Aegon Ltd. (AGN) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Aegon's conference call to update you on the transfer of the legal seat of Aegon N.V. to Bermuda and the change in our group supervision to the Bermuda Monetary Authority. With me on the call are Lard Friese, Aegon's CEO; and Matt Rider, Aegon's CFO. Lard will say a few words about the news and the expected next steps. And after that, we will continue with the Q&A session with both Lard and Matt. Before we start, I would like to ask you to review our disclaimer, which you can find at the back of today's press release. And with that, I would now like to hand over to Lard. Lard, please go ahead.

Thank you, Jan Willem, and good morning, everyone. Thank you all for joining us again today. Today, we have announced a transfer of Aegon N.V. legal domicile to Bermuda and the subsequent change in group supervision from the Dutch Central Bank to the Bermuda Monetary Authority, or the BMA. These changes are triggered by the closing of the ASR transaction that we foresee happening in the coming weeks. Following the closing of the transaction with ASR, we will no longer have a regulated insurance business in the Netherlands and other Solvency II rules, the Dutch Central Bank can, therefore, no longer remain Aegon's group supervisor. After consulting the members, the colleagues and supervisors the BMA has informed us that they would become our group supervisors if we were to transfer the legal seat to the holding company to Bermuda. Bermuda hosts many respected international insurance companies, including 4 of Aegon subsidiaries. In addition, the Bermuda solvency framework has been granted equivalent status by the EU and the U.K. and it also has been designated as a qualified jurisdiction by the U.S. National Association of Insurance Commissioners. This enables insurance companies that are regulated by the BMA to easily comes at cross-border business. The BMA has an established, well-recognized regulatory regime that will facilitate the implementation of Aegon's strategy as outlined at our recent Capital Markets Day in London. Despite the change in group supervision, all regulated insurance entities in the U.S., the U.K., Spain, Portugal and in the other jurisdictions will continue to be supervised by their current local regulators. Aegon will continue to report under IFRS accounting standards. And at the same time, we will be exploring the implementation of U.S. Gulf in the medium term, in addition to IFRS. U.S. Gulf will allow for better comparison against U.S. peers and provide long-term strategic flexibility for group. The change in group supervision will not have a material impact on Aegon's capital management approach, which will continue to focus on the capitalization of its operating units, cash capital at the holding and gross financial leverage. Consequently, the financial targets for 2025, we provided at our Capital Markets Day are unchanged, and we reconfirm our intention to initiate a EUR 1.5 billion share buyback program shortly after the closing of the transaction with ASR. Aegon expects its group solvency ratio and surplus under the Bermuda solvency framework to be broadly in line with that under the Solvency II framework during the transition period until the end of 2027. The [ mandatory translate ] -- transamerica's capital position into the group solvency position will also be similar to the current methodology. After the transition period, Aegon will fully adopt Bermudian solvency framework. Furthermore, we anticipate that our debt instruments that are currently grandfathered under the Solvency II regime will remain so until the end of 2025. In addition to debt instruments, we will continue to be subject to existing triggers for mandatory deferral or cancellation of interest payments or conversion into equity based on the group solvency ratio. Aegon's future debt structure and refinancing decisions will remain primarily driven by economic considerations. And as previously announced, our intention is to reduce gross financial leverage by up to EUR 700 million following the closing of the transaction with ASR. Upon the change of our legal domicile becoming effective, Aegon N.V. will be converted into Aegon limited of Bermudian entity. We will adjust our company's governance to reflect the change in legal domicile. The new governance includes the implementation of a one-tier board structure comprised of executive and nonexecutive directors. The move of our legal domicile to Bermuda and the subsequent change in group supervision to the BMA is just one of the steps that we are taking to transform our company. And as we explained to you at our Capital Markets Day, we see significant opportunities to create value throughout our transformation. Our priorities in order to create value are to: number one, complete a transaction with ASR and to execute the associated share buyback program; number two, increase Transamerica's value through a large-scale capital reallocation effort. Number three, to strengthen our U.K. and fully owned asset management businesses and invest in growing our joint ventures; and number four, creating additional value by deploying our financial flexibility at the holding in value-creating ways. To conclude, we are embarking on Aegon's next chapter and are accelerating our strategy, all with the objective to build leaders in investment protection and retirement solutions and create sustainable shareholder value. And while a lot is changing, much also remains the same. Our head office will stay in the Netherlands, and we will remain the Dutch Tex resident. Our shares will remain listed on Amsterdam Euronext and the New York Stock Exchange. We will continue to report under IFRS. All regulated entities in the group will continue to be supervised with their current local regulators, and there's no material change to Aegon's capital management approach. With that, I'd now like to open the call for your questions. Operator, please be so kind as to open the Q&A.

[Operator Instructions] Your first question comes from the line of Nasib Ahmed from UBS.

First question on benefits of moving from a 2-tier board to a 1-tier board. Are there any benefits from that change? Second is under BMA solvency, can you get more diversification between geographies, i.e., the U.S., U.K. and Europe? Or does it make any of the capital more fungible within the business? And then finally, have you explored whether the grandfather notes are going to be eligible under BMA solvency regime?

This is Lard. I'm going to ask Matt to do the second -- the second and the third question. I'll do the first one. The 1-tier board -- the fact that we're moving from a 2-tier to o1-tier board structure is a simple consequence of moving our legal domicile to a jurisdiction that has a -- that has a requirement in corporate law that you have 1-tier board system. So that's why we're moving that way. So that's basically what it is. And in terms of benefits from that, there is -- in the way things work today in the 2-tier and 1-tier board system, while they are in practice, it's a similar kind of setup. Of course, it's legally different, and therefore, part of the total legal structure and corporate law structure requirements in Bermuda. But in practice, 1-tier, 2-tier boards, if they work well, they continue to do the work as they do -- as we do it today and so far. So then on the 2 other questions, Matthew.

So on the -- you asked whether there's going to be more diversification between geographies or more capital fungibility. The short answer is that we anticipate that we will apply a transition period through 2027, whereby our solvency ratios at the group level are going to be calculated under a very similar way that they are today under Solvency II. So we would not anticipate any real change in that respect. And we do -- and again, with respect to the grandfathered securities, we would anticipate that they would be eligible through 2025, which is exactly the same case as it is today under Solvency II. So we would not expect any material change.

Your next question comes from the line of David Barma from Bank of America.

A first question, just to come back on the transition period. Matt, can you just explain what's going to happen from now until 2027? And how did the holding capital framework will change at that point? That's my first question. Secondly, coming back on debt as well. For the next few years, will you aim to push some of the debt that's currently at the holding to your U.S. holding company? Or should we expect the holding to remain the main issue? And then lastly, on the management actions you flagged at the recent CMD -- what's the implication of being based in Bermuda for the EUR 1.2 billion that you talked about a couple of weeks ago?

Yes, David. I'll hand over to Matt for these. I was -- well last week, we talked about it and another -- a couple of weeks ago. But anyway... Matt, over to you.

Yes. With respect to the transition period, again, our expectation is that you will not notice anything. It's just simply going to be the way that we calculate it today. And again, that is our full expectation. We do not change any or don't expect any changes to the capital management framework or the way that we manage the company or really anything of that nature. Your second question was with respect to would we ever push down some of the debt into the operating U.S or today any of the operating companies. The short answer is that we are going to take any of those decisions on an economic basis over time. Taking into account investor preferences and regulators and rating agencies. But again, any change that we would make would be a very gradual one. So I would not expect any major or see changes here in that respect. And then with respect to the management actions that we discussed last week during the Capital Markets Day and the EUR 1.2 billion capital release that we would expect from financial assets in the U.S. Again, we would expect this not to interrupt our plans there. And in fact, all the stuff that we have disclosed at the Capital Markets Day had taken this change into account. So nothing really changes with respect to our targets in the way that we manage the company.

Your next question comes from the line of Marcus Verduin from Jefferies.

So some very specific questions on debt, if I may. So obviously, you've highlighted no change to debt treatment up to 2025. So no implications for how your solvency ratios are off stated at the moment. But just very explicitly and clearly, post 2025, will grandfathered securities under Solvency II lose their regulatory capital status under Bermuda rules? And secondly, with regards to instruments that are fully Solvency II compliant today, and that would be expected to be for the compliance after 2025, if you were to remain Solvency II regulated. Would anything happen to them in terms of their status under Bermuda rules post 2025?

So with respect to the grandfathered securities that we currently have, again, we expect no difference between the situation that we're in today versus the one that we were in yesterday. So all the grandfathered securities would be grant -- we would expect them to be grandfathered under the Bermudan solvency standard through 2025. And then after that, there will be an evaluation made. It is at this point, unclear whether our currently grandfathered securities would be -- would apply under the Bermudan solvency standard. Similar kind of answer for the ones that are currently Solvency II compliant. So again, we would expect that there would be similar treatment under Bermudan solvency standard. But that, again, is something that we have to detail out with the BMA as time goes on.

Your next question comes from the line of Michele Ballatore from KBW.

So 2 questions. So first, you mentioned in the press release that this -- I mean, this move will facilitate the implementation of your strategy. Can you maybe a little bit more specific on that? And the second question is about the -- I read, I mean, Aegon has explored the implementation of U.S. GAAP in the medium term in addition to IFRS. Can you maybe clarify a little bit what this means? What is your situation now in terms of accounting regimes and what it's going to be?

Yes. So when it comes to -- thank you very much, Ballatore, I'll have the --the second one goes to you, Matt, I'll take care of the first one. So yes, to facilitate the stimulation of our strategy. The Bermuda regime is deemed equivalent by the European Union by the U.K. and has a similar status with respect to the United States. And this, of course, and that facilitates, let's say, that you are an international company with the international footprint that we have. And as a result, we think that this is a good destination for us and appropriate for us given the corporate profile that we have both the ASR transactions. Matt.

Yes, on the U.S. GAAP question, indeed, we did signal that we would begin to explore implementing U.S. GAAP in addition to reporting under IFRS, but one thing is quite important here. We do expect that the move to Bermuda for a legal seat is a permanent move. And we would do U.S. GAAP as really a means to be able to compare ourselves better with U.S. companies. But we wanted to get that information out there that it's something that we're going to do, but it is really in addition to IFRS.

[Operator Instructions] Your next question comes from the line of Jakub Lichwa from Goldman Sachs.

So the question is about debt securities. Half of them or less than half really are fully eligible as capital under the solvency post and 2025. So thinking a little bit maybe forward, say, 2026, do you saying under the new regulatory regime, you have not be beneficial for Aegon to rely on capital instruments as part of the debt structure? Or do you think you would be more reliance also on, let's say, senior debt or some other debt instrument, which did not contribute to the group capitalization.

So I can pick this one up. So we have not made any determination yet in that respect. But any -- really any decision that we would make with respect to the debt structure, or the structure of individual securities would be made on a purely economic basis over time.

Thank you. There are currently no further questions. I will now hand the call back to Jan Willem for closing remarks.

So I'm going to take -- I'm Lard Friese, I'm going to take the closing remarks. I will thank everybody for your questions, and thanks again for joining. And if you have any further questions, you know where to find our Investor Relations team. But I would also like to mention here the following. This is Jan Willem Weidema, our fearless and highly professional Head of Investor Relations last call before he goes and takes his sabbatical with his family and on the trip across Europe. And I would be remiss if I would not mark this moment to tell him also in your presence, how much we have valued his contributions throughout the years that we will miss him and that we will wish him all the best. So with that, Jan Willem, thanks for his last day -- his last working day and then in this call this morning, and thanks for everything you've done for the company. And thanks to all of you, and I wish you a very good day. Thank you very much.