Consistent delivery on strategic and financial objectives in a volatile market
Operating capital generation before holding funding and operating expenses increases by 5% compared with the first quarter of 2022 to EUR 292 million. This reflects business growth, an improvement in claims experience, and lower expenses
The capital ratios of all three main units remain above their respective operating levels; Group Solvency II ratio increases to 210%
As a result of the repurchase of shares related to the ongoing EUR 200 million share buyback program, Cash Capital at Holding decreases to EUR 1.4 billion, which is in the upper half of the operating range
Continued progress on transformation agenda; on track for the closing of the transaction to combine Aegon’s Dutch businesses with a.s.r. in the second half of 2023
Strong sales growth in US Strategic Assets, UK Workplace business, and life insurance businesses in China and Brazil. Sales momentum in Asset Management and UK Retail businesses affected by challenging market conditions
As previously announced, Aegon has adjusted its reporting format to trading updates for the first and third quarters with a focus on selected key performance metrics, including operating capital generation, capital positions, and sales metrics. Aegon will report IFRS results for the first half-year and second half-year to align with a.s.r.’s reporting cycle.
Statement of Lard Friese, CEO
"Aegon has had a good start to the year. We delivered strong commercial growth and advanced our strategic priorities in the first quarter. I am pleased with the headway we are making despite persistent volatility in the financial markets.
We have made good progress with preparations for the closing of the transaction to combine Aegon’s Dutch businesses with a.s.r. Thanks to the commitment and hard work of our colleagues, we remain on course to close the transaction in the second half of this year.
During the first quarter, we continued to reallocate capital to those businesses where we can build leading positions and generate attractive returns. We sold our Protection business in the UK and divested a legacy block of direct marketing business in Asia. At the same time, we strengthened our asset management capabilities through the acquisition of NIBC’s European Collateralized Loan Obligation activities.
We delivered strong sales growth in all of our US Strategic Assets, and in our life insurance businesses in China and Brazil. In the UK Workplace business, we are also gaining traction as a growing number of new customers are entrusting their retirement savings to us. However, commercial momentum in our asset management and UK Retail businesses was affected by reduced investor confidence as a result of the challenging market conditions.
Against a backdrop of persistent volatility in the financial markets, we maintained a strong balance sheet with EUR 1.4 billion Cash Capital at the Holding. The capital positions of all main units remained above their respective operating levels, benefiting from the actions we have taken in the past few years to improve our risk profile. Given our capital strength and our improved operational performance – as underscored by the growth in our operating capital generation – I am confident that we will deliver on our strategic commitments and on our 2023 financial guidance. I look forward to providing an update on our strategic plans and medium-term financial objectives at our Capital Markets Day on June 22, 2023.”
Note: all comparisons in this release are against 1Q 2022, unless otherwise stated.
Aegon is taking significant steps to transform the company in order to improve its performance and create value for all of its stakeholders. Aegon focuses on three core markets (the United States, the Netherlands, and the United Kingdom), three growth markets (Spain & Portugal, Brazil, and China) and one global asset manager.
Aegon’s businesses within its core markets have been separated into Financial Assets and Strategic Assets. The aim is to release capital from Financial Assets and from businesses outside of Aegon’s core perimeter, and to re allocate capital to growth opportunities in Strategic Assets, growth markets and the global asset manager.
In this press release, Aegon provides an update on the strategic developments and business performance in its four key reporting segments:
• Americas; • United Kingdom; • Asset Management; and • International.
On October 27, 2022, Aegon announced that it had reached an agreement with a.s.r. to combine its Dutch pension, life and non-life insurance, banking, and mortgage origination activities with a.s.r. In light of that action, Aegon the Netherlands is no longer reported as a separate segment.
Throughout its transformation, Aegon aims to maintain a solid capital position in its business units and at the Holding. Through proactive risk management actions, Aegon is improving its risk profile and reducing the volatility of its capital ratios. This is underscored by the capital strength reported in this trading update.
2023 Capital Markets Day On June 22, 2023, Aegon will host a Capital Markets Day to provide an update on its strategy and medium-term financial targets. This will include plans to profitably grow its businesses and maximize the value from Financial Assets, with a focus on Aegon’s largest business unit, Transamerica.
Business update Individual Solutions In the US Individual Solutions business, Transamerica’s aim is to achieve top-five market positions in term life, whole life final expense, and indexed universal life. In the first quarter, Transamerica made important progress in achieving these objectives.
New life sales The Individual Solutions business generated new life sales of USD 113 million in the first quarter of 2023. This is an increase of 21% compared with the first quarter of last year, and was supported by all distribution channels. Distribution benefited from a record-high number of WFG agents, revitalized relationships in the brokerage and agent channels, as well as improvements in the underwriting process that led to higher productivity. The increase was driven by higher indexed universal life and term life product sales, while whole life sales remained broadly stable in a competitive market. Transamerica introduced a new indexed universal life product this quarter specifically designed for the brokerage distribution channel, that complements the current product that is successfully marketed through World Financial Group (WFG), with the objective to broaden its distribution reach.
The improved service experience for WFG agents combined with the continued competitiveness of Transamerica’s products led to a market share in the WFG distribution channel of 64% in the first quarter of 2023, compared with 58% a year earlier. WFG further expanded its distribution reach by growing the number of licensed agents to a record level of close to 67,000, an increase of more than ten thousand agents compared with the prior year quarter.
Net deposits Net outflows for Mutual Funds of USD 21 million improved compared with USD 431 million of net outflows in the first quarter of 2022. The increase in equity markets during the quarter led to a significant reduction in redemptions. Net outflows in Variable Annuities amounted to USD 1.0 billion this quarter compared with USD 1.5 billion in the first quarter of 2022, in line with expectations. This is mainly a consequence of lower account values compared with the prior year period as a result of market movements, and outflows related to the lump-sum buyout program for certain variable annuities policies in the first quarter of last year.
Net outflows in the run-off Fixed Annuities book amounted to USD 159 million in the first quarter of 2023 compared with USD 154 million of net outflows in the same quarter last year.
Business update Workplace Solutions In the US Workplace Solutions business, Transamerica aims to compete as a top-five player in new sales in the Middle Market segment of Retirement Plans. As in the Individual Solutions business, Transamerica saw good progress during the first quarter in Workplace Solutions.
Middle-Market written sales Written sales were USD 2.6 billion in the first quarter of 2023, which is an increase of USD 1.3 billion compared with the same quarter of 2022. The main driver of the increase was a pooled plan sale of USD 1.7 billion that included 1,400 individual employer plans.
Net deposits Retirement Plans net deposits amounted to USD 346 million in the first quarter of 2023, while the same quarter last year saw net outflows of USD 34 million.
Net deposits for the Middle Market amounted to USD 932 million compared with USD 288 million of net deposits in the first quarter of 2022, which reflects the benefits from strong sales in prior periods and lower withdrawals in this year’s first quarter.
In the first quarter of 2023, the Large-Market segment of Retirement Plans saw net outflows of USD 934 million compared with net outflows of USD 588 million in the first quarter of 2022. A portion of the Large-Market withdrawals were retained in individual retirement accounts (IRAs), which generated USD 349 million of net deposits from asset consolidation and customer retention efforts by the Advice Center in the first quarter of 2023.
New life sales New life sales in Workplace Solutions increased by 31% compared with the first quarter 2022 to USD 27 million. This USD 7 million increase was equally driven by indexed universal life and term life sales.
New premium production accident & health For accident & health insurance, new premium production was USD 40 million, a decrease of USD 14 million compared with the prior year’s quarter mainly driven by lower supplemental health product sales.
Business update Financial Assets – in-force management Financial Assets are blocks of business that are capital intensive with relatively low returns on capital employed. New sales for these blocks are limited and focused on products with higher returns and a moderate risk profile. Transamerica is actively managing variable annuities with interest rate sensitive riders, fixed annuities, and long-term care as Financial Assets.
Variable Annuities The variable annuity portfolio is a de-risked legacy block that will run off over time. In 2021, Transamerica expanded the dynamic hedge program to cover all guaranteed benefits embedded in variable annuity contracts. In the first quarter of 2023, Transamerica achieved a hedge effectiveness of 97% for this program, continuing its strong track record of hedging these guarantees against financial market risks. The company does remain exposed to the impact of equity markets on variable annuity base contract fees.
Total capital generation from Variable Annuities was a loss of USD 24 million, as the operating capital generation for this line of business together with better than expected equity market returns were more than offset by losses from fund basis risk.
Long-term care Transamerica is actively managing its long-term care business, with premium rate increase programs being the primary management actions. The total value of state approvals for premium rate increases achieved since the start of these programs now stands at USD 513 million, with USD 42 million of additional approvals for rate increases obtained in the first quarter of 2023. Transamerica will continue to work with state regulators to get pending and future actuarially justified rate increases approved.
Claims experience for the long-term care business was slightly better than according to expectations in the first quarter of 2023.
In the United Kingdom, Aegon aims to grow both the Retail and Workplace channels of its platform business. Below is an overview of recent strategic developments and an update on business performance.
Strategic developments On April 4, 2023, Aegon announced the sale of its UK individual protection book to Royal London. The transaction supports Aegon UK’s strategy to focus on the platform activities. As a consequence of the agreement, the individual protection book has been closed for new business. Aegon UK will initially reinsure the portfolio to Royal London, and will ultimately transfer legal ownership to Royal London through a Part VII transfer in 2024, subject to court approval.
Business update Net deposits Net deposits in the Workplace segment of the platform amounted to GBP 733 million, and were higher than the GBP 701 million achieved in the comparable quarter of 2022. This was driven by the onboarding of new schemes and higher net deposits on existing schemes. Aegon UK has launched a new range of sustainability-focused funds to its customers – including those funds offered by Aegon Asset Management – to support growth in the Master Trust Workplace market segment. For Retail, net outflows amounted to GBP 413 million compared with net deposits of GBP 23 million in the comparable period of 2022. This reflects lower gross deposits due to reduced customer activity in the current macro-economic environment, as well as an industry-wide reduction of transfers from defined benefit to defined contribution pensions.
Net outflows in Traditional products amounted to GBP 264 million, as this book gradually runs off. For the Institutional business, net deposits improved significantly to GBP 2.8 billion, driven by the onboarding of a large client. The Institutional business is low-margin and net deposits for this business can be lumpy.
Annualized revenues gained / (lost) on net deposits Annualized revenues lost on net deposits amounted to GBP 3 million for the quarter, predominantly due to the gradual run-off of the traditional product portfolio, partially offset by revenues gained on net deposits in the Workplace channel.
Platform expenses as a percentage of assets under administration Platform expenses as a percentage of assets under administration (AuA) amounted to 23 basis points in the first quarter of 2023, and rose compared with the same period of 2022. This was mostly driven by the impact from unfavorable market movements on assets under administration.
Aegon Asset Management (Aegon AM) aims to increase the operating margin of its Global Platforms by improving efficiency and driving growth through third-party assets and through increasing the share of proprietary investment solutions in the affiliate business. Below is an overview of recent strategic developments and an update on business performance.
Strategic developments On April 26, 2023, Aegon AM reached an agreement to buy NIBC Bank’s North Westerly European Collateralized Loan Obligation (CLO) management activities. The transaction will see Aegon AM acquire NIBC’s UK-based team and CLO platform consisting of three CLOs with assets under management of circa EUR 1.2 billion. The move allows Aegon AM to accelerate its ambitions, with the aim of becoming a leader in the European CLO market next to its successful and growing US CLO franchise. The transaction is expected to be closed in June 2023.
On April 27, 2023, Aegon AM entered into a strategic partnership with Lakemore Partners to drive the growth of its US CLO platform. Lakemore will provide equity for the issuance of multiple CLOs in the coming years and in return will gain preferred access to Aegon AM’s pipeline of new issue CLO transactions.
Business update Net deposits Third-party net outflows on the Global Platforms amounted to EUR 0.4 billion in the first quarter of 2023 as net deposits into the Dutch mortgage fund were more than offset by outflows in fiduciary management and in other asset classes. This was in part driven by customers reducing their positions due to adverse developments in the banking industry in March 2023.
Third-party net outflows in Strategic Partnerships amounted to EUR 1.3 billion in the first quarter of 2023, and largely occurred in the Chinese asset management joint venture Aegon-Industrial Fund Management Company (AIFMC). This was driven by weak investor sentiment in China and low demand for new funds launched during the quarter.
Net deposits from affiliates totaled EUR 0.5 billion in the first quarter of 2023 mostly in US fixed-income products, which is in line with the strategy to increase penetration of Aegon funds in this channel.
Net outflows from the general account were EUR 0.9 billion in the first quarter of 2023, compared with net outflows of EUR 2.7 billion in the prior year period.
Annualized revenues gained / (lost) on net deposits Annualized revenues gained on net deposits for Global Platforms amounted to EUR 1 million for the quarter, as net deposits from affiliates and favorable mix effects on gross deposits and outflows in the general account business more than offset revenues lost as a result of third-party net outflows.
Assets under management Assets under management decreased by EUR 92 billion compared with March 31, 2022, to EUR 296 billion on March 31, 2023. This was mainly driven by unfavorable market movements and a transfer of EUR 49 billion assets under management following the completion of the divestment of LBPAM’s 45% stake in Ostrum AM.
In its growth markets – Spain & Portugal, China, and Brazil – Aegon is investing in profitable growth. Transamerica Life Bermuda (TLB) is classified as a Financial Asset, for which Aegon is maximizing its value through active in-force management, disciplined risk management, and capital management actions. Its closed block of universal life insurance liabilities is reinsured with Transamerica.
Below is an overview of recent strategic developments and an update on business performance.
Strategic developments In the first quarter of 2023, Aegon agreed to sell the Japanese and Hong Kong operations of Aegon Insights, its direct-marketing business that has been in run-off since 2017. The transaction is in line with Aegon’s bias to exit from businesses that are sub-scale, or those that are active in small or niche markets. The sale of the Hong Kong operations was closed in the first quarter, and the sale of the Japanese operations is expected to close before the end of the third quarter of 2023. The transaction will not have a material financial impact on Aegon’s capital position nor its financial results.
Business update New life sales New life sales increased by 34% compared with the first quarter of 2022 to EUR 86 million. • New life sales in Spain & Portugal decreased by 19% to EUR 12 million due to the divestment of Aegon’s stake in the joint venture with Liberbank, and reduced demand for mortgage-linked life sales. • New life sales in China increased by 52% to EUR 46 million driven by the bancassurance channel following the relaxation of the country’s COVID-19 measures. • For Brazil, new life sales increased by EUR 4 million to EUR 23 million. The impacts from business growth and increased business ownership were partly offset by lower credit-linked life sales. • For TLB and others, new life sales remained muted at EUR 5 million, and mostly consisted of sales of indexed universal life products in Singapore.
New premium production for non-life business New premium production for accident & health insurance amounted to EUR 15 million, an increase of 83% compared with the first quarter of 2022, driven by business growth in Spain & Portugal.
New premium production for property & casualty insurance decreased by 26% to EUR 18 million driven by Spain & Portugal. There was less demand for lower margin funeral products, while higher interest rates led to lower demand for mortgages resulting in fewer household policies being sold.
Maintaining a strong balance sheet is a prerequisite for Aegon to achieve its financial and strategic objectives. It allows the company to build leading, advantaged businesses in its core and growth markets that create value for its customers, shareholders, and other stakeholders. Aegon has a clear capital management framework in place that informs its capital deployment decisions. This framework is based on maintaining an adequate capitalization of its business units, Cash Capital at Holding, and gross financial leverage.
Capital ratios US RBC ratio The estimated RBC ratio in the United States increased from 425% on December 31, 2022, to 436% on March 31, 2023, and remains above the operating level of 400%. There was a positive impact from market movements and one-time items, the latter mainly reflecting a tax benefit. Operating capital generation contributed favorably to the US RBC ratio, and more than offset dividends from the operating companies to the intermediate holding company.
UK Solvency II ratio The estimated Solvency II ratio for Scottish Equitable Plc increased from 169% on December 31, 2022, to 171% on March 31, 2023, and remained above the operating level of 150%. The increase in the ratio reflected a positive contribution from operating capital generation and some smaller one-time items, which more than offset a negative impact from market movements.
NL Life Solvency II ratio The estimated Solvency II ratio of NL Life decreased from 210% on December 31, 2022, to 191% on March 31, 2023, and remains above the operating level of 150%. The decrease reflects a negative impact from refinements of the internal model. Market movements also had a negative impact, mainly through lower real estate valuations and spread movements. Operating capital generation more than offset the EUR 75 million remittance to the intermediate holding company in the first quarter.
Group Solvency II ratio Aegon’s Group Solvency II ratio increased from 208% to 210% during the first quarter of 2023, driven by operating capital generation after holding and funding expenses of EUR 227 million, as well as an increase of diversification benefits. Market movements had a total unfavorable impact of EUR 224 million, and notably included the impact of lower real estate valuations in the Netherlands. One-time items amounted to a gain of EUR 61 million. As previously announced, the results of Aegon’s Dutch business are reported as one-time items beginning in 2023.
Operating capital generation Operating capital generation for Aegon amounted to EUR 227 million after holding funding and operating expenses, compared with EUR 211 million in the first quarter of last year. Earnings on in-force amounted to EUR 290 million, an increase of 22% compared with the first quarter of 2022. This was driven by the United States, and reflects improved claims experience, reduced expenses, and growth of Strategic Assets. Release of required capital increased by 9% compared with the comparable quarter of 2022 to EUR 162 million, and reflects the repayment of a short-term loan in the United States in the first quarter of 2023. New business strain amounted to EUR 225 million, representing an increase of EUR 50 million compared with the first quarter last year. This mostly relates to the Americas, and is in line with the company’s aim of driving profitable growth in the US Strategic Assets. Holding funding and operating expenses amounted to EUR 65 million, which is a decrease of EUR 2 million.
Cash Capital at Holding and free cash flow Aegon’s Cash Capital at the Holding decreased from EUR 1,614 million to EUR 1,449 million during the first quarter of 2023. Free cash flow amounted to EUR 47 million, driven by remittances from Asset Management’s Strategic Partnership in China. Capital injections of EUR 44 million mostly related to Aegon’s business in India. Capital return to shareholders of EUR 109 million reflects the repurchase of shares related to the ongoing EUR 200 million share buyback program that was announced on February 9, 2023. Other items totaled EUR 60 million and were driven by the previously announced EUR 43 million share buyback in the context of variable compensation plans.