Good day, and welcome to the Aegon Q3 2017 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, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining this conference call on Aegon’s fourth quarter 2017 results. We would appreciate it if you take a moment to review our disclaimer on forward-looking statements, which you can find at the back of the presentation. Our CEO, Alex Wynaendts, will first provide an overview of our key strategic achievements for 2017. And he will then hand it over to our CFO, Matt Rider, who will walk you through our fourth quarter 2017 results. As always, we will leave plenty of time to address all of your questions. I’ll now hand it over to Alex.

Good morning, everyone. Thank you all for your continued interest in Aegon and for joining us for today’s earning call. I’m pleased that this was a good quarter both financially and strategically and one that concludes a very strong year for Aegon. And let me begin by providing you with an overview of the most important strategic achievements we have realized since our last earnings call. We have made significant progress with improving our Solvency II ratio to 201% while at the same time greatly enhancing the quality of our capital. We announced a partnership with Tata Consultancy Services in the U.S. to outsource the administration of our life and annuity businesses. This will lead to considerable cost savings. Also in the U.S., we exceeded our target to reduce capital allocated to our runoff business by $1 billion, and this 1 year ahead of our 2018 target. Throughout the year, we continued to make significant progress on our strategic priority to transform our business through our continued digitization efforts. And finally, I would like to highlight our strong sales for the quarter. I will take you through these achievements in more detail before concluding with the progress we are making towards our 2018 financial targets. Let’s begin by taking a closer look at the improvements we made in our Solvency II ratio on the next slide. I’m on Slide 3 now. I’m very pleased with the progress we made during 2017 to improve our Solvency II ratio to 201%, which is at the top end of our capital management target zone. This was achieved through working closely across the group and with our regulators on a number of important items. And these included successfully recapitalization, our Dutch unit, back to dividend-paying status by injecting €1 billion from the holding. We…

Thanks, Alex. And good morning, everyone. I’d like to begin by taking you through our financial highlights for the quarter, starting with our earnings. I’m on Slide 11 now. As you can see, during the fourth quarter, underlying earnings were impacted by the weakening of the U.S. dollar year-on-year, while on a constant currency basis underlying earnings remained stable at €525 million. The continued successful execution of our expense savings program resulted in a €20 million uplift to underlying earnings in the quarter, which was offset by onetime expenses and the write-off of IT systems totaling €23 million. Also, benefits from improved claims experience in the U.S. and higher fee income from favorable equity markets were offset by unfavorable adjustments to deferred acquisition costs. During the course of 2017, we have achieved run rate expense savings of €188 million across the group, of which close to €150 million are from the U.S, approximately €30 million from the Netherlands and the remainder from the holding. Including the partnership agreement with TCS that we announced in January, our current total annualized run rate expense savings increased to approximately €280 million since inception of the program in January of 2016. For the full year, these expense savings and the strategic repositioning of our business towards fee-based businesses have driven our improved underlying earnings, as higher account balances benefited from new business and higher equity markets. Let’s now turn to Slide 12 so that I can take you through the development of our net income. As you can see, net income for the quarter was very strong, amounting to €986 million. The significant increase compared with with the fourth quarter of last year was a result of strong non-underlying earnings improvement; and in particular a sizable tax benefit, which I will address separately later…

[Operator Instructions] We will now take our first question from Nadine van der Meulen from Morgan Stanley. Please go ahead.

Yes, good morning. Congratulations on my result this morning. And thank you for taking my questions. I suppose the first question is on the U.S. tax reform and the impacts on RBC. So the NAIC’s decision on how to incorporate the tax change, when do you expect to get more clarity there? And based on your current expectations, what would be the look-through basis on the group Solvency II ratio? Yes, so – and second question is in the U.S. You have some of the tax changes. And you indicate a $140 million IFRS benefit, but it’s a $100 million on capital generation. If you could just touch upon the bridge between the two. And lastly, what can we further expect on model updates given that you again have shown charges there? Thank you show much.

Thanks, Nadine. On the – let’s say, on the U.S. tax reform, as we’ve mentioned in our press release, the NAIC will ultimately make changes to the RBC factors, the risk-based capital factors, as a consequence of the lower tax rate. It’s unclear to us whether that might happen in 2018 or 2019 at this point, but we are confident that even under a worst-case scenario we’ll remain the top half of our target range on U.S. capitalization. And the impact to the group solvency is quite manageable. So I think that one is pretty okay. On the – you recognize that there is a difference between the impact on our, let’s say, IFRS earnings and our capital generation going forward. I think there are quite some differences between an IFRS balance sheet and a statutory balance sheet for capital basis, and the only thing that has changed is not the tax rate alone. There are also some things which expand the tax base, especially on an RBC – or on a capital basis, for instance, changes in the ways that the dividend-received deduction gets incorporated in, but there are many other smaller changes that are quite technical in nature. With respect to model updates, you’ve noted that we’ve taken a €100 million charge for the quarter related to – it’s really two model updates. The first relates to the so-called access conversion of universal life contracts that we reported on in the third quarter. And I would say that, when we took our charge, and it was a $280million charge in the third quarter, it was based on our best estimate of the model impacts. During the course of the fourth quarter, we actually put it into a production environment and then to our full control environment and recognized that we needed to take an additional $63 million charge on that one. Again I would just reemphasize that this is the biggest model that we have converted. It is now safely in a control environment, so I think on this one we wouldn’t expect anything going forward. There was an additional $50 million impact on a model relating to fixed annuities that we recognized during the course of the quarter as well. And not that I would discount the possibility for further charges or gains. Our best estimate is zero, in fact, but we do review these models quite significantly from time to time. So we would like to think that over time this will normalize, but our best estimate is zero going forward.

Thank you, very much. Very clear.

We will now take our next question from Farooq Hanif from Credit Suisse. Please go ahead.

Thank you, very much. What – I’ve got a question, first, on U.S. yields. They moved up year-to-date quite significantly, and there’s – obviously there’s a chance that they continue to improve. What is your thought on the product mix in the U.S. in light of this? So are you feeling any greater love for traditional universal life and fixed annuities? And do you see also on the reverse side how yield is helping to get rid of more books in the U.S.? That’s question one. Question two is given your capital position in the Netherlands. You’ve indicated the first half dividend. What – I mean, do we double that for the full year? Do you think you can pay more than €100 million out of the Netherlands now given that capital position? And lastly, you’ve got to the end of the leakage of customers in Mercer in the U.S. What kind of growth rate in participants or assets should we bake in? Thank you.

Hi, Farooq. Good morning. I’ll talk you a little bit through what we think we’ll see in the product mix. I think we’ve always been clear that higher interest rates is good for us. It’s good for our customers. There will be more margin in traditional life, and we will see better pricing for the guarantees on variable annuities. And I think that you will therefore see an improvement in these market segments as a consequence of higher interest rates. As you know, we had to withdraw a number of products in the past because of the low interest rate environment, where we felt that products did not make sense, nor for our customers, nor for ourselves. So that is clearly going to support it, in addition obviously to the fact that – as you know, we provided our sensitivities. Higher interest rates are positive for our capital and are positive for our earnings going forward. Just a few things on Mercer, and Matt will take the question on the capital in the Netherlands. On Mercer, when we acquired Mercer, we anticipated that through the conversion over a period of time we would indeed see customers actually leave us or effectively not leave us but never come to us. So I think that what we’re seeing right now is the end of this whole process, where we have now converted all the customers that are convertible on to our platform. And at the same time, what is important to keep in mind is that the acquisition of Mercer has given us this capability in the jumbo markets, to the very large cases, where we were not present before. And that means that today we are present in all the segments of the market in the pension market, which is very important for us going forward as part of our strategy. And additionally, as part of this deal, we have been selected as the sole record keeper for Mercer’s primary U.S. retirement plan platform which they call Mercer Wise. It was launched in 2017. That’s creating additional business for us. So we should not only look at the Mercer and transaction in conversion of the old plans on its own, but we’ll need to look at the overall broadening of the capability and extension of our distribution with Mercer. So we are pleased with this transaction because it firmly place us now in one of the top players in the pension market in the U.S.

Yes. On the Netherlands capital position and the dividend. It was interesting. I did an interview this morning with one of the wire services. And the reporter noted that, "While I’m looking at the front page of your press release, and I don’t see a problem with the Dutch dividends or the – rather the Dutch capital." And I said, "Yes. That’s exactly the point." So I think that we took care of this one in the second quarter, and so far, we’ve seen this actually be quite successful. So right now the Dutch insurance organization stands at a capital level of 199%, which is well above their target range. At this moment in time, they have to go through their normal governance to pay an interim dividend, but we would expect, given a benign market environment that we’re in, that they would be able to pay it. And then going forward, I think we’ve telegraphed in the past that we expect an interim and a final dividend pattern 2 times a year, just like we do in the U.S., so I will just guide you to that. That’s, it’s a reasonable way to think about it.

Just following up on that. I mean, in the U.S. do you pay an equal amount in the first half and second half?

It’s imbalanced, but it’s generally 2 payments.

Okay thank you very much.

We will now take our next question from Nick Holmes from Societe Generale. Please go ahead.

I wanted to ask about the variable annuity book. And in particular, how has the hedging been holding up during the last few weeks of market turmoil? And secondly, still on variable annuities, how well positioned do you think you are if we see a bigger correction? Thank you very much.

Thanks for your questions, Nick. I think generally in terms of hedging we have seen some market volatility but the move especially in a macro hedge to a more put option-based strategy. We basically – this was sort of by design, buying put options at a time when volatilities are low. And now that volatilities have spiked, we’re getting actually benefits from that strategy, so that one, I think, goes well. With respect to variable – other variable annuity books, yes, I think the – I think that we’re very well positioned, in fact. I think you recognize that a large portion of our book is exactly matched off. And then for the macro hedge we try to manage around the regulatory capital band. So I think, the idea of protecting our capital base not only for the VA business but for the entire business as a whole, that’s one that we’re fairly happy with right now.

So in brief, you don’t – you’re not worried about a bigger correction if that was to occur. That’s not on your radar screen as being a threat.

It’s on everybody’s radar screen. We have highly trained people and experienced people looking at these hedging programs every day, intraday. So is it something that I worry about? No. I think we’ve got good people on the ground that are able to manage this.

That’s great. Thank you very much.

We will now take our next question from Robin van den Broek from Mediobanca. Please go ahead.

My first question is quite simple, on the U.S. remittances. Why isn’t – the $100 million upgrade to capital generation not translated to remittances, also given the fact you’re quite comfortable on the RBC ratio? Secondly, maybe to come back to the moving parts still to come through from the NAIC. I think we have the asset charge discussion that is still out there. You mentioned the required capital. Since you’re trying to guide towards above the mid end of the 350% to 450% range, is it fair to assume that you currently foresee an estimate of 60 percentage point RBC ratio impact, which would translate to 15 percentage group – for the Solvency II ratio for the group? Is it a fair assessment? And the third question is on the separate account derisking you mentioned as being a positive driver for the Solvency II ratio development. Could you maybe provide the size of the benefit and the reasoning behind it and whether this is an ongoing thing and if there’s any impact on capital generation on the back of it?

Okay, thank you for your questions. On the remittances for the – yes, for – we expect to see about USD 100 million benefit in capital generation, but as you said in your second question, we are going to have knock-on impacts from the NAIC both as a consequence of increasing asset-based – risk-based capital charges and also reflecting the lower tax rate in RBC charges. So let’s be a little bit cautious right now. We’re going to keep the remittances the way that they are, the way that we’ve committed to the market. We are more focused on returning the €2.1 billion of capital to shareholders through the course of 2016 to 2018, so we’re actually not going to require the U.S. to pay up another 100 million at this moment in time. There could be the potential in the future, but at this moment that’s not what we’re thinking. With respect to the what is out there in the market with respect to impacts on RBC ratios and the group ratio, I’d say it’s a fair assessment. We don’t know exactly how it’s going to come through when we don’t know exactly when it’s going to come through, but we do know that, when it does come through, even according to our worst-case scenarios we still stay above the midpoint of the U.S. target range. And the group is comfortably in the top part of its target range. With respect to the separate account derisking, this is really credit risk management within the separate accounts in the guarantee portfolios for the Dutch pension business. And I would say that the impact to the SCR for the quarter was about €100 million.

Okay. And the 100 – of the – sorry. The 60 percentage points we mentioned before, that is the worst case in your view. Or is that more benefit.

All we did is we took a look at it on the base of we sort of know what’s going to happen on the asset- based charges. And if you just do a mechanical approach to reflecting the new tax rate and the RBC factors, that’s what you come up with. The NAIC may be a little bit more liberal than that, but we don’t know.

Thank you very much.

We will now take our next question from Mark Cathcart from Jefferies. Please go ahead.

I’m just wondering if part of the reason why you’re not willing to increase the remittance from the U.S. by that $100 million is because of concerns that, the tax change in the U.S., all it’s going to do is encourage competition. So if you look out 1 to 2 years, your retirement margins are go down, and therefore you’re back to square one. I just wondered. What’s your read on how pricing for life products in the likes of retirement? How do you think they’re going to develop? And do you think that in 3 years time that $100 million whittles down to, say, $25 million?Thanks.

Mark, let me answer this question to you. First of all, we should be reminded that the vast majority of our earnings in 2017 and for the coming years actually comes from business that has a long duration, for example, universal life, variable annuities. And on these books, we will, by definition, retain the benefits because it’s been locked in already. So I would say the impact of lower taxes, in our view, will only be passed on gradually and over time in the form of new business pricing. That’s not something we expect to happen overnight. It will, in our view, take time and before the tax. And therefore, it’s also important we continue to grow our new business so that we offset this impact by further scale improvements. So that’s how we look at it. And the reason that Matt answered this question previously was also to be clear that the impact is going to be over time. We have quite a lot of things that we’re doing in the company. As you know, we are outsourcing our business, which will provide a benefit, but it also takes a charge initially. And that’s why it makes no sense further to include remittances. It’s really too early to answer that question.

Okay. And the other one, I just wondered if you’re in a real dilemma at the moment in relation to fixed annuities. Because back in December 2016, you highlighted that – as a business that you’d potentially exit. And we have seen what Voya has done and how the share price re-rated there, but at the same time, with rising interest rates, that benefits the profitability of your business, so I’m just wondering. Given the current backdrop, are you more or less inclined to keep your fixed annuity business? Is it more core or less core?

You see we are executing on a strategy where we have de- emphasized the fixed annuities. You are right to say that rates have moved up, so in itself it becomes a little bit more attractive for our customers, but we have a business that we are running-off. We have a very low cost base. And this is, from a economical point of view, by far the most attractive way for our shareholders.

In other words, to get rid of it.

To run it off, as we’re doing right now, with very low expenses. And that’s what we’re doing. That’s we’ve come to the view that this is the most effective way of enhancing shareholder’s value.

Okay thank Alex as excellent thank you.

We will now take our next question from Ashik Musaddi from JP Morgan. Please go ahead.

Just one question from my end. When I look at your Solvency II roll forward, it’s an 8% improvement because of the separate account derisking, divestment and impact from U. S. So if I remove the impact from U.S., it’s actually 13- point positive impact. Would you mind giving a bit of color on that? How is it – how much is because of NL derisking, and how much is because of divestment? And apologies, in case I missed that earlier. And the second thing is can you just remind us about the annual cash flows again. So are we still sticking with 1 billion from U.S., €100 million from Netherlands and around 100 million from other units? So any changes to that? Thank you.

Okay, on your first one, I think you’ve noticed in our little roll forward there for the solvency ratio for the group you effectively have a zero impact on own funds for the year. We stayed stable – or for the quarter. We stayed stable at €15.6 billion, but underlying that there’s actually quite a number of moving pieces. So you see the expected returns of €400 million. You see the market variances of minus €300 million. And then there are quite a number of one-off things that include U.S. tax reform that actually net to zero. So if you’re just maybe on high-level numbers, we have the UMG sale that’s adding 200 million. We have some impacts from reflecting, let’s say, some full year U.S. tax issues not related to the tax reform of about 200 million. You’ve got a plus 100 million from the SCOR reinsurance transaction. And then the SEC issue subtracts, minus 100 million; and then U.S. DTA write-off of about 400 million. So net-net, you’re on zero. Where the big action is actually happening is more in the SCR side of it for the quarter. Now I will tell you that our long-running ambition is clearly to drive forward own funds, as because that is going to be a very serious valuation metric for us going forward. And we’re seeing great capital generation in the quarter. But there are some one-off things, and of course tax reform is one of them, that detracted from that. But on the SCR side, we had – so it’s basically three things. We had, let’s say, derisking related to the separate account portfolio in the Netherlands. That accounted for about 100 million. You had management actions that took place following the divestment of the COLI/BOLI runoff portfolio of about 100 million. And then there was about 100 million of other very small things but some of which was improved diversification benefits within the group. So that was the – that’s – I guess that’s really the Solvency II roll forward. Now when we talk about

Great. Thanks.

Yes. When we talk about remittances, we’re thinking on the order of $100 million from the U.S. We’ve already signaled €100 million from the Netherlands as the interim dividend. And again, we would normally expect an interim and a final like all the other businesses. We would expect something on the order of €100 million from the UK, 100 million from asset management and from sort of all the rest about 50 million. And you get to a total that’s a little bit more than €1.1 billion.

Okay. that’s very clear, thanks a lot Matt.

[Operator Instructions] We will now take our next question from William Hawkins from KBW.

Hi, thanks very much. Matt, slightly following on from what you were just saying, I’m still a bit confused about the recon for the U.S. RBC ratio. I wondered if you could just be a bit clearer about how we get to 470%. So first of all, just can you tell us what the numerator and the denominator is for that ratio? And then by my math, I mean, we were in the mid-440s last time you disclosed. I was expecting kind of a 20-point hit from the tax reform and then a similar hit for the dividend. So I mean it sounds to me like we’ve got sort of something like 50 to 70 points of positive. So could you just be a bit clearer about how we get that upswing in the RBC ratio? Thank you.

I’m not going to go through a detailed walk for it. I’ll – but I can give you some of the information that we have. So just the impact of tax reform was 16 percentage points. The way that we think about the RBC ratio in the U.S., you think of it as the available capital versus the required capital. To get to the 472% number, the available capital is about – it’s almost spot-on 10 billion, 9,958 billion, I think it is; and then 2.1 billion of required capital. That’s in dollars. And for what – we don’t normally provide a walk for it. It would actually be quite complicated to do that, so – yes.

Are you ready for the next question?

Yes. We are,

Okay, will other sure. We will now take our next question from Johnny Vo from Goldman Sachs. Please go ahead.

Yes, thanks guys. Just a couple of quick questions. Just with the change in capital generation in the U.S., does this change anything in relation to your holding company buffer, particularly given that most of your holding company cash is in the U.S. holding company and which hasn’t moved in a while? So that’s the first question. And number two is also I’ve noticed that you’re not accruing for the dividend in solvency roll forward, which you did last year, so on a pro forma basis taking into consideration the likely decline in RBC ratio and dividend accrual, I get to a sort of pro forma solvency ratio about 180%. Does this seem fair? Thanks.

With respect to your first question, on capital generation in the U.S., at this point, we’re not going to consider changing the buffer in the holding. So we target something between €1 billion and €1.5 billion. We’re sitting comfortably at €1.4 billion. We would expect to maintain that going forward. With respect to the not accruing for the dividend, we accrue for that when it’s formalized. And it had not been as of year-end. That’s only going through our own governance process now. And our – and overall group solvency ratio in a 180% range sounds a little light to me, but we’ll see how this progresses. It – like I said before, it will quite depend on how the NAIC changes to the risk- based capital factors; and how they do the tax rates, the timing of when that – whether it’s going to be 2018 or 2019. But again, we’re confident that we can remain in the top half of our range.

Okay, brilliant. Thank you.

We will now take our next question from Andrew Hughes from Macquarie. Please go ahead.

A couple questions, if I could. First one is about the Irish disposal. Presumably the €180 million isn’t in the current repatriation numbers you’re showing here. And the second one is on the kind of U.S. solvency. And so if the extra $100 million of cash generation is used to kind of build back solvency, presumably that would kind of restore the group solvency levels as well. Is that part of the plan? And then the third question is just on the €2.1 billion. I just want to check. So to get from here to the €2.1 billion and given what you’ve said already, are you including the full year final dividend at the end of 2018 that’s paid in 2019? So basically you’re saying you don’t need to increase the dividend from here to get to €2.1 billion. Is that right? Thank you.

On the Irish transaction, we are actually well on track on closing. And then obviously the proceeds have not yet been received and therefore are not yet included in our numbers. In terms of the – your question related to $100 million additional we get from the tax, yes, it will improve our solvency. By the way, our solvency is also being improved by a number of management actions we’re taking to try to optimize our risk, improve ALM; a lot of different actions that we are taking and, as you can see, with positive results here because we’ve been able to get our Solvency II up. And your final question, around the €2.1 billion and does it include the full dividend for 2018, the answer is yes.

Okay. Thank you.

We will now take our next question from Steven Haywood from HSBC. Please go ahead.

Good morning, thank you. You mentioned on the UK dividend being around €100 million on a – is that per year on a normalized basis going forwards after the one-off special you’ve done so far? Because that appears to be a significant over 100% sort of earnings, yearly earnings, of the UK business there. And then my second question is you mentioned in your call earlier about the SEC investigation into the asset management business in the U.S. Can you give a bit more specifics here? And is there any sort of estimate or cost you can provide for those, any settlement costs here? And have you set up any provisions for this as well? Thank you.

Steven, the €100 million from the UK is £100 million. That used to be very close to €100 million. It’s slightly more than €100 million. That is what we expect going forward. As – you also need to keep in mind that we are in the phase of integrating the Cofunds transaction, which will lead to significant expense reductions, expense synergies, which were not reflected yet in the 2017 numbers. So once these get reflected, you will understand that the £100 million effectively is – it’s very much a normalized kind of dividend we can pay out from the new Aegon after the cost synergies have been taken up. In terms of the SEC investigation, I mentioned it briefly in my introductory notes. This is a process that’s been going on for quite a number of years. We had a number of models that we used in our asset management, quantitative models, asset allocation models, that we discovered at a certain point that there were some errors and that it was not properly implemented. We also discovered that the communication with our customers also required some further clarity. And we reported that to the SEC. Following our self reporting this to the SEC, as you can imagine, a formal investigation has taken place. And we expect now to be able to conclude this, this year. We’ve made really good progress. And that’s why we’ve taken a provision that was mentioned and is included in 2017 numbers of USD 100 million. So that’s all I can say at this point in time.

Okay, that’s great. Thanks very much.

Well, I’ll take this opportunity to thank you. And thank you for your continued interest in Aegon. And I wish you a good and, I think, a busy day today with other companies. Take care.

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