Aegon(AEG) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The group reported net income of €1.3 billion and underlying earnings before tax of €366 million for Q1 2020, with underlying earnings in the U.K., Netherlands, asset management, and international businesses holding up well [12][14][30] - The Solvency II ratio increased to 208% during Q1, remaining above the target range, primarily due to normalized capital generation and positive market movements [15][20][30] - The U.S. RBC ratio decreased to 376% at the end of Q1 but improved to an estimated range of 390% to 400% by the end of April [18][19][42] Business Line Data and Key Metrics Changes - In the U.S., underlying earnings were negatively impacted by an intangible adjustment of €37 million and adverse mortality concentrated in March, amounting to €62 million [13][14] - Life sales and net deposits were largely unaffected in Q1, but sales depending on face-to-face contact are expected to be negatively impacted in the coming months [10][11] - Asset management benefited from performance fees from a joint venture in China, contributing positively to earnings [12][14] Market Data and Key Metrics Changes - The COVID-19 pandemic led to volatile financial markets and lower interest rates across all markets, negatively impacting underlying earnings [10][11] - The Netherlands saw a significant increase in the Solvency II ratio from 171% to 249%, driven by the EIOPA volatility adjustment [20][21] Company Strategy and Development Direction - The company is focused on maintaining a solid capital position and strong balance sheet during the COVID-19 crisis, with management actions taken to protect the economic value of the balance sheet [30][31] - Aegon is adapting its business models to more digital interactions with customers, particularly in the U.S. and China [37] - The company is planning to merge two of its largest U.S. legal entities to streamline operations and improve asset adequacy testing [24] Management Comments on Operating Environment and Future Outlook - Management indicated that it is unlikely to meet the annual return on equity target of over 10% for 2020 due to the pandemic's impact [31] - The company expects short-term normalized capital generation to be negatively impacted by adverse market movements and higher mortality rates, but management actions may mitigate some of these effects [31][32] Other Important Information - The company has implemented various measures to support customers facing financial challenges, including flexibility on mortgage payments and fee waivers on retirement plan withdrawals [8][9] - Aegon is maintaining excess cash of €1.4 billion and ample liquidity across its units, providing financial flexibility during the crisis [30] Q&A Session Summary Question: U.S. capital position and dividend policy - Management stated that as long as the U.S. RBC ratio remains above 350%, normal planned dividends are expected to be remitted [35] - The decision on the interim dividend will be made in August, with considerations for returning surplus capital to shareholders as soon as appropriate [36] Question: RBC ratio and market impacts - The U.S. RBC ratio improved to 390%-400% due to tightening credit spreads and improved equity markets, but management refrained from providing a pro forma outlook due to market volatility [42] Question: Long-term interest rate assumptions - Management updated the long-term interest rate assumption to 3.25%, which could lead to a $300 million to $325 million impact on IFRS results [44][45] Question: U.S. mortality expectations - Management noted that while Q1 mortality was poor, it was not necessarily COVID-19 related, and future expectations remain uncertain [65] Question: U.S. capital generation and impairments - U.S. reinvestment yields were reported at 3.64% for new money and 4.5% for back book yields, with lower rates expected to strain capital generation [66][67]