Aegon N.V. (NYSE:AEG) Q1 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The financial performance shows some positive aspects, such as increased operating capital generation and a healthy cash capital position. However, significant concerns include net outflows in retirement plans, market volatility impacting financial stability, and regulatory transition risks. The Q&A session highlighted uncertainty in capital return policies and unclear responses on mortality trends and hedging costs. The planned share buyback is positive but overshadowed by broader financial and strategic concerns, leading to a negative sentiment.
Key Financial Performance
Operating Capital Generation €267 million, an increase of 4% year-on-year, driven by business growth in most strategic assets, partly offset by unfavorable mortality experience in U.S. financial assets.
Free Cash Flow €34 million, reflecting a remittance from a joint venture in international and €19 million of proceeds from ASR share buyback program.
Cash Capital at Holding €1.6 billion, indicating a very healthy capital position at the end of March.
Gross Financial Leverage €5.1 billion, consistent with target level.
U.S. RBC Ratio 436%, a decrease of 7 percentage points compared to the end of December, impacted by market movements and one-time items.
Scottish Equitable Solvency Ratio 189%, an increase of 3 percentage points driven by operating capital generation.
Share Buybacks €102 million returned to shareholders, with a planned new share buyback program of €200 million set to commence in July.
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Operating Highlights
New Life Sales: In International, we recorded an 11% year-over-year increase in new life sales after some slower quarters last year.
RILA Product Growth: Within Protection Solutions, we continue to see growth in the RILA product, thanks to further improvements of our wholesale distribution productivity.
Agent Base Growth: In the U.S., World Financial Group continues to grow its agent base, with the number of licensed agents increasing by 16% to 88,000 compared with the same quarter of last year.
Market Share Increase: Transamerica’s market share in WFG increased to 66% from higher agent productivity in selling Transamerica’s products.
New Representative Office: TLB is setting out on a path for profitable growth with the opening of a new representative office in Dubai.
Operating Capital Generation: Operating capital generation before holding and funding expenses amounted to €267 million, driven by business growth in most strategic assets.
Cash Capital at Holding: Cash capital at holding stood at a very healthy €1.6 billion at the end of March.
Share Buyback Program: A planned new share buyback program of €200 million is set to commence at the beginning of July and is expected to conclude before the end of the year.
Solvency Ratio Update: Aegon will apply an aggregation approach to calculate its group solvency ratio under the Bermuda solvency framework after the transition period.
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Risk or Challenges
Unfavorable Mortality Experience: The company experienced unfavorable mortality claims, particularly in Universal Life, which impacted operating capital generation. This was partly expected due to seasonality.
Midsized Retirement Plans Outflows: Aegon recorded net outflows of $283 million in midsized retirement plans due to lower gross deposits and elevated participant withdrawals.
Market Volatility Impact: The financial markets experienced significant volatility in April, which negatively affected the U.S. RBC ratio and is expected to have a single-digit negative impact in the second quarter.
Regulatory Transition Risks: Aegon is undergoing a transition in group supervision from the Dutch Central Bank to the Bermuda Monetary Authority (BMA), which could pose risks until the transition period ends in December 2027.
Capital Instrument Eligibility Changes: Changes in the eligibility of capital instruments under the Bermuda solvency framework could lead to a 6 percentage point decrease in the group solvency ratio, affecting financial stability.
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Guidance & Outlook
Operating Capital Generation: Operating capital generation before holding and funding expenses amounted to €267 million, driven by business growth in most strategic assets.
Share Buyback Program: A planned new share buyback program of €200 million is set to commence at the beginning of July and is expected to conclude before the end of the year.
Agent Growth: The number of licensed agents in World Financial Group increased by 16% to 88,000 compared with the same quarter of last year.
New Life Sales: Internationally, there was an 11% year-over-year increase in new life sales.
Market Position: Transamerica established itself as a top 10 player in the RILA product sales in the U.S. market.
2025 Financial Targets: Aegon expects to achieve all group financial targets for 2025 as set out at the last Capital Markets Day in 2023.
Operating Capital Generation Target: Aegon confirms a target of around €1.2 billion operating capital generation for 2025.
Quarterly OCG Run Rate: A quarterly OCG run rate for the Americas is expected to be between $200 million to $240 million for the remainder of the year.
Cash Capital at Holding: Aegon plans to reduce cash capital at holding to around €1 billion by the end of 2026.
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Shareholder Return Plan
Share Buyback Program: Aegon announced a planned new share buyback program of €200 million, set to commence at the beginning of July 2025 and expected to conclude before the end of the year. This follows the current €150 million program.
Capital Returned to Shareholders: Aegon returned €102 million of capital to shareholders through share buybacks, part of which will be used for share-based compensation plans.
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Key Q&A
Q:Can you talk about your commitment to reduce holding cash and how to balance capital deployment towards M&A and returning it to shareholders?
A:The commitment to reducing cash capital from €1.6 billion to €1 billion by the end of 2026 is firm. We will do this through reducing leverage, investing in growth opportunities, or returning money to shareholders. The €200 million buyback is a step in that direction, and we prefer to spread the reduction over time to manage market volatility.
Q:Are you looking to participate in the U.S. in-force management market?
A:There’s no real change in our approach. We continue to look at third-party transactions, but we have undertaken some small transactions recently and will explore opportunities that meet our criteria.
Q:Will there be any more buybacks this year?
A:We anticipate completing the announced buyback before year-end, and nothing else is off the table regarding capital return.
Q:Does the €1.2 billion guidance look conservative in light of nonrecurring items?
A:We believe the guidance is consistent with our expectations, and while some units are trending well, we are facing headwinds in international markets.
Q:How much of the €1.4 billion in financial assets can be reduced through natural runoff?
A:We will need to implement management actions to hit our target, as the runoff varies by portfolio.
Q:What is your capital return policy regarding dividends and buybacks?
A:The dividend policy is to maintain €0.40 and grow it in line with free cash flow. Excess capital will be dealt with through buybacks or special dividends.
Q:How did the hedging program perform in recent market volatility?
A:The hedging program performed as expected, with a modest drag from higher rebalancing costs and unhedged exposures.
Q:What are the drivers for the good underlying performance in the U.S.?
A:The U.S. OCG is trending well due to business growth and favorable interest rates.
Q:How do you see U.S. mortality trends?
A:We have not changed our view on mortality despite some elevated rates in Q1, which we attribute to normal quarterly volatility.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the specifics of the capital return policy and the potential for future buybacks beyond the announced €200 million. Additionally, there was a lack of clarity on the impact of U.S. mortality trends and the specifics of the hedging costs.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America World
Americas Transamerica
Asset party
CEO CFO
China detail
China life
Dubai Asset
Group number
IRAs profitability
International increase
Plans value
Portugal TLB
Protection Solutions
RILA product
Santander Spain
Slide message
Solutions RILA
TLB path
Transamerica Protection
Transamerica market
Transamerica product
Transcript conference
UK path
Update name
WFG Protection
WFG activation
WFG agent
ability target
activation rate
adviser segment
agent Transamerica
agent WFG
agent activation
beginning
client
life sale
path teach
sale WFG
sale venture
volatility
withdrawal
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