Good day and welcome to the Aegon Second Quarter Results 2016 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Willem van den Berg, Head of Investor Relations at Aegon. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining this conference call. We will start today’s call with a summary of our second quarter 2016 results, followed by a brief overview of the strategic and financial rationale behind the Cofunds acquisition. Please also review our disclaimer on forward-looking statements which is at the back of our presentation. After prepared remarks, CEO, Alex Wynaendts will be joined by our Chief Financial Officer, Darryl Button, to answer your questions. Alex, go ahead.

Thank you, Willem, and good morning to everyone. Thank you for joining us for second quarter 2016 earnings call. This was clearly not a satisfactory quarter from an earnings perspective, as the earnings were affected by lower interest rates and adverse claims experienced in U.S., and by the book loss from the divestment of our annuity portfolio in the U.K. Later in my presentation, I will outline the five part plan that is being implemented in our U.S. business to improve our results. I’m pleased that our sales, and in particular, our deposits, remained very solid. This is a clear indication that we are successfully repositioning our business by providing attractive solutions to an expanding customer base. The acquisition of Cofunds, which we announced today, together with the earlier announced acquisition of BlackRock’s DC business, firmly positions our U.K. business as the leader in the fast-growing digital platform market. Our capital position increased to an estimated 158% during the quarter, despite adverse market impacts, as a result the management actions we've taken. Based on our solid capital position and year-to-date capital generation, we are announcing an interim dividend of €0.13 per share. This dividend will bring the total capital return to shareholders this year to an expected €950 million. Slide 3 shows the development of our Solvency II ratio during the second quarter. As you can see, the Solvency II ratio increased as a negative impact of low interest rates was more than offset by management actions in both the Netherlands and U.K., including the divestments of the U.K. annuity portfolio. In the Netherlands, our Solvency II ratio increased significantly from around 135% last quarter to 154% this quarter, and I will discuss the actions we have taken to achieve this on the next slide. In the U.K., market movements…

Thank you, sir. [Operator Instructions]. We will now take our first question from Ashik Musaddi of JP Morgan. Please go ahead.

Yes, hi. Good morning, Darryl. Good morning, Alex. So just couple of questions. Can you give us some thoughts about capital generation and dividend upstreaming? It looks like the UFR benefit in Netherlands has gone up quite a lot, so what does it do to your guided €250 million of capital generation in Netherlands? And if rates don’t go up - interest rate don't go up, then would you be comfortable of streaming dividend from Netherlands in two, three years, or do you think that because underlying capital ex-UFR is very weak, it will drag the capital remittance from the Netherlands? Secondly as you mentioned in one of the slide that U.K. will start upstreaming capital next year but how should we think about it? Shall we think about like 20 million a year because Cofunds cost savings will not come in two, three years’ time, so how should we think about that? And third question is, can you give us some thoughts about U.S. capital as well, because in third quarter you will be doing this cash flow testing as well as updating your assumptions. So what could be the drag on your U.S. capital, and are you feeling comfortable with your U.S. capital at the moment? Thank you.

Okay, Ashik, this is Darryl. I'm going to try to hit those in order. I think basically capital questions for the big three units. Yes, the impact of the UFR is larger, now that rates have dropped significantly over the last two quarters, and you'll see the sensitivity that we provided, it's about double of what it was back in January. So we are saying it's about 19 points for a 50 basis point drop on the UFR. That does have a flow-over impact to cash generation in the Dutch operations. We are downgrading the 250 million per year down to 225 million because of that additional UFR. You did ask about dividend expectations in the Netherlands, I think was your second question. There I would just say, first of all, we are feeling a lot more comfortable about the capital obviously in the Netherlands at the 154 ratio where we are. But there is an important conversation and debate happening on the UFR in the Solvency II curve and that's an EIOPA discussion that's happening in the second half of this year. I think you know the proposal from EIOPA is to drop the UFR by 50 basis point spread over the next three years. So we obviously want to watch that debate play out and see where that goes. That obviously would have an impact on our Dutch capital ratio. In terms of dividends, I actually still expect to receive a dividend from the Netherlands this year, but I would say albeit something lower than the 250 million that we guided to earlier. But frankly that's a decision that we are going to make in the fourth quarter when we have the knowledge of the whole UFR discussion. In the U.K., I think - we try to show…

Thanks. Just one follow-up on this dividend thing - sorry, Netherlands thing. I mean, one of your competitors said, I think last quarter, that based on first quarter interest rate decline their cash flows capital generation went down by 100 million. And given that what we have seen in second quarter, it would have been a lot more as well and you're kind of guiding just 25 million drop. So what are we missing here, any thoughts on that? Just quick one, sorry.

Yes, I can't comment on our competitor. We're not seeing numbers that big.

Okay.

But I would say we maybe had some prudent estimates in the 250 to start with, but we are not seeing that kind of drag. I think the other impact also is - the thing you have to also keep in mind is that the new business is quite low right now in terms of any capital intensive DB business in the Dutch business. That's also extremely low and that has a beneficial impact on capital as well.

That's very clear. Thanks Darryl.

Yes.

Our next question comes from Albert Ploegh of ING Bank. Please go ahead.

Yes, good morning. Few questions from my end. Sorry to come back to the Dutch cash flow outlook. You mentioned UFR impact is only an additional 25 million, so the management actions taken itself in the first half that will have then basically no structural negative impact on the cash flow outlook. That's my first question. The second question is, if I look at the dividend upstream in the first half or in the second quarter around €600 million, and also of course contribution from asset management in Central Eastern Europe of about €140 million. How should I see that number? Is that basically the majority that you expect from these units in the first half or can we still expect something for the second half? And then the question bit forward-looking is also, previously you alluded previous question on the assumption reviews. You already get some answers on the cash flow testing. We saw some U.S. competitors making already some adjustments in the second quarter and some also material. How do you look at those reviews with certain element of confidence or can we expect maybe some material - yes, more of course non-cash items not so material impacting the third quarter from that? Thank you.

Yes. Hi Albert, it’s Darryl. I'm going to try and take those. The first answer is a short one. We don't see any impact from the management actions on the Dutch Solvency ratio on the €225 million. So really the €250 million is down to €225 million on the UFR and there is no impact on the management actions from that. On the dividend upstream, we did receive dividends from asset management few other places. I would also say there was an extraordinary dividend that came up from Spain as well and that related to the Santander joint-venture acquisition that we had on that distribution relationship, so there was some capital that was trapped in that for a period of time and that released itself, and so that is in that €140 million. I wouldn't certainly expect that to reoccur. And then on the third question, I think on the Q3 assumption changes, you were commenting on some of things that were going after some of our U.S. competitors. Couple of things. There are a couple that have moved their long-term interest rate assumptions. If you look at that they’ve moved them now on top of where ours already are, so I think there is probably not a lot of pressure for us to look at that 425 10-year U.S. Treasury assumption. We are really kind of middle of the pack on that assumption. And then in terms of the rest of it is we are just in the middle of our normal process where we'll take a look and review all our actuarial and economic assumptions for the third quarter, and I don't have any real insight one way or another to share with you today.

Okay. Maybe two small follow-ups. First of all on the - looking back at the Capital Markets Day in January, if I'm not wrong I think you guided basically from, let's say, holding free cash flow of €1 billion post-holding cost. I know your remark on the Netherlands that you do still expect some dividends in the second half of the year. So with all the moving parts in the first half, is there any need to update that kind of guidance or you still feel reasonably comfortable? And then on the revisions, I also saw one of the competitors mentioning some industry reports on, I think, it was more on the GMIB book. I know it’s not material book at Aegon but do you - yes, what can you comment on that?

Well, on the first one on the net operating free cash flow of €1 billion, that really is the €1.3 billion of the operational free cash flow that we have a across the units minus €300 million of holding and that's your net €1 billion. That's still pretty close to being a good number. Right now the only real downgrade we've had is the €250 million in the Netherlands down to €225 million and then a modest downgrade in the U.K., if you will, on the 70 million instead of the 100 million. But if you factored that into it, I think you are pretty close, maybe a little bit downward pressure on that but not far off. And then on your last comment on the GMIB, maybe I didn't quite get the question. But the GMIB still is a material book for us in terms of the - we haven't been selling it since 2002, but that is still the book that’s the source of the US$60 million loss through fair items below the line that we take every quarter.

Okay. Maybe we can take it offline, but I thought there were some industry reports on the [indiscernible] peers to take some charges but…

There was. There was a large GMIB writer in the U.S. that took some large assumption changes this quarter. There was - you can go back and have a closer look at that, and I'm happy to have an offline conversation with you on that if you want.

Okay. Thank you.

Thank you. William Hawkins of KBW, please go ahead. Your line is open.

Hello, thank you very much. Can you just be clearer now about what incrementally is under review in the U.S.? I'm assuming long-term care falls into that, but if you could just be a bit clearer. And then specifically on long-term care, can you just remind me of the slice of the reserves you're currently carrying? Roughly what are the rate increases that you're asking for in these 20 states, and do you have any issue there about what you think you're going to be able to achieve versus what you actually want to achieve on that because clearly it’s a highly regulated line? And then secondly in the variable annuity book, if I'm not correct, you’re now no longer sticking with that 70 basis point margin that you guided to just in January. So you've already alluded to a couple of things but can you just be clear about what's gone wrong in the past few months and what we should be thinking that 70 basis points should be in the future? I'll leave it at that for now. Thank you.

So let me give you an answer. So what we are seeing on our U.S. business is that - by the way as part of the ongoing review, we are accelerated review on all our products business lines. We think we need to rationalize our product offerings particularly in our life area. We had too wider range of products which are all slightly different from one another because they are sold-through different distributors and there is clearly an opportunity to rationalize the product line to look by the way what products we want to continue, what products we want to redesign or exit. That all align with our stated objective of having products that are both attractive to our customers and attractive to us. So you need to look really at the - more at the life part of the business. Let me remind you, long-term care is a business we haven't been selling for over 10 years, so it's more of a run-off business that we talk about. Although we have introduced a new type of long-term care product which is a very different product because it's not at all - with all the benefits. The new product line long-term care has very defined benefits and is not at all subject to the discussion we are having about rate increases. So we need to make sure that there are two parts to that that you're well aware of it. In terms of rate increases, yes, we are filing and have filed and pursuing that quite actively with over 20 states. The 20 states represent 70% of our business long-term care. And at this point in time, what I would like to say is that we are feeling better about the progress we are making. I don't want to be…

Thank you. I'll probably come back offline but on the variable annuity comment, I mean, I can see very clearly that the world has changed since January and therefore there are incremental headwinds. But 670 basis point margin was effectively in in-force figure I'm surprised that that would lead to such apparently material and quick change in the in-force figure, but anyway I'll come back offline on that. But I’m just a little bit surprised.

Yes, well come back offline but please keep in mind what I just said, it's about run-off of part of the business that have high margins related to our efforts to release capital for GMIB and it's also effectively what we see. Net deposits are lower than they were because our gross deposits are lower that means we have more new business at lower margins.

Okay. Thank you, guys.

And our next question comes from Nadine van der Meulen of Morgan Stanley. Please go ahead.

Good morning. With regard to the U.S. RBC ratio, the drop in the RBC ratio. Can you maybe elaborate a little bit more on the drivers behind that apart from the equity markets perhaps because I was under the impression that lower rates given the sensitivities that you’ve given before would actually be positive impact on the ratio, and maybe in light of U.S. capital, would you mind giving us an indication of where the surplus of the AA S&P requirement is in the U.S. because a year ago you mentioned that that was $1 billion. You said that it was quite volatile. It dropped to, I think, around $600 million when we talked about it at the Investor Day, and last quarter no update was given, so I was wondering if you could give some details around that? Thank you very much.

Yes. Hi Nadine, it’s Darryl. First of all, on your first question, RBC ratio dropped primarily from the dividend that was paid from the U.S. and so we are upstreamed about US$500 million of dividend to the holding and that's the primarily the biggest drop. I would point out that actually our sensitivity has now changed in the U.S. Rates are now at the point - we used to talk about with rates would go down, we have a short-term boost to the RBC ratio and vice-versa. We are now down to the point where rates are so low that rates dropping and dropping from here or even where they were now, lower rates does not boost the ratio because of the cash flow testing concerns that we have. So there is no benefit in the quarter from dropping interest rates. I think actually we took a small provision for cash flow testing that will be only - it's an annual calculation, so that will only be firmed up at the end of the year. But the biggest drop is the dividends. On your second question, actually we’re not disclosing any longer the excess over S&P AA. We’ve moved over to only talking about the RBC ratios and that really primarily, I think as you know, we manage multiple different capital metrics in the U.S. but the RBC ratio has the flow-through into the group ratio in the Solvency II. They are correlated obviously, so we are going to continue to discuss RBC ratio and that's also very consistent with what our U.S. peers do as well. So sorry I'm not going to give you that number.

All right, thank you.

And our next question comes from Mark Cathcart of Jefferies. Please go ahead.

Yes, hi Darryl. So a couple of questions. First one is, just wondered if you could talk about your assumption of 70 million cash on the U.K. Have you are assumed further margin pressure in the platform industry as a whole given the current headwinds in the U.K.? So I wondered if you can talk about your assumptions on how you expect margins to progress within the U.K. platform market generally because they seem to be quite negative at the moment? Second in relation to your interest rate sensitivity in the Dutch market. You had negligible interest rate sensitivity at the beginning of the year. This is exploded to, I think, largest in the entire sector. Was that mainly because you took of the hedge at the end of January? Third question is you talked about no comment in relation to the modeling review Q3. I think you said that on the call just earlier, but previously you’ve always voiced confident that you wouldn't have any more modeling mishaps. I wondered if you could comment on that. And as an aside, can you confirm that the cash at the holding is actually all funded by debt elsewhere within the Group? Thank you.

Okay, Mark. Sorry, I was still jotting down the line, so I think I missed the last question. I'll come back to you on that. In order, the 70 million, yes, our guidance on where we are coming out we think in cash generation from the U.K., that does reflect our view of continued margin compression in the U.K., so that is - we have made some estimates around that. We do see that pressure and we've built that into that estimate. On the Dutch interest rate sensitivity, it is remarkably higher than what we had before. I think it's a combination of - yes, largely we did change some of our hedging programs. We had - when we were hedging on our full IFRS basis, we had quite a bit of over-hedging in place, particularly as it relates to the owned funds in Solvency II. There is - without going too long here and too much dilemma, there is an issue on - a philosophical issue on whether or not you hedge the denominator in Solvency II. You can create or destroy economic value by protecting things that move around, like for instance, longevity and credit risk have an interest rate element to it. If you hedge that, you'll gain or lose on those hedges and while those underlying longevity and credit unwind, that interest rate hedge won't unwind. So that is a philosophical issue we continue to struggle with in terms of do we protect capital or do we protect the economic value of the organization. We did move the hedges towards Solvency II in first quarter. We backed away from that position somewhat in the second quarter as we - and we did that pre-Brexit. So we are somewhere positioned in between the two right now. What that means is we have losses on IFRS if rates fall, which is exactly what we have in our fair value items this quarter, and we have owned funds or economic gains in Solvency II which we also have this quarter. The interest sensitivity really comes from the denominator impact in the SCR. That combined with the fact that rates have now dropped to a new structural low level has also made us more exposed as well. So it's a combination of all of those things. Also just a more granular approach that we've had to the modeling as well, so I would say it's all of those factors and that's all built into the sensitivity that we are sharing with you today. Your third question was on Q3 foresight. Yes, I think…

So you had expressed confidence and I just wondered how confident you felt now given what U.S. peers have been saying?

Yes, well - and I think you are specifically asking modeling versus assumption changes and I think it is important to separate those. So I continue to believe that we have the modeling issues behind us and I don't really see any further impact from models. In terms of assumption changes, yes, it's what I said before. It's still early in the process and we're working through those, and I'm really not in a position to give any foresight into where I see the assumption changes going.

Yes, and in relation to the U.K., I still struggle with that because you were suggesting that Retiready was going to breakeven and then breakeven again and then breakeven. How aggressive have you been in terms of those platform assumptions because I think in reality, platform is regarded as a lost leader in the U.K. life industry not a key business.

Mark, maybe I would like to add something to this whole debate. As you probably will very well know, this is very challenging environment and so we have embarked on a - and I'd like to give you a broader answer because I think that would be of interest to also the broader group. The reality is that we are moving and have moved quite aggressively from a traditional model of life insurance and pensions towards a platform model. It's a very significant change. And then in the meantime what we have seen is that as you can expect that the margins on the platform business have been declining. On the other hand, it's not uniform because parts of our books in our platform had been upgraded from our old books. So older customers that have been upgraded effectively we have seen pretty limited margin compressions because we are able to upgrade customers from the old book onto the platform while we’re providing them a better service capability that allowed us to justify to hold on the margins. I mean, we have seen limited margin erosion. Where we see most of the lower margins of course is when you look at the business with advisors and it brings us exactly to the point that it's all about scale. And this is a scale game and therefore this acquisition of Cofunds - and I would like to bring Cofunds in here, brings us 750,000 new customers, brings us £77 billion of assets, as you can imagine and you can calculate very easily, at a pretty low margin. It is a much more effective way for us to attract new customers in an environment where it's all about scale. This whole game is scale. And what we are trying to do here…

Did you at any stage consider letting someone else become market leader in platform i.e. exiting the U.K. entirely, or is it always your intention to maintain your position in the U.K.?

Look, we have a very successful platform which was built with modern technology which is very scalable. As you know, we had BlackRock’s DC business which was moved to our business, effectively BlackRock entrusting their customers to our platform. I think it's a clear sign of recognition of the platform. And we think that if we have such a capability and we are able to take advantage of, what I think is a unique opportunity to in one go get significant amount of assets on your platform, this is certainly something which is very interesting and being the market leader in this market is very important, because as I said to you, it's all about scale.

And in relation to Dutch dividends, Darryl said wait and see in relation to the decision on UFR. If the UFR is minus 20 bps, minus 20 bps, minus 10 bps over the next three years, in that situation, could you let us know or tell us whether you believe in that situation you would be able to upstream dividends, or is it just a general question mark over Dutch dividend paving capability. Seem too ambiguous how you express that?

Well, let me - Mark, let me try to be more clear on that. So, first of all as it relates to the issue of Dutch dividend in general, we are obviously feeling much better about the capital ratio on where we stand today. I did try to highlight that if you drop 50 basis points on the UFR curve, granted that would be spread over a three-year period, but that's 19 points off of our ratio, so that moves us from sort of high-end to low-end, although you could obviously spread that out over the next three years. I think you also have to consider that the ratio - just the journey we've been on. So the ratio has been moved around quite a bit lately between the first quarter and the second quarter, so we do want to see that stabilize. That's not market volatility. As I mentioned before, it was really just our more thorough application of the models and getting into the granular data. We still had some growing pains in getting through that. So we need to see some stability to that ratio. We need to see where this UFR debate comes out because it is material on the ratio. But if you factor it all, those are all the things that will go into our management decisions in terms of when and how much to upstream dividends out of the Dutch organization. That being said, I'm fairly comfortable repeating what I said before. I do expect to take a dividend out this year, albeit somewhat lower than the 250 that we mentioned earlier.

But at some stage you do expect to go back to a 225 dividend paying capability?

Yes, very much so. I think that's the cash generation that I see coming out of the business. So we have to kind of sort out where the ratio is coming out, where our sensitivities are, where we are comfortable in that. But yes, 225 is what I would peg is the cash generating and ultimately the dividend capacity out of the Dutch organization.

Okay, thanks Darryl. That was excellent. Thank you.

Our next question comes from Nick Holmes of Société Générale. Please go ahead.

Hi there. Thank you very much. Three questions. First is just coming back on the morality in long-term care losses in the U.S. sort of appeared in Q2. I just wondered if you could give us a little bit more color on those, and do you expect the rate increases you're finding to basically fix that problem? Then secondly just very quickly just wondered what your thoughts on the DOL reforms are at the moment? What is your latest thinking there? And then third and finally, perhaps more of a difficult question. I wondered if you could comment on your thinking about the variable annuity policy holder behavior assumptions that you have at the moment. Clearly MetLife has thrown this issue into the open as an industry issue and I just wondered, Darryl, whether you could give us some kind of thoughts going into Q3 as to whether you feel comfortable with your assumptions? Thank you.

Hi Nick, I'm going to take the first and the third, if that's okay. Mortality and long-term care. The mortality, I would really put that in the line of just normal fluctuation. That's really not a very big number. We've seen - we changed our mortality assumptions as you know earlier and we've seen fluctuation around the mortality in line with this pluses and minuses. So keep in mind, we are and have retained more life mortality risk in the U.S. as we’re carrying less reinsurance than we used to a few years ago. So I would just very much put that in line with normal fluctuation and we've seen pluses and minuses around our assumptions. So on the long-term care where we've had couple of quarters now with poor performance, we are seeing termination rates in terms of people coming off claim as is the cause for higher claims has deteriorated. And to specifically your question, yes, rate increases helps that issue, and as we continue to make progress on the rate increases, that provides a significant offset to that. On the third question was on variable annuity policy behavior. You specifically referenced Met. We did update our policyholder behavior assumptions on the variable annuity last year actually and we feel pretty good about our assumptions. So we've done a lot of what was - what Met has done already with one exception. They’ve flipped the old GMIB product over the fair value accounting and that probably is a big source of the hit that they took. We do not have our old GMIB product on fair value accounting. We still have it on the SOP3-1 accounting, which does create that mismatch between the hedges and the accounting and that is the source of the US$60 million drag in fair value items every quarter that we flagged. So that's probably the one main difference that we have, but I think a lot of the assumption changes, we've already made those, taken those and feel good about what we have.

Thank you for that. That's very reassuring. Just quickly on that last point, would you keep the SOP 03-1 basis going forward, if you won't do what method?

Yes, I can't comment on that. I have no plans in the near-term to change that. I guess I could say you that and I'm not going to commit anything in the longer term.

Okay. Thank you.

Okay, so let me take the DOL question very briefly because effectively there is not very much more to report right now than a quarter ago. What we see here is that in most cases our consumers are not really aware of the changes. What we’re seeing is distributors, they have been very busy looking what the impacts of the rule are and also trying to assess to what extent they will use exemptions, as you know, that’s going to be part of the whole debate who is going to use what exemptions under these rules. So we are engaging and starting to engage and communicate with our distributors to know where they are. But what I would like to say here is that we’re making ourselves ready. We have already products that are suitable under the new DOL environment and we will continue to make those ready and hopefully by the end of Q4 we should be in a pretty good position.

And just very quickly following up, Alex, your thoughts on the impact on sales going forward? Any…

Again difficult to say because I think in this environment of very low interest rates, obviously the products has become less attractive because of the increased pricing on the guarantees. It's difficult to say where - we have seen the overall market effectively coming down. Now the question is to what extent is that reflected already in the market as it is today? But we probably expect a further decline in sales overall in the market. That’s not necessarily meaning that for us we will see the same impact because as you know it's also related to what part of the market is qualified and what part is not qualified.

Great. Thank you very much.

Thank you. Our next question comes from Bart Horsten of Kempen. Please go ahead.

Yes, good morning. I have a few follow-up questions on some of the topics already addressed. First of all on the interest rate sensitivity in the U.S. Obviously the decline - further decline in interest rates has a negative impact but an increase in the interest rates obviously according to the sensitivity table has no impact or at least no impact on your solvency ratio. So I was wondering whether you could explain that mismatch between the downward and an upward change in interest rates, and what would be a potential impact if the fed would decide to increase the short-term interest rates. Would that have any impact on your profitability or on your Solvency? And my second question also relates to the restructuring plan, the five-part plan of the U.S. Could you give a bit more financial detail because as far as I can tell, you have not changed your cost savings target. So could you give some more financial color on these plans? And my final question is a small one. On the net deposit growth in the U.S., it was in the second quarter close to zero where you had a gross inflow of $10 billion. I think you briefly addressed some Mercer impact. Could you highlight what the impact going forward will be and what you expect on that? Thank you.

Let me jump in on the first one, Bart, on the U.S. interest sensitivity. So we have to understand is there is sort of two competing dynamics on the U.S. interest rate sensitivity. The old dynamic is still there where if rates fall, we have gains on low rate hedges that come into cash and come into our statutory earnings in the U.S., and that creates a positive. And if rates go up, then we have a loss on those same hedges, and that reduces our U.S. statutory earnings. So that sits there in the background unchanged. The new dynamic is that if rates fall, we are in a position where we are starting to post additional cash flow testing reserves just because of the nature of that overwriting cash flow testing mechanism. So when you factor those two things and they are asymmetric - and when you factor those things and add them together, you sort of get this asymmetric net results that you're seeing in front of you.

Okay.

I think on the - did you want, Alex, on the financials for the…

Yes, for the first-part plan. I'd like to remind you, Bart, we have given ourselves and we shared it with the markets in January on the U.S. a $40 million target of expense savings for the U.S. We have already achieved $60 million, so we are well ahead. What I will not do at this stage is give you more explicit numbers but what it is all about is accelerating the base of our cost reductions. I've mentioned specifically number of items and in our December IR conference in New York, we will provide you with more financial numbers. But I can assure you we have a plan behind it. But it’s now too early to share it with the market because for new things you go to do that - sharing it first internally, discuss this with the people and locations that are involved before doing that externally.

Okay.

And on Mercer, yes, the story is a simple one. When you take over a block of business from a provider with around 80 billion of assets, it is unexpected and by the way also priced in us that we would see some lumpiness in these deposits. Often as you know with these plans, they get reviewed a number of times, and let's say, every five years, and when there is an event, for example Mercer being acquired by Aegon, is an event that sometimes triggers pension reviews and then you see it's very normal to see that you are effectively losing a number of these contracts that in many cases these customers were already prepared to make a change and then the takeover is a trigger event. We do expect indeed this continues for the Mercer block. That is anticipated probably to continue a bit until the end of this year.

Okay. Thank you. And maybe just on the fed rate rise, would that impact your business immediately or is that a lagging effect?

Yes, on the fed, sorry I forgot that part of your question.

No problem.

Yes, actually the short rates really don't do much for our business anywhere. And so in terms of impact on our earnings or on cash generation out of the U.S., it's really the longer term rates that matter. So you have to then just cross-over does the fed increasing rates in the short-term, is that something driven by whatever bullish nature that's driving that and does the market already pick that up and what happens to longer term rates is what really matters to us.

Okay. Thank you.

And our final question comes from Steven Haywood of HSBC. Please go ahead.

Good morning, guys. I know that you’ve previously said about removing and sort of disposing your run-off businesses that require interest rates to go up before you achieve any kind of attractive prices. Has this changed? And prices going to be unattractive now and continue to be unattractive and will you be able to sell these businesses or review these business, should I say, at the unattractive prices? And then my second question is on your holding cash capital buffer. I just wanted to work through one of the equations, one of the calculations you've done, is the €200 million share buyback in Q2 and then you’ve paid €0.13 per share dividend to around 2 billion shares. That's around €300 million cost, so I'm just trying to work out why you’ve only accounted for about €400 million negative in your holding company cash capital buffer for the dividend and the share buyback in the second quarter? Thank you.

Let me take the first question. Yes, we did say that for run-off businesses, which as you know, we would like to dispose because they are not adding much to our earnings while there is a big amount of capital which is struck in there that we would be looking at rates of 2% to 2.5% on a U.S. Treasury. Now we are looking again at different options we have and we believe that effectively we could be able to do a transaction that would be attractive from us from an IFRS and a capital position at lower levels. I'd like to remind you also here that there is a counterpart you basically have to take to into account because we are not selling a legal entity. We are effectively reinsuring to another entity and therefore it's a combination of pricing, market conditions and the counterparty risk. It's more complex than purely a pricing. And just from the holding expenses which need to take into account is that the script has been bought back after the end of the second quarter, as you take that into account, your equation should work well.

Okay. So there is an additional bit to come out in the third quarter?

Yes, correct.

Excellent. Thank you very much.

All right, I'd like to thank you all for participating in second quarter call and I wish you great day. Thank you. Bye-bye.

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