Aegon Ltd (AEG) 2014 Q2 法說會逐字稿

Good day and welcome to the Aegon second-quarter 2014 results conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Willem van den Berg. Please go ahead.

Thank you Gillian. Good morning and thank you for joining us for this conference call on Aegon's second-quarter 2014 results. Similar to last quarter we will keep you today -- we will keep today's presentation short, leaving plenty of time to address your questions. We would like, we would appreciate it, if you take a moment to review our disclaimer on forward-looking statements which is at the back of this presentation. Our CEO, Alex Wynaendts, will share his views on the highlights of this quarter's performance and will then be joined by our CFO, Darryl Button, to answer your questions. I'll hand it now over to Alex.

Thank you Willem and good morning to everyone. I am pleased to start this call by saying that we have again delivered a strong set of results, maintaining the positive momentum of the previous quarters. The 7% increase in our underlying earnings has been driven primarily by three sectors, solid growth of our business, improved operational performance and higher equity markets. These drivers were partially offset by lower US dollar and unfavorable mortality in the US, largely related to lower-than-expected reinsurance recoveries. The impact of continue low interest rates has been modest and in line with the sensitivities we have provided.

I'd also like to mention here that we will update our mortality assumptions in the US as part of our annual assumption review during the quarter. This includes supplementing our own emerging mortality experience with the results of recent old-age industry studies, which is expected to result in somewhat more conservative mortality assumptions.

Sales and MCVNB were also very strong, and our return on equity for the quarter increased to 8.8%. And the real highlight this quarter is our strong net deposits, which increased 75% to EUR6b and helped grow our total revenue-generating investments to over EUR500b for the first time in Aegon's history.

Now turning to slide 3, and as you can see on slides 3 and 4, our strong performance is the result of continued profitable sales growth. This, together with positive equity markets, has led to higher asset balances and higher earnings.

Asset growth was especially strong in our US variable annuity business and our pension business. Once again we've seen very strong variable annuity deposits with gross deposits of $2.5b and net deposits of over $1.3b. And we continue to achieve very attractive returns. Deposits in our US pension business were exceptionally strong with gross deposits of over $8b and net deposits were almost $4b. This is mainly due to larger-than-normal plan takeovers and extends a trend of growing balances driven by initiatives to increase employee awareness and employee participation.

In 2003 we started to make sizeable investments in technology in our pension business. And the aim then was to build a scalable platform from which we could grow and improve service levels. The results of our commitment to investing in technology can be seen both in terms of strong earnings and asset growth now at more than $135b.

And turning to slide 5, investments we continued to make throughout the Company are being made over the same objectives and that is to grow the business in a sustainable way. The required investments are made possible by continued cost reductions. We're creating space to invest in new capabilities, as can be seen very clearly on this slide.

Let me share a few examples. Our direct-to-consumer proposition in the UK, Retiready, is gaining popularity and is supporting the asset growth we have seen on our platform, which now stands at nearly GBP2b. In the Netherlands, 400,000 customers are already using our new online portal, MijnAegon. And in the US the number of retirement customers that have used our new retirement outlook estimator quickly is approaching 1m. And we continue to press forward with new initiatives in many of our other key markets.

Turning to slide 6, where we'd like to update you on a number of capital-related results. Operational free cash flows this quarter were EUR370m. Market impacts, mainly low interest rate, had a negative impact on cash flows of approximately EUR25m and one-time items had a positive impact of approximately EUR75m. The benefit from the redundant reserve financing solution in the US was partially offset by some asset de-risking in the UK in preparation for Solvency II and model updates in the Netherlands. We will implement further model updates in the third quarter of this year.

Based on this strong capital position and year-to-date cash flows we will pay an interim dividend of EUR0.11 per share. This represents approximately 50% of our free cash flow.

As you can see on our final slide 7, we continue to execute successfully on our strategy. And today I'm also pleased to announce that we have expanded our partnership in Spain with Banco Santander into Portugal. This is a new market for us. We have now signed a 25-year agreement to distribute life and protection insurance products to over 2m new customers of Banco Santander Portugal.

So, in summary, we are proud of what we are achieving by executing on our strategy and this is reflected in a strong set of results. We are growing sustainably in our key markets. Our earnings are up and we have record revenue-generating assets of over EUR5b (sic ? see slide 2 "EUR503b"), and we are achieving all of this in spite of a persistently low interest rate environment. These are exciting times for Aegon as we are well-positioned for future challenges and well-positioned to take advantage of the many opportunities we see across our businesses.

Darryl and I are now happy to take your questions. Thank you.

(Operator Instructions). David Andrich, Morgan Stanley.

Hi. Good morning. Thank you for taking my questions. Just on the US mortality experience I was just wondering maybe if you could quantify a little bit what the drag on earnings has been the past few quarters just to give an idea if there's any potential uplift for earnings once additional reserving has been made.

And maybe could you also quantify or give a little bit of guidance on what the potential impact is in terms of the actual quantum? Thank you.

Yes, hi David. It's Darryl. Let me jump in with that. As you know, we've been doing a lot of analysis on our mortality the last few quarters. I can -- as I look back at the first quarter and here in the second quarter, we're really seeing what I would say would be more random fluctuations, and in the first quarter in particular a lot of the seasonal effect that we normally see. During the second quarter it was lower than expectations, but mostly driven by really reinsurance recoveries were lower than expected.

However, in that process we have identified a trend. It's a smaller trend but it's in the old age part of our market, of our experience. So I would call that aged 85, 90-plus. And there's some recent industry experience out there through a new Tillinghast study that we're looking at carefully there as well. So the actual experience has been small. But in terms of what we see in the older age market combined with the new, I would say, emerging experience, particularly coming from the new industry table, that's an area where I can already look forward to seeing us making some assumption changes in the third quarter.

And just any guidance on the quantum or the size of those impacts?

We're still -- it's our third quarter process and so that's where we do our normal assumption update. So we're working through the actual modeling, the reserve and DAC modeling now. What I do have sightline on is the direction of the assumption that we will be making a change to the more conservative assumptions in the third quarter. Unfortunately I can't really size it at this point.

Okay. Thank you very much.

Farooq Hanif, Citigroup.

Hi everybody. I hope you can hear me clearly. I just wanted to ask a couple of questions on your free cash flow and dividends. I think I'm just about understanding how interest rates affect your earnings because you're looking at the delta between the recovery you're assuming in your DAC for future yields and the pathway that you're going through. But on cash you had a EUR25m market impact from the low interest rates in the Americas. Can you explain what the direct statutory driver is there that's hitting that, and then how we can think about the sensitivity going forward if one day we saw a more positive yield cover environment? That's meant to be question one.

And question two is, you've mentioned here a rate of 50% dividend payout of free cash flow, which am I right in thinking is the first time you've shown that kind of ratio in the presentation? I don't know if it is. But if so, is this the right level? Is that how you would think about it going forward? Thank you very much.

Farooq, let me take your second question first on the dividend. I think on the dividend we've been consistent. We have a policy and we are consistent in saying that we would like to have a sustainably growing dividend. We have here given you the number of 50%, but we clearly have an intention to grow sustainably. The second thing I'd like to remind you, Farooq, also is that we have expressed our clear intention to execute on the share buyback of those shares that were issued in relation to the preference shares that were issued -- that were taken in around the association. So that's how you should be looking at the dividend.

In terms of cash flows, Darryl?

Yes, Farooq, on the, specifically on the interest rate impact, the mechanism for a drop in interest rates to come through capital, I would really break the US business into the life business versus the annuity business.

Behind the annuity business is more of an economic calculation, with a CTE contingent tail capital calculation. That's where a drop in interest rates in any one quarter will come into that calculation and change the capital. So we see a bit of capital interest rate sensitivity from the annuity business.

On the life business, it's, the capital is a little more factor-based and so you have the same decline in earnings, which is slow to emerge frankly and doesn't really move the capital needle any one quarter to quarter. Where it would come through in the life businesses at the end of the year when you do cash flow testing analysis, if you ran out of sufficiency margins you may have to increase reserves. But we generally have a pretty decent buffer preventing against that. So it does come from the annuity business in the US.

Okay. So is this asymmetric then? So we should not read too much into the 25 and look at it within the yields. Is it very difficult to give guidance on how it might improve?

Yes. So I think it -- the sensitivity is -- and actually what we have is we have a slightly bigger number of in the 25 coming from the US from the drop in interest rates. The drop in interest rates was pretty profound in the quarter and then credit spreads tightened and that provides a bit of a capital offset, particularly in the Dutch business. So basically if the yield curve moves in any one quarter you'll find a little bit of capital noise coming off the US annuity business. And then it's a one-time item and then it'll be stable. If interest rates came back up next quarter, it would reverse next quarter.

Okay. Thank you very much.

William Hawkins, KBW.

Hi. Thank you very much. I'm risking repeating a couple of questions, so forgive me. But just again on the dividend, Alex, in the first half of this year have you just gone back to the old policy of repeating the second-half dividend and only making decisions about incremental capital at the end of the year or is the EUR0.11 a genuine standalone decision and so in theory in the future interim dividends could change year on year?

And then secondly, I appreciate you don't want to give guidance on what the US mortality charge would be, but I'm feeling like I'm swimming a bit in the dark at the moment about the range of possible expectations. So maybe the question would be can you tell us the size of the reserves for the specific buckets that you're reviewing? So what is the baseline reserves that you're actually starting with?

And also if I can tag on to that, you've mentioned trends, you've mentioned reinsurance recoveries. And I just wanted to be clear to what extent is this review related to a genuine assessment of gross underlying trends in mortality and to what extent may it reflect changes in relationship with your reinsurers? Because you've mentioned reinsurance recoverables, which to my mind may have nothing to do with what's actually going on in underlying mortality. Thank you.

Yes. On the dividend my answer is simple. It's yes. Theoretically we make any changes we want. But again I want to repeat here what we want to do, Will, is have a dividend that's growing sustainably. I think we've been very consistent in that. And that means your question, yes.

Thanks.

Yes. On the US mortality, William, it's ?- well, first of all let me give you some of the numbers behind your question on sizing, at least from a reserve perspective. Total life reserves in the US are around 28b. But this would only impact universal life because this would be an unlocking event. So this would be the FAS 97 business that would be -- have the P&L, and that's about 15b of reserves.

It would be an unlocking event as we changed the assumption. Let me just reiterate what I said before. It is an emerging experience that we're seeing. It's really the only place where we've seen the mortality thus far deviate from expectations in the older age segment, that's age 85-plus. There's a new Tillinghast study that was put out at the end of 2012. We've been studying that as well. It's in the older age market. So we're basically looking at those two things and our own experience, and that's the assumption change that we're looking at making in the third quarter.

I apologize that I haven't been able to size it for you. We're still working through the numbers and the calculations and we're still doing that. I just ?- that is the one part of the Q3 assumption update that I do have a sightline on and I wanted to give you a heads up for that now.

And there's no way we can be refining further the 15b? It's basically a review of mortality across that portfolio?

Yes. It's a review across mortality. It's really a complete review of all of our mortality. So I don't want to suggest that we're only reviewing the mortality in the older-age segment. We're doing a complete review of all of our mortality assumptions. The only place that I'm seeing at this point that we're coming out with a potential change is in this older-age segment.

Okay. Right. Cool. Thank you.

Albert Ploegh, ING.

Yes, good morning all. A few questions from my end. First of all, on the normalized cash flows, you mentioned also there is a small negative impact or drag from the auto-enrolment in the UK. Can you give some more color on that and what your expectations are going forward?

Second question is on the Dutch business also related to, yes, longevity basically. If I'm correct, by the end of this year we will have some new tables coming up. Can you maybe share some thoughts of that as well on whether that could be Q3 or more Q4, if anything negative? And if there would be a negative update, how will you account for that? Will you take a one-off charge or you will take it on a quarterly basis going forward, something you've done in the past as well?

And the final question is basically on the UK. You flag also higher investments in IT in the second half. Can you maybe quantify a little bit the step up there that you might expect? Thank you.

Yes, Albert. Let me take your first couple of questions. On the auto-enrolment drag in the UK, yes, it's part of the cash flow, it's really part of the cash flow story coming out of the UK. The drag right now is about GBP20m inside of the UK cash flow numbers. It has to do with basically the auto-enrolment. As we bring them on basically these are typically lower-revenue employees and entrants that we're bringing on and we have to set up some additional strain relative to that. So this is additional statutory reserving strain. It will release in the future, but that's what we're seeing as we bring these auto-enrollees on, and that's inside the cash flow numbers.

You also asked about the Dutch mortality tables. Yes, we will -- as part of our annual process we'll have a look at new tables and new data when it's released later this year. We're not actually expecting -- at this point I'm not expecting anything from that, so there's nothing I would signal on that front. If we do see anything, it would likely be Q4 by the time we get the data and do the analysis. But at this point there's nothing I'm expecting there.

Okay. Thank you. And to be sure, the 20m you mentioned for the UK, that's pounds or euros?

It's pounds.

Pounds, okay. And maybe one, yes, final follow-up. On the review that will take place clearly typically in Q3 on assumptions, clearly the mortality has been flat. Should we also read into that that, let's say, on the other assumptions at this stage, no meaningful update or changes are expected?

Yes. The only thing I would highlight in addition to the assumption review is we did have a model conversion here in the Netherlands in the second quarter. We've been converting a lot of our models, particularly on the pension business here in the Netherlands over to new software, basically I would say modernizing the modeling platform, if you will. We have taken a block of guarantees over this quarter and that had a negative P&L impact. That was EUR78m. That's in the fair value number.

We have one last book to convert and that conversion will also happen in the third quarter. So I would say I would also look to a model conversion in the third quarter.

Okay. Thank you.

But you also asked about UK investments. Yes, we are signaling that we do have from an, I guess an expectation from earnings in the next couple of quarters, we do have the final implementation of some of the technology that we have behind Retiready and the platform in the UK that we expect will actually take up expenses relative to what we incurred in the second quarter over the third and fourth quarter. So we are highlighting that that will have a small drag on underlying earnings in the third and fourth quarter in the UK.

Okay. Thank you very much.

Nick Holmes, Societe Generale.

Hi there. Thank you very much. A couple of questions. First one is coming back on the dividend. I think to Farooq's question you said that the interim dividend was held flat partly because of your intentions with the neutralization of the pref share transaction, i.e. a share buyback. Wondered if you could give us more color on that. Are you basically saying that you're looking to do that in H2 and that's why the interim dividend was held flat? That's my first question.

The second one is just looking at the US business. Wondered if you could give us a bit more color on both the variable annuities, which are doing very well, and also the pensions, which are doing perhaps slightly less well. And you cited margin pressure in pensions. I just wondered how concerned you are about that. Thank you very much.

Nick, let me reiterate what I said on the dividend. We have a policy based on, as you know, balance sheet, cash flows. We have strong balance sheet, we're delivering on our cash flows and we want to have a dividend that is sustainably growing. In terms of what I repeated here in relation to neutralizing the effect, the dilutive effect from the preference share transaction with the association, we've said that that commitment is there, but I have not given any indication around timing and I also don't want to do that right now.

You asked me about the US business. I think actually our VA business is doing well, very well, but I think our pension business is doing at least as well. Our VA business has been growing on the back of growth of distribution, getting much closer with our distributors, having the right products right now, being able to price them in a good way, in a way that makes sense for our customers and makes sense for us. We're still making very good margins and good IRRs on this business, as you can see, despite what is a low interest rate environment, which I think is extremely positive.

We're gaining market share, although it is not our ambition to gain market share in itself. What we just see is we are getting deeper and deeper in distribution and adding new distribution.

In terms of our pension business, I actually think this has been record quarter of our pension business. I mentioned in my call $8b of gross flows and, what was it, $4b of net flows. And I do think that if you compare that to some, to what we've seen recently in the industry, this is an extremely strong performance. This performance is on the back of investments we've been making in the past on our system, which gives us advantages in terms of the best service levels, but also scalability.

I want to get to that point, because we are adding more business while maintaining our expenses more or less flat. And that is I think what is giving us not only a strong business in terms of growth, but also a business that is showing a very good earnings going forward in what is indeed, as you probably recognize, a market where we are seeing pressure.

The second part of this business I would also bring back to your attention, and I think we signaled it very clearly in our June conference is that we have now integrated our pension business with our annuity business, with the aim of not only improving the coordination of our sales and marketing efforts, because effectively our wholesalers in both businesses were calling on the same people. We can now put them together and increase our firepower in terms of sales.

But equally important is about the whole retention, as you know, the retention of customers of our pension business that at a certain point in time are going to retire. We've given you the numbers around the June conference. It's around 4m customers. And, as I said, what we know for sure is that each of these customers at a certain point in time will retire, will need products and services that we're going to offer them.

So this business, in my view, is not only doing well; it's really doing very well. But it's also setting and establishing a basis for future growth. That is what we are really truly excited about.

Alex, thank you very much for that very full question -- full answer. May I just follow up again, apologies about this, on the connection with the dividend, because you've described a very strong business performance. You're very happy with that. Why did you then keep the dividend flat rather than increasing it, say, 5% or something, given the strong underlying performance?

I can only repeat what I said, Nick. I said that we want a dividend that is sustainably growing year over year and I think that's the way you should be looking at it.

Okay. Thank you very much.

Benoit Petrarque, Kepler.

Yes, good morning everyone. Just on the, on prior solutions again, sorry. The $4b net inflow, how do you see the margin on this new business? Is that above or below average on the stock? Could you give us a little bit of feeling about this new business?

And also obviously going forward, what is your outlook on this business net-net deposit-wise?

And then maybe just on the JV with Santander in Portugal. Could you give us a little bit of economics, so cash, cash outflow probably in the third or fourth quarter and also expected contribution from the JV?

And then last maybe the improvement in persistence in the UK. Do you think it's sustainable? Do you see that actually continuing in the third quarter? Thanks.

Benoit, thank you. Just to add on, on the question, we've, I think, given you now what we call the return on net revenue, which was at 33%, which shows we're making good margins on this business, including the new business. But again I'd like to reiterate this is the result of long-term efforts of building capabilities that are scalable. That really is the key here, the scalability of our business.

And therefore we're able to add business and I think, as we shared with you, the -- what was it -- to be exact, 33.9% return on net revenue, which I think makes -- put us clearly in the league of those players that are successful in terms of growing and in terms of profitability.

It's always difficult to predict the next quarter because in this business part of it is deposits that keep on coming from all our participants. We get over 4m participants at every quarter and every year add deposits.

And the other part of it, and this is where we've been extremely successful this quarter, is takeovers. That means that contracts have moved from another provider to Aegon. And that is never regular. And sometimes it is related to corporate activity, so in other words a customer of ours that does an acquisition and buys another company and integrates its pension fund, that's also a takeover. And as you know, we are very strong in what we call the [43V], the hospital area. And that's an area where we do see some activity around consolidation, which obviously supports -- has been supporting our business.

So I'm confident. But again it's difficult to predict quarter on quarter. But I'm very confident we'll see continued growth on the back of the service, and as you know we've been winning the award of the best pension provider in the US and all different awards, which we shared with you in June so I don't want to do that again here.

But your question on Santander, we have not disclosed any amounts and obviously these amounts are not such that we need to disclose them. But I think it's important for us to see here that Santander was very keen to expand with us a successful joint venture in Spain. And that is what is exciting for us because we have in Spain making great progress. We work extremely well with them. And to me the fact that they've asked us to expand that in Portugal is the best guarantee that this is working very well and they're very satisfied with the way we cooperate and the way we are creating a business for the customers.

Obviously it's 2m customers I mentioned that are potentially, customers of the bank that are potentially going to buy insurance. It will take a bit of time. But this is the end of the market which is the high end of the market and it's a very under-penetrated customer base. That's very attractive.

So on the UK, yes, we're obviously pleased to see continued improvements. Keep in mind we've been working extremely hard now for a number of years to try to get our expenses down. I'm not going to remind you the sheer size of this restructuring. So lower expenses is supporting it. But what we're seeing is that the investments we've made in the platform, that these are investments that are supporting growth and that are supporting persistency. Because at the end, persistency has been one of the drags on our earnings in the past and I'm pleased to see that we see some improvements now in our persistency, and I have every reason to believe that that improvement will continue in the future.

Right. Thank you very much.

Ashik Musaddi, JPMorgan.

Yes, hi. Hi. Good morning Alex and Darryl. Just two or three questions. First of all, can you just give us some color about your update on the Canada and French review that you mentioned at the Investor Day? Where are we on that? Any update on that?

Secondly, can you give us some color about your net flows in workplace pension? You flagged in the press release around the net flows in the platform which remains very strong at EUR400m. So how is your workplace pension doing? Are you still getting net inflows? Because it looks like last year it was kind of net outflows from the whole UK pension book, so any update on that.

And thirdly, I want to touch base a bit on your deleveraging plans. I know it may be early and you may think of giving those numbers maybe at the next business review, but any thoughts on what is the absolute level of gross debt are you looking to -- are you very happy with? Or after this deleveraging of a further EUR500m, which is already planned, do you further want to deleverage your book going forward? Yes, these three questions. Thank you.

Yes, on Canada and France you know we committed to come back to you before the end of the year. So we have a little bit more time and I will promise you that we will come back to you as soon as we have something we want to share and can share with you. That's an ongoing process.

In terms of net flows, in the UK indeed we had positive net flows. I think also, as I just answered in the previous question, it's a combination of new business and better retention. Better retention because the whole RDR activity is now kind of fading down, combined with the fact that we are having -- putting in place this platform. We have now the Retiready which is direct to consumer capability. So we have now much more tools that are helping us to retain the business and I think that is exactly showing where we want to go.

And finally, in terms of net debt, Darryl, would you please take this one?

Well, I think, Ashik, as I said before, I think we are committed to managing within a 26% to 30% gross leverage ratio. We're at 31.2% as we stand here today. We also have committed to maturing out the senior note in the fourth quarter of this year for EUR500m, which will move us down in the range. I think as long as basically -- I would say my commitment is to manage within that range. As I've said before, I'm comfortable at the high end of that range and over time I would expect us to drift down into the middle and I think that's fine. I think as long as you see us over that top end of the 30% that we'll have action plans to get back down within that 26% to 30% range.

That's very clear. Just one follow-up on the workplace -- on the pension net inflows. The positive net inflows that you mentioned is in workplace or is it the total pension?

Yes, I think the way to look at it, Ashik, is you need to see it's improved compared to last year. And it's in total. It's in overall. Workplace is corporate pensions but we have individual pensions but the area where we've seen the best improvement in persistency is in the workplace area.

Okay. Sure. That's great. Thank you.

William Elderkin, Goldman Sachs.

Thank you. Good morning everybody. Just one question on the UK and really following up from the earlier one in terms of the cash flow impact from the expansion of the auto-enrolment. Can you just explain how that affects the IFRS earnings you report? I know you've talked about how it impacts cash, but I was expecting that the underlying UK pension earnings to have at least remained stable quarter on quarter and they seem to have gone down. I just want to understand how that interacts.

Yes, the bigger number, the GBP20m that I mentioned, is really the strain that comes through when we have to set up additional regulatory reserves related to these auto-enrollees. It's more -- that is not an IFRS impact; that is a statutory or regulatory impact. And those reserves will release so we see basically additional capital strain coming in from these enrollees and then that will turn around and release into the future.

In terms of the earnings impact we have guided that there will be 20m to 25m earnings impact once the legislation kicks in and once the fee capping is put in place. But as a result now there really isn't a lot of what I would call an IFRS earnings impact on the DWP other than the costs that we continue to incur to implement the structure -- the project.

Alright. Okay. Thank you.

Jan Willem Knoll, ABN AMRO.

Yes, good morning gentlemen. A couple of questions from my side. First, can you explain the background and the impact of the model updates in the Netherlands mentioned on slide 16?

And then secondly, can you update us on the impact of using the UFR on the Dutch IGD ratio?

Lastly, operating expenses rose 8% in the Netherlands. Can you update us on what the normalized run rate, what sort of normalized run rate we should expect going forward? Thank you.

Yes Jan Willem. It's Darryl. Let me jump in here. The model updates, the short answer is we've been converting our pension business over to a new modeling platform and what we found this quarter in particular when we moved a block of guarantees over, it's basically new enhanced modeling software does a better job, allows us more model points, more data points, a better job of stochastic valuations of our guarantees. So I would say we're getting an enhanced guarantee valuation for the pension business in the Netherlands. As I mentioned before, we have one last block to convert which will come in in the third quarter.

Operating expenses in the Netherlands, I would say we have what I would consider to be a run rate level of expenses but we have had some reclassifications which has caused the Netherlands expenses to go up a little bit. We had some expenses that were going through the benefit payment line and we've done a deeper analysis on those related to claims handling costs and we felt that that would be better represented in the operating expense line. So a lot of that is largely geography on the income statement.

Your second question I think was UFR related and I must admit I'm going to leave that one and let IR come back to you on that one. I just don't have the -- I know we disclosed the number at the time and I just don't have it at my fingertips so I'm going to ask Willem to come back to you.

Fair enough. Thanks.

Gordon Aitken, RBC.

Yes, morning. Gordon Aitken from RBC here. Three questions please. First on your fee based businesses in the UK and the US, can you just tell us what the revenue basis points and the cost basis points are and where you see that spread going?

Second, on the Dutch buyout market we're not seeing a lot of activity in Q2 really from anyone. I'm just wondering why this is. Is it the case that schemes are just not buying it at all or is it that they're sinking themselves into the industry funds?

And third, on this US mortality, just to what extent are you using standard tables for reserving versus your own emerging mortality assumptions? Thanks.

Gordon, on the UK, US fee spreads, these are all different businesses and I will ask Willem to come back to you and give you some guidance because it would make no sense in taking it on a total overall basis. So he'll come back you separately.

On the Dutch buyout market, as we said many times, there is we believe a strong pipeline. We're comfortable that this pipeline will convert at a certain point in time. You're right we've observed also that Q2 has been a quiet quarter for the market but this is really no indicator of the next quarters. What I know is that we are well positioned in this market. There is a full pipeline and I'm very comfortable and confident that we will also be taking a good part of this market.

I also want to remind you here that we have a very clear pricing discipline. We commit to the pricing discipline; particularly we can do so because there's only a small number of players in this market. And our strong rating clearly puts us in a relatively strong position. So we want to make sure that we do the right deals for our customers but also the right deals for us. But with the pipeline filled as it is, with the activity which I'm aware of taking place, I'm very confident that we will see a good flow of business coming in this area.

On the last question on the US mortality, as a general rule when we build our mortality tables we start obviously with industry tables but then we build on our own individual experience. Transamerica is a very large player with a large amount of data so basically I would say most of our mortality tables are driven more off of our own internal experience and where our data has enough credibility.

Maybe the small exception to that rule would be in this older age market where I would say it's emerging data. We don't have as much data so we're not as credible in our data so we do look to additional industry data to supplement our own assumptions and that's exactly what we're doing now. And there's been a new recent study out on older age mortality so that's why I flagged earlier that that's the area where I see our assumptions updating in the third quarter.

Thank you.

Steven Haywood, HSBC.

Hello. Good morning. I wonder if you could speak a bit about the US internal mergers and whether there's any update there, particularly in terms of the amount of cost savings possibly coming out here?

And then secondly, with the 20m to 25m hit to the UK earnings, will there be any write-off charge in the future for this as well? Thank you.

Yes, in terms of the reorganization which we have announced in US, at the time we announced it and in our June conference we made it very clear that this was much more about revenue synergies than it was about cost synergies. Yes obviously there are cost synergies but that has not been the main driver of our business. The main driver of this decision was about creating a much better coordinated sales force that is approaching distributors which are in many cases the same ones. Think about the large buyer houses and broker dealers. So we will have some cost synergies, but I would say that was not really the first and the clear objective.

And the second thing is we also want to be able to have within one division a full suite of products that addresses the needs of our customers along the entire lifecycle. That means it starts at savings, it starts at corporate pension plans and it ends with annuities and any other product that helps our customers to retire and to get a flow of income in the way they desire.

So that's how you should be looking at it and I think the early results actually are showing improvement in terms of retention of our business which, as you know, we've been very clear that was an objective of us to try to keep more of the assets of the customers that effectively retire and potentially could take the money away from us to keep them with us. That is where the big opportunity is.

In terms of the earnings in the UK, Darryl, would you like to --

Yes. In terms of the UK, so the earnings guidance that we've given is based on the fee compression that we see coming from the cap. The way the accounting works, you would only accelerate an amortization of an intangible if we became into a recoverability situation. There isn't an active unlocking mechanism that would bring some of this into accelerated amortization. And there's nothing that I see. We still have sufficiency to cover that so I don't see any accelerated amortization of intangibles coming from that. So I would say no to your questions.

Okay. Thanks very much.

Francois Boissin, BNP.

Yes, good morning everybody. Three questions please. The first question is with regard to your model refinement in the Netherlands. I just wondered if you could give a bit more details of what you're doing there and what you can expect for the next quarter?

Second question, in the UK you're talking about derisking initiatives. I just wanted to get a feel of what that means for your Solvency II capital base and if it could impact negatively your earnings going forward?

And third question regarding the overall margin outlook on new business. You've had stable new business margins Q on Q which is quite an achievement given the fact that rates have gone down. Just wondered if it's reasonable to expect a drop in margins going forward? Thanks.

Yes, Francois, let me give a shot here. So on the model changes in NL, as I mentioned before, we've converted a block of pension guarantee business over to more what I would call modern sophisticated modeling software. It has increased the valuation of those guarantees. I don't have a number to give you for the third quarter but the block we have left is about the same size of block that we did in the second quarter. So that might give you a little bit of a guidepost.

And the impact in Q3 was close to EUR100m, right?

In Q2 it was EUR78m.

In Q2, sorry, yes. EUR78m, okay.

On UK derisking, that's exactly what we've been doing is repositioning the portfolio to get ready for Solvency II. We've been taking risk, credit risk in particular, out of the portfolio. We've sold some callable bonds. We've done some trading to bring in some more inflation-protected gilts, as an example.

So this is repositioning for Solvency II that will have a beneficial impact under the mark-to-market capital regime of Solvency II and the volatility that comes with that regime. It has come at a little bit of a cost of giving up some running yield. So there's been a small impact there and a small impact on the current metrics. But it has been Solvency II repositioning is what I would say there and an overall derisking.

Margins on new business, I would just broadly say we're very pleased. We're very pleased with the top line numbers, the sales, as Alex mentioned before, and that we've been able to hold margin, that we haven't had to sacrifice our pricing or our pricing discipline to hold that top line and margin's still strong. And I see that continuing into the third and fourth quarter.

Thank you.

Michael van Wegen, Bank of America.

Yes, morning. It's Michael van Wegen from Bank of America - Merrill Lynch. I wanted to go to your slide 5 where you basically show a cost/income ratio. You talked about the improvements that you've made so far. You achieved 59% for H1. Despite the improvement I think that number is still well above what we consider to be the average for Europe. I suspect a large part of that is driven by the UK. Can you talk a little bit about how that ratio would look like for your main three regions?

And if you were to be successful with the restructuring on the UK where that number would be heading to? Thank you.

Yes, Michael, we've given this number in June I think for the first time. So we are giving you this year for the full first six months. Obviously we want to get this number down. I think you need to be -- we need to be careful in comparing this with others because I'm not sure we all do this in the same way. Been seeing it -- and that was the reason why we have not given you a more granular set of numbers right now because we want to have a good understanding also of what others are doing so we have something which is comparable because there's a lot of different ways of presenting this.

But you're right, the UK clearly does not help this number and the UK is clearly above the average. And, as you know, we've been clear that we need to take further, the expenses further down in the UK. There is a plan which needs to be executed between now and 2015 and we're working hard on executing the plan, which will take expenses further down in the UK. That will help the overall number.

But I would just caution you in making comparisons. We will provide going forward more granularity around this because it is important that what we have is comparable. But the number, yes, will trend down and the UK will support the further trending down.

Thank you.

(Operator Instructions). (Technical difficulty), Reuters.

Yes, good morning everybody. Mr. Wynaendts, I had a question just about the aftermath of the FCA fine on Stonebridge International, whether you see any problems with reputational damage or any impact on sales as a result of the fine? And I wanted to ask whether you expect any litigation to result and also whether the fine itself or the findings of the FCA will require any changes in your management controls or policies there? Thank you.

No, no. Yes we've had this fine and obviously we're not happy with that. We're not pleased with the fact that these things have happened. Like to put it just into context. These are activities actually which we stopped a couple of years ago so we have taken action. We've taken action in terms of stopping sales of these products. We have taken action on the management. But that has already taken place and we are making sure that in no other place in our business, and we are reviewing it very thoroughly, there's anything similar.

So we are taking action and have taken actions, and what you see right now is the fine which comes later obviously and as such should close this whole file, and we're not expecting anything further from here.

So no litigation on the part of any customers who may have been involved?

We have been clear also that we are looking at every single customer and if there would have been a detriment we would have made up for it and on that basis we do not expect any further activity around this.

Okay. Thank you.

Archie van Riemsdijk, Dow Jones.

Yes, good morning. I have some questions on the pension sales. In the Netherlands you stated you're confident that there will be -- you will take part of the consolidation in a way. But is there not a risk that other players will take over the market because it seems that that's sort of what has been happening in the second quarter?

As I said earlier in the call -- I just want to be careful not to repeat myself -- there is a pipeline. Aegon is very well positioned. Aegon has a very strong balance sheet, has administrative capabilities that are in order. We are well-positioned to take advantage of the pipeline. I also said the pipeline is not a regular pipeline. It's not like in flow. It comes and goes and at certain points in time we see more and other points in time we see less. I've made it very clear that I am comfortable and confident that Aegon will get more than its fair share of the market based on what I'm seeing in terms of pipeline activity but also the capabilities we have in the sector.

Alright. Thank you very much. If I may, just an additional question on the pension contracts in the United States. Could you give some color on type of contracts that you won there and what's in store there for the next quarters?

Well, in the US we see two elements here. One is deposits that come from all our customers. All our customers save for their pensions directly through employers. Sometimes they also add themselves their only contribution. So that's a big part of the flows we're getting.

In addition to that we've been very successful in taking pension plans over from other participants -- from other, excuse me, providers. And these are pension plans for companies that have decided that they want to take advantage of the servicing capabilities of Aegon and Transamerica in the US. And these are large corporate plans, 41K plans, all of which you're very familiar with. And I think, as I said earlier, this is on the back of really strong capabilities in terms of services we provide, the whole way we interact with the employees, and that's what employers like.

Secondly, because we have very scalable pension capabilities we're also able to provide this at attractive pricing and we're able to be competitive in a market which is quite a tough market. That scalability, that is supporting our success in that business and as such I have every reason to believe and to be confident that the positive momentum will continue.

Alright. Thank you very much.

Corina Ruhe, Bloomberg.

Good morning. I have two questions. The first one, the Dutch government put up Reaal for sale. Is Aegon planning to play any part of it -- in it?

You're right that the Dutch government is planning to put it up for sale. I would just like to repeat here again that we've been clear that our priority is organic growth and that we're well-positioned to grow in all the segments in which we are present.

Okay. Thank you. My second question, well it was already discussed earlier in the analysts' call, the sale of the French and Canadian operations. Will you achieve the goal to sell both businesses before year end?

Again I think I've been very clear and there's nothing more I can add to it.

Okay. Thank you very much.

Archie van Riemsdijk, Dow Jones.

Yes, hello. One additional question. I understand that Solvency II regulations will cause Aegon to lose a capital benefit due to diversification. Is this something that could have strategic consequences? And maybe you can expand a bit on the effect of Solvency II in this respect?

Yes, Archie, it's Darryl. I wouldn't say that Solvency II causes us to lose our diversification benefit. We have -- diversification comes in our business in various ways. There's diversification in really most of the capital formulas in the regions that we operate within.

There's been an open debate within the Solvency II paradigm itself around how much diversification benefit should be taken once you start doing the group calculations, which is a new element of Solvency II. And that continues to be a fluid debate backed by conversations on fungibility of capital and things like that. So that's a, I would consider that a fluid debate that's still happening on the overall aggregate Solvency II. It doesn't impact any of the solo capital calculations and I would not characterize it as us losing anything that we already have. That's for sure.

Alright. Sorry, am I still on the call?

Yes, you are.

Okay. On, well, to explain it a little bit better, does it -- could the result mean that you will have to keep on increasing your capital more or is this not -- or for a longer time than expected earlier or is this within the bounds of your strategy?

Well, I certainly can't comment anymore than we did in June in terms of where the overall Solvency II work is at for the Company. So I would point you back to our presentation in June. What I would say is again it comes back to even within Solvency II it's a matter of managing capital in the solo, which would be the individual country regions where we do business. And so I don't see a restriction related to Group diversification in Solvency II coming in that causes a material change from how we manage capital locally. But that's really all I can say in the context of we're still finalizing the Solvency II framework.

Alright. Okay. Thank you very much.

That will conclude today's questions and answer session. I would now like to turn you back to Alex Wynaendts for any additional or closing remarks.

Well, I'd like to thank everybody that participated, that's still on the call and also those that already left the call for participating and their continued interest in Aegon. Thanks a lot and have a great day.

That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.