Aegon Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: 2024 IFRS operating result nearly €1.5B, in line with last year. Operating capital generation before holding and funding expenses €1.2B, in line with guidance. Free cash flow €759M. Proposed final dividend €0.19 per share, full year dividend €0.35 per share (17% increase from 2023). Returned €1.4B of capital to shareholders in 2024, executing additional €150M share buyback program.
• Strategy and Commercial Momentum: In US, building Transamerica into leading middle-market life insurance/retirement company. World Financial Group attracting new agents. Midsized retirement plans growing with strong pipeline. Protection Solutions focusing on life and Indexed Annuity growth. Financial Assets reduced capital employed, completed Universal Life policy purchase ahead of schedule. In U.K., Workplace platform had record growth, strategy to reverse Adviser platform outflows by targeting top 500 financial adviser firms. Asset Management had strong year with solid net deposits.

Segment Performance

• Americas: In 2024, IFRS operating result nearly €1.5B. Operating capital generation before holding and funding expenses was €1.2B. Protection Solutions operating results increased 35% in 2H 2024, driven by portfolio growth. Savings & Investments operating result up 10% mainly from Retirement Plans. Distribution up 25% due to higher annuity sales. Financial Assets operating results down. WFG licensed agents up 17% to over 86,000, annuity sales through WFG up 22%, but new life sales down 3%. Net deposits in midsized retirement plans €0.6B in 2024. Assets under administration in individual retirement accounts up 22% to nearly $13B, General Accounts Stable Value product assets under management up 18% to $13B.
• U.K.: Workplace platform had record growth in 2024 with net deposits £3.7B (more than double 2023). Adviser platform had net outflows £3.5B in 2024, but strategy to target top 500 financial adviser firms. Assets under administration at £115B at end-2024, up 11% from end-2023.
• International: New life sales decreased 15% in 2024 mainly due to pricing actions in China reflecting lower interest rates. Brazil new life sales affected by unfavorable exchange rates and strong 2023 sales. Spain/Portugal new life sales down due to fewer mortgage-linked life sales, but gross written premiums increased. Asset Management in International had solid net deposits, with Chinese joint venture AIFMC contributing.
• Asset Management: Global Platforms had strong third-party net deposits of €9.2B driven by alternative fixed income funds and U.K./Netherlands retirement funds. Strategic Partnerships net deposits €4.5B, mainly from Chinese joint venture. Assets under management at year end 2024 €332B.

Guidance

• 2025 OCG expected around €1.2B, in line with 2024 updated guidance. OCG in US, U.K., and Asset Management trending well vs original guidance but offset by lower OCG from International. 2025 free cash flow target around €800M. Dividend target around €0.40 per share for full year 2025. Currently executing €150M share buyback program expected to complete in first half of 2025.

Risks

• Equity market sensitivity: RBC ratio affected by equity market movements due to flooring of variable annuity reserves under U.S. statutory scenarios. China's low interest rates impact: Lower interest rates in China led to re-pricing of products and lower new life sales, with impact on OCG over 3-year period as amortizing difference between regulatory and market curves. Onerous contracts in US: Negative experience on onerous contracts in 2H 2024, including premium variances in Universal Life and lapsed behavior in TLB.

Q: Good morning. Thanks for taking my questions. Can we start with the operating capital generation, please? And could you help me understand the moving parts leading you to reiterate your 2025 guidance?

A: Duncan Russell: Your question is around the guidance for next year, which, as you say, has been reiterated. So it’s very – simply, if you multiply our 4Q actuals and the underlying by 4, you’re getting to a run rate of around €1.2 billion currently, which is in line with our guidance. Compared to the original Capital Markets Day guidance, we have benefited from higher equity markets than assumed and from the dollar strength. And in fact, if I look at our business units, I think the U.S., the U.K. and the Asset Management business are all running slightly favorably compared to the targets at the Capital Markets Day, reflecting those tailwinds with some offsetting headwinds. But the International is an offset, as you pointed out, and that’s running weaker than we originally assumed, which is mostly due to China.

Q: Thank you. And what kind of interest rate benefits are you modeling there? I think you said at Q3, you were reinvesting 130 basis points higher than your back book yield, that’s now probably 200. So how does that fit into the equation?

A: Duncan Russell: So we are – you are right, we are already investing higher than our back book, but we’re not seeing a huge benefit coming through in our – and we don’t anticipate a huge benefit coming through in our OCG. And the reason for that is we’re seeing some competitive pressure. So where we are earning a high yield, we’re actually passing some of that back on to the customer.

Q: Understood. And my second question is on the big increase in the equity sensitivity of the RBC ratio. Are there any measures that can be taken to manage this or is it just dependent on the level of equity markets, so basically markets to go down or is there anything on the hedging that can be done to change the flooring level?

A: Duncan Russell: Yes, it’s a good point. And indeed, there was a significant change in our equity sensitivities and our sensitivities in general in the second half. There are three reasons for that – well, two reasons really, actually. The first was we’ve moved our sensitivities now to be on an actual tax position. And as interest rates rose and equity markets rose, we found ourselves reaching a limit on the amount of DTA we can include in our RBC ratio. And so we’ve adapted our sensitivities to now reflect the actual tax position. And that means basically all our sensitivities are now pretax as opposed to net tax, which means they are just higher. And then second reason, which is the point that you mentioned, is the flooring on the variable annuity book. Now that’s slightly counterintuitive, and it reflects the prudence in the regulatory system.

Q: Thank you. Your next question comes from the line of Michael Huttner from Berenberg. Please go ahead.

A: Michael Huttner: Thank you so much. I have got two questions. I’ll do one, yes, one at a time. So China solvency, can you say what the solvency is now and what it would be if you – once you’ve – if you were to apply spot interest rates rather than the kind of smooth curve? What I’m really asking is, is there – what is the risk that you have to inject capital in China? And then I have another question on mortality.

A: Duncan Russell: On the mortality first, Michael. So the one thing I look at it is the experience variances in the IFRS accounts. The reason I look at that is that the IFRS accounts reflect our best estimate. We took the update in the first half, whereas the capital position is often locked in. So I would focus on the IFRS accounts and look at the experience variances. And the good news is that in the second half of this year, we had a positive variance on mortality, which is pleasing. That happened – that variance was, both in the third quarter and in the fourth quarter, a positive, which is good and was across all product lines, which is also good. On the Chinese solvency, the – they have various metrics. The 4Q local comprehensive solvency ratio was 228%, and the core ratio was 177%. And just for your reference, the regulatory thresholds there are 120% and 60%, respectively. So, we are quite a bit above the regulatory thresholds.

Q: Thank you. Your next question comes from the line of Farooq Hanif from JPMorgan. Please go ahead.

A: Farooq Hanif: Hi there. Thanks very much. Two questions, I am just going to start with international. The return on capital in international just seems really weak compared to the rest of the group. And given low interest rates in China, given perhaps the market possibly doesn’t sort of really look at the international business in a lot of detail, gives you a lot of value for it. What can you say about potential disposals or looking at restructuring that business going forward now that, obviously a lot of your U.S. restructuring and transformation is kind of in the bag and it’s just running? That’s question one, and then I will wait for a question two if you answer that.

A: Lard Friese: Okay, Farooq. Yes, so on the international, no the international businesses are core to the perimeter of the group. And if I look at – if I just – I will get to China in a second and Duncan has already mentioned quite a bit about that. But if I look, for instance, in our Brazilian business, that business is doing – that’s just doing well structurally well already for quite a long time. We have actually increased our ownership stake in that business in the course of last year because we have good expectations from that business. While sales this year for Brazil were slightly muted versus an exceptionally good sales year in the second half of the year last year. The gross written premium, so the overall size of the business, giving strong customer retention, has actually gone up more than 15%. So, we are quite pleased with that business, and we will continue to support it and to make sure that it continues to grow profitably. If you look at the joint ventures we have with Banco Santander in Spain and in Portugal, I mean they are chugging along very nicely over the years, if you look at the profitability of those businesses. And yes, there are some interest rates and mortgage-related sales that came down a bit. But if you also look at the overall growth of the written premium of those businesses, that also grows more than 10%, so quite pleased with that as well, it’s chugging along nicely. Now, then you go to China, and that’s – on TLB, by the way, which we shouldn’t forget, it’s our high net worth business in Singapore and Hong Kong, you may recall that we have put that in hibernation mode, if you will, a while back, but we have decided to start to grow, in a disciplined and moderate pace that business. And then we have China. And in China, life, which is included in the International segment because the asset management business is doing fine in China, but on the life insurance side, we are seeing those headwinds. I mean, Duncan already talked about the lower interest rate environment in China, which came down, of course quite dramatically in Q3 and Q4. We re-priced all the products. And as a result, we don’t see the sales that you would want to see there. So, we are monitoring the situation in China closely given that the environment for life insurance is not that great. But China is a very large market. That remains to be the case, and the dynamics are structurally in our favor. So, our international businesses are core part of our franchise.

Q: Thank you. Your next question comes from the line of Rhea Shah from Deutsche Bank. Please go ahead.

A: Rhea Shah: Two questions, but I will start with the first one. So, in terms of the UK business, I mean strong workplace flows in 2024. What are your expectations for this into 2025? Do you still expect to see growth in this number? And then I will move on to the second question after that.

A: Lard Friese: Well, Rhea, we – this is Lard. We have indeed observed now already for quite a number of quarters, it’s not only limited to 2024, a quite strong commercial momentum in our workplace business, which – meaning that we are – we found with our propositions and the distribution that we have a good path to continue to grow that business and for 2025, I mean 2024 was a record year. While I have no reason to believe the commercial momentum will not sustain, we do need to recognize that 2024 was exceptionally high. But I think we are very well positioned to continue the growth in that business. When it comes to the advisor platform, which is the softer piece of the profile in the UK, we saw continued outflows during – it was anticipated by the way. You know that we have had a capital markets teach-in about the UK business where we have outlined our plans in the coming years to turn that platform experience for our IFAs around. And with that, we aim to grow it to €5 billion of positive flows by the end of 2028.

Q: Thank you. Your next question comes from the line of Nasib Ahmed from UBS. Please go ahead.

A: Nasib Ahmed: Hi. Good morning. Thanks for taking the questions. So, firstly, on the financial assets, I think you have got a target of getting the capital consumed or capital deployed in that business to €2.2 billion by ‘27. There is no additional management actions today, what’s the pipeline looking like? How are you going to get down to €2.2 billion? So, there is another €1 billion-odd to go from where you are at the moment. So, yes, that’s my first question. I will ask the second one later.

A: Duncan Russell: Yes. Just to recap, so at the time of making that target, and we are making good progress on it, we said that we would use a combination of bilateral, which is where we have to engage with a third-party unilateral. And then we didn’t assume any major third-party transactions in that. So, it’s not that, that target is based off an assumption that we have to do a major transaction. It could be that transactions are supportive, but we are not baking in major transactions. And we continue to look at all options. In the fourth quarter, as I mentioned, we continue to buy institutional loan policies, which is a bilateral action. And we continue to explore if there are any transactions that could make sense. And if we find one, we will announce it.

Q: Thank you. Your next question is from Michael Huttner from Berenberg. Please go ahead.

A: Michael Huttner: I have two, and they are both about 2025. So, €1.2 billion, does it – can you talk a little bit about moving parts? I think you have got a sensitivity on OCG in the Americas of €40 million in the group, €60 million if the equity market goes up 10%. So, I am just asking, have you included that because equity markets are up a lot? And then the second is a similar calculation on the free cash flow. So, you beat on free cash flow in 2024 partly because a.s.r. bought back some shares. And the €800 million, do you include in that the a.s.r. buyback? They announced yesterday, the €125 million, which they kind of indicated at the Capital Markets Day. Any help on the moving parts, please?

A: Duncan Russell: Okay. If I deal with the second one, first, Michael, which is easier, I think. Yes, we do include the a.s.r. Our portion of the a.s.r. share buyback, which they indeed flagged at their Capital Markets Day, which is when I think that became public. And that has a positive impact for us, which is helpful in us delivering the €800 million target. On the OCG, we reflect the markets as they were in the most recent quarter. So, if you take the 4Q underlying run rate, we are around €1.2 billion based on equity markets as they were, I think at the start of 4Q. The – and as we look forward, as I mentioned earlier, what I see is that the U.S. asset management and the UK are all turning quite well versus our original target. But the real – the drag is the international business, which is mostly China due to those lower interest rates. But also, we saw that back in 2024 [ph], and that’s why we are turning around to that €1.2 billion despite favorable performance in the other businesses.