The Netherlands Marco Keim Rutger Zomer CEO CFO Analyst & Investor Conference - London - January 13, 2016
Today’s storyline • All financial targets have been met Achievements • Successful growth of fee-based businesses since 2010 • Strong growth of profitable residential mortgage business • Simplify and digitize products and processes leading to operational efficiency Priorities • Improve customer experience and capture more of the value chain going forward • Optimize portfolio across business lines • Expense savings on existing book of at least EUR 50 million by 2018 • Generate cash flows of EUR 250 million annually Financial • targets Resume remittances in 2016 • Maintain RoC of 10% 2
Achievements on previous targets 3
All targets have been met 2015 Target Delivery Key drivers • Margin on investments Stable RoC of ~8%* • Strict management on expenses, mainly related to the insurance business Stable earnings from 2010 • Growth fee based business • Increase fee business Especially driven by new initiatives • Stable cash flows of Cash flows have been generated, but not all EUR 250 million upstreamed due to conversion to Solvency II regime 4 * Excluding the impact of the accounting changes implemented in 2014 and leverage benefit at holding
Progress made towards our strategic objectives since 2013 • • • • Growth digital sales Growth of Knab and Cross-channel Significant • Successful launch of TKP platforms distribution improvement on • • MijnAegon (currently Launch of Dutch Improving data engagement and ~750K customers) Mortgage Fund quality & reporting empowerment • • • • TKP customers Reached agreement Rationalization of Focus on learning increased from 1.2 on OPTAS products and and developments • to 2.8 million Leading market systems via various programs • position PPI Integration salesforce workflow 5
Challenges emerging 6
Challenges are emerging in a changing environment Technological trends • New technologies enable more interaction Market trends with customers • Increased competition as a • Customer data driving more relevant result of blurring boundaries in the financial services propositions (products, services and pricing) industry • A tightened regulatory environment that increases Customer trends complexity and reduces • Customers expect transparent, returns Evolving to meet simple, superior service and fair • Persistently low interest new challenges products rates • Customer demand shifting towards digital first, multi- channel access and personalized offerings Business model • Customers are more and more • Shift from pure risk carrier to a service self directed provider • Dynamic pricing • Straight-through processing and operational excellence 7
Priorities going forward 8
Executing on strategy • Capturing more of the value chain • Reduce expenses through sourcing and fulfill customer promise and digitizing across the business • Increase direct contact in omni- • Simplify products and processes channel distribution • More engagement from digital interaction and data insights • Increase efficiency in cooperation with distribution partners (e.g. Skydoo) • Ongoing shift from DB to DC • Continue to attract and retain talent • Considering options for commercial • Focus on learning & development line non-life business via talent review, management drives and education programs • Increase fee-based business • Launch Algemeen Pensioen Fonds (STAP) 9
Reducing expenses existing book by EUR 50 million Strategy for further EUR 50 million cost Expenses Life & Savings, Pensions & Non-Life (in EUR milion) savings on existing book applies for following main categories: • Operations ~480 ~100 • IT ~50 ~20 ~400 • Support ~350 • Commerce costs 2010 Cost Investments 2015 Cost 2018 savings savings 10
Distribution mix changes over time • Total D2C sales to increase significantly Sales mix* (in %) from 2015 to 2018 mainly driven by sales of general insurance, as well as mutual 20 D2C funds and Banksparen products through 25% ~40 D2C Aegon Bank and Knab 6 >40% • Broker channel to remain the primary ~5 channel due to Aegon’s focus on pensions and residential mortgages 58 ~45 15 ~10 1 2015 2018 Digital Own / tied agents Brokers Large pension consultants Other * Sales mix includes mortgages for 10% (standardized production) 11 Note: 2015 numbers are forecasted 2015 sales numbers
Share of DC in sales mix to grow significantly • Life sales mix Dutch pension market moving from defined benefit (DB) to (in %) defined contribution (DC) solutions – Preference corporate customers – Higher capital requirements for DB under Solvency II – Low interest rates ~1/3 • Growth of DC primarily fuelled by PPI ~2/3 – Aegon is market leader in this market and the largest insurance company among pension administrators – In addition, additional revenues are captured through Aegon Asset Management / TKPI, which is part of Aegon Asset Management ~2/3 • Selectively offering DB products ~1/3 – New DB business subject to strict return hurdles – ~60% of DB renewals and new production are converted into DC 2015 Medium contracts in the medium term term DC DB • Shift from DB to DC in the mix of liabilities materializes over time, given the relatively long duration of the DB business 12
Aegon Bank large driver for fee business growth in the Netherlands • Knab and mortgages contribute to fee business growth in the Netherlands and match both sides of the balance sheet with retail products • Increasing share of fee business from the Dutch mortgage fund • Extending fee business at Aegon Bank contributes to bank’s RoC to become mid-to-high single digit by 2018 Development customers Knab and Aegon Bank AuM Development mortgage portfolio (Number of customers and EUR billion) (EUR billion) 300000 7.5 3.7 1.7 1.3 200000 10.4 1.4 9.1 1.5 8.3 24.5 24.3 22.8 100000 20.9 19.0 16.5 0 2010 2011 2012 2013 2014 2015 2018 2013 2014 2015 2018 General account Fee Aegon Bank AuM Knab customers 13
Diversified funding supports strong mortgage origination capabilities Nominal mortgage amounts per FY 2015 Comments (in EUR billion) Competitive advantages: • Mostly short interest rate reset periods Bank • Strong position with ~6 * • Offering products to clients on both sides Independent Financial Advisors of the balance sheet • Straight through processing • Leading mid-office capabilities RMBS – ≈ • Active in all maturities • ~6 Funding diversification Saecure program • One IT platform • Origination vehicle Full risk transfer ~8 Aegon Hypotheken ** • Attractive fee business Fee business • Long-dated assets ≈ ~11 Life & Pension • Good match against liabilities • Mostly variable rate mortgages ~1 Non-life • Supports investment income * Bank with RMBS, Saecure 13 NHG and covered bonds 14 ** Mortgage origination vehicle since 2011. Aegon Levensverzekering (Aegon Life) was the origination vehicle prior to that
Cash and capital deployment 15
Solid Solvency II capital position • Year-end 2015 ratio estimated to be ~150% Solvency II SCR by risk type (in %) based on the approved partial internal model, which was granted early December of 2015 Credit risk • Remaining uncertainty is the extent of the loss- 15% Interest rate risk absorbing capacity of taxes. Potential impact 31% Other market risk 7% on Solvency II ratio is approximately minus 5 Longevity risk to plus 10 percentage points 11% Lapse risk • Aegon is undertaking initiatives to improve 8% Expense risk the Solvency II ratio 16% Other risk 12% 16
Further reduction of longevity risk • Aegon absorbs longevity risk to help customers to manage the risk of outliving their assets The first longevity hedge transaction • Aegon aims to hedge was completed in 2012, covering a substantial part of its EUR 12 billion of liabilities trend risk through a comprehensive longevity hedge program In Q3 2015 Aegon NL executed a (partial) index based longevity • This ambition is driven transaction covering by Aegon’s own risk EUR 6 billion of liabilities appetite, not by regulatory frameworks Expand the longevity transaction by covering an additional EUR 9 billion of liabilities in 2016 In principal longevity hedges are based on mitigating tail risks 17
Remittances to the group to be resumed in 2016 Capital management zones • Aegon NL’s Solvency II ratio Assessment of accelerated growth is estimated to be ~150% at Opportunity and/or additional shareholder distribution year-end 2015, at the high 150% SCR end of the target range Capital deployment and dividends • Target Aegon NL to resume according to capital plan 130% SCR remittances in 2016 • Capital plan and risk position re-assessed For the 2016-2018 period, Caution 120% SCR Aegon NL aims to pay EUR 250 million annually in Capital plan and risk position re-assessed remittances Recovery Remittances reduced or suspended 100% SCR Suspension of dividends Regulatory Plan Regulatory plan required 18
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