Read CEO Lard Friese's letter in Aegon's Integrated Annual Report 2020.
In the midst of a global pandemic, we have focused on supporting our customers and have taken the first steps to transform Aegon into a more enduring, high-performance company.”
The past year was particularly challenging for everyone in terms of how we work and live. When I joined Aegon in March I was deeply impressed by how quickly our employees adapted to the new situation and maintained high levels of service to our customers and engagement with our business partners.
We took proactive steps to guide and support our customers during the difficulties they faced. For instance, we introduced the 'Blue Heart' program in the Netherlands that enabled people facing financial difficulties to postpone their payments. In China, we included COVID-19 coverage as part of our critical illness product range. Following the introduction of the CARES Act in the US, Transamerica helped customers navigate the complex regulations to access retirement savings in a penalty-free manner.
Our employees’ commitment was further illustrated by our US colleagues in Cedar Rapids, Iowa when a devastating storm hit the state in August. Everyone worked tirelessly to ensure uninterrupted service to customers, while supporting each other and their local communities during this extraordinarily difficult time.
Prior to 2020, the idea of an international organization of over 22,000 people working from home was difficult to imagine. Yet, aced with the pandemic and a host of other challenges, our colleagues across the Group adapted swiftly to a different way of working, stayed focused and began executing on our plans to transform Aegon.
Our employees still face challenges, ranging from working from home while caring for children, to being isolated from older family members, to coping with the mental strain of the drawnout pandemic. Aside from providing the IT tools and equipment needed to create a safe home-working environment, we have developed the 'Working from Home' framework, which sets vitality and engagement as priorities to support employees.
By delivering on our key aims of keeping fit, connected, and motivated, we have been able to improve our overall engagement as shown by the results of the 2020 Global Employee Survey.
After my appointment as CEO, we launched a detailed review of the Group. Aegon has not been performing up to its full potential for some time, and we are determined to take action to address this. The review established that we needed to sharpen our strategic focus, improve the way we allocate capital, build a true, high-performance culture, improve our operating discipline, and reduce our risk profile – all against the backdrop of a low interest rate environment and an uncertain economic outlook.
We announced Aegon’s new strategy at our Capital Markets Day on December 10, 2020. Going forward, we are focusing on three core markets, three growth markets and one global asset manager. Our three core markets – the United States, the Netherlands, and the United Kingdom – are among the largest investment, protection, and retirement markets in the world. Our ambition is to play a leading role in each of them. In markets where we have sub-scale or niche positions, we will manage capital tightly and have a bias to exit. Additionally, we have decided to separate our businesses in our core markets into Financial Assets and Strategic Assets. Financial Assets are blocks of business which we have closed for new sales. They are capital intensive with relatively low returns on capital employed. Strategic Assets are businesses with a greater potential for an attractive return on capital, and where we are well-positioned for growth. We aim to release capital from Financial Assets over time and reallocate capital to Strategic Assets and growth markets.
We aim to increase market share in attractive growth markets through our successful partnerships in Spain, China, and Brazil. Together with our partners, we will develop these businesses and capture the growth potential they provide by leveraging our global expertise and capabilities.
Success in all our businesses will be underpinned by a global asset manager that has strong investment capabilities, thereby allowing our customers to make attractive returns on their investments. Similarly, our asset manager benefits from the links with our other businesses. For instance, the retirement platforms we operate in our core markets provide an opportunity to offer asset management solutions. Where appropriate we aim to increase the penetration of our own competitive, proprietary investment solutions across our retirement platforms over time.
Delivering on our plans
In the second half of 2020, we took the first concrete steps to deliver on our plans. We announced the divestments of Stonebridge and our operations in Central & Eastern Europe, restructured our businesses in India, Hong Kong, and Singapore and decided to cease funding of GoBear.
Measures taken to strengthen our balance sheet ensured that the capital ratios of our three main business units ended 2020 above their respective operating levels. Examples of the measures taken include the reinsurance of disability risk in our Dutch nonlife business and the sale of the Transamerica Pyramid in San Francisco. We also took the first steps towards our deleveraging target by repaying USD 500 million of senior debt.
The aim of rebasing the dividend – announced at the first halfyear results – is that dividend payments will be sustainable and well covered by the Free Cash Flows that we generate, even in reasonable stress scenarios. Our aim is to grow the dividend per share in line with recurring Free Cash Flows to around EUR 0.25 per share over 2023.
Granular operating plan
To ensure we deliver on our objectives, we have developed a rigorous and granular operating plan. The plan draws on input by over 1,500 employees to develop 1,100 initiatives aimed at reducing costs, expanding margins, and growing profitably. It includes an expense savings program targeting a EUR 400 million reduction in addressable expenses by 2023, representing a 13% savings over the addressable expense base of 2019. In 2020, we delivered on 260 initiatives, which puts us on track to deliver half of our expense savings 2023 target by the end of 2021. Of these savings, we intend to re-invest EUR 150 million in initiatives designed to deliver future growth in earnings.
There is still a lot of work ahead of us. We are building a high-performance culture within Aegon, investing in talent development, and focusing on delivery. We will operate with discipline and maintain an intense organizational rhythm to deliver on the transformation.
We believe that a solid environmental, social and governance (ESG) foundation is essential to long-term value creation. Further integration of ESG objectives into the overall strategy is a priority for Aegon. On January 1, 2020, we implemented a revised Group-wide Responsible Investment Policy and expanded the measurement of the carbon emissions associated with our investments. We are committed to strengthening Aegon's vision on sustainability and integrating it into our new business strategy. To drive this forward, I have appointed a Global Head of Corporate Sustainability, reporting directly to me, starting on January 1, 2021.
We are also making progress on inclusion and diversity across the Group. Aegon’s 2020 Global Employee Survey shows that 79% of employees believe they can be their authentic selves at work and have equal opportunity to succeed. We also met our objective to have at least 30% women in senior management positions across Aegon by the end of 2020.
We see our progress on inclusion and diversity as steps along our pathway to create a workplace that reflects the diversity of the customers we serve and where the views and perceptions of our people encourages diversity of thought and innovation.
While we are not there yet, we have a strong foundation to build upon. We are now including a gender diversity target into the remuneration for all Executive Board and Management Board members.
Aegon and the future
Our purpose is to help people achieve a lifetime of financial security. We are making progress to become a leader in investment, protection, and retirement solutions, with trusted brands and leading retirement platforms in attractive markets. In our core markets, the shift away from defined benefit pension plans, together with low interest rates, mean our customers need to save more, not less. In addition, traditional government-based retirement systems are increasingly strained, and customers in our markets must take on greater individual responsibility for retirement planning. Aegon will draw on its long years of experience and extensive distribution reach to support them with the right solutions. By serving our customers’ evolving needs in a changing world, Aegon creates long-term value that is shared with all its stakeholders.
Looking back on a challenging year, I am pleased that we have supported our customers and taken the first steps to transform Aegon into a more enduring, high-performance company. I am very grateful to everyone who has contributed to this and I look forward to continuing with you on this exciting journey.
The Hague, the Netherlands, March 17, 2021
CEO of Aegon