Reduce gross financial leverage to EUR 5.0 to 5.5 billion
Implement expense savings program of EUR 400 million
Achieve cumulative free cash flows of EUR 1.4 to 1.6 billion
Grow dividend per share to around EUR 0.25 per share over 2023
Aegon's CEO, Lard Friese will be joined by Matt Rider, Chief Financial Officer, Duncan Russell, Chief Transformation Officer and Allegra van Hövell-Patrizi, Chief Risk Officer, to outline the planned transformation of Aegon, and to discuss the steps taken to strengthen the business as well as how these actions will create value for Aegon’s customers and shareholders.
"We are taking significant steps to transform Aegon in order to change our performance trajectory and create value for our customers and shareholders," commented Lard Friese, CEO of Aegon. “We are narrowing our strategic focus to selected core and growth markets and, within these, have made choices that allow us to focus on those areas where we believe that Aegon is well positioned to create value. We have developed an ambitious plan comprised of detailed initiatives designed to improve the operating performance of our business by reducing costs, expanding margins and growing profitably. We are simplifying our capital framework, and continuing to strengthen our balance sheet, in part by further deleveraging. In addition, we are taking proactive risk management actions to improve our risk profile and reduce the volatility of our capital ratios. We are building a high-performance culture, investing in talent development and focusing on delivery. We intend to build on our strengths: our brands, our base of 29 million customers, and our deep expertise in designing solutions, managing assets, and creating distribution networks. We are excited about the opportunities we have to better reach our customers and to help them achieve a lifetime of financial security."
Highlights of Aegon’s new strategy include:
- Going forward, we will focus on three core markets (the United States, the Netherlands, and the United Kingdom), three growth markets (Spain & Portugal, China, and Brazil) and one global asset manager. In small markets or markets where we have sub-scale or niche positions, we will manage capital tightly and have a bias to exit. The recently announced sale of our Central & Eastern European businesses and Stonebridge in the UK are good examples of actions we are taking to increase our focus. Additionally, we have decided to separate the businesses in our core markets into Financial Assets and Strategic Assets, each requiring specific skillsets and possessing different opportunities to create value. Financial Assets are blocks of business which we have closed for new sales, and which are capital intensive with relatively low returns on capital employed. Strategic Assets are businesses with a greater potential for an attractive return on capital, where we are well positioned for growth. We aim to release capital in Financial Assets over time, and re-allocate capital to Strategic Assets and growth markets.
- In the United States, several product lines are considered to be Financial Assets. These are variable annuities with significant interest rate sensitive living and death benefit riders, stand-alone individual long-term care, and fixed annuities. We have taken the decision to stop new sales for these products. We are reviewing the potential to implement a dynamic hedging strategy for variable annuities with income and death benefit riders. Subsequently, we will consider a broad range of options for this block of business. Furthermore, we will take actions to reduce the interest rate sensitivity of our US business through asset-liability management and other management actions.
- Strategic Assets in the United States are comprised of Workplace Solutions and select life and investment products that are part of Individual Solutions. In Individual Solutions, we will leverage our affiliated distribution channels to increase sales momentum and aim to regain top-5 positions in key individual life-insurance markets. We will also continue to sell select mutual funds and individual retirement products, like accumulation variable annuities with limited interest rate sensitivity. In Workplace Solutions, we will leverage our leading position in the small and mid-sized retirement market, and further modernize our platform proposition aimed at profitable growth.
- In the Netherlands, we will no longer offer new defined benefit group pension products and individual life products, with the exception of direct annuities, while we support employers in their transition towards defined contribution solutions. We consider the existing defined benefit group pensions and individual life insurance portfolios to be Financial Assets. We are taking actions to reduce the volatility of the Dutch Solvency II capital ratio, and have implemented a new capital management policy that allows for quarterly remittance payments to the Group. We aim for profitable growth in defined contribution workplace solutions and mortgage origination, and to maintain our leadership positions in those segments. We will also expand our niche position with our bank, Knab, which will serve as a digital gateway to individual retirement solutions.
- In the United Kingdom, we will continue to invest in our market-leading platform to improve the digital experience for customers, advisers and employers, and return to profitable growth as we aim to increase our margins in both the retail and workplace businesses.
- The retirement platforms in all three core markets provide a great opportunity to offer our asset management solutions to our customers, enabling them to achieve attractive investment returns. Our asset management business will implement a new global operating platform, allowing the business to maximize synergies, and grow in third-party assets. In addition, we aim to increase the share of our proprietary investment solutions amongst the assets that we administer.
- We have developed a rigorous and granular operating plan aimed at materially improving our performance. We will operate within a stricter and more disciplined governance framework with clear accountabilities, and increase the organizational rhythm to realize our transformation ambition. We are implementing an expense savings program aimed at reducing expenses by EUR 400 million in 2023 compared with 2019, representing 13% of the addressable expense base. Of this saving, EUR 150 million will be reinvested in growth. Associated one-time investments are expected to be around EUR 650 million over the period 2021 to 2023, and will be booked as Other charges.
- Throughout our transformation, we will ensure that we maintain sufficient capital in our business units and at the Holding so that we can focus our time and energy on increasing return on capital, and distributing capital to shareholders. As part of a new capital management policy, we will manage the capital positions of our business units to their operating levels over time, and maintain them above their minimum dividend payment levels. For our business in the United States the operating level is set at an RBC ratio of 400%. For our main insurance entities in the Netherlands and in the United Kingdom, the operating levels are set at a Solvency II ratio of 150%. The minimum dividend payment level is an RBC ratio of 350% in the US, and a Solvency II ratio of 135% for our main insurance entities in the Netherlands and in the United Kingdom. The Cash Capital at Holding operating range is set at EUR 0.5 to 1.5 billion, and is available to cover holding expenses, near-term dividends and contingencies. To reduce our risk profile and strengthen our balance sheet, we will target a reduction on our gross financial leverage from EUR 6.6 billion on June 30, 2020, to EUR 5.0 to 5.5 billion by 2023.
- By improving our performance and installing more disciplined capital management, we expect to grow capital generation over the plan period and translate this into increasing free cash flows. We expect total free cash flows to amount to EUR 1.4 to 1.6 billion, cumulatively over the period 2021 to 2023. Dividends are expected to grow in line with free cash flows while allowing us to execute on our planned deleveraging, and providing room to undertake our planned management actions to improve and de-risk the company. As a result, we aim to grow our dividend per share to around EUR 0.25 over 2023, barring unforeseen circumstances. Should there be surplus free cash flow above and beyond that, then we would expect that to be returned to shareholders, most likely via share buybacks, unless we invest it in value-creating opportunities.
Lard Friese: "Today, we have announced several important strategic choices to transform Aegon and have laid out a road map on how we will achieve our goals. We have an experienced management team with a track record of managing large and cash-generating balance sheets and creating value for shareholders. And with our talented and dedicated employees, we are confident that we have what it takes to successfully execute our plans. We are excited about the opportunities ahead of us and are determined to make this transformation a success."