Aegon to increase profitability and capital returns

Strategy update and 2018 financial targets presented at Analyst & Investor Conference

New financial targets

  • Deliver on return on equity ambition of 10% by 2018
  • Reduce annual operating expenses by EUR 200 million by 2018

Solid capital base allowing for capital return to shareholders

  • Solvency II ratio of ~160% end-2015, based on approved partial internal model
  • EUR 400 million share buyback program launched today
  • Dividend pay-out ratio of 50% of operational free cash flows after holding costs
  • Increase final 2015 dividend per share to EUR 0.13

Strategic priorities

  • Focus on growing fee businesses and expanding in asset management
  • Restructure US operations into one, functionally-organized business
  • Explore options for UK annuity book
  • Implement accounting policy changes with estimated impact on shareholders' equity of EUR 1.3 billion to align accounting policies with inforce management

Aegon CEO Alex Wynaendts, CFO Darryl Button and Aegon's senior management will detail their plans to increase profitability and return of capital to shareholders at Aegon's Analyst & Investor Conference in London.

    "Today, we are announcing a number of significant measures to improve the operational performance of the company," said Alex Wynaendts.

    "I am pleased that we have a strong Solvency II capital ratio of 160%, which is in the upper-end of our target range of 140-170%. This allows us to launch a EUR 400 million share buyback program today and announce a 9% increase in the dividend for the full year of 2015.

    "I am confident that delivering on our strategy to grow our business profitably, reduce expenses, and return capital to shareholders will enable us to achieve a 10% return on equity in 2018."

    Financial targets

    Aegon is focused on return on equity as one of its key performance indicators and management is committed to delivering attractive returns to shareholders. The company targets a group return on equity of 10% by 2018 supported by:

    • Reducing annual operating expenses by EUR 200 million by the end of 2018
    • Additional investments in digital capabilities and expertise of EUR 50 million per annum above the current level to further support the organic growth of the business
    • Aligning accounting policies with inforce management, specifically related to UK deferred acquisition costs and accounting for reinsurance contracts as part of business exits. The retrospective adoption of these accounting changes as of January 1, 2016, is expected to decrease shareholders' equity by EUR 1.3 billion and increase underlying earnings before tax by approximately EUR 20 million in 2016

    Capital and cashflow

    Aegon's solid capital position and cash flow generation provide the foundation to accelerate capital returns to shareholders. Today's main announcements on capital and cashflow are:

    • Group Solvency II ratio as of December 31, 2015, of ~160% – in the upper-end of the 140-170% target range
    • Regulatory approval received to use the partial internal model in calculating Solvency II capital
    • Cumulative free cash flows after holding expenses of EUR 3.3 billion until 2018 – Dutch and UK operations expected to resume dividend payments in 2016 and 2017 respectively
    • Capital returns to shareholders of over EUR 2 billion in the period 2016-2018

         - dividend pay-out ratio of 50% of free cash flows by 2018
         - EUR 400 million share buyback to be launched today

    • Proposal to increase the 2015 final dividend per share to EUR 0.13 bringing the total 2015 dividend per share to EUR 0.25, a 9% increase over the 2014 dividend

    Execution of strategy

    Aegon's strategic agenda includes the following key steps to improve performance:

    • Leverage leadership positions in key retirement markets as a provider of thousands of institutional pension plans, and turn these into millions of retail customer relationships
    • Continue to invest in digital capabilities to obtain one view of the customer and enable the company to provide relevant and timely information, guidance and advice to customers
    • Restructure US operations from a business lines orientation into one, functionally-organized business to get closer to customers
    • Implement the outcome of the strategic review of Aegon's businesses in the UK; explore options for the annuity book, and continue the growth of the successful platform
    • Add functions of Chief Technology Officer, CEO of Aegon Asset Management, Global HR Director and General Counsel to the Management Board, reflecting the company's key strategic priorities

    Share buyback program details

    Aegon will repurchase EUR 400 million worth of common shares in 2016, of which a first tranche of EUR 200 million will be repurchased before March 31, 2016. These shares will be repurchased to neutralize the dilutive effect of the cancellation of the preferred shares in 2013. The transactions will commence today, January 13, 2016.

    It will be proposed to shareholders at their next Annual General Meeting on May 20, 2016, to cancel any repurchased shares under this program. The shares will be repurchased at or below the daily volume-weighted average price. Weekly updates regarding the transactions will be available on aegon.com/sharebuyback.

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