Willem van den Berg - Head of Investor Relations Alex Wynaendts - Chief Executive Officer Darryl Button - Chief Financial Officer Matthias De Wit - KBC Securities Bart Horsten - Kempen & Co Nick Holmes - Societe Generale.

Ashik Musaddi - JPMorgan Farooq Hanif - Citigroup Nadine van der Meulen - Morgan Stanley Farquhar Murray - Autonomous Research Gordon Aitken - RBC William Hawkins - KBW Mark Cathcart - Jefferies & Company.

Good day and welcome to the Aegon Q1 Results 2016 Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Willem van den Berg. Please go ahead, sir..

Thank you. Good morning everyone and thank you for joining this conference call on Aegon's first quarter 2016 results. We will keep today's presentation short, leaving enough time to address your questions. We would appreciate it if you take a moment to review our disclaimer on forward-looking statements, which is at the back of our presentation.

First, our CEO, Alex Wynaendts, will first provide an overview of our performance and will be joined by our CFO, Darryl Button, to answer your questions. Alex, please go ahead..

Good morning, everyone. We really appreciate you taking the time to joining us on such a busy day with many companies reporting at the same time. So let me being by providing you with a brief overview of our first quarter results before then going to more detail.

Our results were impacted by the channeling financial market conditions we saw in the first quarter. Underlying earnings were impacted by lower average equity markets, while net income was impacted by fair value losses as a result of underperformance of alternative investments and hedges.

While our capital position remains solid and well within our target, our Solvency II ratio reflects the return of capital to shareholders and address adverse market impacts. Excluding market impacts and onetime items, capita generation amounted to approximately EUR300 million.

Our strong sales story continues with sales increasing by 36% to EUR3.6 billion. This growth was mainly driven by higher deposits of EUR30 billion. And the strategic steps in U.K. that we announced recently will drive further growth of our fee base business.

On Slide Three, you can see that underlying earnings increased this quarter by EUR30 million compared with last year. So let me run you through the main moving parts. In the Americas, earnings declined slightly as an improvement in claims experience was more than offset by lower earnings of fee businesses.

This was partly as a result of lower equity markets and this is something I’ll come back to the next slides. In Europe, earnings increased by 20% to EUR169 million. This increase was mainly driven by lower differed acquisition cost in U.K.

as a result of the write-down of deck related to upgrading customers to retirement platform in the fourth quarter of 2015. Asset management earnings were again strong at EUR45 million and benefited from continued [indiscernible] [0:06:51] and performance fees.

This quarter as you all have seen, we have adjusted our financial reporting to reflect both the growth imports of asset management and our increased focus on Asia. Finally, holding decline to EUR36 million due to lower funding cost following the redemption of senior debt at the end of last year.

Let me now explain in greater detail on Slide Four, how the volatility in equity markets impacted our earnings in the Americas. To despite significant volatility during the quarter financial markets, the S&P 500 ended the quarter almost rate stated.

However, equity markets were down significantly for the majority of the quarter, causing our daily balancing to be 4% lower than average during the first quarter than at quarter end. The result was that lower fees which are calculated on weighted average balanced instead of on quarter end impacted underlying earnings by US$15 million.

As you can on the Slide Five, net income amounted to EUR143 million this quarter and was impacted by losses from fair value items of EUR358 million. These losses were driven by lower than expected returns on alternative investments particularly hedge funds as well as by our micro-hedge program in the U.S.

and by guarantee-hedge programs in the Netherlands. While our alternative investment showed poor performance, they continue to perform well on a longer term horizon. Despite effect that we largely having accounting match in Netherlands, fair value hedging within the account match amounted to a loss of EUR101.

This was due to differences between Solvency II and IFRS on Aegon’s interest rate hedges in the Netherlands. These losses represent less than 5% of the change in liabilities which increased by EUR2.4 billion this quarter.

Fair value hedging without an accounting match resulted in a loss of EUR152 million, mostly as a result of our micro equity hedge program in the U.S. Overall payments remained low at EUR36 million or 9 basis points of the general account on an annualized basis. These were mostly related to energy investments in the U.S.

Let me now to capital on Slide Six starting our Group capital position. Our Solvency II ratio of 155% puts us at the midpoint of our target range of 149% to 170%. The ratio decline this quarter, as a result of market impacts and return capital to our shareholders.

On the Solvency II, capital return to shareholders is deducted from the ratio at the moment the management decision and made and not when it is paid.

Financial market also had a negative impact on the capital ratio this quarter, while the credit spreads including on Dutch mortgages, rating migrations and lower interest rates particularly in the Netherlands and the U.K. all contributed negatively to the capital ratio during the quarter. Turning to Slide Seven.

The Netherlands, we’ve made adjustments to our hedging program which have an effect on both Solvency II and IFRS basis. During the first quarter, we aligned a guarantee hedging program the Solvency II curve. Given that there is now an accounting mismatch, we will revisit our IFRS share value evaluation curve in the third quarter.

Differences between our hedging program and evaluation of our liabilities lead to increase volatility in our IFRS results. Staff pension plans as measured by IAS 19 and second order impact on the Solvency II both remain unhedged. We are in the process of updating our sensitivity.

On Slide Eight, you can see that in Q1, we once again generated strong sales in our deposit businesses. This quarter if the first time that we are reporting asset management separately and we are understandably very pleased with its units continue strong sales.

Increasing growth flows was mainly driven by an inclusion of flows from our partnership with La Banque Postale Asset Management in France and higher recognized gross deposits in our Chinese joint venture AIFMC.

By levering our market leading underwriting capabilities and mortgages for third part investors, we continue to generate strong net inflows in a Dutch mortgage fund. And this was the main driver behind the net estimate inflows of over EUR1 billion.

Net deposits for retirement plans increased by 14% to US$5 billion primarily due to the acquisition Mercer's DC record-keeping business. And net deposits were also supported by our efforts to retain assets in our pension business in the U.S.

In the first quarter of this year, our asset retention rate increased to 20% and we aim to further increase asset retention by continuing to improving how we engage with plan participants before they retire and by helping them to make the right decisions by providing them with relevant information. New life sales were down 11%.

As higher indexed universal life sales in the U.S. were more than offset by lower sales in Asia and Poland following product changes. And this is also in part a reflection over strategic shift to focus our fee base businesses.

I would now like to briefly touch on the Department of Labor’s Fiduciary Rule which has obviously attracted a lot of attention over the last 12 months. On previous occasions, I discussed a propose rule with you and highlighted our concern that the scope was very broad that it was very complicated and that it could lead to unintended consequences.

And we are pleased that they will engage with the industry and I’m pleased that the final rule has improved in many ways, although we still believe it is likely to have a negative effect above lower and middle income earnings excess to the advice they need.

The rule will also have implication for some of our distribution partners as a result of the increased administrative burden and compliance cost.

The fact that the DOL has grown to an extended transition period, will enable us to depth our products and the way we distribute them to the new reality where also supporting the needs of our customers and distribution partners.

Expected Fiduciary Rule to have no material impact on our enforce business, while we anticipate the shot tern negative impact on rate of annuity sales of approximately 10% to 20% in line with industry expectations. And we believe this is manageable in the context of our focus profitably growing our business.

Let me now turn to expense savings and give you an update on the progress we are making towards reducing our expenses by EUR200 million by 2018. As mentioned at our Investor Day in January, our ambition is to create one Transamerica in the eyes of all customers, while at the same time increasing the overall efficiency of the organization.

This quarter, we have implemented the new U.S. organization structure within Transamerica and completed a voluntary separate incentive plan.

This expense savings together with other expense initiatives will lead to US$40 million of benefit as of the second half of the year and this represents an important step to worth achieving the US$150 million target.

Gross savings in the Netherlands, our holdings will mainly come from the reduction of legacy season from reducing complexity and from streamlining processes.

Right 2018, we expect these programs to enable us to meet expense savings target of EUR200 million and we will continue to update you on the progress of our expense savings program going forward. Let me now move to last side on the steps we took during the first quarter towards achieving our strategic objectives.

First and foremost, we have almost completed the 400 million share buyback we announced in January and Association Aegon will participate in the second tranche of our share buyback program on a pro forma basis in order to maintain the level of voting rights. In January, we also indicated that we’re considering options for our U.K. annuity book.

And as you know, we concluded that the share was the best option. This resulted in the recent divestment of two thirds of this portfolio and we are aiming to divest the remaining third. In addition, we reach an agreement to acquire BlackRock's platform-based defined contribution business in the U.K.

this transactions will enable us to fully focus on our fast growing platform and serve the growing needs of our more than 2 million customers in the U.K.

We also announced a divestment of the commercial line non-life portfolio in the Netherlands as we continue to optimize our portfolio by divesting non-core assets while at the same time, investing in business that create value and that drive growth.

So in summary, while our results is core to where impacted by channeling financial market conditions, we have made significant steps in achieving our strategic objectives.

We clearly need to make more progress towards our 2018 financial targets, while we can be confident that we’re taking the right actions to transform our company and become a more agile, a more customer centric and more profitable organization. Thank you all again to continuing to pay close interest in our company.

Darryl and I are now happy to take your questions..

[Operator Instructions] The first question comes from Ashik Musaddi from JPMorgan. Please go ahead, your line is open..

Yeah. Hi. Good morning, Alex. Good morning, Darryl. Just couple of question from me, first of all can you give us a bit of update on the U.K. business, it looks like your capital dropped from 140, it should be 155 pose the disposal of U.K. part business and it’s again back to 140.

What’s going on there? And I mean I still don’t understand what’s the point of - at what point would you decide whether this is business you should own or not because it looks like it continues to remain a drag on your earnings or capital at some point every quarter? So that’s first one.

And secondly is, in terms of Netherlands, can you give us a bit of color about the capital drop in that as well, how much of that is related to mortgage spread widening, how much of that is related to the say just general interest moment? So that would be the second question.

And thirdly is, can you give us an update on your capital return, I mean are you comfortable with that, are you having a debate with the regulatory in terms of is this buyback still okay to do or any thought of what is you are getting on your capital position now? Thank you..

Ashik, it’s Darryl. Let me try and answer those questions for you. I’ll take them in order. On the U.K. the 155 to 140, the 155 was pro forma number at the end of the year. And I think we were clear on that on the press release when we put that out.

It was really April at that time but we didn’t have our first quarter Solvency II numbers at that point or any of the attribution. So we gave you the year-end numbers and of course we had the sensitivities that were out there to help you understand how that ratio would move overtime.

And in fact interest rate sensitivity was as you could see is pretty large in the U.K. and I think we had said that it was 17 points for 100 basis points drop. The swap spreads or the swap rates dropped about 60 basis points in the U.K.

over the quarter and that has - actually has a bit of levering effect not only did the rates drop significantly but what swap rates dropping even further, you have a spread effect as well. So that made it a little bit larger than the sensitivity. We also had some - I think the other thing to take into account is that as the U.K.

as the annuities are sold off, the denominator gets smaller, so the ratios themselves get a little more volatile and the sensitivities have to be ratioed up a little bit for that. So U.K. largely is in line with the sensitivities that we provided earlier.

On the Dutch capital situation, really a lot of the market impacts that we’ve noted on the slide are in fact very much related to the Dutch situation. We’ve had a combination of really a lot of things going on collectively.

It’s a little bit difficult to break them all apart and look at them in singularity because they are cross term impacts of all these items. But mortgage spread widened in the quarter that was one of our larger sensitivities and we’ve highlighted that bases risk that exist between the volatility adjuster and Dutch mortgage spreads.

We’ve had some credit ratings downgrade, Finland in particular as an example which came in and impacted the numbers.

And then interest rates not so much from an ALM perspective, we continue to be very hedged in terms of own funds in the numerator from an interest rate perspective but the impact on the SCR and the denominator, so this would be second order impacts on credit risk, longevity risk, the risk margins. That is where the interest rate impact came from.

And really all the items that I just mentioned impact the ratio today but they have the unlined effect that we mentioned earlier as well, they unlined into the future and higher cash flow is going forward. So I think that’s important to know when you look at the Dutch capital ratio situation. Capital return was your third question.

We are in fact actually - we’ve completed the bulk of the share buyback program already. In fact the only part of the transactions still to go is the associating participation and that will be completed next week..

Okay, that’s very clear. Just one thing on the U.K., going back to the U.K.

so is this the problem mainly to do with the annuities business or are you facing that same issue with your other pension business as well, because what I want to understand is given that you have sold or reinsured last part of your annuities already, would that be a risk going forward or is it told - so that sort of I wonder, is it purely related to annuities or other businesses like pension or maybe a small rate profit is also having a bit of impact?.

It comes from three different sources. There is the annuities, that’s true, there is also the staff pension plan and then it is this second order impact that interest rates have on things like risk margins and the other risk that are remaining in the business and it’s really a combination of those three.

I think on the annuities, the only thing I would add to what you said was that keep in mind even though we’ve reinsured 6 billion or about 60% of the annuities, we did lose the transitional benefits on that first reinsurance tranche.

So in terms of the actual impact on capital, there is still more to come as we look at the rest of the business that’s there as well as when we complete the part 7 transfer in roughly nine months’ time or so..

Alright, thank you..

Thanks..

We take next question from Farooq Hanif from Citigroup. Please go ahead, your line is open..

Hi there, thank you very much. Can you comment on what risk you see in the metrics in the Netherland given where the ratio is. You plan to start making capital from those this year and what where the timing of that be? Secondly, on - you’ve had various acquisitions, disposals, reinsurance in the U.K.

accounting change, I mean other efforts it’s useful to talk about it now or kind of out flowing but just think that it be useful to get a guide on what happens to earnings now, so what’s the BlackRock impact annuities, just in the round all of these impacts? And my last question is, on DOL, you’ve give a lot more information than some other companies, it sounds like there is still some things in the air, what actual cost that you are incur now and what kind of product changes are you contemplating? Thank you..

Hi, Farooq. Let me take the first two questions. On the remit is I really can say here is we’ll discontinue to apply our capital policy that’s the best guidance I can give you. Now it is true that we are now find ourselves towards the lower end of our target range instead of the upper end sitting at the 135 for the Netherlands.

We do have some more work to do to fine tune our sensitivities and we’ll be coming back to you with new sensitivities for the Dutch business. That is also impact because we did change some of our hedge programs around in the quarter.

So we are working on updating our sensitivities but largely what I would say is that we are focused on applying our capital policy.

The only thing I would add to that is what I mentioned to Ashik is keep in mind, it’s not just capital, it’s not just about a point in time ratio, it’s about a point in time ratio and the unwind of that ratio going forward.

So we do look at elements when the ratio is and we’ve highlighted the ratio under Solvency II, we’ll have some volatility and it will flow up and down. But when you have the second order impacts that are going to unwind in the future, that’s different than having what I would say lost permanent capital.

So we’ll take a look at what the cash generation is under the fact that these second order risks have moved against this and we’ll apply that against the new sensitivities and we’ll basically apply our capital policy. So that’s the best guidance I can give you there.

On the U.K., I think your question was more earnings related in terms of - so we have changed the - I think the most important thing is we did change the accounting policy as it related to how we are handling the three books of businesses and particularly the deck.

The issue we’re running into if you remember into last year was as we upgraded policies from the old pensioned business up into the platform, we’re having to write-off the deck on that upgrade, so we went ahead and wrote a lot of that of on the restated accounting policies in the fourth quarter of last year.

So what that does is that gets us to something that is much more of a, I would say, a sustainable interest rate - so a sustainable earnings rate on kind of where we are now. There is an impact to earnings if we continue to sell off - as we continue to sell off the annuity business and that will bring the run rate earnings down going forward.

I think we’ve given you some on that but we can follow-up with that on offline.

I think the third question on DOL?.

Yeah, Farooq, indeed, you right to point that we tried to give you bit more guidance than others have. One of the reasons is that we’d be very closely involved in the whole process. We’ve been involved as a company but also as an industry. And the outcome in essence we believe now is more manageable than we could have feared earlier.

And the reason is also that we have a longer transition period. And that means people have more time to adjust and this is one of things we were most concern about that there would be very short transition period and that would lead to a kind of a paralysis that can call that way of our advisors and partners.

So the longer transition period helps us, we’ve actually started making our preparation for what we would expect the DOL rules to be as already of laid last year. So we’ll be looking at our products, we mainly be looking at the way we sell our products going forward. So let me take you now through the three areas, which I think are the most relevant.

Number one is retirement plans. In fact, our business in the U.S. is Fiduciary friendly model with the open architecture.

So that’s a sense we will probably benefit on the relative basis by the fact that our model has been not only focused in terms of how is positioned in the market but also in terms how has been very much focused on having a very cost efficient administration capability and does not require the added income from the investment products.

So that model actually is very well positioned.

I also believe that it would lead potentially to number of other players effectively come to the conclusion they don’t have the scale because it’s now more and more clear that it becomes skill business and therefore acquisition of Mercer very well fits in this and I believe we’ll see more of the opportunities to consolidate these type of assets on our portfolio.

Now in terms of the variable annuities, as you know it’s really the qualified part of the market has been impacted.

Thus difficult same what we see and expect there, we’ve given you some guidance between 10% to 20% lower sales and it is more to do with the fact that we believe that our distribution product will just probably take the time to really rules, they will also have to take the time to comply to it.

On the other side, as we run our business, as you know on the profitable basis and we’ve adjusted our pricing already. This happens at a point in time that we already have reduced our market share in the market. And as a result of that, we don’t expect, we therefore respect that the impact is going to be lower.

And then finally, the differed elements which by the way it’s also heart of our strategy as you know pension money rollover mean that we will have to adjust to the new reality.

We believe and we believe that for our manage advice which I’ve talked about many times already as being a way of helping our customers - of helping our customer focusing on being prepared for retirement.

And then once they are more prepared for retirement to take the actions they need to be retired that that’s managed advice function is going to be more relevant now in particular as we do that through what we commonly call I think robot advice, but these digitally enabled capabilities that effectively allows us to collect with a 5 million plan participants in U.S.

So that strategy is going to support a direction. What I see happening here is probably a longer retention. That means that customers will stick to their assets in the 41 K for a longer periods, but ultimately they will also have to make choices to convert that in a form of income.

So I hope I’ve been able to give you a bit more color and also this hold rules fits in our strategy.

And I think the final point I need to say is that is obviously that this will require work adjusting ourselves, adjusting our distributors in increased compliance cost, which we hope to be able effectively absorb over a period of time, but we started effectively are being ready for it last year..

Thank you very much..

Our next question comes from Nadine van der Meulen from Morgan Stanley. Please go ahead, your line is open..

Yes, good morning, everyone. The old call cash buffer was around 1 billion and can you give an indication of what the excess capital is in the U.S. over the AA requirement? And so this is the first question.

And the other question I had was at the Investor Day, you - yeah you guided to excess cash generation on I believe was around 600 over your time period, it was based on the 1 billion free cash generation expected over the year of a typical year.

And the run rates that you show now this quarter I suppose is 0.2, so that’s a bit lower, can you comment on that expectation going forward and I suppose that links in with Farooq’s question around the 250 million that can be upstream to out of the Netherland? And then the last question I had was with regard to the yield assumption, current 4.25% yield assumption that you have currently the ten year is that 1.7, what’s the risk of lowering the assumption and has taking it quite bit charge on that? That’s it, thank you..

Okay Nadine, I’ll try to take those questions in order. On the U.S. capital, we are disclosing the S&P AA access anymore. We’ve moved over to RBC ratios as our primary capital metric in the U.S. and I think that fits better into how it comes across into the group Solvency II ratio.

So what I tell you is actually RBC ratio is up a little a bit last quarter where at 480 and that’s up from 460-465 I think it was last quarter. On the access cash generation, actually we’re very much in line with the targets that we setup before.

I think you quoted 200 million being down from 300, actually that’s a free cash flow numbers, so that’s holding.

So if you took that back to operational free cash flows that’s the 300 million that we show on the opening in the presentation, that’s very much in line, obviously that’s shown to one decimal point on the billions, but that’s very much in line with the 325 expectation that we would get which is the 1.3 billon that we are expecting for 2016.

So I would say we’re still very much on track there certainly on a normalized cash generation basis.

Your third question was on the 4.25 long term interest rate assumption in the U.S., I don’t really see that a lot of risk in that assumption to be honest with you, it is a ten year assumption, so we rate there uniformly from the current curve to that number over ten years. So we start out at the 1.75 that we are now.

We get their liner late over the next ten years. I think that’s a reasonable assumption and it’s certainly in line with market practice..

Thank you very much..

Yeah..

We take next question from Farquhar Murray from Autonomous. Please go ahead, your line is open..

Good morning, gentlemen. Just one question from me, actually most of them have been answered already doubt with.

Just coming back to the operational free cash flow in the quarter, you are reporting that as a kind of around it 0.3 billion, I just wondered if you could actually just help me call into 0.5 million as in previous quarter, probably because actually if I look at slide, I think that number of 2 percentage points is post holding cost then looking at probably something like 250 million, so any - just a little bit more detail would be helpful there? Thanks..

Yeah, Farquhar, yeah I can help you. I mean we’re showing it that way because I mean these are balance sheet move quarter-to-quarter, so we think kind of a round and approach is a better way to look at it, but the short answer in behind that is actually around 325 million, that’s about where we came in on the first quarter.

So that is the more detailed number. But again plus or minus 25 million-30million on that kind roll forward is an easy swing factor if you will but we are this quarter in and around the 325..

Okay, thanks so much..

Yeah..

We take the next question from Gordon Aitken from RBC. Please go ahead, your line is open..

Good morning. Thank you. And first question on, if you could take about your Dutch DD experience in the first quarter.

So I mean how many schemes are sort of for renewal and how many are sort of continuing into go down the DD route for future accrual, how many are, I know you are trying to shift to future of hybrid or DC, what’s experience there, are you losing any to competitors because I just your prices? And that’s the first question. Second one on the U.K.

on the BlackRock deal, just talk a bit about the revenue bps in the cost bps and as is at the moment and M&As and if you want to tell that number, you can tell me is it currently profitable that? And I am assuming that there is trump of that which is invested in BlackRock funds and maybe what percentage that is? And one more is you target, goal here is to increase the proportions in asset management product? And that’s the second question.

And the third question, on the U.S. on the DOL, I mean you said I seen in this presentation you said no meaningful impact, so no impact on the BlackRock, I mean how can you be so sure that advantages won’t revisit and maybe even some recent sales? Thank you..

Gordon, let me take the questions on the pension business now. As you know and interest rate do play an important rule here and at this point in time there is very limited movement in the DB’s schemes and what we see it’s increasingly customer are looking for opportunities to more from DB to DC.

So the DB environment now is this is effectively more or less inactive.

So that’s also one of the reasons that you will see that not only have we been building up our PPI for 1 K or type of design contribution capability, but we’re also going to launch our OPS for APS that new vehicle that is what we believe going to be very good alternative for DB plans looking for new home.

And we are about to launch that and I think we are waiting for the final approvals where we needed to. It’s good to know, I can share this with you because I am pleased to be able to do so.

We have already 2.2 billion of commitments into that new APS vehicle, which we believe is going to be the kind of alternative to the traditional DB schemes because effectively some things of a scheme which is bit of both DB and DC but a larger transition that is a bit smoother than moving from DB to DC.

So this way you will see the focus of us as a leading provider pension and leading provider pensions in Netherlands. We are very well appreciation, we are also consolidating a platform, so we have two PPI who is putting them together one platform which allows us to be able to very effective in terms of expenses.

Let me just try to answer your question on the statement that we made on the back book, that we do not believe that our back book was really going to be impacted. What we see is most likely is going to have is more like paralysis from advisers where they will first of have to access in what the new position is, go back to the customer.

So and that means that we’ll see rather less activity or we see more activity and that is a reason why we believe also that our back book such is not going to be very much impacted. The rules by the way going forward, so it’s really about the Fiduciary Rule looking at sales going forward from the pension area..

On the third question on BlackRock, let me just - I’ll just go right to the bottom line question you are asking, is it profitable day one. The answer is no, it’s kind of a breakeven sort of proposition on day one. The opportunities are for us to then bring it in, merger business together and take out some of the cost base.

There is also some strategic elements of this in turns of giving us access to some propositions that we did not have before. So on day one, it doesn’t really move the numbers , but what it does is gives us an opportunity going forward..

Okay, thank you..

Just to put in the context of the U.S. and Darryl, as we said earlier, we the fact that we have done this Mercer acquisition which is very by the way very similar to what we not doing with BlackRock already generated close to 2 billion of sales in the first quarter.

And this is because it brings a new capability identical to what we just - that Darryl was said on BlackRock to our U.S. business, because in the U.S.

we were mostly involved in the smaller and the SME schemes and now with the Mercer capital, are also able to cover the whole market and cover the very big schemes which bring us a lot of plan participants and that’s at the heart of our strategy not so we are focused on the scheme is in itself, but it is to focus on the plan participants individually needing to find solutions for their retirement..

Next question, operator..

We take next question from William Hawkins from KBW. Please go ahead, your line is open..

Hello, thank you very much. Good morning. First of all that slide seven where you talk about reviewing the IFRS code in the third quarter, can you clarify presumably that is what you maybe to the Solvency II code on - it’s binary.

And I am afraid I am no good on the math on this, I mean if you were to move to the Solvency II code, what exactly would be - what direction - what would be the impact of give the there is a change in the space of the curve and, I am not even sure about what directional impact positive or negative? And then secondly, the U.S.

dividend I think that’s later to be a billion dollars to this year as a round number, how should I be thinking about the second quarter versus first quarter and basically assuming 50/50 but obviously fourth quarter is low last year because you didn’t need the cash, so I am not sure about where - which reasonable to assume 50/50 or is there could be some skew? And then finally, briefly, given the point you’re making about the weakness of this because of daily averaging, presumably it’s a statement of the obviously the second quarter should be stronger as a result of that if you could just confirm? And if we were sort of starting at the where the markets have been in the first month, what would be the natural bounce back moving from the daily average to what we began the quarter? Thank you..

Hi Will, it’s Darryl. I’ll try to answer your questions. The first one, IFRS, you are correct on the binary decision we’re looking at I guess it doesn’t have to be binary, it could be any other curve but what we are analyzing and looking to more is the IFRS curve much closer to if not on top of the Solvency II curve.

And really that will for really the sole purpose of trying to take our IRFS volatility down so that we get a matching our IFRS results with actual hedge programs that are in place which are, are there to project Solvency II basis. So yes it’s IFRS to Solvency II.

What will that do, I guess I - generally that will lead to a positive in doing that curve change but that’s something we haven’t quantified in size and that’s something that we’re analyzing now. So I can give you a directional component only on that one at this point. U.S.

dividends, yes, 50/50 is good expectation and US$1 dollars dividend to the year 50/50 first half, second half is a good number to work with. And then finally on the on the daily averaging, yes you are - your map is right, we ended the quarter higher and so enter into Q2 and higher balances as long as we don’t have a similar short of dip effect.

We will at least earn back the earnings drag that came from the decline if you will throughout the quarter. That’s going to be varies by product line, most of the depth was on the variable annuities, also some on the pension and the mutual fund and the business. In total, be around 20 million or so would be a high level number I would put on that..

That’s very helpful, thank you..

Yeah..

We take next question from Mark Cathcart from Jefferies. Please go ahead, your line is open..

Yeah, hi, it’s Mark Cathcart from Jefferies. I’ve got three questions for Darryl.

The first one is, if that we’re generating investor that you’d be presented with financial market then happened between that date on March 31, which you have been, which will predict the Dutch ration 135 [Technical Difficulty] analysis, what you know that stage on your sensitivities? The second question is, a year ago, I think you commented on this conference call that you are positive or you thought there was going to be a benign outcome for Q3 charges and obviously benign, which you say you are more or less confident then you were first quarter last year on the outcome for Q3 this year.

And then third question is you are in countries, if you knock that down to 22, bring the cost for U.K. the U.S.

and the Netherlands, of this 22 countries, how many you actually generation cost?.

Mark, you cut out on the last question, the line - when you but down the 23 countries and then your line cut out after that.

Sorry could you repeat?.

Okay, so the question was how many - in how many countries are you generation your cost of capital evolving those 22 countries?.

Okay. Okay, well let me go back to the first question. In terms of the Dutch capital position, how much of this -.

You mentioned about singularity it was difficult I think, so as you comment, the singularity was difficult, so I am just trying to work out if you knew what the outcome is going to be?.

Yeah I think, in January, we never know where the Dutch mortgage spreads are going to end and some of the cross impact you get into - so the Dutch mortgage spreads are wider and I would say -.

No they are - so the question is if you did know what was going to happen in the first quarter which you will come out with that number of 135, in other words, given what happened, was the 135 predictable? That's what I'm trying to get to..

Yes. I guess it's a difficult question to answer. I think, largely, if I knew everything that I know now, in hindsight, could I have gotten to the right number? I think the answer to that question is yes. I am….

But your sensitivities performed as you expected them to?.

Yes. Well, I will say we are updating the sensitivities for some of the hedge program changes that were made throughout the quarter. So we are going to and I am flagging here that the Dutch interest rate sensitivity will be higher than what we have on those sensitivities, and that I think is clearly laid out in the presentation.

I think there are impacts to the capital ratio that you cannot capture in the sensitivities themselves. So when you get into some of the credit downgrades and migration, those aren't easily captured in the sensitivities that we provided.

Where I was going when I started to answer the question was that dropping of interest rates has an impact on mortgage spreads if the consumer rates don't follow because of our methodology that we've landed on and how we compute the fair value of a Dutch mortgage, so there is cross-term impacts there.

So there are a lot of cross-term impacts that is difficult to put on a single page of sensitivities, which is what we shared you in January.

So I mean, a broad answer is yes, in perfect hindsight we would have gotten to the same number, but is all of that captured on the sensitivities that you have on a single page? No because there are some cross-term elements that have gone against us. There is basis risks that's gone against us in this quarter.

So that's - I don't know if that's answering your question or not, Mark, but I think that's….

I'm just trying to get a handle on how much in control you are of your Solvency II ratio for the Netherlands.

And what you're suggesting is cross-term impacts are something that you're not really too sure how they are going to involve, so you are not quite in control of your Solvency II ratio outcome from the Netherlands?.

Well, it is a complicated calculation, I can tell you that. And that there is a reason I'm not giving you sensitivities here today, is that we do have quite a bit of work to do to do modeling on the FCR and all of the - all of those cross-term impacts. So I….

So if your Solvency II ratio did go below 135 by say, the end of Q3, it was at 128 or 132, would you still upstream that 250 million of cash, I presume not?.

Yes. So I'll go back to the question that I answered earlier. It really is applying our capital policy. And - but because our sensitivities have gone higher, we have to go back and re-look at that capital policy.

But we're currently in the green zone of our capital policy, but I've also flagged that we need to go back and look at sensitivities to make sure that the capital ranges and zones that we've identified for the Dutch business still fit within the capital ratios.

So the capital policy is laid out to give, hopefully, certainly internally from a governance perspective, but also externally, a good understanding of where we are from our ability to upstream dividends. So we are towards the bottom end of that range and the sensitivities are increasing. So that's the part that we have to go back and analyze.

So I can't give you a definitive answer on the NL dividend for this year until we go back and complete that work..

Okay. Thanks, but that's the first question..

Your other question on assumption review for Q3, yeah, again, as I sit here in the first quarter I'm not anticipating anything coming out of the third quarter assumption review. In the last two years we have dealt with a mortality issue in terms of bringing in a new mortality curve in the US to deal with older age mortality.

The good news is I think here in the first quarter actually mortality exceeded our expectations. We were off our annual run rate, but not as far as what we would normally expect because of the seasonality effect. So while we might normally expect about a $30 million deterioration, we only saw $14 million in the first quarter, as an example.

So I think the mortality is tracking okay. In terms of the assumption reviews that we had, we also had an update to the Universal Life persistency assumptions last year. We've completed that work and there's nothing else that I'm anticipating for the third quarter, but of course I can't give you definitive assurance otherwise.

We'll go through our normal actuarial process of reviewing all of our assumptions, and that will be - that's activity that's started now and will carry on into the summer and we will announce in the third quarter. The last question, I don't have an exact number on the - I have to go back and add up whether the 22 is right or not, but….

But the reason I asked that question is because the new way that you are showing your numbers, which is now done on a continental basis, so it's US, Europe, Asia, suggests that you are seeing yourself as a global company rather than the US, Dutch, small UK company.

And I'm just wondering how on top you are in terms of the delivery of all of these countries in which you operate, that's the reason for the question..

Well, and some of the answer lies in the maturity of these underlying businesses as well. So if you start in the Central Eastern European region, the majority of those countries are in fact returning good returns, dividend paying to the group and hitting our cost to capital.

I think Turkey would be an exception to that, but also is one of our newer, faster-growing regions. So we see that as an investment for growth for the future, and the rest of them are more mature and developing and returning profits.

Spain has been a turnaround story for us as we have changed out the distribution and entered into the new relationship with Santander. And that's - so that's a different recovery, and we're very much on track for developing or delivering on our business plans there. When you get into the joint ventures across Asia, the story is a little bit mixed.

The most mature of those businesses is the high-net-worth business, which was an ex-Transamerica business. That's profitable and hitting our returns. The JVs in the - the newer JVs in China, India, Japan, for instance are not hitting our returns and not hitting our return on capital.

So there is a mixed story, but for very good reasons across each of those different geographies..

I'm sure the reasons are good, but other companies have pulled from non-core periphery operations.

And I just wonder if Aegon might go down that path?.

I guess maybe I could - the only thing I would add to that is something we evaluate on all our businesses at all times. And when we do go in a different direction then we will let you know..

Thanks..

We take the next question from Matthias De Wit from KBC Securities. Please go ahead. Your line is open..

Yes. Good morning. Three small questions, please. First on the Dutch capital position, I just wonder whether there is anything you could do to optimize the ratio. In the past you concluded a number of longevity swaps, but to my understanding you did not yet get any capital credit for them.

So is this still something you would expect and is there anything else you could do to optimize or boost the ratio going forward? So that's the first question. Secondly, on the DOL, you guided for an impact on VA sales and higher implementation expenses.

Is there anything - is there any offset from cost savings, and could you maybe share whether you see any net negative impact on earnings and also comment on the timing of any such impact? And then the last question is on the US capital position.

Is there anything you could share on how much of the quarter-on-quarter increase in RBC was driven by the drop in interest rates? Because this to me that looks like a non-economic gain to the capital position, and I just wonder how much of that you could remit to the HoldCo [ph] in form of dividends going forward? Thank you..

All right. Let me take - I'll take the first and the third. On the NL capital ratio, is there more we can do? Yes there is and we continue to look at that. So we continue to look at laying longevity off into the market, that we've been clear about that from a strategic objective, as well as capital optimization.

So that's something that you will continue to see us deliver on as we go forward. And then on the US capital position, on the RBC ratio, I don't have an exact number on how much it was benefited from the interest rates.

There was some modest up-tick because what happens in the US is the derivatives that we have to protect against low interest rates generate statutory earnings in the US and that has sort of a positive inflation to the ratio.

But in terms of the contribution into the dividends, the reality is we are really in a strong excess capital position in the US and definitely in dividend paying mode.

So even despite that up-tick, which is sort of non-economic, as you say, which is probably a fair statement, it doesn't change the dividend outlook from the US given where our capital ratios are and where our cash generation out of the US is coming from.

The DOL?.

On the DOL, Matthias, I just would like to add that the implementation is for certain parts of the rule April 2017; in other parts of the rule the end of '17. So that gives us quite some transition, which I referred to earlier.

Now in terms of expenses, additional, not expenses, the only answer I want to give you is that we have made a clear commitment to reduce expenses by $150 million by 2018 and we stick to that..

Okay. That's very clear.

If I could just come back on the Dutch capital position, on the longevity swaps, for example, do you have any idea when we could expect any news on in terms of capital credit you might get or - and what are the discussions you're currently having with the DNB in that regard?.

Yes. It's actually a two-part answer, and thanks for the question. It - we are still working with the Dutch central bank to get internal model approval for our longevity risk-based capital. That was sort of one of the day-two items that we put on the list for this year.

So there still are some opportunities that we have in terms of expanding scope of our internal model. We had de-scoped it last year just because of all of the work and the timelines. So there are still some scope expansions to our internal model that we're working on for this year.

That will allow us to take credit for some of the longevity transactions that we've already done that we haven't got full credit for. And then in terms of more deals, in terms of laying off longevity into the market, that's something we're currently working on now.

And I would expect, I can't give you an exact timeline, but somewhere in the next two to three quarters you'll probably see something else from us on transaction wise..

Okay. Thanks a lot..

Our next question comes from Bart Horsten from Kempen & Co. Please go ahead. Your line is open..

Good morning. Thank you for taking my questions.

First of all, on the Dutch capital position add-on question, do you exclude the possibility that you may have to do a capital injection for your Dutch life activities? And my second question, regards the holding cash position, could you remind me on the target level you have there? And in the press release it also said that there was a capital contribution to the operations of $100 million, could you tell us which activities that related to? And will the holding cash position going forward also still be impacted, for instance, by a purchase price you paid for the BlackRock activities? And my final question is, on the alternative investment portfolio where you mentioned a write-down.

Could you tell us the size of the portfolio and what we can expect going forward from that portfolio? Thank you..

Hi Bart. It's Darryl. Let me try to hit those questions. On the - the way I would answer your NL capital injection question is the way I answered the dividend question earlier, which is we'll apply our capital policy in the Netherlands. We're still in the green zone of our 130 to 150 target zone for our subsidiary levels, albeit it at the lower end now.

We do have to work to go back and check our sensitivities and make sure that those are the appropriate ranges for us to continue to run in, but at this point I'm certainly not foreseeing any capital injection into the Netherlands business. So I guess I would just say it that way.

On your second question, if I captured it all correctly, it was holding related. We do target $1 billion to $1.5 billion. That's our stated target for excess capital in the holding. We're at$1 billion now. In terms of the movement in the quarter, there was about $100 million total, a little less than that that went into units.

They were really small increments that went in, in several different places to a couple of our joint ventures in Asia and a small amount into our unit in Spain for our expansion into Portugal and a little bit into Ireland, where we are selling the guarantee product, the guaranteed VA product.

So it was a little bit across four different regions, which added up I think to a total of about $80 million, rounded to the $100 million on the slide. And then BlackRock, there really is no - there is no purchase price associated with BlackRock. So there was no impact on the holding excess cash from the BlackRock transaction.

Your last question was on the alternative portfolio. The alternative portfolio in the US is about $2.4 billion, which about $1.8 billion or so is in - is currently in hedge funds. The rest is in private equity and real estate alternatives.

We are targeting to reduce the hedge fund component over time and transition more into private equity and other alternatives. So I the $2.4 billion will stay, but the $1.8 million of hedge funds will come down over time and be replaced..

Okay. Thank you..

Yes..

The next question comes from Nick Holmes from Societe Generale. Thank you..

Hello. Hi there. Thank you very much. Just two very quick questions.

The first is, coming back on DOL, do you expect any boost to VA sales in the next 18 months before the new regulations are implemented? And secondly, just looking at the variable annuity book, if hypothetically the S&P 500 US equity market were to be flat for a couple of years, how well positioned do you think you are? And I'm thinking the net amount at risk, if you look at, for your book is actually good by comparison with peers.

And I wondered, do you feel fairly comfortable if there is pressure in equity markets? Thank you very much..

Nick, as I said, I don't believe that we'll see a boost in sales. You're probably referring to kind of the final sales before the rules change. No, I believe on the contrary most people would just wait. I see more something like a paralysis in how advisors are going to behave.

They certainly would not want to take an action that then can be seen as not being in line with the to-be-implemented rule. So I'm certainly not seeing that..

Okay..

On the second question, how do we feel about flat equity markets on the VA portfolio? I mean, I think we feel quite okay. I mean, the reality is we have hedge programs in place. We have really 100% of the equity delta exposure hedged on all of our VA business.

And so from a guarantee risk perspective, we're really agnostic to movements in equity markets as it relates to the VA business. From sort of a - we do have some revenue at risk, if you will, in terms of - and you saw some signs of that this quarter as the equity markets went up and down.

You have a little bit of more of that mutual fund revenue that fluctuates. But in the scenario you described as a flat equity market, that wouldn't be an issue in that scenario. So I don't really see it as an issue. In terms of the net amount at risk, yes, we - the total net amount at risk for the book is around $3.8 billion.

So I think I agree with your comments. It's not the - it's certainly not the largest that's out there..

Okay. That's very useful. Thanks very much..

Yes..

It appears there is no further questions at this time. I'd like to turn the conference back to your host for any additional or closing remarks..

I would just like to thank you all for participating in this call and obviously for your continued interest in Aegon. Look forward to seeing you all very soon. Bye, bye..

This concludes today's call. Thank you for your participation. You may not all disconnect..