Aegon Ltd. (AGN) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Aegon Third Quarter 2024 Trading Update Call. [Operator Instructions] Please note that today's conference is being recorded. I would now like to hand the call -- the conference call over to your speaker, Yves Cormier, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. My name is Yves Cormier, Head of Investor Relations, and I would like to welcome you to this conference call on Aegon's third quarter 2024 trading update. Joining me today to take you through our progress are Aegon's CEO, Lard Friese; and CFO, Duncan Russell. Before we start, we would like to ask you to review our disclaimer on forward-looking statements, which you can find at the back of the presentation. And now I would like to give the floor to Lard.

Yes. Thank you, Yves, and good morning, everyone, and thank you for joining the call today. I will start today's presentation by running through our strategic and commercial developments in the third quarter before I hand over to Duncan to address our results in more detail. Let's move to Slide #2 with the key messages for the quarter. We continue to execute our strategy to grow our franchises. And despite experiencing some volatility in our commercial results, we are on track to deliver on our strategy. In the third quarter, we reported operating capital generation of EUR 336 million, driven by our U.S. businesses. Having generated more than EUR 900 million of operating capital generation year-to-date, we now expect EUR 1.2 billion of operating capital generation for the full year. This compares with the EUR 1.1 billion that we previously guided for. We experienced some volatility in our commercial performance during the quarter. The U.K. Workplace Platform and the third-party business in Asset Management saw strong net deposits, growing the assets under administration in both businesses. New life sales in the U.S. were lower compared with the third quarter of last year, and we experienced net outflows in the retirement plans business due to higher customer withdrawals and contract discontinuances. Similarly, and as anticipated, outflows continued in the U.K. Adviser platform. In our international business, Spain and Portugal as well as Brazil saw cyclical headwinds, leading to lower new business volumes. At the same time, though, we continued to execute our strategy in the U.S. to reduce our exposure to financial assets and have completed our program to purchase universal life policies from institutional shareholders. This program has a negative impact on our U.S. RBC ratio, but will benefit our operating capital generation going forward, as we indicated at our Capital Markets Day back in 2023. During the third quarter, Aegon returned more than EUR 650 million of capital to shareholders in the form of dividends and share buybacks. Consequently, cash capital at holding decreased to EUR 1.5 billion over the reporting period. Our capital position is strong, and consistent with our capital management framework, we today announced a planned new share buyback program of EUR 150 million. We expect the new program to begin in January 2025 and to be completed during first half of next year. Part of the program will be used to neutralize the effect of issuance of shares to share-based compensation programs. This new program follows the EUR 200 million share buyback program that we're currently executing, which was 91% completed as of November 8. These actions demonstrate our commitment to returning excess capital in the absence of value-creating opportunities and generating attractive returns for stockholders. We also clarify that we plan to gradually manage our cash capital at holding down to the midpoint of the operating range of EUR 0.5 billion to EUR 1.5 billion by the end of 2026. Let's move to Slide #3 to discuss the recent commercial performance, starting in the Americas. We remain on track to deliver the transformation of Transamerica that we outlined at the Capital Markets Day in 2023. That said, we experienced commercial volatility during the quarter. The number of licensed agents active for our wholly owned distribution channel, World Financial Group, continued to increase by 19% compared to the same quarter of last year to over 82,000 agents. We remain on track to meet our ambition of increasing the number of agents to 110,000 by 2027, while at the same time, improving agent productivity. World Financial Group has also implemented a new activation program to provide training and support for newer agents to accelerate their productivity more quickly. With a number of multi-ticket agents, we measure those agents who sold more than 1 life policy over the last 12 months, this number increased by 4% compared with a year ago as agents followed market demand and focused on selling third-party annuity products. This resulted in a decrease of new life sales within our Protection Solutions business. Here, new life sales amounted to $112 million in the third quarter of 2024, a decrease of 6% compared with the same period of 2023. This was driven by lower indexed universal life sales. In the Savings & Investments segment, we recorded net outflows in our retirement plans business during the reporting period, of which the majority was related to the discontinuance of 2 large-market, low-margin record-keeping plans. In mid-sized plans, we recorded net outflows of $373 million during the period. However, our written sales remained strong this quarter, and I'm confident that we are on the right path to profitably grow this business further. In this segment, we also strive to increase profitably and diversify revenue streams by growing in ancillary products. The progress continues to be strong. Assets under administration, or AUA, in the individual retirement accounts increased by 29% over the past 12 months to over $12 billion, while assets under management of the general accounts stable value product increased by 8% to also nearly $12 billion. Using Slide #4, now I want to address our U.K. business. Here, trends remain consistent with the update we provided at the strategy teach-in earlier this year. We remain on path to reach our ambitions in this market. Commercial momentum in the Workplace Platform remains strong, with net deposits of GBP 865 million in the quarter. This was driven by growing levels of inflows due to the onboarding of new schemes and higher regular contribution from existing schemes. This is testimony to our strong position in this market. The Adviser platform net outflows amounted to GBP 916 million. We continue to see the adverse impact of ongoing consolidation and vertical integration in nontarget adviser segments as well as continued elevated withdrawals. Platform assets under administration amounted to GBP 112 billion by the end of September, increasing compared with the same period of 2023 due to the favorable markets and the net deposits in the Workplace platform. Let us turn to Slide #5 to address the progress of International businesses. New life sales in the International segment decreased by 17% compared with the third quarter of 2023 to EUR 65 million. New business volumes experienced some cyclical headwinds. New life sales in Brazil were lower, with a higher interest rate environment impacted demand for life insurance linked to lending solutions. Sales in Spain slowed down for health and protection products, while sales linked to consumer loans increased. In China, we saw a temporary higher sales ahead of the regulatory pricing change at the end of the third quarter. The decrease of operating capital generation for the International segment compared with last year was driven by the absence of favorable nonrecurring items recorded in the prior year period. So let's move to the performance of our global asset management business. In the third quarter of 2023, the Global Platforms business once again recorded strong third-party net deposits amounting to EUR 2.8 billion. This was mostly driven by strong fund performance of the alternative fixed income strategies, which also benefit from the asset management partnership with ASR. Furthermore, our U.K. retirement business recorded solid net deposits in fixed income products and also benefited from net deposits in equities and multi-asset solutions. In the Strategic Partnerships segment, net deposits amounted to EUR 1.2 billion, driven by our Chinese joint venture, AIFMC, following the successful collaboration with the consumer finance platform for money market funds. Third-party net deposits and favorable markets led to a EUR 29 billion increase of assets under management compared with the end of September 2023. At the end of the reporting period, the business managed EUR 324 billion of assets. I will now hand over to Duncan to discuss the financial performance in more detail.

Thank you, Lard. Good morning, everyone. Let's turn to Slide 8 for an overview of our financial performance. This is a good financial quarter for Aegon, and we remain on track to deliver our targets. Operating capital generation before holding, funding and operating expenses was EUR 336 million, a decrease of 5% year-on-year. Free cash flow amounted to EUR 80 million in the period and mainly reflected the interim 2024 dividend payment from ASR. Cash capital at the holding stood at EUR 1.5 billion at the end of September. The decrease compared with the balance at the end of last quarter was driven by the capital returns to our shareholders in the form of dividends and progress on the ongoing EUR 200 million share buyback program. The buyback as of November 8 was 91% complete with repurchases at an average share price of EUR 5.67 so far. Finally, gross financial leverage amounted to EUR 5 billion, consistent with our target level. Slide 9. The capital positions of our business units remain healthy and above their operating levels of 400% U.S. RBC ratio and 150% for the U.K. Solvency II ratio. The U.S. RBC ratio decreased by 11 percentage points compared with the end of June to 435%. This is mostly driven by the termination of a block of universal life policies previously bought from institutional owners as part of our strategy to reduce our exposure to financial assets. We have completed this program this quarter and have now terminated about 2/3 of the face value purchase so far, of which 1/3 was in the third quarter. This had a 16 percentage points negative impact on the ratio. The entity that purchased these policies has repaid part of its capital funding in the beginning of the fourth quarter of 2024. And this is expected to have a positive impact of 8 percentage points on the RBC ratio at year-end 2024. The remaining universal life policies purchased from institutional owners will be terminated over time. And this is expected to have a net capital impact similar to the one observed in 3Q '24, net of the related equity funding repaid in 4Q '24. At the same time, funding will remain available for potential additional purchases if those are economically favorable for Aegon. The RBC ratio also had a positive contribution from operating capital generation of 12 percentage points, as well as favorable market movements of 3 percentage points. There was an 11 percentage point negative impact from restructuring provisions and a contribution to the employee pension plan. In the U.K., the Solvency ratio of Scottish Equitable decreased by 2 percentage points to 186%. The positive impact from operating capital generation was offset by unfavorable market movements and a model refinement. Let's now turn to Slide 10 and run through a bit more detail on the operating capital generation. As previously mentioned, we enjoyed a healthy level of operating capital generation in the third quarter of 2024. Earnings on in-force materially increased, thanks to strong growth and favorable markets in U.S. Strategic Assets. Asset management earnings on in-force also progressed well. Our new business strain was lower in aggregate year-on-year driven by the International segment, which recorded lower sales. We saw a materially lower release of required capital in the third quarter of '24 compared to the third quarter of '23, and that was driven by greater allocation to more capital-intensive investments in the U.S. general account as we aim to improve our investment spreads. In addition, the third quarter of '23 release of required capital in the U.K. was elevated, mainly due to a reclassification from earnings on in-force. Looking forward, we believe that this was a fairly clean quarter from an OCG perspective. However, I would like to highlight 2 things. First, we experienced in the third quarter lower than guided for new business strain in the U.S. of approximately EUR 15 million due to the less-buoyant sales levels. As and when sales recover, strain would obviously increase. In addition, there were some minor other positive variances to OCG, which netted to around EUR 5 million. Secondly, the U.K. OCG also benefited from approximately EUR 15 million from some favorable items, which included a lower new business strain and favorable underwriting experience variances. Overall, in the first 9 months of 2024, our operating capital generation was EUR 924 million. This strong performance, combined with confidence in our outlook for the fourth quarter, allows us to raise our full year expectation to around EUR 1.2 billion compared with the prior guidance of around EUR 1.1 billion. Let's now move to Slide 11. Transamerica's earnings on in-force amounted to $360 million in the third quarter of 2024, an increase of $21 million or 6% compared to the same period of last year. Claims experience was broadly in line with expectations in the period and better than last year. In the Saving & Investments business, earnings on in-force rose in the retirement plans business, mainly due to continued growth in IRA, AUA, favorable markets increasing fee revenues and stable value investment results. Protection Solutions earnings on in-force also grew in line with the portfolio. Earnings on in-force from the Distribution segment were negatively impacted by a reallocation of a tax item to this business as of 2024. Excluding this impact, earnings on in-force continue to grow. Finally, earnings on in-force from financial assets decreased compared to the same period of last year when a favorable item was reported. The release of required capital decreased by $24 million compared to the third quarter of 2023, as a result of the higher capital requirements for investments made in the reporting period. Through these actions, we have been able to steadily increase our book yield. Our new business strain, which constitutes a drag on operating capital generation, amounted to $178 million in the period, an increase of $26 million compared to the same period of last year. This was driven by continued growth in the retirement plans businesses. In conclusion, we remain on track to achieve our guidance of operating capital generation of around $800 million from the Americas for the full year 2024. I will now turn to Slide 12 for an update on the financial assets. We continue to execute our strategy in the U.S. to reduce our exposure to our financial assets. Our goal is to reduce capital employed in our financial assets to around $2.2 billion by the end of 2027. As of the end of September 2024, the capital employed has decreased to $3.5 billion. This was driven by favorable market impacts on variable annuities, the runoff of our portfolios, and various management actions we have taken since 2022. Operating capital generation from financial assets increased compared to the third quarter of 2023 to $88 million. Within this segment, both mortality and morbidity claims experience were mildly favorable this quarter, whilst they were broadly neutral last year. In variable annuities, hedge effectiveness remains strong at 99%, consistent with recent quarters. Annualized net outflows in the reporting period amounted to 9% of the account balance as the book gradually runs off. In fixed annuities, annualized net outflows were also in line with expectations and amounted to 19% of the average account balance driven by surrenders and withdrawals. In long-term care, regulatory approvals obtained for additional actuarially justified premium rate increases since the start of 2023 now amount to $457 million. This represents 65% of our target. Claims experience continues to track well with assumptions, with an actual to expected claims ratio mildly unfavorable at 104% in the third quarter of this year. Finally, in universal life, we have successfully achieved our target to purchase at least 40% of the USD 7 billion face value of institutionally owned universal life policies that were enforced at the end of 2021. With this program, we were looking to lock in -- we were locking in claims costs and reduce the mortality risk of the overall portfolio. We purchased 41% of the USD 2.9 billion of face value, and we focused on older-age policies with large face amounts, achieving the targeted investment hurdles. This program has a negative impact on the RBC ratio but is expected to avoid a drag on future operating capital generation from these policies, as we indicated at last year's Capital Markets Day. I now turn to the page on Slide 13 on cash capital at the holding. Cash capital amounted to EUR 1.5 billion at the end of September. The decrease over the quarter was driven by the return of EUR 656 million of capital to shareholders in the form of dividends and share buybacks. Free cash flow added EUR 80 million to the cash capital position and was mainly driven by the interim dividend from our stake in ASR. As part of our capital management framework, we have defined an operating range for cash capital at holding of EUR 0.5 billion to EUR 1.5 billion. By the end of 2026, we plan to have managed our cash capital holding down to the midpoint of the operating range to around EUR 1 billion. Today, we also announced a planned new share buyback program of EUR 150 million, which includes a part for share-based compensation plans. We expect the new program to begin in January 2025 and to be completed in the first half of next year. Slide 14. As is evidenced by the progress we have made, we remain well on track to achieve our financial targets of 2025. Gross financial leverage remains at our target level of around EUR 5 billion. We have increased our operating capital generation guidance for 2024 to around EUR 1.2 billion on the back of the strong performance to date, partially on the back of favorable nonrecurring items throughout the year. We remain confident we will achieve our target operating capital generation of around EUR 1.2 billion in 2025. We are also on track to achieve our free cash flow guidance for 2024 of more than EUR 700 million. And our free cash flow target for 2025 is around EUR 800 million, building on our sustainable operating capital generation growth. Finally, we remain confident that we can continue to grow the dividend to our stated target of EUR 0.40 per share over the full year 2025. That concludes my remarks on Aegon's performance. And with that, I hand it back to you, Lard.

Thank you, Duncan. I will recap today's presentation with Slide #16. This quarter, we continued to make progress in transforming Aegon. We remain focused on diligently executing our strategy to profitably grow our franchises and reduce exposure to financial assets. We have increased our guidance for operating capital generation for 2024, and we announced a planned new share buyback program consistent with our capital management framework. The transformation of Aegon requires hard work, and we are actively managing the volatility in our commercial results experienced this quarter. With our clear strategy and a strong management team in place, I'm confident that we are on the right path to meet our commitments and targets for 2025. We are planning to provide an update on our strategy and targets at the Capital Markets Day on December 10, 2025. With that, I would like to open the call for your questions. [Operator Instructions] And please, Sharon, the operator, please open the Q&A session.

[Operator Instructions] And your first question comes from the line of Farooq Hanif from JPMorgan.

My first question is on U.S. macro. So given the move in yields, the change in climate, how does that change your view on organic versus inorganic measures to reduce capital employed in U.S. financial assets? That's question one. I'll let you answer that first.

Yes. So Duncan, why don't you take that one?

Farooq, I think your question is does the change in the macroeconomic environment change how we think about our plans to reduce the capital employed in financial assets where we have a target to reduce it by the end of 2027. I think what we -- at the Capital Markets Day, we outlined our mental model there, which was unilateral, bilateral and third-party actions. So unilateral means that, that is something we can do ourselves. Bilateral means that we need to engage with a counterparty in order to take that action. And third-party means we engage with an investor or someone else to undertake a transaction. Our plans mostly focus on the unilateral and bilateral actions. In our target, we had very limited third party -- we had a very limited assumption around third-party actions. So actually, the plans we announced at the Capital Markets Day are driven by actions we can take ourselves or bilateral actions. The macro environment may have an impact on those. So for example, we have benefited from favorable financial markets in our required capital over the last year. And that may mean that some of the actions we anticipated taking at the Capital Markets Day have a more or less impact going forward. But in general, because of the focus on unilateral and bilateral actions, the plans are mostly in our control.

Okay. And my second question was, I know that OCG and IFRS have different kind of ways of dealing with mortality experience. So you have a mildly positive mortality/morbidity experience variance in OCG, how should we think about translating that into an IFRS world, particularly given the big reserve charge that you took? From what you've seen in 3Q, is that anything you can say quantitatively about what to expect about the impact of that reserve charge and the experience that you're seeing?

Duncan?

Yes, I'll take that one. In 3Q, we've seen very limited IFRS variances.

Your next question comes from the line of as Nasib Ahmed from UBS.

Firstly, on the criteria for capital returns versus value-creating opportunities. Are you able to kind of flesh out the framework a little bit more in terms of how we should think about that? I'm thinking more like on life business organically, you generate 12% of IRRs, are we kind of looking at that hurdle rate? If your yield is higher than that, there's going to be incremental buybacks or a free cash flow multiple of 11, 12x that you're trading at? Can you kind of give some numbers around that?

Nasib, this is Lard. So when it comes to organic or inorganic activity, first of all, it's very much linked to the strategy that we outlined. We've been very clear in what markets and what product lines we aim to grow the business profitably. To the extent that we can accelerate that profitable growth profile in our businesses by investing in those businesses at good returns, we will do that. We're happy to do that. If we can find an opportunity inorganically to accelerate that strategic progress, we will, of course, look at that as well. We will be disciplined, obviously, and we have a number of financial and nonfinancial criteria that we would be looking at. To give you an inkling of that. First of all, when it comes to inorganic activity, we would look at does it really accelerate our existing strategy. Number two, are we ready for integration, do we have a good plan on how to extract the value of such a potential acquisition. And obviously, we'll always compare it with the alternatives that we have of deploying that capital, including the alternative to bring it back to stockholders.

Perfect. That's clear. Second question on -- kind of related to the government changes in the U.S. Let's talk about deregulation. I remember, I think, there were some talk around the Q1 results on regulation around distribution of insurance products and advisers. Any comment on where WFG stands around that regulation and forward-looking as well with the new government in?

Yes, Nasib, what you're referring to is what is called the fiduciary rule, that's the colloquial language used for this, which is a piece of regulation issued by the Department of Labor in the U.S. The industry and others have litigated that proposed rule in the Fifth Circuit in Texas. The judge has issued a stay on that, which means that in absence of a final ruling of it, the Department of Labor cannot implement that rule. There's a new administration being inaugurated in the beginning of January. It is too early to tell how the new administration would look at regulation and policies that they would need to bring about. It's too early to tell. What I think is -- but if I take a step back, if you look at the -- at our general approach, we believe in best interest regulation as the most appropriate measure to ensure that the way we conduct sales conversations through our distribution networks are being done in the interest of customers, are being done well. We have a high bar for that and we feel very well positioned even if that fiduciary rule would come into effect. However, I do need to also mention to you that, that fiduciary rule was also launched in 2016 for the first time, that was thrown out by the legal system, so by the judges at that time. And we're seeing a little bit of a repeat happening now where the Fifth Circuit is currently issuing a stay on this, meaning that the regulation cannot be implemented prior to the judge's ruling on it. So we're awaiting that. But if -- but either way, we're going to be very well positioned for that.

And sorry, just a quick one. Do we have a time line for when we can draw a line under it from the judges or no?

No, I do not know. We -- there are expectations, but I need to be very careful here, there are expectations that this will be more clear in the coming months. But what we expect is that the new administration would be very unlikely that would support the similar kind of a rule that the DOL has issued and for which there is now a stay ongoing.

Your next question comes from the line of Michael Huttner from Berenberg.

I had 3 questions, but I'll try and wrap them in 2, so I'll cheat a bit. On the buyback, sorry, the reduction to EUR 1 billion by end 2026. I see from your lovely consensus sheet that the figure at the end of 2024 is EUR 1.6 billion, and consensus was roughly right about -- it landed in Q3, so that's about right. So could you walk me through what -- from EUR 1.6 billion to EUR 1 billion, does that imply just EUR 600 million buybacks? Is my -- is the math that simple? Or is there other moving parts? And then on the -- allied to that, if I may. The EUR 150 million, I was really curious, I admire what you're doing. Just curious how much of that is for the IC. And then the -- I think I wanted to ask a little bit more on forecast, which was the flexibility to accelerate the reduction in capital allocated to fixed financial assets. And I just wondered if you could just remind us the big numbers, how much capital and how much assets is in financial, is in universal life and in variable annuities and in long-term care? The feeling I have is the one the market would welcome most would be variable annuities, but I don't know.

Thank you very much, Michael. Duncan, I think this is mostly your cup of tea.

Yes. Thank you, Michael. So the one on the employee share plans is simple, we've estimated around EUR 40 million, but it obviously will be something which finalizes over the year-end. On the capital -- on the reduction to the midpoint. So the new news today is the time frame, which is to the end of 2026. We previously already indicated that we intended to bring the cash capital down to the midpoint, and we've just added today a time horizon. And that's going to -- how we do that we'll be consistent with our capital management framework. So there's 3 options. The first is we could look to deleverage further. However, given that we've said that our leverage position, we're comfortable within our current makeup, that seems unlikely it could be bits and bolts around the margins, but I wouldn't anticipate a huge shift in our leverage position. The second is that hopefully, we're able to find ways to deploy that capital to strengthen our businesses, either organically or inorganically. And we're obviously continuously looking for opportunities there. And the third is if we can't find those, then we have a very clear expression, which is we will return that to our shareholders in the form which is best for them, either special dividends or share buybacks. So it'll just go through that capital management philosophy. But the important point is that we intend to bring it down by the end of 2026 through one of those factors. On the deployment of capital. So the -- as of the end of third quarter '24, the largest consumer of -- within the financial assets is the long-term care block, and that's consuming roughly USD 1.2 billion of required capital. Universal life was around $0.9 billion, fixed annuities around $0.9 billion. And interestingly, the variable annuities is now only consuming $0.5 billion. So relative to the Capital Markets Day, the main shift has actually been in a reduction in the variable annuities required capital. Because at the time of the Capital Markets Day, the balance was more evenly split across the 4 products. And why has that happened? Well, we've benefited from some financial markets over that period. So today, actually, the VA is the smallest part of the required capital of the financial assets.

Very helpful. And I just hope for you, but we've aligned interest that the EUR 40 million gets multiplied over the next few years.

Your next question comes from the line of Benoit Petrarque from Kepler Cheuvreux.

So the first one is on OCG, maybe kind of try to give a preliminary view on '25 looking at, well, especially U.S. macro interest rates and current equity market. So your run rate is about EUR 1.2 billion on a clean basis today, what do you expect? I know you have not changed your guidance of EUR 1.2 billion, but an update will be appreciated. And also on the free cash flow for '25 of EUR 800 million, does your strong OCG in 2024 change something to that level? And then on the buyback, so EUR 110 million ex share-based compensation, is that a final figure for H1? Or could you update us at a later stage in H1 on the buyback based on maybe a more accurate cash figure at year-end?

Okay. [indiscernible].

So on the OCG first, yes, as you pointed out, the run rate is around EUR 1.2 billion. And that is a -- that obviously reflects equity markets as they are today or as of June 30. And as we look forward, equity markets continue to be helpful. And just to remind you, every 10 percentage points movement in the equity markets is around EUR 65 million to OCG. But against that, we do anticipate high new business strain as the business continues to grow in line with what we guided at the Capital Markets Day. And then we continue to have the runoff pressure from financial assets. So at this point in time, we're not changing our guidance for next year, which is around EUR 1.2 billion OCG. On the share buyback, no, that's simple we've announced the EUR 150 million today, which includes the EUR 40 million. I think that's what we've announced today. I don't want to speculate on how that could or could not move over the coming weeks.

Your next question comes from the line of Farquhar Murray from Autonomous.

Just 2 questions, if I may. Firstly, just with regards to WFG, I just wondered if you could explain the fall in the proportion of multi-ticket agents there, is that due to a particularly large inflow of unseasoned agents that you would be hoping to convert later? And perhaps what's the nature of that activation program you're working through? And then coming back a little bit to Benoit's question there, could I just ask how you framed the EUR 150 million buyback announced today? I'm just wondering if that could maybe give us a bit of a sense of how to think about things going forward. Because obviously, at the moment, it probably wouldn't be sufficient to reach the EUR 1 billion target by end '26?

Yes. So Farquhar, on WFG, first -- I'm going to answer your question, but it's -- first I want to make sure that one thing is also clear to everyone. WFG is a very large network of agents that is not only selling our products, but it's also selling third-party products. And please note that if they are selling third-party products, we still benefit. And why do we benefit? Because we own the distribution company. We own the revenues that is generated by that distribution company. So also if WG agents are selling other products than ours, which -- the mix of which was happening actually this quarter where they sold less of our product and more of other people's products because the market demand was for a different product than we offer, we still benefit from that financially in the revenues of the distribution company. That's a point I wanted to make and make sure that it did not get a lost on this. Also, the overall volume of WFG in sales has actually been 23% over the comparable period last year, which means that the overall volume and sales, excluding not only our products but also the products from others, has actually increased quite a lot. And I think that's important to note. So when you come then to your point, which is about the multi-ticket agents, et cetera, we've grown the agency sales force if you compare it to last year with 19%. With licensed agents up with 90% over prior year, there are more newer agents who still need to ramp up their productivity. So what we're doing is those are indeed -- as you mentioned yourself, Farquhar, recently licensed agents, they're being trained, et cetera, and activated more. So we have a very granular activation program where we're providing training and other forms of support for those newer agents to improve their productivity more quickly. I mean this includes things, Farquhar, like making sure that they understand how to use the systems, for instance, for the applications and those things, and also making them understand how they can lead generation, et cetera. This is newer to these agents. And as a result, we help them and support them with getting that done. And as we are growing the agency channel quite a bit, there's indeed quite a number of new agents that need a bit more time to ramp up their productivity. But again, we have programs to help them and support them to activate them. So that's actually what I would like to mention there on that particular point.

Okay.

And then, Duncan?

I'm not sure if this is the answer you're look for, Farquhar, but it's not just seek some clarification. The -- in terms of framing the EUR 150 million, no there's no framing around the EUR 150 million. That is simply a -- we looked at our cash capital position. We're nearing the completion of the existing buyback, which is 91% complete, and we wanted to update the market on our plans around our surplus cash, and the EUR 150 million is what we've announced today. You're right, though, that's not going to be sufficient to take us down to the midpoint of the range, and that's where there is some framing, because today, we announced that the cash capital, we brought down to the EUR 1 billion by the end of 2026. As I mentioned in the prior question, we're unlikely to need to reduce leverage. So that's either going to be done through investments in our businesses or that money will be returned to the shareholder. I think the other implication of that framing is that, of course, it puts a hurdle on us to make sure that any investments we do put into the business need to be more favorable than returning the money to our shareholders. Does that address what you're looking for?

Okay. That's actually quite helpful. I mean maybe just philosophically, should I then look at the EUR 150 million as perhaps a kind of prudent base level that you might then supplement periodically going forward?

Oh, I see what you mean. Well, we're not moving towards any sort of regular predictable buybacks. So no, we're not doing that. We have a capital management philosophy, which looks at where our cash capital is. At the end of this quarter, it's at right at the top. And if we don't announce anything, it's going to go above. So we wanted to keep it within the range, and that's why we've announced this today. But we're not moving to a regular predictable share buyback.

Your next question comes from the line of Iain Pearce from Exane BNP Paribas.

The first one was just around the new business in the U.S. and the WFG agent selling less of your own product. Just if you could give a bit more detail around sort of where you're seeing more product demand for the pockets that Transamerica isn't selling, and why you're thinking you're seeing that in this quarter versus the other quarters and if that's sort of a reflection of the macro environment? So just thinking about new business developments going forward, that would be interesting, please. And then the second one was just on the cash, again, sorry. I think it's -- I guess what would be useful is just a clarification around the word gradually in how you expect to run the cash down to the EUR 1 billion. So should we be thinking it's a relatively straight line from EUR 1.6 billion at year-end to EUR 1.3 billion next year-end to EUR 1 billion the year-end after. Or do you view that as sort of being higher at year-end '25 and then seeing where you are in '26?

Very good. I'm going to take the first one, Iain, and then I'll hand over to Duncan. So again, on WFG, and I really would like the opportunity to take a bit of a step back so -- and to explain the model. Because we're actually quite happy with the model that we have strategically with this large agency sales force because it allows us the following. We want to -- this is a massive sales force, the second largest basically in the U.S., and we are building it out to 110,000 agents. These agents, it's an open architecture platform in the sense that they are selling our product, but also products from other companies and competitors. And the good news here is that where we choose to manufacture a certain product, we actually generate revenues through, number one, the distribution revenues created by WFG and, of course, the profitability margins in the products that we wish to manufacture. But there are also other products that we choose not to manufacture and that are offered by other insurance companies, which allow our agents to be very competitive and to be very, let's say, comprehensive in the product offering that they have for the customers that they serve. And we still benefit from that. Because if they sell, for instance, like this quarter, fixed indexed annuities, which we do not manufacture, and they sell it from other providers in the U.S. marketplace, then through the commissions that are being paid to WFG, which is our company that we own, we benefit from the revenues of that in spite of the fact that we do not manufacture that. So this actually allows us to comprehensively benefit from the underpenetration of middle-market family household income groups and with the second largest agency sales force in North America. So again, this quarter, we saw that the agents were moving to other kinds of products than the products that we offered, just following market demand. But as a result, we still benefited from it through the revenues that we're getting in our distribution company. So I hope that makes sense. Again, on the cash capital, Duncan?

No, I think the -- is there any sort of time frame or -- kind of it's almost linked to Farquhar's point. So no, we intend to bring it down to EUR 1 billion by the end of 2026. As mentioned, if we can find opportunities to invest in our businesses, that would be great. That will need to compare favorably with the alternative of returning it to shareholders. But the big message is that by the end of 2026, we're going to be targeting the EUR 1 billion.

Perfect. If I could just come back on the new business question. It was mainly fixed index annuity that you were seeing that increased demand for, and that's what led to the lower proportion in WFG?

Yes, it's mainly annuity business indeed. But more than fixed indexed annuities, we -- in the annuity business, Iain, we do offer some -- in some segments, annuity products ourselves. But let's say there are broader types of annuity products, including fixed index annuities that we do not manufacture. And there was a higher demand for that and that was -- that led the agents to follow that demand. And as a result, they sold more of that than the products that we are offering. At the same time, again, we do benefit also from third-party sales through the revenues in WFG's distribution company.

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

Firstly, coming back on the holding cash, sorry, Duncan to ask again, but maybe I can ask this slightly differently and more -- how did you decide on the sort of 2-year period rather than acting on this now? You've been talking about it for more than 1.5 years. So why this 2-year additional period? So can I infer from that, that the balance between capital return and M&A is tilted a bit more to the latter for this part of the remaining excess cash? That's my first question. And then secondly, on -- coming back on your answer regarding '25 OCG. I would have thought that higher equities, the universal life buyout program, underlying business growth, maybe even higher reinvestment rates would take you quite a bit above your guidance. You seem to suggest new business strain is the main variable here that we're missing. Are you able to give us some guidance on the level of new business strain you expect next year? And then lastly, on the retirement plans in the U.S. where you've had structural outflows in the part, excluding mid-market for some time. And as you've pointed out, the mid-market has been volatile too. Can you give us some color or some context on how competitive you think Transamerica is in that space right now? And what still needs to happen to fix the flows?

Okay. So Duncan, first on the cash capital.

Okay. No, it's a good question and I understand the desire for more guidance. Actually, when I looked at it, the reason we announced the time horizon today was that we felt that at the -- that we haven't been that clear on the horizon and we were kind of linking it to the delivery of the Capital Markets Day plan, which is actually at the end of 2027. So I saw this as a bringing it a year forward rather than delaying it a year, as you framed it. So I think it's a -- for me, it's bringing it a year forward, actually. In terms of the split between M&A and return to shareholders, from my perspective, we are in a very strong position financially. We have a lot of excess cash capital. Our business units are well capitalized locally. And of course, we still have the ASR shareholding. And if we can find ways to deploy that cash capital in the holding organically or inorganically in things which are in the interest of our shareholders and strengthen our businesses, that would be great. However, by framing it as we have framed it today, what we're making clear is that the returns we achieve there on a risk-adjusted basis need to be more favorable than giving the money back to shareholders. And that's the philosophy we're taking here. So I think it's bringing it a year forward rather than delaying it a year as you framed it. But I think the key point is that we are going to bring it down to the midpoint, either by finding opportunities or giving that to our shareholders. On the OCG, I also get where you're coming from. I think we are in a good place, and we have benefited from financial markets. But if you just simply take the number we reported this quarter and multiply it by 4, you're getting to around EUR 1.2 billion, give or take. Equity markets continue to benefit us, which is good. We are getting a higher book yield every quarter as we reinvest, which is also helpful. Against that, obviously, we updated our mortality assumptions last quarter, which instantly is reflected in the IFRS balance sheet, but isn't in the statutory balance sheet. So that's an incremental drag. And we're hoping for higher new business strain, which obviously is great for the franchise, but is a depressant on OCG. So at this point in time, we're comfortable keeping with the around EUR 1.2 billion target.

Yes, David. And then on the retirement business. So let me start, because there's 2 elements here. One is the overall picture and then the picture for the mid-market. So let's first talk about the overall picture. The net outflows are -- this can be quite lumpy, by the way. And this quarter, we saw net outflows that are driven by the discontinuance of 2 large, low-margin, record-keeping contracts. Now those 2 clients did not utilize any ancillary products that we sell to participants in those plans or any additional solutions. So the financial implication of those 2 large plans leaving us is really minimal, right? Because don't forget, our strategy is to sell retirement plans where we have the record-keeping component of it, but then we also sell stable value solutions and other ancillary products to strengthen the margins and the profitability of such a client relationship. And in the net outflows that we saw of these 2 large plans, they were minimal in margin and they did not use any ancillary products from us other than the record-keeping component of it. Now obviously, this doesn't mean that we like losing large plans. So there have been a number of steps taken over the last years to improve retention, especially focused on those plans that do use these ancillary products, stable value, et cetera, including setting reorganization of the business, putting new management in place and adding new leaders for in-force management operations to ensure that we have a much more and more specific focus on client retention and, most importantly, in-force profitability. Then if we move to the mid-market, written sales were strong and were consistent with previous quarters. So that's important because strong written sales mean that when these plans are coming in, which is usually later than the moment you sign the clients up, that when those plans come in, those plan assets will move into net -- into our gross deposits. And that is, of course, a good thing. So the good news is written sales were on and consistent with previous quarters. The net outflows was actually driven by higher withdrawals because what clients -- what participants sometimes do is that when equity markets go up, they take out money for themselves. So they take a bit of profit, if you will, and take money out of their plans. And we saw a heightened elevated behavior of participants this quarter. We feel very confident that we have the ability to grow the business. Total deposits are up 29% year-to-date which I think is very important compared to prior year. And we also believe that we have a strong pipeline to continue our written sales' positive progress that we're making. So that's -- we believe that we have also specific capabilities in multiemployer plan pools, pool plans, et cetera, that gives us a very good competitive advantage. I hope that was helpful, David.

We will now take our final question for today. And the final question comes from the line of Jason Kalamboussis from ING.

Yes. The first thing just very helpful explanation of the retirement plans. Just is it possible to know what the third quarter net deposits would have been without these 2 large plans? And also so that we get an idea a bit how the rest is doing? And if also -- are there a lot -- if you give us an idea also in the midsized plans, which is the percentage of this kind of like large, low margins, that as well would help us to know if we could see -- even if we understand it's lumpy, if we could see some more large one-offs in various quarters. The second question is on the -- do I -- on the possible inorganic views you have. Should I understand that you're moving away from probably just bolt-ons to possibly larger deals? So are you looking at things that could be more, if not transformational at least larger? I would be interested to know since you also specifically say that the share buybacks could come if you do not find usage in organic or inorganic opportunities. And clearly, inorganic are more likely to take the chunk of it. And so sort of a bit related question to the second one is we haven't heard much about the ASR stake. And I'm just trying to understand your thinking there. Because you haven't even reduced a bit the stake to give at least essential direction. And this is effectively a bit of a loop. So it is -- you say that you would like to see a higher valuation, but effectively, you're a bit hurting that valuation, but not at least reducing a bit the stake. So again, I would like to have your thoughts on that.

Jason, thank you very much for your questions. First of all, to be concrete about what the 3Q net deposits would be without the 2 large plan withdrawals, that's USD 10 billion. So it would be the large plan outflows, those 2 large plans that were low margin, so not very material in profitability were USD 10.5 billion. So I think that is a number that hopefully helps you with that. Then when it comes to M&A in general, again, this is just linked to our strategy. We have made it clear what markets we look at in the core of our perimeter. We've been clear in -- within those markets, what product lines we aim to grow and expand. We do that organically, and we report every quarter on our ability to progress on that. And yes, if we find an inorganic opportunity that helps us to accelerate our progress, then we would -- and it would be value accretive, then we would look at it. And if it works, it works, and then we would act. And if it doesn't, it doesn't, and we don't. That's how simple it is. There is no size thing around this, like is it small, medium or big. It all depends on the opportunity in front of you, and we will look at that at its own merit. Where it comes to the ASR stake, Duncan, do you wish to comment on that?

Sure. Why don't I address that one. So no, we're very patient on the ASR stake. We outlined at the Capital Markets Day in 2023, our philosophy around that, which is that we intend to be a long-term holder of that share unless it reaches our view of intrinsic value or we find value-creating alternative opportunities which require capital deployment. So -- and this year, we benefited nicely from the dividend we received from them, and the recently announced share buyback will also be beneficial to us. So we're a patient owner. On your point about it being some sort of vicious circle, well, in the very short term, maybe. But over the long term, I think the intrinsic value and the value creation of that company should come through.

So just a follow-up on the retirement. Are there a lot of such plans that do not make use of your ancillary services? If you cannot quantify, at least give an idea if it is relatively large or not?

Yes. Quite frankly, I'm not going to speculate on that. I don't have that number handy here. What I can tell you is the following. We have -- and I also refer back to what our CEO and our team said on that during the Capital Markets Day in 2023, where they aimed to improve the earnings of the retirement business as opposed to just the volume, is that we are focused more and more on the advice center, the ancillary products, the stable value solutions and the like because we want -- and I thought, Will Fuller, at that time said that for every dollar of record-keeping he, at that point, had $1 of ancillary products and we want to increase that. So for us, it's really making sure that the earnings that we get from our clients on a full client basis, not the record-keeping only, but especially with other ancillary products that, as a result, the earnings growth takes place and that we prioritize that over volume, et cetera. But what the exact split is and how many clients we have with only recordkeeping plans in the mid-market, I need to come back -- we need to come back to you on that. I don't have it handy.

I would now like to hand the call back over to Yves Cormier for closing remarks.

Thank you, operator. This concludes today's Q&A session. Should you have any remaining questions, please get in touch with us in Investor Relations. On behalf of Lard and Duncan, I want to thank you for your attention. Thanks again, and have a good day.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.