Aegon Ltd (AEG) 2009 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Aegon Third Quarter 2009 Results Analyst and Investor Conference Call on the 12th of November, 2009. Throughout today's presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

I will now hand the conference over to Jan Nooitgedagt. Please go ahead, sir.

Hello to everyone. Good afternoon. Thank you for making time to discuss Aegon's third quarter results. Joining me on the call Michiel van Katwijk, our Treasurer, Darryl Button, CFO of our operations in the Americas, and Eric Goodman, head of our General Account Investments.

As usual, please take a moment to review our disclaimer on forward-looking statements. Let me begin by summarizing what I believe are the highlights of the quarter. Aegon has achieved a net profit during the quarter. This is obviously a development that we are very pleased about. As you are aware, on November 30 we will be paying EUR1 billion to the Dutch government, an important first step toward full repayment of the capital support Aegon received last year.

Our strong capital position has enabled us to take this step, while continuing to maintain a larger capital buffer. We regard this precaution as both necessary and prudent in the current environment.

We experienced a strong improvement in our revaluation reserves, a clear improvement over recent quarters and a result of the upturn in financial markets. The improved sales and net deposits are an indication of the continued strengths of our franchise and the continued confidence of our customers. And then we are continuing to execute our strategic priorities which we believe are the right ones at the right time.

On slide four, the return to net profit in the third quarter is a particular highlight. Let me touch on a few key points that led to the profit. During the third quarter we experienced lower impairments. This was mainly as a result of considerably lower impairments on US housing market-related assets compared to previous quarters.

We also recorded a tax gain of EUR154 million, representing a reversal of the tax charges we incurred last year. To give you some context, we had tax charges of EUR490 million for the full year 2008, of which EUR399 million is now being reversed in the first nine months of this year.

And then the other factor in our positive net income was the improvement in market conditions. Our equity hedge program in the US led to a negative impact on fair value items of EUR184 million. The positive impact of improved equity markets is not reflected in earnings, however, but is reflected in a lower equity market return assumption.

On our variable annuity DAC amortization and reserves, we now assume an annual equity market return of 8% for a five--year period at the end of Q3 as opposed to 11% at the end of Q2. I should remind you that our long term equity market return assumption is 9%.

Let me briefly discuss the exceptional items influencing underlying earnings in Q3. In the UK, you can see on slide five, we have taken a charge of EUR43 million related to a program to improve the quality and consistency of customer services and operational effectiveness; the aim of this is to reduce unit costs.

We are currently analyzing all customer records and expect to complete this review before year-end. This analysis involves identifying issues across all products and to correct issues where appropriate. Two examples of types of issues that we are addressing are; the need to provide a rebate of fund charges to customers who, in some cases, have overpaid. And the need to return money to former customers who have unclaimed assets. We are confident that these issues will be resolved.

As you are aware, we are running off our institutional spread base business in the US. We have transferred assets internally from this business to other US portfolios in exchange for cash. As a result, we had to take a onetime DAC charge of EUR23 million in the fixed annuity line of business. The de-risking measures we have implemented have estimated impact of EUR40 million this quarter.

In June we indicated a medium term run rate of underlying earnings based on [a dollar of 130]. Excluding exceptional items and the impact of the de-risking, the underlying earnings are within this range.

Let me turn now on slide six to the improved sales and deposits for the quarter. Total new life sales were up 3%. In the Americas, retail sales increased as a result of strong term life and universal life sales. In the Netherlands, the increase was driven by pensions, where we secured a number of larger group contracts.

In our Central and Eastern Europe region, sales increased 21%, mainly due to a higher recurring premium production. However, in Spain sales declined during the quarter. Net deposits excluding institutional guaranteed products, totaled EUR2 billion, mainly as a result of strong pension sales and more business staying on our books.

Value of new business declined by 7% against the previous quarter given the lower contribution from the UK and Spain. However, higher sales volumes and margins in the Netherlands were strong contributors to VNB, while in the Americas VNB showed a slight increase in dollars.

As we have discussed with you before, we aim to improve our risk profile by reducing our sensitivity to financial markets. As you can see on slide seven, during the quarter we further reduced our earnings sensitivity to equity markets by lowering our short term equity market return assumption for DAC and reserves from 11% to 8%.

As a result, net income is now approximately as sensitive to markets going up as to markets going down, and the 20% increase or decrease will not lead to either DAC charges or releases. Sensitivity of capital to equity markets has remained stable compared to the second quarter.

You are aware of our decision to run off our institutional spread-based business in the US. As you can see on slide eight, one of the obvious benefits is to reduce our exposure to credit markets. We have already run down the balances by US$9 billion in the first three quarters of this year and expect to run off another US$11 billion during the fourth quarter and next year. This will free up approximately US$800 million of capital through 2010.

Institutional product spreads have declined significantly due to the amortization of unrealized losses on assets transferred to other portfolios in exchange for cash to run off the business. Obviously, this has a noticeable impact on our earnings.

Costs have been a major focus during the year. Our businesses have delivered early on the target we announced last year to achieve EUR150 million in cost savings measures for 2009, effectively 5% of our total operating expenses. We will continue our focus on costs to identify further areas where we can be more efficient. One recent example was our decision to reorganize the Dutch sales organization, which will result in annual cost savings of at least EUR50 million going forward.

As you can see on slide 11, during the quarter we further improved Aegon's excess capital position. You will remember that we completed an equity issue in August that added an additional EUR1 billion. We have since released EUR900 million from our businesses in the third quarter, but also generated earnings that contributed an additional EUR400 million of capital.

Here I should point out that impairments have improved considerably over previous quarters. The EUR1 billion we raised this past summer in the market supports our decision to repay the Dutch state one-third of the EUR3 billion of capital we received last year. And we will do so on November 30, as we recently announced.

I might add that we recently submitted a plan through the Dutch Ministry of Finance to the European Commission that demonstrated our businesses are fundamentally sound and viable. This plan is a requirement for all financial institutions that received state support during the crisis. The timing and outcome of this process have not been specified.

In normal circumstances, Aegon aims to maintain an excess capital of EUR1.5 billion to EUR2 billion. However, in the current environment, Aegon is intent on maintaining a substantially larger capital buffer, a precaution we believe is necessary and prudent in the current environment.

Here on slide 11 you can see our progress toward our goal of releasing between EUR4 billion and EUR5 billion of capital by 2012. We have accelerated our efforts in this regard and have effectively released EUR4 billion just in the past five quarters. As we have noted previously, our emphasis going forward will be more on capital efficiency actions and less on de-risking measures.

As you can see on slide 12, our revaluation reserves improved substantially during the third quarter. Together with the equity issuance enhanced shareholders equity to EUR11.6 billion. Approximately 85% of the improvement of our revaluation reserve is related to the narrowing of credit spreads, while the remaining 15% relates to lower risk-free interest rates.

Let me briefly review our progress in executing our strategic priorities during the quarter. In addition to the specifics I've mentioned in relation to capital efficiency, cost reductions and improvement in Aegon's risk profile, we are taking steps to better leverage our extensive resources and capabilities across the group.

On October 1 our new global asset management organization became operational, combining our local units into one international business unit. We have also launched a new European data center in the UK, bringing together data centers from the UK and the Netherlands, which will save costs and significantly improve efficiencies.

We are continuing to put our variable annuity expertise to work outside the US by introducing VA products in Netherlands and Japan. I should mention here that a further action we have taken to reduce our exposure to credit markets involves our decision to reduce our exposure to credit derivatives. As a result, market movements will cause significantly less volatility to our earnings and capital going forward.

The results we have shared with you today clearly demonstrate that Aegon is in a strong position. The actions we put in place last year, encountered the effects of the crisis have enabled us to maintain customer confidence in our strong franchise, improve further our capital position and return to profit. We will continue to pursue this strategy, and believe it is the right one to position Aegon for growth and profitability over the long term.

We appreciate your continued interest in Aegon. Now, before we take your questions, let me remind you that we will host an Investor Day on December 2 at the new York Stock Exchange and look forward to meeting you there. Thank you.

Thank you, sir.

(Operator Instructions)

The first question comes from Michael van Wegen. Please state your company name, followed by your question.

Good afternoon, guys. Michael, Soc Gen. Two questions actually. If I remind correctly, then at the Q2 stage it was stated that you wanted to have the quite significant excess capital buffer amongst other reasons to start re-risking the balance sheet again.

We now see in the Q3 result that you further de-risked actually, despite the fact that around EUR4 billion of cash has been reinvest in corporate bonds. Could you maybe say a little bit about what you expect in Q4 and going forward, especially given that some of your competitors are starting to re-risk.

And secondly, you referred to your EUR4 billion to EUR5 billion target to release capital. You're now at EUR4.2 billion. How realistic is it that you'll reach EUR5 billion in the short term? And to what extent is EUR5 billion a number that with hindsight is maybe conservative or do you think that's where it ends? Thank you.

Thank you for your question. I think it's right to mention that we had a plan of EUR5 billion to release capital, and that we were very successfully in already releasing EUR4.2 billion of capital in the last five quarters. It's also good to mention that we already started investing in high quality assets during the quarter.

I think we have given in my presentation also underlying earnings from the level of [EUR470 million] and the de-risking impact was estimated at EUR40 million. I think for the future, the level of de-risking, as I'd say, just the opposite of de-risking will have a positive impact on our earnings. I think at this moment it is difficult to tell what exactly the impact will be on underlying earnings for the future.

But in terms of further re-risking, it seems that very little is happening so far other than the bond portfolio while Q2 states more seem to be suggested. Is that something that I'm misinterpreted or I should --?

Maybe, Michael. I think what we said during the second quarter call is that we were investing EUR3 billion to EUR4 billion before the end of the year. And in fact, I think at this point about EUR1 billion a month is going into highly rated mainly corporate credit.

Okay, thank you.

The next question comes from Nick Holmes. Please state your company name, followed by your question.

Yes, hi. It's Nick Holmes at Nomura. Just coming back on the capital, could you tell us what the EUR600 million of other negative impacts is, please, more so whether you expect more capital release in Q4 in 2010?

And then just wanted to ask a couple of quick questions on the UK. This EUR43 million charge, do you think that'll be the final charge or do you think there'll be more? And can you also give us a bit more color on the EUR70 million corporate impairment, which seems to be rather large? Thank you very much.

Thank you for your questions. Let me first answer the question about the UK. We have made an estimate about the issues going on in the UK. This is something which was of course important for this quarter based on our review, which will be fully finalized at the end of this year.

But as you know, IFRS rules are quite strict. We have made pretty good calculation of the provision for this amount, which is GPB38 million, EUR43 million, and we do not expect material difference from this amount for the end of the year.

Thank you.

The -- what was your first question?

On the capital. I think, Nick, the EUR600 million negative is effectively for the largest part higher capital requirements occurred during the quarter. And it's predominantly related to the UK and to the US business. And going forward for Q4 and 2010, we do expect to execute more on the -- on capital preservation.

As we -- as Jan said during his presentation, our focus will be more on capital efficiency than on de-risking and I think that realization will be at the slower rate than we have seen in the past.

And I think finally his final question was about impairments in the UK. A relatively large amount. That's correct. I think what you're seeing coming through in the quarter is relatively high impairments because we have impaired on Northern Rock during the quarter.

The next question comes from Marc Thiele. Please state your company name, followed by your question.

Hi, thank you. It's Marc Thiele from UBS. Two questions, if I may. Can you talk about this pending EC approval in terms of the timing and content given that Commissioner Kroes will leave the office shortly and other financial institutions come to conclusions. What viability plan have you presented and do you expect any changes to the shape of the Company?

And secondly, coming back to the underlying earnings or the underlying of your underlying earnings, and comparing that with the guidance from June, the EUR500 million, markets have recovered dramatically. There's been 1 billion of capital raising and clearly there's been some headwind from the US dollar. But is EUR500 million still a run rate that you feel comfortable with and what sort of timeframe do you think Aegon requires to go back to these levels?

Thank you for your question about the first question about the viability plan. Let me tell you that we just recently have sent our viability plan to the European Commission. In this viability plan we have demonstrated that we are financially healthy, strong, sound company. We do not know what the reaction will be of the European Commission.

We also don't know when they will get their reaction. I'm fully confident that based on our financial position, our capital purpose for the outcome of -- in the answer of the European Commission. But we don't know. And as I think it's too early to say anything about the reaction of the European Commission.

Second question I think you had about what is underlying earnings. Yes, we had, as I said earlier, there was a lot of focus on our capital and financial position and the capital we make available during the last quarters. We have given also you on the slides the level of underlying earnings.

If you exclude from the one -- the two exceptionals in this quarter, the level of underlying earnings for this quarter was EUR470 million. We also believe that for the midterm you have to take into account all the de-risking measures we have taken. And if you add that up, well, you see on that slide the EUR470 million plus EUR40 million, that is an easy calculation what amount is that both together.

So what you're saying is basically in the midterm you are more likely to produce something like EUR420 million and then if you re-risk, you go back to EUR460 million levels?

Well, what we say is that we believe that for the medium term, it is ranged EUR450 million, EUR500 million. But that also is depending on the growing of our business, our cost savings programs. As you know, we have achieved this year in the first three quarters the whole program for the year.

We have an additional cost savings program in the Netherlands and we will continue in doing that. We will reverse part of the de-risking, basically put more cash investments to work. And also we have to take in mind is that currencies might have an impact on the level of our underlying earnings in euros.

Yes, all right. Thank you.

The next question comes from Farooq Hanif. Please state your company name, followed by your question.

Good afternoon. It's Farooq Hanif from Morgan Stanley. I have three questions. Number one, given that your fixed income revaluation reserves are going down, is it correct to say that mathematically the level of credit impairments that you can take -- obviously your maximum amount is going down and therefore is that a sign that the level of impairments, given the current experience, could actually start to go down over time? That's question number one.

Question number two is you changed your equity return assumption rather than releasing VA reserves. What if you had kept your equity assumption at the higher rate, what would that -- what positive impact would that have been on the underlying earnings?

And my third question is your -- you had something like 100% growth in pensions in the Netherlands. I'm guessing that is all mainly due to group pensions. Is that a market phenomenon that you're seeing because the coverage ratio is going up in the market or is it just you guys picking up some business and everybody else is still sort of pitching? Thank you.

Yes, Farooq, thank you for your questions. Before I give the first question to Eric Goodman, I like to say what we always have said is that the revaluation reserve was never a good indicator for any impairments and we feel quite happy with credit spreads coming down in that revaluations is down or up, just how you see it. But, Eric, would you --?

Yes, I guess it's fair to say that the revaluation count coming down is a good reflection of the healing of the capital markets, which is good news for credit generally. And yes, it probably is a fair statement to say that the tail events that some might have feared are less likely. So as you've seen in the first few quarters of 2009, impairments are coming down slowly. And while we don't provide forecasts, they may continue to decline somewhat.

I guess what I meant was kind of simpler than that. Because an impairment is usually you just mark to market through your P&L because the market price has gone up and the possible kind of event horizon of impairment has come back in. Am I --

Correct.

-- (multiple speakers) lines?

That's also true. As bond prices increase, all things being equal, the mark-to-market is going to be lower.

Okay, thank you.

Your second question about the assumption I think is very good question for Darryl.

Yes, hi, Farooq, it's Darryl. It's about US$60 million a point in US dollars. So had we left the assumption at 11% from the Q2 and not reduced it to 8%, it would have been an additional US$180 million approximately in US dollars.

And that would have just gave --

(inaudible - microphone inaccessible)

-- underlying earnings.

Yes, that would have came straight into underlying earnings.

Okay.

Which is also pretty close to -- (inaudible - microphone inaccessible)

And your last question about the pension growth in the Netherlands, it is indeed group pensions. And we are quite successful in that market and we are waiting a couple of contracts in this quarter. We have won a couple contracts this quarter.

Yes, but I guess if it was just you picking up business, it's a little bit more worrying than if the market picks up because then people can accuse you of under-pricing and stuff like that. Did you see actually just in the market the pipeline has picked up because you've had this recovery in equity markets?

Yes, that's right.

Q2 was also a very low quarter for group pension business, Farooq.

Yes, because of markets. Yes. Okay, thank you very much.

The next question comes from Chris Hitchings. Please state your company name, followed by your question.

Hi, guys. It's Chris Hitchings from KBW. A couple of questions, some following on from what others said. On the UK provision, is this just for IT costs, or is there an element of compensation to customers who have not received refunds that they should have done and therefore you haven't got the money?

Secondly, now, I'm trying -- just on the Netherlands, my understanding was that one of the reasons why high margins are in the Netherlands was the assumption of mortgage margins on top of that and the group pension margins were rather lower than that.

So I'm slightly surprised to see your VNB to APE in the Netherlands go up to -- sorry, not -- go up or remain very high in the third quarter relative to where it's been, despite the fact that most of that new business is going in group pensions. Maybe I'm not understanding this properly.

Thirdly, I'm trying to get a handle around just how the earnings from your IMD division are going to move as this money comes out. I kind of presumed that as the cash went out, then the liquidity issue would dry up here. And since you've shifted that liquidity issue here by transferring the cash into the IMD division, then as it went out, then profits would improve. But can you help with the time scale over which that might happen, or am I wrong?

And finally, can you just confirm what the certainty margin would be once you have repaid the Dutch government? Thank you.

Yes, thank you. Happy to give you answer on your -- answers on your four questions. Starting with the UK, a big part of the provision we have taken is indeed to compensate our customers. That is also a time consuming activity and because we have to find out who is get what and that's a whole review we are working on and hopefully is finalized at the end of this current quarter, end of the year. But it is definitely a big portion is compensate our customers.

Okay, thank you.

The Netherlands, talking about VNB, I think the question was is high, but it is also high because of high margins on our mortgages in the Netherlands also in this quarter.

The question about IMD and the movement of cash, that's best answered by Darryl.

Yes, hi, Chris. It's Darryl. I think I'll give you an Americas answer and then a by line of business answer within the Americas. The short answer is we've been building up cash to basically pre-fund the payout of the institutional business. And we've been building that up across the organization, largely in our retail portfolios.

As we built that cash up across the organization, essentially we have the wind-down and the run-out of the IMD business all pre-funded in cash. What that means is there's no positive carry, no positive margin anymore on that business. In fact, there's a bit of a negative carry.

So the consolidated answer is that as the balances run down, there really isn't a further impact from the winding down of those balances. We're pretty much at a run rate. In fact, I would say except for the exceptional DAC that we had above US$30 million, we're at about a run rate right now for the Americas.

From a line of business perspective, as we transfer the cash from the other portfolios into that business, there will be some geography. And in fact, you can see a little bit of it in the third quarter where some of the investment earnings start to go back up in the other portfolios as we move the cash and assets around. And that geography will continue into the fourth quarter as well.

Thanks.

You're welcome.

The last question, Chris, was about (inaudible) margin after paying back the EUR1 billion. It is 197% if we deduct the EUR1 billion.

Okay, that's what I calculated. I just wanted to confirm that was correct. And do you have an up-to-date RBC on the US business post that 650 million change?

Yes, Chris. It's Darryl. As you know, we only do the calculation in detail at the end of the year. But I think --

Yes, yes.

-- made our Q3 position. We're comfortably north of our 325% target, somewhere in the 330% to 340% range.

330% to 340% and just one back. I thought that EUR43 million in the UK had to be -- include compensation. Can you tell me how much compensation? And to which -- does this just relate to the issues that were in the UK press about three or four weeks ago?

I think, Chris, that is -- that our estimates --

Yes.

What was the second part of your question?

There was an issue in the press relating to pension policies in the UK financial press about three, four weeks ago. Does the conversation relate to this specific issue or are there lots of issues for which this is a problem?

This is -- the coverage that was in the papers, that's part of the --

Yes. Sorry. That is right. But we now -- we now know more precisely or otherwise we could not have taken this provision exactly what we are talking about.

Okay. But what percentage of it is compensation and what percentage -- is it almost all compensation?

The majority is compensation.

Thank you.

The next question comes from Frank Stoffel. Please state your company name, followed by your question.

Yes, hi. Good afternoon. It's Frank Stoffel from Bank of America Merrill Lynch. Three questions, please. Just a quick follow-up on your institutional guarantee product business. The underlying earnings in the third quarter were US$1 million and the explanation, as you alluded to before, cash balances and amortization sounds sustainable. Is this going to record to your run rate, we should extrapolate going forward for this business?

Second question is on your structured product portfolio in the US. There was quite a significant amount of write downward of writing migration and reverse mortgage floater portfolio. Is it a fair assumption that the nice blip we have seen in your impairments in the third quarter in the US is just a blip, and then a significant downgrade even in that portfolio is just a precursor to more downgrades to come going forward? And how confident are you that this is the start of the trend that we have seen in Q3?

And lastly, the 5% decline in the value of your Dutch real estate portfolio, could you please elaborate a bit on the source, is this commercial real estate? And also, is this based on a full appraisal of your portfolio, or how do you get to the 5%? Thank you.

Yes, thank you for your question. I think the first question about institutional business, Darryl, is again for you --

Yes --

-- to answer.

Yes, Frank, your question, the US$1 million of earnings in the institutional is that run rate going forward. The short answer is from that line of business, no, I expect it to actually go down a little bit further in the fourth quarter as we complete the transfer, assets transfers, and we have a full quarter of amortization. But the amount that it goes down in the fourth quarter will show up in other portfolios.

So the Americas is at a run rate issue. That's only a geography issue and the Americas is at a run rate level, with the exception of the extraordinary DAC issue, which is a onetimer in the third quarter for 30 million.

Okay, thank you.

Second question, I think for you, Eric, about the impairment level.

Right. You're absolutely right, Frank. There were a lot of downgrades in the residential mortgage-backed portfolio during the quarter. And your question was does it forebode a spike in impairments going forward. We think these downgrades were somewhat of a lag, so we don't think they per se suggest that we're going to have a spike in impairments.

But we're also not suggesting that the lower impairments in the third quarter necessarily mean that they will remain very low. The residential mortgage -- the residential market is still findings its legs. We've seen a few quarters of higher house prices but that's by no means an assurance that house prices won't trend down again. So we're still watching that portfolio very carefully, and it is possible that we might see a quarter or two of higher impairments down the road.

But as you know, we don't make forecasts there.

Sure.

And then I guess your final question --

Yes, the last question about the real estate in the Netherlands, you are talking about a EUR2 billion portfolio. It's a residential portfolio. And we have taken a lower valuation, 5% is correct, EUR100 million. That does not mean that this will be repeated in the future. But if you look at this portfolio we have had many ups the last couple of years and the last quarters they were coming down.

And in this quarter, based on our assessment for the whole portfolio, we have taken EUR100 million in loss in this quarter.

Will you do a full appraisal of this real estate portfolio with external appraisers in Q4?

We have -- we will do it partially for the whole year but we also look at the whole portfolio, which we have done in Q3 based on 25% we made the assessment of the whole portfolio.

okay, great. Thank you very much.

the next question comes from Hans Pluijgers. Please state your company name, followed by your question.

Yes, good afternoon. Hans Pluijgers, Cheuvreux. I have one -- four question on the DAC reversal. First, I mean I missed a little bit the impact from 11% to 8%. Could you please repeat that?

And secondly, on that, you've reduced now to 8%. Have you any plans if equity markets continue to outperform that percent to reduce further of if there is any bottom which you are looking at?

Secondly on institutional business, the additional DAC charge in Q3, as the institutional business will be run up further, do you expect any charges going forward there? And a detail question on the charge, the EUR20 million in the Netherlands. I assume that this is for Q4. Is this correct?

I think your first question was about tax -- no?

No, it was about the DAC, the reserves --

(inaudible - microphone inaccessible)

-- the impact from 11% to 8%. I just missed the number.

Okay. No, it's not about tax. Sorry. But I think, Darryl, you are very good at explaining the 11%.

Yes. It's Darryl. I think I've got your first three actually. The 11% to 8% is about US$60 million per point, so that's about US$180 million --

Yes.

-- and that would be underlying earnings in the US. Is there a bottom to that assumption? Yes, at some point, but we're not there. The 9% is the middle of our corridor. We have a -- and we don't establish the corridor ahead of time, if you will. We have previously capped it as high as 15% and we previously floored it as low as risk--free rates. But we take into account market circumstances at the time. So there's a floor but we're not at it right now. So the short answer is that if the markets continue to improve, yes, we would lower it below 8%.

And your third question was the DAC in Q3. It was not in the institutional line of business. It was in the fixed annuity line of business, which is where the assets were transferred to. And, yes, that was a onetime event. I don't expect that to recur again in the fourth quarter.

The fourth question I didn't catch. I don't think it's a U.S. question.

No, is question on the charge in Netherlands, the EUR20 million. I assume that's for Q4.

We don't know yet. It might be also for the Q1 next year. It depends fully on the fact if we have worked out the whole plan, agreed with the works council, etc., etc. So it's not yet sure that that will be -- can be taken in Q4, but we made the estimation of the restructuring costs, which is, as you said, EUR20 million, and which will reduce the expenses on the yearly basis of EUR50 million.

Okay, thank you.

The next question comes from Benoit Petrarque. Please state your company name, followed by your question.

Good afternoon. Benoit Petrarque from Kepler in Amsterdam. First question is on the IP business. How much of the capital release has been realized so far? So if you are going for US$800 million capital release, was wondering how much is realized.

Another question is on the charge expenses for employee benefits plan. I think you have US$55 million this quarter. You had also similar charges previous quarter. So is that a recurring item or you think we will not get this kind of charges going forward?

And maybe you can help me a bit on the pension business in the US. We have seen very nice inflow there. But how much margin do you make on these new business? Thank you very much.

Thank you for your questions. I think three questions again for Darryl?

Yes, hi, Benoit. I'll do my best here. The first two were easy, but IMD capital realized so far, we've released US$9 billion of our US$20 billion target. I would expect that to be a fairly pro rata on US$800 million. So you can do the math but it's somewhere around the US$350 million mark has been released so far.

The US employee benefit charges, we have about US$30 million in total expenses in the current quarter and that compares to about US$30 million of income a year ago. That's roughly -- that's US dollars. So that's about a delta of US$60 million. The US$30 million of costs in the current quarter is fairly representative of what I expect to see going forward. So the swing is a little higher only because we had income a year ago because of the heavily over-funded status of the plan a year ago.

Your third question was on, I think, margins for the pension business. A little more difficult to answer here because there's different components of the pension business that have different margins. There's general account and separate account business. The general account business would be from some of the stable value products that are in the pension business. They tend to have more spread return-like margins in the 60 to 70 to 80 basis point range.

The fee business, more mutual fund style business, tends to have margins more in the 20 basis point range. Those are pretty rough approximations. I think I'd have to kind of go back to some of the earnings drivers stuff that we put out in the past and actually that's something I probably will update in New York in about a couple weeks' time.

Yes. Just the (inaudible) been getting this quarter, it's more on the fee side or on the spread -- more spread business?

It's more on the fee side.

Thanks.

There's a heavier concentration of new business going forward focused on the fee side of the business.

Thank you.

The next question comes from Farquhar Murray. Please state your company name, followed by your question.

Hi, there. It's Farquhar for Autonomous Research. Just two small questions, if I may. Firstly, on the EUR0.6 billion of other that came through the capital (inaudible) wonder if you could give a little bit more color around where they came from and obviously whether there's more to come.

And then finally on the kind of capital again, the NAIC has kind of put through proposals for the re-rating of RMBS for year-end calculations. I do wonder whether you've quantified that impact and whether it's obviously in the number that you gave as 330% to 340% in response to the RBC question. And that's all, thanks.

Thank you for the questions. (inaudible) can answer the first question.

Sure. I think that, Farquhar, on the increase of capital requirements, an example would be, for instance, in the US we've had lower [DTA] admissibility occurred during the quarter. And in the UK, capital requirements just went up somewhat. And that is -- those two combined is more than half of -- is more than half of that EUR600 million.

Okay, great.

On the RBC question, Farquhar, the answer is it's not in any of the -- it's not in the Q3 number that I put out before because it hasn't been -- it hasn't been passed yet. There's still quite a bit of work left to do in terms of selecting a modeling firm and actually going through and doing the modeling of these securities. That being said, I actually do expect it to be a fairly significant uplift on the RBC ratio. We've had about 80 percentage points of ratio hit for the year on migration and this change could easily put 30 to 40 points back.

Okay, great. Congratulations.

The next question comes from Ryan Palecek. Please state your company name, followed by your question.

Yes, hello. It's Ryan Palecek calling from Kempen & Co. I had a couple of questions. I'm wondering if, first of all, you could give us some more elucidation into improvement of the US and IRR in the US -- sorry, in the Americas business.

Secondly, I was wondering if you guys, with kind of the finger on the pulse, could give us your interpretation of the momentum of the growth of U.S. life sales, to what extent you think that's a trend rate of growth or to what extent it's just been a comeback to a more normalized level?

Thirdly, I'm wondering if you can give us some thoughts and analysis on the commercial real estate portfolio trends in terms of NPLs, things like that. That's it for now. Thanks.

Yes, Ryan, maybe Darryl, if you also could say something about the -- thanks for the questions -- improvement IRR for the US business.

Yes, hi, Ryan. Darryl.

Hi.

The IRR, the biggest improvement actually is getting our new variable annuity product onto the market. And our old VA product, I think we had said that the IRRs had gone quite low, actually slightly negative in the first and second quarter because of the high hedge costs. We're out with our newly priced product, and exceeding our hurdle rate returns on that.

So that probably had the single biggest impact in the quarter. That, plus continuing to grow profitable business, life being -- life and pension being two good examples of that. So that's the biggest uplift, if you will, on the IRR for the Americas.

You also asked a US life sales growth question. The short answer is we're getting back close to where we were at year ago levels. It is certainly relative to a year ago the sale is -- the type of sale is different, much more term and protection oriented sales, less so on the -- particularly the estate planning market and the high net worth universal life sales. So that type of sale tends to bring lower premium dollars with it.

Our case count and sales activity, new business activity is up significantly just selling lower premium dollar policies. I think -- do I think it's sustainable going forward? Yes, we do. We think this is kind of represents the new run rate, if you will, for life sales. And in fact, we're fairly bullish that we'll continue to grow these sales.

I didn't get the third question.

It was for me.

Yes, it was for Eric about commercial real estate.

Yes, sure. Ryan, the commercial real estate portfolio's delinquency trends are still very low, as they are for the industry. Less than 0.5% of our portfolio is in default as compared with the much higher default rates in for more aggressive lenders like the pools of loans that back CMBS securitizations. So if you just looked at our existing delinquencies and defaults, you would say there's nothing to worry about.

But of course the real estate markets across the United States and globally are under a lot of stress so we are focused very hard on trying to anticipate problems, having our special servicing group try to anticipate those problems and contact lenders who have maturities coming up.

And probably given the state of markets, we might expect to see delinquencies rise from their currently very low levels. But we think that given the conservatism of our underwriting historically, again compared to other lenders, we think those problems will be manageable.

Okay. Thank you very much.

Your next question comes from Oliver Steel. Please state your company name, followed by your question.

Yes, it's Oliver Steel from Deutsche. Just one question. You say that the -- that you're looking to have a EUR1.5 billion to EUR2 billion buffer over the AA requirements. But I seem to remember at the entrance you were talking about needing a EUR2.5 billion buffer in normal conditions. So I'm wondering what's changed since then.

Well, nothing has changed. So you're right. Under normal circumstance we have said that a buffer between EUR1.5 billion and EUR2 billion should be adequate. The current circumstances are not normal. That's the reason we have higher buffers. And we are very pleased with the buffer we have. As you know, we are going to pay back the EUR1 billion and we are well positioned for paying back the remaining EUR2 billion for the coming years.

So you're saying you've just sort of taken a look at the numbers and felt that EUR1.5 billion to EUR2 billion was a more reasonable number?

No, it's more important that we feel pleased with the buffer we have now under the current circumstances.

Oliver, hi, it's (inaudible). I think the EUR1.5 billion to EUR2 billion is in reference to what we would normally hold. So this is what we would hold pre-crisis in normal circumstances. We'd be comfortable to hold EUR1 billion, EUR1.5 billion to EUR2 billion. In the current market circumstances, we're happy holding what we currently have.

Okay. Thank you.

Last question?

Your next question comes from William Elderkin. Please state your company name, followed by your question.

Good afternoon, everyone. It's William Elderkin from Citi. Two questions. First of all, I just wondered if you had any initial comments on the [Ciops] paper published earlier this week, particularly any thoughts how that may impact your competitive position in the US compared with domestic competitors covered by different -- potentially different regulations.

And secondly, any comments in terms of what we can learn from the ING settlement a couple of weeks ago, both in terms of the flexibility shown by the Dutch government in renegotiating the payment terms of the capital and also the time scale over which they seem to be committed to redeeming the remaining Dutch government capital?

Thank you, William, for your questions. About the Ciops, I believe it's too early to comment on that.

And your second question about the other company I think we are -- we are focusing on Aegon. As you know, we have just recently sent our viability plan to the European committee. It's too early to say anything about that. We feel we are in a strong financial position, really strong company. And we have to wait for the reaction of European committee on our plan.

Okay, thank you.

This concludes the question and answer session. Are there any other points you wish to make?

No. Thank you very much.

This concludes the Aegon third quarter 2009 results analyst and investor conference call. Thank you for participating. You may now disconnect.