Aegon's trading update for third quarter 2023
Continued commercial momentum in US business and increased capital generation
- Operating capital generation before holding funding and operating expenses increases by 16% compared with the third quarter of 2022 to EUR 354 million reflecting business growth and improved underwriting variances
- Capital ratios of the main units remain above their respective operating levels
- Transaction combining Aegon’s Dutch businesses with a.s.r. closed in July; related EUR 1.5 billion share buyback on track with 32% completed in third quarter and 45% per November 10
- Cash Capital at Holding increases to EUR 2.9 billion, driven by the proceeds from the a.s.r. transaction
- Strong sales growth in US Strategic Assets, and life insurance business in Brazil. Sales momentum in asset management and UK Retail businesses continues to be affected by challenging market conditions
- Reducing mortality risk in US Financial Assets via purchasing institutionally owned universal life policies
Lard Friese, Aegon CEO, commented:
“For the third quarter in a row, we saw continued commercial momentum in the US and strong overall operating capital generation which benefited from exceptional items. We expect the full-year 2023 operating capital generation from the units to be around EUR 1.2 billion; up from the previous guidance of more than EUR 1.0 billion. I am proud of what the teams have achieved so far and would like to express my gratitude to my colleagues for all of their hard work.
As outlined at our Capital Markets Day 2023 in June, a key strategic focus is to ensure that our US business, Transamerica, reaches its full potential. In the third quarter, Transamerica’s Strategic Assets have continued to deliver growth. Individual Solutions generated new life sales of USD 118 million, an increase of 10% compared with the prior year period. World Financial Group’s (WFG) sales force grew by 17% compared with a year earlier to almost 70,000 licensed agents. Workplace Solutions more than doubled its written sales of mid-sized retirement plans to USD 1.8 billion compared with the same period last year. We expect that this progress in the middle market will translate into higher gross deposits in the coming quarters. These are important achievements in our ambition to build America’s leading middle market life insurance and retirement company.
Our joint venture in Brazil, Mongeral Aegon Group, also delivered strong growth, with new life sales almost doubling to EUR 49 million compared with the year ago period. This follows our recent investment that increased Aegon’s economic ownership of Mongeral Aegon Group to almost 60%.
Results at Aegon’s UK Retail business continued to be affected by reduced customer activity because of the current macro-economic environment, as well as an industry-wide reduction of transfers from defined benefit to defined contribution pensions. Our UK Workplace segment saw continued high levels of inflows due to the onboarding of new schemes and higher net deposits on existing schemes. However, these were more than offset by the departure of a large, low margin pension scheme.
While results at Aegon Asset Management (Aegon AM) continued to be affected by adverse investor sentiment across the industry, we did see positive net flows at our Chinese asset management partnership. We are adapting to the reality of current market conditions and have taken cost reduction measures in our Global Platform business that we expect will improve Aegon AM’s performance. In addition, as a result of its asset management partnership with a.s.r., Aegon AM has further strengthened its leading positions in Alternative Fixed Income and Retirement Investment Solutions in the Netherlands.
Transamerica continued to reduce its exposure to Financial Assets and to improve the level and predictability of its capital generation. A clear example is the ongoing program of purchasing institutionally owned universal life policies to reduce the mortality risk of the portfolio. At the end of the third quarter, 20% of the face value of this book had been purchased, which is half of the amount targeted by 2027.
Finally, at the end of September, Aegon moved its legal seat to Bermuda and in doing so became a Bermuda entity: Aegon Ltd. Following this, responsibility for Aegon’s group supervision moved to the Bermuda Monetary Authority.
As we move to the fourth quarter, our continued commercial performance and operating capital generation provides Aegon with a solid basis as it continues with the next chapter of its transformation. And, while many things have recently changed in our company, our focus remains the same: delivering value to all of our customers, shareholders and other stakeholders.”
Aegon’s ambition is to build leading businesses that offer customers investment, protection and retirement solutions. Its portfolio of businesses includes fully owned subsidiaries in the US, UK and a global asset manager. In addition, Aegon has partnerships in Spain & Portugal, Brazil, and China, which create value by combining the strength of local partners with Aegon’s international expertise. In the Netherlands, Aegon generates value via a strategic shareholding in a market leading insurance and pensions company. The company is taking significant steps to improve its performance and create sustainable value for all of its stakeholders.
Aegon’s businesses in the US have been divided into Financial Assets and Strategic Assets. The aim is to reduce Aegon’s exposure to Financial Assets and improve the predictability of capital generation from these assets. Capital is to be reallocated to growth opportunities in Strategic Assets, growth markets and the global asset manager. Exposure to businesses outside of Aegon’s core focus has been largely eliminated over recent years with the announced divestment of the associate business in India in July 2023 being the most recent example.
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 conveyed in this press release.
On June 22, 2023, Aegon hosted a Capital Markets Day (CMD) to provide an update on its strategy and medium-term financial targets.
The next chapter in Aegon’s strategy is expected to lead to an increase of operating capital generation from its units to around EUR 1.2 billion, and of free cash flow to around EUR 800 million by 2025. The dividend per share is targeted to increase to EUR 0.40 over 2025, barring unforeseen circumstances and subject to the necessary approvals. Gross financial leverage is expected to reduce to EUR 5.0 billion.
Redomiciliation to Bermuda and change of group supervisor
Following the closure of the transaction with a.s.r., Aegon no longer has a regulated insurance entity in the Netherlands. Under Solvency II rules, Aegon’s former group supervisor, the Dutch central bank, could no longer remain Aegon’s group supervisor. Following discussions in the college of supervisors, the Bermuda Monetary Authority (BMA) informed Aegon that it would become its group supervisor if the company were to move its legal domicile to Bermuda.
On September 30, 2023, Aegon’s Extraordinary General Meeting of Shareholders (EGM) approved the cross-border conversion of Aegon into a Bermuda Limited company. After the completion of the EGM, the change of Aegon’s legal seat to Bermuda has been effectuated and, as a result, the company became a Bermuda entity: Aegon Ltd. As of October 1, 2023, Aegon’s group supervision moved to the BMA.