Aegon Ltd (AEG) 2009 Q4 法說會逐字稿

I would like to welcome you to our fourth-quarter presentation. It is always nice to be in London, and I know some of you will be here in this room, and I also know we have many of you joining us through the Web or through the conference call.

I'm also pleased that Eric Goodman, the head of our General Accounts in our newly formed Global Asset Management organization, he will be discussing the status of our General Accounts exposure, and, of course, you know Jan Nooitgedagt, our CFO.

As usual, I need to ask you to take your time and read carefully this disclaimer before we start our presentation. So let me turn to slide number three.

Here I would like to begin by emphasizing that our strategic focus has delivered solid results for AEGON in the fourth quarter. I'm pleased to report that we continue the profitable trends of improvement in both underlying earnings and net profit. And, at the same time, new life sales were strong across all country units, a clear indication of continued customer confidence and our sellers solid franchise. Given the challenges of the current environment, we believe it is both necessary and prudent to maintain a substantial capital buffer, which we did in the fourth quarter. We have decided not to declare a dividend to common shareholders, and this is consistent with our policy, which, as you know, is based on our capital position and cash flows. Impairment, also the improvement in the fourth quarter, remain at elevated levels and has negatively impacted cash flows during the year from our operating units.

Slide four, this slide summarizes well the positive trends that continue in the fourth quarter. Improved underlying earnings supported by an increase in revenue generating assets, strong profitable sales demonstrating a strong franchise and resulting in an increased value of new business. These improvements were the clear result of the execution of our strategy and, of course, also of the improved market environment.

Slide five, in addition to the positive financial results, we also made substantial progress in key areas that are central in our strategy to strengthen AEGON's position going forward.

A few key highlights. You know, we repaid one-third of the capital we obtained from the Dutch government, and this is the first step to full repayment. We successfully freed up a total of EUR3.3 billion of capital in the year 2009, and earlier this month we announced the sale of our Dutch funeral division. This is a result of our asset portfolio management.

During the year we realized significant cost reduction measures, exceeding our target of EUR150 million for 2009 by EUR100 million. We are restructuring and improving operations in the US, the UK and the Netherlands. And, at the same time, we have continued to invest in our business. An example is the rollout of our variable annuity business in the Netherlands and in Japan. I'm pleased to announce that earlier this week we have begun distributing our product through the Japanese megabank, SMBC, Sumitomo Mitsui Banking Corporation. And, as you are well aware, our new global asset management orientation was launched last October, combining our US, UK, Netherlands and Central and Eastern Europe asset management capabilities in order to create one central and global asset management organization.

Slide six, turning now to the strong sales for the quarter. Gross deposits remain strong at EUR5.9 billion, driven mainly by pensions and variable annuities in the US. As we previously announced, we continue to manage fixed annuity to lower levels given the current low level of interest rate environment. Net deposits, excluding institutional guarantee products, remains strong at EUR1.5 billion. Whole country units contributed to the 13% decrease in total new life sales compared with the third quarter.

In the Netherlands and in the UK, sales increase primarily as a result of increased demand for our pension program. Sustain in Asia, sales increased as a result of the extension of our business, while in Central and Eastern Europe sales were in line with the third quarter. Profitable sales for the quarter resulted in a substantial improvement in value new business across all units. In the US the increase is due mainly to higher-margin for variable annuities, while in the Netherlands higher spreads of mortgages was the main driver. In Spain higher sales volumes led to the increase in the VNB there.

Obviously we are pleased by the solid sales in the fourth quarter. It is a clear indication that the AEGON franchise remains strong and is well positioned to benefit from the market opportunity in front of us.

Slide seven taking a closer look at our profits for the quarter, the improvement in underlying earnings compared with last year was supported by the recovery in financial markets. This led to high fee income. In addition, better technical results further contributed to the improved underlying earnings.

As part of our strategy to reduce sensitivity to financial market risks, you are aware that we are running off our institutional spreads business in the US, and this has led to lower spread income. The improvement in net income was primarily the result of higher underlying earnings as I will discuss on the next slide.

I'm on slide eight now. In addition to underlying earnings, on slide eight you can see that there were three sectors which influenced net income. The under-performance of fair value items mainly related to the Americas. The main drivers were losses on our macro equity hedge program, negative reevaluation of real estate related assets, and fair value annuity losses related to (inaudible) behaviors and market transactions. These investments were primarily the result of adjustments in the bond portfolio in the Netherlands, part driven by asset and liability management. And impairments in the fourth quarter mainly relates to US housing assets and hybrid securities issued by UK and Irish financial institutions, banks.

Slide nine, reducing costs has been a consistent focus for us. You'll remember that we set a target of EUR150 million of cost reduction measures for 2009. As I mentioned earlier, we exceeded this target with a total of more than EUR250 million in cost reduction. And, as a result, our adjusted operating earnings declined by 5% in 2009. Needless to say, this was a result of a great deal of cooperation and hard work across our entire organization. And going forward we will continue to identify costs and operational efficiencies, this despite the fact that AEGON is already recognized of one of the most cost-efficient companies in this sector. At the same time, we remain focused on improving our customer sales levels further because we believe this is critical to our business and particularly in the very uncertain environment which our customers are experiencing.

Slide 10 you can see clearly the improvements in impairments quarter-over-quarter. In the fourth quarter, impairments were the lowest level since the third quarter of 2008. Net credit impairments from the US totaled 120 basis points in 2009, well above our long-term expectations. While we are certainly pleased by the notable improvement, we anticipate that impairments will remain at elevated levels compared to the long-term levels at least for the time being.

Slide 11, as I indicated at the start, we have maintained a strong and successful position, taking into account our repayment of the EUR1 billion to the Dutch government this past December. As part of our ongoing strategy to free up capital from our businesses, during the current quarter, we managed to free up an additional EUR800 million of capital, bringing the total for the year to EUR3.3 billion of capital release.

Also, I want to highlight that there was almost no impact from rating migrations and capital markets in the quarter. However, regulatory and rating agency requirements for longevity in the Netherlands and the full positioning in the UK offset our capital lease measures in Q4 by an equal amount.

Slide 12, taking a quick look at shareholders equity. This is another area where we see further improvement. We feel that we are back to a more normal situation where our net income is the largest contributor to the 4% improvement in shareholders equity. The reevaluation of reserves improved only slightly in the fourth quarter as the effects of varying credit spreads was offset by higher risk free interest rates and the realization of capital gains adjustments.

I would like to remind you that during 2009 shareholders equity doubled just over EUR12 billion, primarily the result of a strong recovery in the revaluation reserves, and this translates to book value of EUR5.88 to common shares at the end of 2009.

Before turning to the presentation of Eric, let me briefly summarize. AEGON's strong results for the fourth quarter confirmed that we are delivering on our strategic priorities. We maintained a solid financial position. We reduced further our exposure to financial markets. We exceeded our cost-saving measures, and most importantly, we maintain the confidence of our customers as demonstrated by the increased sales across all country units. We intend to stay the course and are confident that AEGON is well-positioned to further benefit from a gradually improving market environment.

Thank you and I will pass it on to Eric.

Thank you, Alex. Our general account is EUR134 billion, almost two-thirds of which is in the Americas general account. Most of the remainder is in the Netherlands general account.

Slide 15. Our portfolio composition changes were modest in the fourth quarter, although we did make net purchases of corporate bonds and other credit instruments versus net sales of government bonds.

Slide 16. Government bonds total about EUR20 billion, making up 15% of the total general account. Recently there has been increased attention on the credit risk of peripheral European credits. In this slide our exposure to the peripheral European counterparties are disclosed, illustrating that our riskier sovereign exposures such as Greece are appropriately sized.

Slide 17. This slide depicts loan to value ratios for the US mortgage loan portfolio. The valuations upon which the LTV ratios are based were revised during the second half of 2009 using the latest available data. Although the ratio has risen in recent years, reflecting the decline in real estate values nationally, the average remains at about 65%. Additionally the average debt service coverage ratio at year end was about 1.9 times. This is why the amount of 60 days plus delinquent commercial mortgage loans remains low at $120 million. Although real estate fundamentals are likely to cause this number to rise somewhat in 2010, we think the characteristics of our loan portfolio will allow impairments to remain at materially lower levels than will emerge from our aggressive lenders like commercial banks or CMBS conduits.

We also have a small agricultural loan portfolio in which delinquencies are running higher due to some transitional land loans that we have begun to impair. These comprise only about $250 million of the portfolio. And there are modest exceptions to the general rule that we avoided riskier loan types such as hotel and care assisted living facilities, and we have only a nominal exposure to construction loans.

Slide 18. AEGON like other lenders is dealing with some maturing loans by extending maturities rather than foreclosing. This graph shows the disposition of the 1 billion of loans that actually matured during 2009. About 318 million had extension options that were exercised by the borrower. This feature is common in our floating rate commercial mortgage portfolio. About $194 million of loans were paid back by the borrower. We foreclosed upon or received the real estate back on about $78 million of loans. The impairments associated with these loans totaled just $14 million. That left $410 million of loans on which we negotiated an extension. In the process of extending, we required rate increases on most loans and principal paydowns on many. The average loan to value on these extended loans were 72%, a conservative ratio.

In short, our recent experience in dealing with maturing mortgage loans provides some comfort that it will represent a manageable challenge.

Slide 19. During the fourth quarter, the alternative investment program in the US produced mixed results. Strong returns in the hedge fund and private equity portfolios were more than offset by losses arising from our real estate portfolio. The latter includes our active real estate investment, but also includes real estate owned in items like the Transamerica Pyramid Properties. Netted together these results resulted in an overall loss of $17 million.

Slide 20. This slide displays impairments net of recovery by country units during the fourth quarter. Impairments were lower than they have been since early 2008 but still at elevated levels. Structured asset impairments continued to be concentrated in residential mortgage securitizations. Corporate bond losses arose primarily from the financial sector such as some Tier 1 securities, although offsetting recovers also arose from previously impaired financial [secular] bonds.

Slide 21. This slide depicts the quarter by quarter path of AEGON's impairments during the financial crisis with the allocation by sector. In retrospect, it appears as though the fourth quarter is beginning with the collapse of Lehman, it is likely to have formed the peak, while 2010 impairments are likely to be higher than average, they will also probably be materially lower than levels experienced in 2009, barring an unexpected double dip.

Back to Alex.

Thank you, Eric. And joining us also today is Michiel van Katwijk, our Treasurer, sitting here. We are happy to take your questions now. Please make use of the microphone so that everyone can follow the discussion.

Hans Pluijgers, Cheuvreux. Four questions. First of all, a little bit to say on your return on invested assets and especially in the US what your average return is and what you are currently seeing for your reinvestment returns on the US assets?

Secondly, on the macro hedge, could you give the number for the current US RBC ratio, and what are you -- any indication of what you expect to do with the micro hedge in the US?

Thirdly, on respect with impairments, you say that still will remain at elevated levels. Could you give some flavor on where you still see the risks for impairments.

And fourthly, with respect to the capital freeing up, could you give some feeling what the impact on profitability was of the 0.8 billion freeing up in Q1 -- I'm sorry, Q4?

If you want to take the question on reinvestment?

Right. The reinvestment returns or yields on the US portfolio are around 5% for corporate bonds, which is the majority of what we are reinvested in, and mostly single A and higher. For those we have a modest amount of reinvestment into commercial mortgage-backed securities, a couple hundred million euros, and the expected yields on those are around 6%.

Regarding impairments, where are the risks? Well, clearly the residential real estate market remains stressed. We expect to see -- the pattern in recent quarters has been that a lot of the impairments have come from the residential mortgage-backed sector. That will probably continue for a few more quarters.

We are shared some information with you about our commercial whole loan portfolio. We think those will remain moderate, maybe a little higher than what you saw in the past year, but, of course, that depends a lot on the future trajectory of real estate prices. So those are the two areas I would point out.

The two remaining outstanding questions, you reach into the US of 362, and the macro hedge, the impact was EUR47 million in the fourth quarter. This macro hedge runs for the US until the middle of the summer. By this time we will decide what we will do (inaudible).

Maybe I can help with the micro hedge.

I don't think anybody hears you.

There we go. Running out that the micro hedge has no additional capital release by that transaction.

Nick Holmes, Nomura. Great questions, please. First of all, I think you have reached your 5 billion target for capital releases, and I wondered whether you expect anything more in that area?

The second question is you said the regulatory and rating agency requirements increased a lot, as you said, longevity and (inaudible). I just wondered if you could give us more color on whether you expect any further increases there?

And then the last question is on earnings outlook. Presumably your underlying earnings outlook that you gave in December remains the same, and you said a lot about impairment. The last missing bit of the jigsaw is realized gains and losses. And I wondered it was a big item in Q4, and I wondered if you could just tell us what your strategy is in that sector? Thank you.

On the 5 billion, you are right. I think we did realize EUR4.9 billion since June '08 when we announced that we would continue to release EUR4 billion to EUR5 billion in the next five years. This was clearly a good result and has moved forward to a five-year target. We will continue to run AEGON from a capital point of view in a most efficient way, but I think it is also clear that we have realized quite a lot of efficiency. 60% is around efficiency, 40% is derisking, and, as you know, 60% has limited impact on earnings. The 40% has more impact on earnings. So I think we will continue with our efforts and being efficient with capital, but I certainly do not see the same kind of a margin for the next remaining year.

In terms of capital requirement increases, in the fourth quarter, we had two specific situations. One was the long-standing discussion with [SST] about their longevity modeling, and at the end of the fourth quarter, we are able to come to an outcome of that discussion, which led to increases for the Mellon, and in the UK it is an increase of 54% for our credit portfolio, which is back in our annuity business.

In terms of outlook of earnings, we provided you in November a sense of where we expect units to be. We provided you some sensitivity to the dollar, and if you remember, it's quite sensitive to the dollar.

In terms of impairments, I think Eric just gave you an answer, which impairments remaining at elevated levels, however, dwindling down to where it is a more normalized level. And in terms of realized gains and losses, in the fourth quarter, there was a very clear reason why we realized this gain, and it had to do with asset liabilities in our Dutch business. Since we have been pretty successful on the mortgage side and that has effectively extended the duration of our assets, we had to bring the average duration of our assets back by reducing the duration of our (inaudible) portfolio. That was the only way of bringing it back to the level we wanted it to be.

And that meant that we had to realize and sell long-term bonds, so the long end of the yield curve, and that was the reason why we were able to -- why we realized this gain because we reinvested in bonds of a shorter maturity. But there is a specific reason here which was driving the gains.

So there is no such thing that we have a policy of realizing gains or not realizing gains. This was mainly driven by ALM requirements and also driven by some opportunities in the market to realize some long bonds, which we had in German bonds and French government bonds and reinvest them in Dutch government bonds giving us a nice yield to cap.

A follow-up question?

I will just follow up very briefly. With the realized gains, I mean presumably it would be safe to assume zero on a normal basis or is that wrong? Perhaps Eric might give you (multiple speakers). We should be putting in --

We certainly don't have a target for next year. So zero might be an okay assumption. But, as the year unfolds and we have new challenges, so, for example, if we needed -- we felt we needed to reposition part of the credit portfolio to avoid impairments or to avoid downgrades and that involved taking some losses, we might end up taking losses. We do not have a plan to do that currently. So I cannot give you any guidance on what to put into your earnings model.

And Alex, just very, very quickly with the longevity in (inaudible), as far as you know, it is the end of the story in terms of capital increases?

As far as we know today, yes. These are the numbers we to apply. But what was I think positive, if you see the minus that these negatives were offset by capital initiatives we have taken, and that is really what I was saying during my presentation, which we believe we gave a amount of share kind of a clear simple development where the net income is the contributor to an increased shareholder.

William Elderkin, Citi. A couple of questions, please. First of all, when you give your capital balance number, is that net or gross of unrealized balance sheet losses?

Secondly, you have got an unrealized loss on the US structured credit portfolio of about $4 billion I think. I just wondered if you can give your thoughts on prospects for recovering that valuation.

And finally, have you got any thoughts on how capital requirements for your business overall will evolve, especially vis-a-vis (inaudible) developments?

I did not hear well on your first question. Sorry. The 3.7 billion was net --?

When you report your structured capital at the (inaudible) level, is that numbered net of unrealized losses on the balance sheet?

Generally what we do is we use the S&P model, meaning that for all of the assets that are allocated through insurance liabilities, we do not report any losses or unrealized losses or unrealized gains. But the portion that is really allocated to capital that were positive -- (technical difficulty). That is how the -- (technical difficulty). So assuming that you are buying -- (technical difficulty) US, I think the model works bases off of accounting in the US for foreign securities at -- (technical difficulty).

If, say, the unrealized losses on structured credit did not pull the (inaudible), would that be a deduction to your set of capital?

No. The reason it would not pull too far is that we would incur an impairment on it, and yes, *

Earnings (inaudible) impairment. Did you have any other --?

Regarding whether the unrealized losses in structured portfolio will pull to far insofar as we believe these are temporary, the answer is yes, but it could be over a very long period of time. We have seen, as you know, if you look at the same unrealized loss 12 months ago, it was much, much larger, and each quarter there has been an impairment, maybe at a decreasing rate, but still -- I'm sorry, an improvement maybe at a decreasing rate but still an improvement. We think that it is likely to continue. Let me take it sector by sector though.

In the CMBS sector, we think we are likely even under some pretty good stress testing that most of that is likely to be recovered, and, in fact, there has been a lot of price improvement in every quarter over the last year. That is what we call non-housing asset-backs dominated by the credit card portfolio. We also have seen dramatic improvement. We do not expect much in the way of impairments even under stressed environments for that portfolio.

As I said, the RMBS, residential MBS, subprime portfolios are more challenged. The discounts are steeper. Part of that is due to the fact that the market is pricing using extremely onerous assumptions about likely foreclosures and problems in the underlying portfolio. Part of it is due to the fact that absolutely no one in those pools virtually are preparing on their loans, so they have extended a long way.

So yes, floating-rate instruments for example in the option arms that are, since coupon is at LIBOR plus a little, being discounted at 12% for six, seven or eight years. So the discount there is likely, even if we get favorable experience on the actual impairments, likely to be I think a slow grind back. And, of course, as I said, I think we are likely to have to crystallize some of those losses from an impairment over the next couple of years.

In terms of capital requirements going forward and your question is related to a Solvency 2, Jan would you please take this one?

Yes. When I started last year, it was one of my first priorities to find out where are we with Solvency 2, and I can tell you I feel that we are very well prepared for Solvency 2. We already started in 2005 with building our internal economic models. We have a lot of experience with these models, and we have also compared it with our QIS 4 strategy. That gives me the feeling and it has been proven and shown internally that we are well capitalized, even you know that our models were more prudent, more conservative than QIS 4. And you will probably ask, what about QIS 5? You know that we do know that there are many issues. We are all involved internally through CRO forums, CFO forums about all kinds of discussions, and I feel that we are on top of it. We are well prepared for Solvency 2.

Maybe we could carry on with a couple of Solvency 2 questions. It is [Christian Bemis] from Bank of America/Merrill Lynch.

The first one is, when I look at the equity component of your general accounting, it is exceptionally low. Now obviously a big US life insurance is not so strange, but is this exceptionally low level of equity an anticipation of Solvency 2 because that would certainly put you ahead of a number of your peers?

Secondly, could you comment on what you think any hybrids or press that you have in place might that kind of treatment that you think they might eventually get by Solvency 2? I know it is pretty vague still, but in terms of the reliance you have on that kind of hybrid, etc. and what you think might happen?

And just moving on a little bit away from Solvency 2 but staying with the European Commission, I think, Eric, last year you explained to us that the delineation that exists banks that have had state aid between viability and restructuring, that line did not really exist to insurers who had had some kind of state aid. You seemed at that time, if I remember correctly, to be pretty confident that AEGON would be, if that line existed in insurance about viability and not about restructuring. I know that you said you cannot really update a lot on what is happening with the EC, but could you update on whether your confidence level of that particular separation is still the same as it was last year?

On the question on the low level of direct equity holdings, we said last year with you in a (inaudible) on the putting numbers. We have taken deliberate steps of de-risking our balance sheet at an early stage. We already have a lot of embedded equity exposure through the form of the guarantee. And that was the reason we felt that by taking our direct equity exposure down, we would effectively be able and in a simple way reducing our exposure. And this obviously has a positive impact with Solvency 2.

In terms of hybrids, to what extent they do cause a problem or not, that is pretty complex with a lot of questions, which are not yet answered today. So we can have a long discussion about it. But if it is anything we feel we would like to comment, but I think there is too much maturity for us to be able to respond to what extent they will all or would not be an issue on the Solvency 2. But as Jan said and I think is most important, we are following this very clearly, very closely. We are also making sure that we have a (inaudible) and we participate in the CFO and CRO forums where we take a leading role there. So we will make sure that the outcome will be such that it will be an outcome, which will be acceptable for the industry, and therefore, it is acceptable for AEGON.

There is nothing to add to that, so I will go to the question of restructuring viability. You are right. I said that last time. I would still say the same thing this time. We are waiting for a formal approval from the European Commission. As you know, we have been granted a preliminary approval, which is kind of following the paperwork in that was extended. We have submitted our viability plan on 5 November, and we are actually awaiting for a reaction of the European Commission to our viability plan. And it is not a restructuring plan; it is a viability plan we submitted. And I promise you that, as soon as we know more, we will share it with you, but I do not know more than that right now.

I have three coming from Morgan Stanley, three questions. Unfortunately the first one is on Solvency 2. Can you just confirm when you say you have requests for kind of happy internal economic model, which is slightly more nuanced, more conservative requests for you are happy. You're including the US business in that economic framework. (multiple speakers)

You have got the answer already.

Okay. Alright. Great. So the US is on the Solvency 2 framework, okay? But question number two then is you made some comments on cash in your press release, not being able to pay a dividend up to the holding company level. Can you just talk about, if you did not have impairments, what your normalized level of cash would be? I know it is very difficulty to say that. But what was it? What was the main thing preventing you from paying dividends for the full year? What would you say it was?

And the second, and the last question is, do you de-risk another EUR800 million or EUR0.8 billion in Q4? You have also got the higher than expected cost savings. What is the net underlying earnings impact in the quarter of that?

Well, the first question you got a clear answer. In terms of cash flow, what we see is the following. Our cash flows are an important driver of our decision paying dividends. As you know, it has been in the policy about the strength of our balance sheet and the cash flows, the cash flows after holding that. And it is clear that in 2008 and in 2009 our cash flows have been severely impaired by impairments. So, as long as the impairments are at elevated levels, our cash flows will be impaired. That is the main driver of a framework of the (inaudible).

I think we shared with you last year also that on the normalized impairment assumption that the cash flow that has been generated from our business units after they have applied the capital for new business, so what remains after new business, the finance in terms of cash flow, is somewhere around EUR1 billion to EUR1.2 billion. That number depends, of course, on the impairments, but we are assuming normalized level of impairments, which is in line with our long-term assumptions, around 30 days (inaudible) impairments.

The EUR0.8 billion, that is the EUR760 million of capital which we released, but capital efficiency and de-risking. You mentioned the whole amount is de-risking, and this is not the case. There is only a part of that, which is de-risking, and that part is set aside by the earnings. Michiel will give you a bit more color --

Maybe I can follow up on that question and also answer your earlier question. The largest portion was capital efficiency, and basically on those initiatives there has been no earnings impact.

On the de-risking, the largest portion of the de-risking is the runoff of the IND portfolio. And you are quite familiar with that ticket. So those are the main reasons -- (technical difficulty). We have realized -- as you can see in the comparable number for the year, we have realized 250 million of initiatives that have resulted in a decrease of 150 million for the cost savings over the year. So with that, you can roll that forward.

And again, I think I made the point clear, we continued our focus on cost savings. The only thing we are not doing here is providing you a better target. Because we believe that now it is clearly embedded in our organization we have to adjust to the new environment.

But I would like also to make the point here it is not only about discounting costs. I would say that is the easy part. What we are really focusing on is cutting costs in an intelligent way. What I mean is improving efficiency, and improving efficiency means improving your customer services. Because that is really what is at the heart of what we have been doing last year.

So we have not taken those decisions which were potentially sacrificing customer service levels, and you see they are very clearly reflected in our retention. We have been able to maintain customers. Lab patient has been actually positive. New customers have been affected. Recently there was a survey in the Netherlands, which is now comparing all insurance companies in the individual parts but also in the pension business. And I'm really very excited to say that we have moved from the bottom I would say to the top. And that is what has been driving actually a strong quarter in pensions in the Netherlands is the fact that we have been very much focusing on customer service levels and innovation.

In the Netherlands is another area where we have been focusing it on the SME market for pensions. As you know, we have been the leader in the pension market, but our focus and our presence was very much focused on the higher end of the market. We were under represented, and what we wanted is to get our fair share of the SME segment. I think we are somewhere at 8% market share, and we would like to bring it into a fair share, which is closer to 20%. So that would give us (inaudible). That is part of the way we look at our businesses.

Chris Hitchings, KBW. A couple of things. Embedded value sales profits jumped a lot in the fourth quarter. Were there any changes in the assumptions which were put through there, or can you take us through what that is?

Can you give us some idea you're going to announce your embedded value, your full embedded value as usual in the first quarter. Can you give us any highlights as to how you're going to approach that? Are there going to be any changes?

Secondly, can you -- sorry, thirdly, probably -- can you take us through how the cash position has altered in the US portfolio? Clearly you have got a lot of cash coming out as the IND winds down. Is that nearly complete? How much cash is held for that for the redemption of those, and what else do you still hold, and how much are you managing to reinvest at the moment, and how long do you think that will take?

The first question, the simple answer is VNB assumptions are set at the 1st of January of the year. So we are not changing them in the fourth quarter because generally it improved margins and improved sales. One of the areas particularly which I think will be of interest is the variable annuities in the US. As you know, we have redesigned the product. We have repriced our products, embedded part of the (inaudible) in the business.

In the Netherlands it has been our continued success in the mortgage business where we have around 60% to 70% of our business, which is guaranteed by the Dutch government. But attractive margins with a guaranteed lower capital allocation so that has also support of our new business. So I can give you a couple of examples where you see clearly the business drivers for VNB. And the value will be published first quarter, May something, May 15, in the same way we have done last year, and we will obviously publish it with updated (inaudible) to reflect the reality of the year 2009.

In terms of cash flow, what I will say is that we maintain healthy cash flow positions in the US. We have around $9.5 billion of cash, of which a part is needed for the runoff of the institutional markets business. Would you like to comment --?

Because the maturities and the liabilities over the next 12 months are less than that 9 billion, we are investing every month some of the government bonds into private-like corporate bonds, and we're doing it in a way that even under a stressed scenario we have plenty of cash to pay off those liabilities. So we relook at this every month, so I cannot make a position for the full year how much we will take out of that cash portfolio and put into (inaudible). But right now the pace is around $1 billion.

It might increase that at the same time, not only the run-off of IND business. But our business is very cash generative in a whole different area, so it really needs to remain very active just to keep at the same level as where we were because of the fact that you have cash coming in.

Sorry. Can I come back onto -- just really I was trying to get a picture of what do you regard in the US as excess cash, i.e. what is not needed? You confirmed that you're still putting, as you indicated in November, I think 1 billion a month into corporate bonds, and what is your net cash inflows in the non-IND businesses? And i.e. how much -- how long at $1 billion a month, how long is going to take you to get to where you want to go?

I will take the first part. The objective here is that we maintain a cash buffer, which is sufficient to pay for the release, plus a buffer because we do not want to be in a situation with a deterioration of the market when we could be spot on. So we are maintaining a buffer.

On the other side, we also get inflows on a quarterly basis, and the inflows on a quarterly basis are between $3 billion and $4 billion. In terms of investment, Eric give you an answer as to the amount he is investing on a monthly basis? So I think that gives you the elements --

But the problem is the variability during the year, and that variability comes out of the adjusted (inaudible). If we were certain we did not need 6 billion, we would go ahead and invest that more quickly. But we are monitoring the flows both from liabilities, assets, paydowns and runoff and so forth in order to do it at a deliberate pace that allows us to maintain the right buffer.

(inaudible) Thomas Research. Just three questions if I may. Firstly, just on the kind of Pension Asset Management business in the US, you had quite strong net deposits of about 1.6 billion in the quarter. That is actually pretty good. I would just wondered whether that is something company-specific or partly a more industry phenomenon?

Secondly, just coming back on the cash flow number, I mean at EUR1.1 billion to EUR1.2 billion, can you just clarify whether that is before or after interest payments on capital instruments? My understanding is that actually reconciles the fee service reconciliation, so it is at the top level.

And then just finally, Eric, in terms of the structured credit portfolio, do you have a sense of what the pull to par effect is per annum at the moment or just a sense of what the average duration is on that portfolio, please?

In terms of our pension business in the US, as you know, this has been an area of focus for quite some time, and we particularly executed successfully in the fourth. In this segment you know we have been a market leader in a top three position in the (inaudible) for some time.

What you are seeing now is that the flow has been coming in. The service levels have also been I think an important factor. This business is just one of our success stories. And you see here that it is getting -- attracting deposits at a phase, which is clearly higher than the industries and the markets. So this is company-specific, and we are actually very pleased to see these results. The EUR1.1 billion to EUR1.2 billion I mentioned is before the payment of interest on our bonds and hybrids. I would say before paying interest at the holding level is what we have been looking at.

And I'm afraid the pull to par on the structured portfolio is going to have to be a follow-up item. I don't have that.

Tony Silverman, Standard & Poor's Equity Research. I'm just going to return to the cash question. Firstly, I think the 9 billion number, unless my memory is playing tricks on me, is the number that was mentioned a year ago as well. And my understanding -- obviously incorrect at the time -- was that part of that was for paying down the institutional business. So I'm sort of surprised it is still 9 billion. Perhaps you could talk -- has the pressure element gone up or what? Perhaps you could talk us through that.

And secondly was, given the market value position of the bond portfolio, you are reliant, as you said, on a hold and a pull to par, a hold to maturity on the bond, a pull to par for the Solvency 2 calculations you have given us to work. So I was wondering if you could talk a bit about what surrender experience has been because then principally I suppose that is the risk for that strategy.

In the first question, the 9 billion this year compared to the 9 billion last year is not really a surprise because last year we had to run-off 10 billion of assets, and we are running off another 10 billion roughly this year. So it's the same kind of runoff pattern in 2009 and 2010. It is 20 billion after two years.

Right. So that 9 billion would expect to come down, I suppose, in the course of this year then?

Yes, in 2011 we have another -- I don't know exactly the pattern, but the pattern is 2010, 2010, and then it's coming down. So I would think expect it might then come down because then you would have less cover for the remaining part.

But what is important is we want to be absolutely sure that we do not get ourselves caught out in a position where we have an affinity issue because, as you know, a year ago where the situation was very difficult was a risk. So the 9 billion is actually consistent with a runoff from (inaudible), and it will be lower next year.

So the remaining question was, under experience and finally on Solvency 2, we have given that these securities are in Solvency 2 at market value, it then becomes a question of the liquidity premium and the valuation of the process liabilities. I mean if you could talk us through where you see AEGON and Solvency 2 in that respect?

I think it is too early to be more explicit than we have been up until now on the Solvency 2 how it would look like that. The other discussion about liquidity premium, which you likely point out, is an important one in this specific aspect, and we don't know what the outcome is. Jan said clearly, under our own internal models, including the US part of our portfolio and on the -- (technical difficulty), we have available capital which is clearly greater than required capital. And on that QIS 5, the question we need to understand was the -- how is this going to work out? And for our spread business and the remaining of the runoff, I said, of course, it has an impact. But keep in mind that our spread business is running off in 2010, 2011, 2012. So by the time we roll into Solvency 2, I would not expect a very significant amount of remaining spread business.

I would like to add that as well, that especially the runoff of IND before implementing Solvency 2 in 2012, 2013 as we recruit -- well, we will benefit from that for Solvency 2.

One other thing to keep in mind when you are looking at reported IFRS results and trying to read something into that about Solvency 2, for our liabilities it is not just liquidity treatment. Liabilities will be established at a very different basis. Our liabilities currently in all of our jurisdictions contain that. So it is safe in saying that margins for our first deviation. So some conservatism is included in these liabilities. Liabilities under Solvency 2 will be carried at a best estimate basis. So generally under Solvency 2 liabilities will be substantially lower than they are under IFRS without even thinking about liquidity segments.

Yes, maybe we also have as an accountant, Michiel.

This was my bread-and-butter. But Solvency 2 is market value of liabilities and market value of estimates, and what you ask for is included in the value of the liabilities. And, of course, we are interested in to what will be the outcome of the whole discussion about liquidity or illiquidity.

Duncan Russell, JPMorgan. Just coming back onto the Retirement Services business, as you pointed out, it did quite well in terms of deposits. But the earnings remain at quite a low level. I was just wondering if you could elaborate on why the earnings are so depressed currently at the underlying level?

Does anybody in the room want to get the question?

Second, if you can hear me, the second question is, just in terms of the transfer of the assets from the institutional businesses to other businesses within the US, could you talk to the accounting of that? In the institutional business, currently the investment income seems to be negative, and I was just wondering if you could explain that, please, from an accounting perspective?

And then finally, could you give a --

Duncan I'm very sorry, but we cannot hear you. The line is very bad. We will continue with questions here from the hole here, so we will get back to you later. Thank you.

I think I heard the first question. The first question was I think -- I'm sure Duncan will say no -- but I think the -- (technical difficulty).

Ladies and gentlemen, the AEGON fourth-quarter 2009 results conference call has just finished. Thank you for participating. You may now disconnect.