you receive after growth?

Yes, it's after growth, yes.

Okay, that's interesting.

And then, just if I may ask a very brief second question -- in the U.K., there's been lots of kind of confusion about Friends Provident and what's going on there, and the fact that they've suddenly worked out that they don't have the means to keep going alone and they need to merge with Resolution. I was just wondering, firstly, how do you feel about the cash production from your Group Pension business in the U.K.? And secondly, what do you think about building up and acquiring in the U.K. and building up scale?

Okay, in terms of we continue to see that we're a net winner in the A-Day thing. I think our net inflows in the pension business were about just short of GBP1 billion, so very significant. I guess if the right opportunity came along, we would look at it, but I would have to say that we've been very pleased with the operations that we have today. And I think the combination of a good plant to build the product and a good distribution system, with the IFAs, plus the positive solutions and the other IFAs that are part of our organization, and now getting out into the bank channel and some of the other new product offerings and some of the new distribution agreements, we feel pretty good about where our U.K. operation is going and don't feel a need to bulk up or take something on.

And on the sort of cash production from your Group Pension business, I mean, you talked about the flows, but in terms of profitability coming through, are you happy with that? Do you think it could be better?

Well, it always can be better, I guess, but I think we're getting pretty close to the margin targets that were expressed by Otto at our analyst meeting last time. I think this quarter, we hit very close to the margin target.

And if you're asking from a dividend paying ability [up to] the holding, that has been increasing over the past couple of years also with the better spread of business in our U.K. business. And overall, with our U.K. business, we've been quite satisfied with the growth of dividend capacity for the holding.

Okay, that's very good. Thank you very much.

Thank you. Next question please?

The next question comes from Mr. Zenon Voyiatzis. Please go ahead.

Good afternoon. Most of my questions have been answered, but I've got a couple of questions left. The first one is on asset growth in the U.S. If I look at the VA business, your outflows have been steadily increasing from 10% in the second quarter last year to 13% this year. I appreciate that the rise partly reflects the large volume of business you're retained in the last five, six years, but can you give us a feel of the outlook here? Will things get worse before they get better? Or are you seeing them already improving?

And a more general question on this -- if I look at the overall U.S. business, net flows in Q2 were a negative 1% on my numbers, despite the fixed annuity business representing about only a sixth of on and off balance sheet reserves. Presumably you're not satisfied with this, but what levers can you pull to get net flows positive again? Or is it just the function of the general market environment, particularly interest rates?

Now, I think that there's a couple of different answers. In the variable business, AEGON's production of variable annuities was particularly strong in 2001, 2002 and the first half of 2003, and so you're starting to see some flow up from there. The answer there is that we have to continue to increase our new production, so that we can grow the balance in our variable annuity. And that's one of our targets, and we expect to be able to do that.

I'm not sure exactly your calculations in terms of -- you mentioned off balance sheet and on balance sheet. Our mutual fund production was down a bit this quarter, but it does have positive net flows in our mutual fund business. We did have some decrease in our synthetic GIC business. It was a very large contract that came off, and those come and go. In terms of any more detail on that, I'd have to ask you to get back to our IR guys, and we'll go through it in detail with you, if that's okay.

That's okay. On the VA business, I appreciate the 2000/2002 issue, but are we approaching the peak there? Or is there still a fair way to climb?

I would guess that it kind of depends on what their alternatives are when they get closer to getting out of the penalty period. Those penalty periods are typically five or six years, so there could be some continued runoff. You know, if there's a more exciting product for them to go into, there could continue to be some ongoing runoff from that old production.

Okay. And can you quantify the one-off synthetic GIC outflow?

I honestly don't remember a number. I know it was a relatively large case. Would you like to have -- I'll have one of our IR guys call you and talk to you directly about it and dig the numbers out for you.

That would be great, thanks.

Okay, thank you. Next question please?

The next question comes from Mr. William Elderkin. Please go ahead.

Good afternoon, everybody, it's William Elderkin from Citigroup calling. I've got a couple of questions, please.

First of all, on the Americas business unit, if I look at the underlying operating earnings before tax in the second quarter, and they're about $680 million, which is broadly flat on where they were in second quarter '06, it's up about $40 or $50 million on the first quarter. In the press statement, you referred to a number of one-off effects in different directions within the second quarter this year. Could you just quantify for us the most important of those?

Similarly with the Dutch Life business. I'm just wondering whether there was any hedging affect on (inaudible) guarantees which remains within the operating line that you report. And finally, could you give us some guidance in terms of where the operating earnings tax rates are likely to stabilize? They seem to have been quite volatile, looking at the U.S. business. There's obviously [not an effect] in the U.K., and in the other market businesses as well?

Okay. In terms of tax rate, I would think in the 30% range, so it's like 28% in the U.K., around 30% in the Netherlands and about--.

25.5% in the Netherlands.

25.5%, and then 34% or so in the U.S., 34% or 35%. So on average, I guess it would be a little higher than 30%, actually.

A little bit low.

A little lower?

(inaudible)

Sorry, could I just clarify that? So you're saying about 30% operating tax rate in Americas, 25% in the Netherlands--.

(inaudible)

And what was the number for the U.K., sorry?

25.5% in the Netherlands, 28% in the UK and about 34% in the U.S.

Is that 34% the number we should use for modeling? Because it does seem quite high in relation to where it's been for the last--.

It's a marginal rate. In practice, it's closer to 30%, 31%.

Is that the better one to use for modeling, perhaps, then?

Okay. In terms of the one-offs in the U.S., there was about a $16 million charge that we expect to be a one-off of in reinsurance that had to do with better customer efficiency and a reinsured block of guaranteed income benefit from some old reinsured annuities. And in Kansas City, we mentioned that we were shutting down our Kansas City back office, and we took a charge in the quarter of $17 million for that shutdown. And I think the total charges we expect are around $30 million in total, but expect ongoing cost savings in the $15 to $20 million range after we've got that totally moved into Cedar Rapids.

In Holland, I'm trying to think of the specifics there, one-offs in the Dutch organization. There's not many. There was an additional 13 million because of the winter storms that it was just a technical result, negative technical results on that, and then there were some tactical bets in the investment results that -- I mean, that happens all the time. That was about 20 million. That was a [plus.]

Okay. Could I just go back on the U.S. fixed annuity line? There's a reference to a favorable movement on pay-out annuities. Was that a double-digit kind of number?

Yes, okay, there was a favorable mortality in the pay-out annuities, a very large case. A guy passed away.

Okay, great. Okay, thanks for your help.

It was about $10 million in that case, I think.

All right. Thank you.

Your next question comes from Mr. Bruno Paulson. Please go ahead.

Hi, it's Bruno Paulson here from Sanford Bernstein. First question is on the dividend. Should we see the H1 dividend as a guidance to the full year as it has been in part -- was up until 2006? Secondly, on the U.S. institutional business, it mentioned that the spreads were still lower. I thought this was a product of rising short rates, so should the spreads rise from here? And finally, why were the Accident & Health and Mutual sales down in the quarter?

Accident & Health in the Netherlands was down--.

I'm sorry, I was talking the U.S.

Oh, in the U.S. That's largely related to our direct marketing operation, where we had a large amount of direct-marketed health business in South Korea, and it was basically shut off. It was with a large credit card operation, and it just went away. And we also lost another fairly large health insurance contract in direct marketing for another bank credit card. Sometimes you lose those just because of pricing, and so we lost those two over the past year in that particular market.

Michiel, do you want to address the dividend issue?

Sure. Our dividend policy is to grow our dividends in line with cash flows and capital position. As I've explained before, we've been rebasing the dividend for it to come closer to normalized inflows that we expect from our ongoing operations. And so, you should expect going forward more moderate increases in dividends.

So you would say that the H1 2007 completes the rebasing process?

Yes.

Thank you.

But we did see spread compression in our institutional business, and I think we expect a little continued spread compression in the near future.

Thank you very much.

Thank you.

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Well, thank you all very much. I know you're busy today with lots of earnings coming out, so thanks for participating.

This concludes today's conference call. Thank you for participating.