Willem van den Berg – Head-Investor Relations Alexander Rijn Wynaendts – CEO, Chairman-Executive and Management Board Darryl Button – Chief Financial Officer.

David Andrich – Morgan Stanley Farooq Hanif – Citigroup William Hawkins – Keefe, Bruyette, & Woods Albert Ploegh – ING Bank NV Nick Holmes – Société Générale SA Benoit Petrarque – Kepler Capital Markets Ashik Musaddi – JPMorgan Securities William Elderkin – Goldman Sachs Jan Willem Knoll – ABN AMRO Gordon Aitken – RBC Europe Ltd.

Steven Haywood – HSBC François Boissin – Exane BNP Paribas Michael van Wegen – Bank of America Merrill Lynch Jonathan Gould – Reuters Archie van Riemsdijk – Dow Jones Corina Ruhe – Bloomberg L.P..

Good day, and welcome to the Aegon Second Quarter 2014 Results Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Willem van den Berg. Please go ahead..

Thank you, Julian. Good morning and thank you for joining us for this conference call on the Aegon's second quarter 2014 results. Similar to last quarter, we will keep you today's – we will keep today's presentation short, leaving plenty of time to address your questions.

We would like – we would appreciate it, if you take a moment to review our disclaimer on forward-looking statement, which is at the back of this presentation. Our CEO, Alex Wynaendts will share his views on the highlights of this quarter’s performance, and will then be joined by our CFO, Darryl Button to answer your questions.

I will hand it now over Alex..

Thank you, Willem and good morning to everyone. I'm pleased to start this call by saying that we have again delivered a strong set of results maintaining the positive momentum of the previous quarters.

The 7% increase in our underlying earnings has been driven primarily by three sectors, solid growth of our business, improved operational performance, and higher equity markets. These drivers were partially offset by lower U.S. dollar and unfavorable mortality in the U.S. largely related to lower than expected reinsurance recoveries.

The effect of continued low interest rate has been modest and in line with the sensitivities we have provided. I'd also like to mention here that we will update our mortality assumptions in U.S. as part of our annual assumption review during the quarter.

This includes supplementing own emerging mortality experience, with the results of recent old-age industry studies, which is expected to result in somewhat more conservative mortality assumptions. Sales and MCVNB were also very strong and our return on equity for the quarter increased to 8.8%.

And the real highlight this quarter is a strong net deposit which increased 75% to €6 billion and helped grow our total revenue generating investments to over €500 billion for the first time in Aegon's history. Now, turning to Slide 3, and as you can see on Slides 3 and 4, our strong performance is the result of continued profitable sales growth.

This together with both the equity markets has led to high asset balances and high earnings. Asset growth was especially strong in our U.S. variable annuity business and our pension business. One again, we've seen very strong variable limited deposit with gross deposits of $2.5 billion, and net deposits of over $1.3 billion.

And we continue to achieve very attractive returns. Deposits in our U.S. pension business were exceptionally strong with gross deposits of over $8 billion and net deposit of almost $4 billion.

This is mainly due to larger than normal land takeovers and extends a trend of growing balances driven by initiatives to increase employee awareness and employee participation.

In 2003, we started to make sizeable investments in technology and our pension business and the aim then was to build a scalable platform from which we could grow and improve service levels. The results of our commitment to investing in technology can be seen both in terms of strong earnings and asset growth, now at more than US$135 billion.

Turning to Slide 5, investments we continue to make throughout the company are being made over the same objectives and that is to grow the business in a sustainable way. The required investments are made possible by continued cost reductions. We're creating space to invest in new capabilities as can be seen very clearly on this slide.

Let me share a few examples. Our direct-to-consumer proposition in UK, Retiready, is gaining popularity and is supporting the asset growth we are seeing on our platform which now stands at nearly £2 billion. In The Netherlands, 400,000 customers are already using our new online portal Mijn Aegon. And in the U.S.

the number of retirement customers that have used our new retirement outlook estimator quickly approaching 1 million. And we continue to press forward with new initiatives in many of our other key markets.

Turning to Slide 6, where I'd like to update you on a number of capital-related results, operational free cash flow this quarter were €370 million; market impacts, mainly low interest rate; and a negative impact on cash flows of approximately €25 million; and one-time times that are positively impacted by approximately €75 million.

The benefit from the redundant reserve financing solution in U.S. was partially offset by some asset de-risking in the UK in preparation for Solvency II and model updates in The Netherlands. We will implement further model updates in the third quarter of this year.

Based on the strong capital position and year-to-date cash costs, we will pay interim dividends of €0.11 per share. This represents approximately 50% of our free cash flow.

You can see on the final Slide 7, we continue to execute successfully on our strategy and today, I'm also pleased to announce that we have expanded our partnership in Spain with Banco Santander into Portugal. This is a new market for us.

We've now signed a 25-year agreement to distribute Life & Protection change products to over 2 million new customers of Banco Santander of Portugal. So in summary we are proud of what we are achieving, but executing on our strategy and this is reflected in a strong set of results.

In growing sustainably in our key markets, our earnings are up and we have record revenue generating assets of over €5 billion. And we are achieving all this in spite of persistently low interest rate environment.

These are exciting times for Aegon, as well as we are well-positioned for future challenges and well positioned to take advantage of the many opportunities we see across our businesses. Darryl and I are happy to take your questions. Thank you..

We will now take questions from analysts and investors first. (Operator Instructions) We will now take our first question from David Andrich from Morgan Stanley. Please go ahead..

Hi, good morning. Thank you for taking my questions. Just on the U.S. mortality experience I just wondered, maybe, if you could point to us little bit, what the drag on earnings has been in the past few quarters, just to give an idea of – if there's any potential uplift for earnings, once additional reserving been made.

And maybe, could you also quantify or give me the – give little bit of guidance on what – what the potential impact is in terms of that quantum? Thank you..

Yes, hi, David, it's Darryl. Let me jump in with that. As you know, we've been doing a lot of analysis on our mortality the last few quarters.

I can – as I look back at the first quarter and here in the second quarter, we're really seeing what I would say would be more random fluctuations and then first quarter in particular, a lot of the seasonal effect we normally see.

Here in the second quarter, it was lower than expectations but mostly driven by really reinsurance recoveries were lower than expected. However, in that process we have identified a trend, there's a smaller trend, but it's in the old-age part of our market, of our experience. So I would call that age 85, 90-plus.

And there's some recent industry experience out there through a new Tillinghast study that we're looking at carefully there as well. So the actual experience has been small but in terms of what we seen in the older age market, combined with the new, I would tell you emerging experience, particularly coming from the new industry table.

That's an area where I can already look forward to seeing us making some assumption changes in the third quarter..

And just any guidance on kind of the quantum or the size of the impact?.

No, we're still, it's our third quarter process and so that's where we do our normal assumption update. So we're working through the actual modeling, the reserve and debt modeling now. What I do have sight-line on is the direction of the assumption and that we will be making change to the more conservative assumptions in third quarter.

Unfortunately, I can't really size it at this point..

Okay. Thank you very much..

We will now take our next question from Farooq Hanif from Citigroup. Please go ahead..

Hi, everybody. I hope you can hear me clearly. Just – I just wanted to ask a couple of questions on your free cash flow dividends.

I think, I'm just about understanding how interest rates affects your earnings, because you're looking at the delta between the recovery you're seeding in your dock for future yields and kind of the past way that you're going through. But on cash, you had a €25 billion market income from low interest rates of the Americas.

Could you explain, what was sort of direct statutory-driver of that, that's hitting that, and then how we can think about the sensitivity going forward if one day we're talking more positive yield curve environment? That's meant to be question one.

The second question two is, you mentioned here as 50% dividend pay-out of free cash flow which am I right thinking it's the first time you sort of showed that kind of ratio in the presentation. I don't know if it is? But if so, I mean, is this kind of the right level? Is that how you would think about it going forward? Thank you very much..

Farooq, let me take your second question first on the dividends. I think on the dividend, we've been consistent and we have a policy, and we are consistent in saying that, we would like to have a sustainably growing dividend. And we have here given you the number of 50%, but we clearly have an attention to go sustainably.

Second thing I would like to remind you, Farooq, also is that, we have expressed our clear intention to execute on the share buyback of those share that were issued in relation to the preference shares that were taken in around the association. So that’s how you should be looking at the dividends.

In terms of cash flows, Darryl?.

Yes, Farooq, on the – specifically, on the interest rate impact of mechanism for drop in interest rates to come through capital, I would really break the U.S. business into the life business versus the annuity business. Buying the annuity business is more of an economic calculation with a CTE contingent tail kind of capital calculation.

That’s where drop in interest rates in any one quarter will come into that calculation and change the capital. So we see a bit of capital interest rate sensitivity from the annuity business. On the life business, it’s – the capital is low more factor-based.

And so you have the same decline in earnings, which is slow to emerge frankly and doesn’t really move the capital needle any one quarter-to-quarter, where it would come through in the life businesses at the end of the year when you do cash flow testing analysis. If you ran out of sufficiency margins, you may have to increase reserves.

But we generally have a pretty decent buffer preventing against that. So it does come from the annuity business in the U.S..

Okay.

So is this kind of asymmetric then, so we should not read too much into the 25 and look at it within the yields, and is it very difficult to give guidance on how it might improve?.

Yes. So I think, I mean, the sensitivity is and actually what we have is, we have a slightly bigger number of 25 coming from the U.S. from the drop in interest rates. The drop in interest rates was pretty profound in the quarter and then credit spreads tightened, and that provides a bit of a capital offset particularly in the Dutch business.

So, basically, if the yield curve moves in any one quarter, you will find a little bit of capital noise coming off the U.S. annuity business, and then that’s a one-time item and then it will be stable, the interest rates came back up, next quarter – it would reverse next quarter..

Okay. Thank you very much..

Yes..

We will now take our next question from William Hawkins from KBW. Please go ahead..

Hi, thank you very much.

I'm risking repeating a couple of questions, so forgive me, but just to get on the dividend, Alex, in the first-half of this year, have you just gone back to the old policy of repeating the second-half dividend, and are you making decisions about incremental capital at the end of the year, or is the €0.11 sort of a genuine standalone decision.

And so, in theory, in the future, interim dividends could change year-on-year? And then secondly, I appreciate you don’t want to give guidance on what the U.S. mortality charge would be, but I'm feeling like I'm assuming a bit in the dark at the moment about, the range of possible expectations.

So maybe the question, but can you tell us the size of the reserves for the specific buckets that you are reviewing.

So what is the baseline reserve that you are actually starting with? And also if I can tag on to that, you’ve mentioned trends – you’ve mentioned reinsurance recoveries, now I just wanted to be clear, to what extent is this review related to genuine assessment of growth underlying trends in mortality, and to what extent may reflect changes in relationships with your reinsurers, because you mentioned reinsurance will cover both, which, to my mind, may have nothing to do with what actually going on in underlying mortality? Thank you..

On the dividends, my answer is simple, yes, theoretically make any changes we want. But, again, I want to repeat here, what we want to do is that, the dividend is growing sustainably. I think, we've been very consistent in that, and that means your question, yes..

Thanks..

Yes, on the U.S. mortality when – it’s – well, first of all, let me give you some of the numbers behind your question on sizing, at least, from a reserve perspective. Total life reserves in the U.S.

are around €28 billion, but this would only impact universal life, because this would be an unlocking event, so this would be the FAS 97 business that would be half of P&L and that’s about €15 billion of reserves. It would be an unlocking event as we change the assumption. Let me just reiterate what I said before.

It is an emerging experience that we are seeing. It’s really the only place where we've seen the mortality thus far deviate from expectations is in the older age segment that’s age 85 plus. There is a new Tillinghast study that was put out at the end of 2012, we've been studying that as well, it’s in the older age market.

So we're basically looking at those two things in our own experience and that’s the assumption change that we're looking at making in the third quarter.

So I apologize that I haven’t been able to size it for you, we're still working through the numbers in the calculations, and we're still doing that, I just – that’s the one part of the Q3 assumption update that I do have a sight-line on, and I wanted to give you heads up for that now..

And there is no way we could be refining further the €15 billion, it’s basically review of mortality across that portfolio?.

Yes, I mean, it’s a review across mortality – it’s really a complete review of all of our mortality. So I don’t want to suggest that we're only reviewing the mortality in the older age segment, we're doing a complete review of all of our mortality assumptions.

The only place that I'm seeing at this point that we're coming out with a potential change, it’s in this older age segment..

Okay. Very cool. Thank you..

Yes..

We will now take our next question from Albert Ploegh from ING. Please go ahead. Your line is open caller. Please go ahead..

Yes, good morning, all. A few questions from my end, first of all on the normalized cash flows, you mentioned also, there is some small negative impact direct from the auto-enrolment in the UK.

Can you give some more color on that and what your expectations are going forward? Second question is on the Dutch business also related to longevity, basically, and if you can correct by the end of this year we will have some new tables coming up, can you may be share some thoughts of that as well and whether that could be a Q3 or more a Q4 event, if anything negative? And it will be a negative update, how well you account for as well as you take a one-off charge, or do you take us on a quarterly basis going forward something you’ve done fast as well? And final question is, basically, on the UK, you flag higher investments in IT in the second-half, can you maybe quantify a little bit of step up there that you might expect? Thank you..

Yes, Albert, let me take your first couple of questions. On the auto-enrolment drag in the UK, yes, as part of that cash flow is really part of the cash flow story coming out of the UK, the drag right now is about €20 million inside of the UK cash flow numbers.

It has to deal with basically the auto-enrolment as we bring them on, basically, these are typically lower revenue employees and entrance that we're bringing on, and we have to setup some additional strain relative to that. So that’s an additional statutory reserving strain.

It will release in the future, but that’s what we're seeing as we bring these auto-enrollees on, and that’s inside the cash flow numbers. You also asked about the Dutch mortality tables. Yes, we – part of our annual process, we'll have a look at new tables and new data when it’s released later this year.

We're not actually expecting, at this point, I'm not expecting anything from that. So there is nothing I would signal on that front. If we do see anything, it would likely be Q4, by the time we get the data and do the analysis, but at this point there is nothing I'm expecting there..

And to be sure that €20 million you mentioned for the UK, that’s pounds or euros?.

It’s pounds..

Albert Ploegh – ING Bank NV:.

:.

Yes, the only thing I would highlight in addition to the assumption review is, we did have a model conversion here in The Netherlands in the second quarter. We've been converting a lot of our models, particularly on the pension business here in The Netherlands over to new software.

Basically, I would say, modernizing the modeling platform if you will, we have taken a block of guarantees over this quarter, and that had a negative P&L impact, that was €78 million, that’s our value number. We have one last book to convert and that conversion will also happen in the third quarter.

So I would say, I would also look to model conversion in the third quarter..

Okay, great. Okay, thank you..

You'd also asked about the UK investments, yes, we are signaling that we do have from a – sort of a – I guess an expectation from earnings.

In the next couple of quarters, we do have the final implementation of some of the technology that we have behind the Retiready and the platform in the UK that we expect will actually take up expenses relative to what we incurred in the second quarter over the third and fourth quarter.

So we are highlighting that that will have a small drag on underlying earnings in the third and fourth quarter in the UK..

Okay. Thank you very much..

We will now take our next question from Nick Holmes from Société Générale. Please go ahead..

Hi, there, thank you very much. Couple of questions, first one is coming back on the dividend, I think to Farooq's question you said that the interim dividend was held flat partly because of your intentions with the neutralization of the fresh share transaction, i.e., your share buyback, wondered if you could give us more color on that.

So you're basically saying that you're looking to do that in age two and that’s why the interim dividend was held flat? That’s my first question..

:.

Nick, let me reiterate what I said on the dividend. We have a policy based on as you know, balance sheet, cash flows, where is on balance sheet, we're delivering on the cash flows, and we want to have a dividend that is sustainably growing.

In terms of what I repeated here in relation to neutralizing the effect – the dilutive effects on the preference share transaction with the association, we said that that commitment is here, but I have not given any indication around timing, and I also don’t want to do that right now. You asked me about the U.S.

business, I think, actually, our VA business is doing well, very well, but I think our pension business is doing, at least, as well.

Our VA business has been growing on the back of growth of distribution, getting much closer with our distributors, having the right products right now, and being able to price them in a good way, in a way that makes sense for our customers and makes sense for us. We're still making very good margins and good IRRs on this business.

As you can see, despite, what is the lower interest rate environment, which I think is extremely positive. We're gaining the market share, although it’s not our ambition to gain market share in itself, where we just see we are getting deeper and deeper in distribution and adding new distribution.

In terms of our pension business, I actually think this has been a record quarter of our pension business. I mentioned in my call, €8 billion of gross lows and €4 billion of less lows, and I do think that if you compare that to some to what we've seen recently in the industry, this is an extremely strong performance.

This performance is on the back of investments we would be making in the past on our system, which gives us advantages in terms of the best service levels, but also scalability. I want to get to that point, because we are having more business while maintaining our expenses more or less flat.

And that is, I think, what is giving us not only a strong business in terms of growth, but also business that is showing a very good earnings going forward in what is indeed as you probably recognize in markets, where we are seeing pressure.

The second point of this business I would like to also bring back to your attention, and that I think we signaled it very clearly in our June conference is that, we have not integrated our pension business with our annuity business, with the aim of not only improving the coordination of our sales and marketing efforts, because effectively our whole status in both businesses were calling on the same people, we can now put them together and increase our firepower in terms of sales.

But equally important is about the whole retention. As you know, the retention of customers of our pension business that are the certain points in time, are going to retire. We've given you the numbers around the June conference, it’s 4 million around customers.

And as I said, what we know for sure is that, each of these customers at certain point in time will retire, will need products and services as we go into offer them. So this business in my view is not only doing well, is doing very well, but is also setting and establishing a basis for future growth, that is what we are really truly excited about..

Alex, thank you very much for that very full answer. May I just following up again, I apologize about this, on the connection with the dividend, because you've described a very strong business performance, we're very happy with that.

Why did you then keep the dividends flat throughout them increasing it, say, 5% or something given the strong underlying performance?.

I can only repeat what I said, Nick, we said that we want a dividend that is sustainably growing year-over-year, and I think that’s the way we should be looking at it..

Okay. Thank you very much..

We will now take our next question from Benoit Petrarque from Kepler. Please go ahead..

Yes, good morning, everyone. Just on the, on prior solutions again, sorry.

The US$4 billion net inflow, how do you see the margin on this new business? Is that kind of above or below average on the stock? Could you give us a little bit of feeling about this new business? And also obviously going forward, I mean, what is your kind of outlook on this business net-deposit-wise? And then maybe just on the JV with Santander in Portugal, could you give us a little bit of economics, cash outflow probably in the third or fourth quarter, and also expect a contribution from the JV? And then last maybe the improvement in persistence in the UK, do you think it’s sustainable, do you see that actually continuing in the third quarter? Thanks..

Benoit, thank you. Just to add on the question, we've – I think given you now, what we call, the return on net revenue, which was 33%, which shows we have made good margins on this business, including the new business.

But, again, I would like to reiterate, this is a result of long-term efforts of building capabilities that are scalable, that really is the key here, the scalability of our business.

And, therefore, we're able to add business, and I think I shared – as we shared with you the – to be 33.9% return on net revenue, which I think makes – puts us clearly in the league of those players that are successful in terms of growing and in terms of profitability.

It’s always difficult to predict the next quarter, because in this business, part of it is deposits that keep on coming from all our participants get over 4 million participants at every quarter in every year add deposits.

And the other part of it and this well being extremely successful this quarter is takeovers, that means that contracts had moved from another provider to Aegon, and that is never regular and sometimes it is related to corporate activities, in other words a customer of ours that does an acquisition, buys another company and integrate his pension fund, that’s also takeover.

And as you know, we're very strong and what we call the (inaudible) the hospital area. And that’s an area, where we do see some activity around consolidation, which obviously support – has been supporting our business.

So I'm confident, but again it’s difficult to predict quarter-on-quarter, but I'm very confident that we'll see continued growth on the back of the service, and as you know, we've been winning the award of the best pension provider in the U.S. and all different awards, which we shared with you in June, so I don’t want to do that again here.

But your question on Santander, we have not disclosed any amounts and obviously, these are margin offsets that we need to disclose them.

But I think it’s important – us to see here that Santander, it was very keen to expand with us a successful joint venture in Spain, and that is what is exciting for us, because we have in Spain making great progress, we work extremely well over there.

And to me the fact that they've asked us to expand in Portugal is the best guarantee that this is working very well and they're very satisfied with the way we corporate and the way we're creating a business for the customers.

And, obviously, it’s 2 million customers I mentioned that are potentially customers of the bank that are potentially going to buy insurance, it will take a bit of time, but this is the end of the market, which is the high end of the market, and it’s a very underpenetrated customer base, that’s very attractive.

So on the UK, yes, we're obviously pleased to see continued improvements. Keep in mind, we've been working extremely hard now for a number of years to try to get our expenses down. I'm not going to remind you the sheer size of this restructuring, so low expense is supporting it.

But what we're seeing is that the investments we've made in the platform that these are investments that are supporting growth and that are supporting persistency, because at the end persistency has been one of the drags on our earnings in the past, and I'm pleased to see that we see some improvements on our persistency, and I have every reason to believe that the improvements will continue in the future..

All right. Thank you very much..

We will now take our next question from Ashik Musaddi from JPMorgan. Please go ahead..

Yes, hi. Hi. Good morning, Alex and Darryl. Just two or three questions.

First of all, can you just give us some color about like what your update on the Canada and French review that you mentioned at the Investor Day, where are we on that? Any update on that? Secondly, can you give us some color about your net flows in workplace pension? You flagged in the press release around the net flows in the platform which remains very strong at €400 million.

So how is your workplace pension doing? Are you still getting net inflows, because it looks like last year it was kind of net outflows from the whole UK pension book, so any update on that? And thirdly, I mean, I want to touch base a bit on your deleveraging plans.

I know it may be early and you may think of giving those numbers maybe at the next business review, but any thoughts on what is the absolute level of gross debt are you looking to – are you very happy with, or after this deleveraging of a further €500 million, which is already planned, do you further want to deleverage your book going forward? Yes, these three questions.

Thank you..

Yes, on Canada and France, we committed to come back to you before the end of the year. So we have a little bit more time. And I will promise you that, we will come back to you as soon as we have something want to share and can share with you, and that’s an ongoing process. Yes, in terms of net flows, in the UK indeed we had positive net flows.

I think also as I just answered in the previous question, it’s a combination of new business and better retention. Better retention, because already our activity is now kind of fading down, combined with the fact that we are having – putting in place this platform we have now the Retiready, which is direct to consumer to a capability.

So we have now much more tools that are helping us to retain the business, and I think that is exactly showing where we want to go.

And finally, in terms of net debt, Darryl, would you please take this one?.

Well, I think, Ashik, as I said before, I think, we are committed to managing within a 26% to 30% gross leverage ratio, we're at 31.2% as we stand here today. We also have committed to our maturing out the senior note in the fourth quarter of this year for €500 million, which will prove us down in the range.

I think as long as, basically, I would say, my commitment is to manage within that range. As I said before I'm comfortable with the high end of that range and over time, I would expect us to drift down into the middle, and I think that’s fine.

I think as long as you see us over that top end of the 30% that we will have action plans to get back down within that 26% to 30% range..

That's very clear.

Just one follow-up on the workplace – on the pension net inflows, the positive net inflows that you mentioned is in workplace or is it the total pension?.

Yes, I think, it's – the way to look at it should we say, you need to see, it’s improved compared to last year..

Okay..

It's in overall, workplaces, corporate pensions, but we have individual pensions, but the area where we've seen the best improvement in persistency is in the workplace area..

Okay, sure. That’s good. Thank you..

We will now take our next question from William Elderkin from Goldman Sachs. Please go ahead..

Thank you. Good morning, everybody. Just one question on the UK and really following-up from the earlier one in terms of the cash flow impact from the expansion of the auto-enrolment.

Can you just explain how that affects the IFRS earnings you report? I know you've talked about how it impacts cash, but I was expecting that the underlying UK pension earnings to have at least remained stable quarter-on-quarter and they seem to have gone down. I just want to understand how that interacts..

Yes, the bigger number, the €20 million that I mentioned is really the strain that comes through and we have to set up additional regulatory reserves related to these auto-enrollees, it’s more of – that is not an IFRS impact, that is a statutory or regulatory impact, and those reserves will release.

So we see basically additional capital strain coming in from these enrollees and then that will turn around and release into the future. In terms of the earnings impact we have guided that there will be €20 million to €25 million of earnings impact once the legislation kicks in and once the fee capping has been put in place.

So as a result now there really isn’t a lot of, what I would call IFRS earnings impact on the DWP, other than cost that we continue to incur to implement the structure or the project..

All right. Okay. Thank you..

We will now take our next question from Jan Willem Knoll from ABN AMRO. Please go ahead..

Yes, good morning gentlemen. A couple of questions from my side. First, can you explain the background and the impact of the model updates in The Netherlands, mentioned on slide 16? And then secondly, can you update us on the impact of using the UFR on the Dutch IGD ratio? Lastly, operating expenses rose 8% in The Netherlands.

Can you update us on what the normalized run rate – what sort of normalized run rate we should expect going forward? Thank you..

Yes, Jan, it’s, Darryl, let me jump in here. The model updates, the short answer is we've been converting our pension business over to a new modeling platform.

And what we found this quarter in particular when we moved the block of guarantees over, it’s basically new enhanced modeling software, does a better job, allows us with more model points, more data points, better job of stochastic valuations of our guarantees.

So I would say, we are getting an enhanced guarantee valuation for the pension business in The Netherlands. As I mentioned before, we have one last block to convert which will come in the third quarter.

Operating expenses in The Netherlands, I would say, we have what I would consider to be a run rate level of expenses, but we have had some reclassifications, which has caused The Netherlands expenses to go up a little bit.

We had some expenses that we're going through the benefit payment line and we've done a deeper analysis on those related to claims handling costs, and we thought that that would be better represented in the operating expense line. So a lot of that is largely geography on the income statement.

Your second question I think was UFR related, and I must admit I'm going to leave that one and let IR come back to you on that one. I just don’t have that. I know we disclosed the number at that time and I just don’t have it at my fingertip, so I'm going to ask Willem to come back to you..

Fair enough. Thanks..

We will now take our next question from Gordon Aitken from RBC. Please go ahead..

Good morning. Gordon Aitken from RBC here. Three questions please. First, on your fee-based businesses in the UK and the U.S., can you just tell us what the revenue basis points and the cost basis points are and where you see that spread going? Second, on the Dutch buyout market, we're not seeing a lot of activity in Q2 really from anyone.

I'm just wondering why this is and is it the case that schemes are just not buying it at all, or is it that they're sinking themselves into the industry funds? And third, on this U.S. mortality, just to what extent are you using standard tables for reserving versus your own emerging mortality assumptions? Thanks..

Gordon, on the UK and U.S. fee spreads, these are all different businesses. And I will ask Willem to come back to you and give some guidance, because it would make no sense in taking it on a total overall basis. So he will come back to you separately.

Yes, on the Dutch buyout markets, as we said, and we said many times, there is and we believe a strong pipeline. We're comfortable that this pipeline will convert at a certain point in time. You are right, we've observed also that Q2 has been a quiet quarter for the market, but this is really no indicator of the next quarters.

What I know is that we are well positioned in this market. There is a full pipeline and I'm very comfortable and confident that we will also be taking a good part of this market. Also I want to remind you here, that we have a very clear pricing and discipline.

We commit to the pricing discipline particularly we can do so, because there is only a small number of players in this market. And our strong rating clearly puts us in a relatively stronger position and so we want to make sure that we do the right deals for our customers but also the right deals for us.

But with the pipeline fell that it is with the activity which I'm aware of taking place under a confident that we will see a good flow of business coming in this area..

Yes, on the last question on the U.S. mortality, there's a general rule when we got our mortality tables. We start obviously with industry tables, but then we build on our own individual experience. And Transamerica is a very large player and with a large amount of data.

So basically, I would say, most of our mortality tables are driven more off of our own internal experience and where our data has enough credibility. The area – maybe the small exception of that rule would be in this older age market, where I would say, it's an emerging data.

We don't have as much data, so we're not as credible in our data, so we do look to additional industry data to supplement our own assumptions and that's exactly what we're doing now. And there's been a new recent study of – on older age mortality so that's why I flagged area that's the area where I see our assumptions updating in the third quarter..

Thank you..

Question from Steven Haywood from HSBC. Please go ahead..

Hi, good morning. I wondered if you could speak a bit about the U.S. internal mergers and whether there's any update there and particularly in terms of the amount of cost savings possibly coming out here. And then secondly, with the €20 million to €25 million hit to the UK earnings will there be any write off charge in the future for this as well.

Thank you..

Yes, in terms of the reorganization which we have announced in the U.S., at the time we announced that in our June conference we made it very clear that this was much more about revenue synergies than it was about cost synergies. Yes, obviously there are cost synergies but that has not been the main driver of our business.

The main driver of this decision was about creating a much better coordinated sales-force that is approaching distributors which are in many cases same ones, think about the large buy-houses and broker dealers. And so we will have some cost synergies, but I would say that was not really the first and the clear objective.

And the second thing is we also want to be able to have only one division, a full suite of products that addresses the needs of our customers along the entire life-cycle, that means it starts at savings, it starts at corporate pension plans and it ends with annuity and any other product that helps our customers to retire and to get a flow of income in the way they desire.

So, this is how you should be looking at it, and I think the yearly results actually are showing improvement in terms of retention of our business which as you know we've been very clear that was an objective of us is to try to keep more of the assets of the customers that effective retire and potentially could take the money away from us, to keep them with us.

That is where the big opportunity is. In terms of the U.S and UK, Darryl, if you like to….

In terms of UK, so the earnings guidance that we've given is based on the fee compression that we see coming from the cap. The way accounting works, you would only accelerate an amortization of an intangible if we became into a recoverability situation.

There isn't an active unlocking mechanism that would bring some of this into accelerated amortization. And there's nothing that I see, we still have sufficiency to cover that. So I don't see any accelerated amortization of intangibles coming from that so I would say no, to your question..

Okay. Thank you very much..

We will now take our next question from François Boissin from BNP. Please go ahead..

Yes, good morning everybody. Three questions, please. The first question is with regards to your model refinement in Netherlands. Just wondered if you could give a bit more details on what you're doing there and what you expect for the next quarter.

Second question in the UK, you're talking about de-risking initiatives, just wanted to get a feel of what that means for your Solvency II capital base and if it could impact negatively your earnings going forward. And third question regarding the overall margin outlook in new business.

I mean, you've had stable new business margins Q-on-Q, which is quite an achievement, given the fact that rates have come down, just wondered if it's reasonable to expect drop in margins going forward. Thanks..

Yes, François, let me give a shot here. So, on the model changes in NL, as I mentioned before, we've converted a block of pension guarantee business or it's a more what I would call modern sophisticated modeling software. It has increased the valuation of those guarantees.

I don't have number to give you for the third quarter, but the block we have left is about the same size of block that we did in the second quarter, so that might give you a little bit of a guide close..

And the impact in Q3 was close to a €100 million, right?.

In Q2 it was €78 million..

In Q2, sorry, yes, €78 million, okay..

Yes, on UK, de-risking, that's exactly what we've been doing, it's repositioning the portfolio to get ready for Solvency II. We've been taking risk – credit risk in particular out of the portfolio. We've sold some callable bonds. We've done some trading to bring in some more inflation protected Gilts is an example.

So this is repositioning for Solvency II that will have a beneficial impact under the mark-to-mark capital regime of Solvency II and the volatility that comes with that regime.

It has come at the – a little bit of a cost of giving up some running yield so there's been a small impact there and a small impact on the current metrics but it has been Solvency II repositioning is what I would say there and overall de-risking. Margins on new business, I would just broadly say we're very pleased.

We're very pleased that we've with the top-line numbers, the sale as Alex mentioned before and that we've been able to hold margin that we haven't had to sacrifice our pricing or our pricing discipline to hold that top-line and margin still holds strong and I see that continuing into the third and fourth quarter..

Good..

We will now take our next question from Michael van Wegen from Bank of America..

Yes, good morning, it's Michael van Wegan from Bank of America Merrill Lynch. I wanted to go to your Slide 5, where you basically show sort of a cost income ratio. You talked about the improvements that you've made so far. You achieved 59% for H1.

Despite the improvement I think that number is still well above what we consider to be the average for Europe. I suspect a large part of that is driven by the UK.

Can you talk a little bit about how that ratio would look like for your main totally regions? And if you were to be successful with the restructuring on the UK, where that number would be heading to? Thank you..

Yes, Michael. We've given this number in June, I think for the first time. So we are giving you to see it for the full – for the full through six months. Obviously, we want to get that number down.

I think you need to be – we need to be careful comparing this with others, because I'm not sure we all do this on the same way, being seeing it, and that's what's the reason why we have not given you a more granular set of numbers right now, because we want to have a good understanding of so what others are doing so we have something which is comparable, because there's a lot of different ways of presenting this.

So, but you're right, the UK clearly does not help this number and the UK is clearly above the average, and as you know we've been clear that we need to take further, the expenses further down in UK. There is a plan which needs to be executed between now and 2015.

And we're working hard in executing the plan, which will take expenses further down in the UK. That will help your overall number. But I would just caution you in making comparisons we will provide going forward more granularity around this, because it is important that what we had is comparable.

But the number, yes, will trend and the UK will support the further trending down..

Thank you..

We will now take questions from the media. (Operator Instructions) We will now take our first question from Jonathan Gould from Reuters. Please go ahead..

Yes, good morning, everybody. Mr.

Wynaendts, I had a question just in the – about the aftermath of the FCA finance to Stonebridge International, whether you see any sort of problems with reputational damage or any impact on sales as a result of the fine? And wanted to ask whether you expect any litigation to result and also whether the fine itself or the finding of the FCA will require any changes in your management controls or policy there? Thank you..

Now, we – yes, we had this fine, and obviously, we're not happy with that, we're not pleased with the fact that these things have happened, like you put it just in the context, these activities actually which we stopped a couple of years ago. So we have taken action. We've taken action in terms of stopping the sales of this product.

We've taken action on the management, but that has already taken place and we are making sure that in no other place in our business and we are reviewing it very thoroughly there's anything similar. So we are taking the action, and have taken the actions.

I want you to see right now, is the fine which comes later obviously and as such should close this whole file and we're not expecting anything further from here..

And so no litigation on the part of any customers who may have been involved?.

We have been clear also that we are looking at everything of customer and if there would have been a detriment we would have made an effort and on that basis we do not expect any further activity around this..

Okay. Thank you..

We will now take our next question from Archie van Riemsdijk from Dow Jones. Please go ahead..

Yes, good morning. I have some questions on the pension sales. In The Netherlands, you stated you're confident that there will be – you will take part of the consolidation in a way. But, if there not a risk that other players will take over the market because it seems that what – that sort of what has been happening in the second quarter..

As I said earlier in the call, I just want to be careful not to repeat myself, there is a pipeline. Aegon is very well positioned, Aegon has a very strong balance sheet, has administrative capabilities that are in order. We are well positioned to take advantage of the pipeline. I also said the pipeline is not a regular pipeline it's not that can flow.

It comes and goes and certain points in time we see more and other points in times we see less. I made it very clear that I am comfortable and confident that Aegon will get more than its fair share of the market based on what I'm seeing in terms of pipeline activity but also the capabilities we have in this sector..

All right, thank you very much. If I may, just additional question on the pension contracts in the United States.

Could you give some color on the type of contracts that you won there and what's the story there for the next quarters?.

So, in U.S. we see two elements here. One is deposits that come from all our customers. All our customers saved for the pensions directly to employers, sometimes they also add themselves. The only contribution, so that's a big part of the source we're getting.

In addition to that, we've been very successful in taking pension plans over from other participants, from other, excuse me, providers. And these are pension plans for companies that have decided that they want to take advantage of strength and capabilities of Aegon and Transamerica in the U.S.

And these are large corporate plans, 401(K) plans, all which you are very familiar with. And I think as I said earlier, this is on the back of really strong capabilities in terms of services we provide, the whole way we interact with the employees and that's what employees like.

Secondly, because we have very scalable pension capabilities we're also able to provide us an attractive pricing, and we're able to be competitive in the market, which is quite a tough market.

That scalability, that is supporting our success in the business, and as such, I have every reason to believe and to be confident that the positive momentum will continue..

All right, thank you very much..

We will now take our next question from Corina Ruhe from Bloomberg L.P. Please go ahead..

Good morning. I have two questions.

First one, Dutch government puts up the REAAL for sale, is Aegon planning to play any part of it, in it?.

Yes, you're right that the Dutch government is planning to put it for sale. Just me like to repeat here again that we're being clear that our priority is organic growth and that we're well positioned to grow in all the segments in which we are present..

Okay. Thank you. My second question was already discussed earlier at the end of this call the sale of the French and Canadian operation.

Will you achieve the goal to sell both businesses before year-end?.

Again, I think I've been very clear and there's nothing more I can add to it..

Okay. Thank you very much..

Thank you..

We will now take our next question from Archie van Riemsdijk from Dow Jones. Please go ahead..

Yes. I had one additional question. I understand that Solvency II regulations will cause Aegon to lose kind of a capital benefit Q2 diversification.

Is this something that could have strategic consequences and maybe you can expand a bit on the effect of Solvency II in this respect?.

Yes, Archie, it's Darryl. I wouldn't say that Solvency II causes to lose a diversification benefit. We have – diversification comes in our business in various ways.

There's diversification in really most of the capital formulas in the regions that we operate within the Solvency II paradigm itself around how much diversification benefit should be taken once you start doing the group calculations, which is a new element of Solvency II.

And that continues to be a fluid debate backed by conversations of fungiblity of capital and things like that.

So that's a – I would consider that a fluid debate that still happening on the overall aggregate Solvency II, doesn't impact any of the solo capital calculations and I would not characterize it as us losing anything that we already have, that for sure..

All right, that’s it.

Sorry, am I still on the call?.

Yes, you are..

Okay.

On the – well to explain it a little bit better, does the Q2 results mean that you will have to keep on increasing your capital more or is this not for longer time than expected earlier, or is this within the balance of your strategy?.

Well, I certainly can't comment on any more than we did in June in terms of where the overall Solvency II work is at for the company, so I would point you back to our presentation in June.

What I would say is again, it comes back to even within Solvency II it's a matter of managing capital in the solo which would be the individual country regions but where we do business. And so I don't see a restriction related to group diversification in Solvency II coming in that causes a material change from how we manage capital locally.

That's really all I can say in the context of we're still finalizing the Solvency II framework..

All right. Okay. Thank you very much..

Yes..

That will conclude today's question-and-answer session. I would now like to turn you back to Alex Wynaendts for any additional or closing remarks..

Well, I'd like to thank everybody that participated that's still in the call and also those that already left the call for participating and continued interest in Aegon. Thanks a lot and have a great day..

That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect..