Aegon reports fourth quarter 2022 results

Aegon’s strategy
Aegon is taking significant steps to transform the company in order to improve its performance and create value for all of its stakeholders. To ensure delivery against these objectives, a rigorous and granular operating plan has been developed across the organization. Aegon focuses on three core markets (the United States, the Netherlands, and the United Kingdom), three growth markets (Spain & Portugal, Brazil, and China) and one global asset manager. Aegon’s businesses within its core markets have been separated into Financial Assets and Strategic Assets. The aim is to release capital from Financial Assets and from businesses outside of Aegon’s core perimeter, and to re‑allocate capital to growth opportunities in Strategic Assets, growth markets and the global asset manager. Throughout this transformation, the company aims to maintain a solid capital position in the business units and at the Holding. Through proactive risk management actions, Aegon is improving its risk profile and reducing the volatility of its capital ratios.

Operational improvement plan
Given the overall success of the operational improvement program, and in light of upcoming changes to the group’s structure and reporting due to the transaction with a.s.r., Aegon has decided to close out the reporting on the operational improvement. The plan was not only aimed at improving the operating performance and propositions to customers, but also has fundamentally changed the ways of working at Aegon. A continuous focus on efficiency and operational execution has been embedded in the organization, where ambitious yet realistic targets are set, granular plans with real-time initiative tracking are implemented, and accountabilities are clearly assigned. The increased operational rhythm has created a culture of transparency, early escalation, and a focus on developing talent to support new ways of working.

The initiatives executed as part of the plan have reduced costs, expanded margins, and helped the businesses grow profitably. Between the launch of the operational improvement plan and the end of 2022, a total of 1,199 initiatives have been executed, of which 921 are related to expense savings. At the Capital Markets Day in 2020, Aegon announced to target an operating result uplift of EUR 550 million by the end of 2023 from the combination of EUR 400 million expense savings and EUR 150 million of operating result contribution from growth initiatives. As of year-end 2022, the operational improvement plan has resulted in an operating result uplift of EUR 627 million, split between a EUR 366 million benefit from expense initiatives and an uplift to the operating result of EUR 262 million from growth initiatives.

The EUR 366 million of addressable expense savings delivered as of the end of 2022 compared with the base year 2019, represent 92% of the EUR 400 million savings targeted for the end of 2023. These expense savings were partly offset by EUR 86 million of additional expenses related to growth initiatives in 2022, only about 60% of the additional EUR 150 million of addressable expenses that were originally envisaged. As such, the operational improvement plan has led to a net reduction in addressable expenses of EUR 279 million compared with the target of EUR 250 million communicated at the Capital Markets Day in 2020.

Going forward, the company will continue to focus on improving the efficiency and growth of its various businesses. The company will present a strategy update, including plans regarding efficiency measures and continued growth, at an upcoming Capital Markets Day in June 2023.

Strategic Assets
Strategic Assets are businesses with a greater potential for an attractive return on capital, and where Aegon is well positioned for growth. In these businesses, Aegon invests in expanding its customer base and increasing its margins to realize profitable growth.

Americas
In the US Individual Solutions business, Transamerica’s aim is to achieve top-5 positions in term life, whole life final expense, and indexed universal life through profitable sales growth. The Individual Solutions business generated new life sales of USD 124 million in the fourth quarter of 2022. With an increase of 30% compared to the fourth quarter of last year, Individual Solutions achieved the highest level of quarterly new life sales in the last five years. For the full year 2022, Individual Solutions increased new life sales to USD 431 million, 20% higher than the prior year. The increase was driven by higher indexed universal life product sales across all distribution channels. The improved service experience and continued competitiveness of Transamerica’s products supported an increase in market share in the WFG distribution channel to 67% in the last quarter of 2022, compared with 59% a year earlier. WFG further expanded its distribution reach by growing the number of licensed life agents to a record level of more than 62,000 agents, an increase of 20% compared with the prior year quarter. Also, Transamerica launched a new indexed universal life product specifically designed for the brokerage distribution channel, complementing our current product that is successfully marketed through WFG. Term Life and Whole Life sales remained broadly stable in a competitive market.

In the US Workplace Solutions business, Transamerica aims to compete as a top-5 player in new sales in the Middle‑Market segment of Retirement Plans. Written sales were USD 967 million in the fourth quarter of 2022, compared with USD 1.3 billion in the same quarter of 2021. For full year 2022, written sales were USD 7.9 billion compared with USD 9.2 billion in 2021. Lower equity markets and higher interest rates have had a negative impact on plan assets, and plan sponsors were more hesitant to move retirement plans given the volatile markets. Net outflows for the Middle‑Market amounted to USD 5.7 billion. USD 5.2 billion of which were due to the discontinuance of one large Multiple-Employer-Plan contract. Excluding this contract, the Middle-Market segment saw net outflows of USD 0.5 billion, an improvement of USD 0.2 billion compared with the prior year quarter driven by strong written sales in prior periods. The aforementioned large discontinuance led to net outflows for the full year 2022, which amounted to USD 4.4 billion compared with USD 0.4 billion of net outflows in the prior year.

The Netherlands
Aegon is a leading mortgage originator in the Netherlands. The company originated EUR 1.9 billion of residential mortgages during the quarter. This is lower than the EUR 2.3 billion originated in the fourth quarter of 2021 due to reduced refinancing activity and a decline in home sales as a result of increased mortgage interest rates. In the fourth quarter of 2022, almost half of the mortgages were originated for third-party investors, who pay Aegon a fee for originating and servicing these mortgages. For the full year, mortgage origination volumes declined from EUR 10.9 billion in 2021 to EUR 8.7 billion in 2022. Despite the reduction in mortgage origination, the portfolio of mortgages under administration grew by EUR 3.1 billion compared with the fourth quarter of 2021 to EUR 62.9 billion.

Net deposits for the Workplace Solutions defined contribution pension products (PPI) in the Netherlands increased by 14% to EUR 212 million in the fourth quarter of 2022, supported by recurring gross deposits from continued strong demand for PPIs. Net deposits for the Workplace Solutions defined contribution products for full year 2022 increased by 13% to EUR 834 million.

Knab’s aim is to develop into a digital gateway for individual retirement solutions. Knab grew its fee-paying customer base by over 11,000 in the fourth quarter and over 44,000 for the full year to 346,000 at the end of 2022. This growth was mainly driven by the small business segment, which underscores the bank’s ability to attract and retain customers through its clear way of communicating, its customer-friendly service, and the way it offers customers an easy and cost-effective way to manage their banking matters online.

United Kingdom
In the United Kingdom, Aegon’s aim is to grow both the Retail and Workplace channels of its platform business. The platform business – excluding the low-margin Institutional business – generated net deposits of GBP 223 million. In comparison, net deposits amounted to GBP 504 million in the fourth quarter of 2021. Revenues declined in the fourth quarter of 2022 mostly as a result of the anticipated gradual run-off of the traditional product portfolio. Platform expenses as a percentage of assets under administration were stable compared with the same period of 2021 at 21 basis points, with expense savings offsetting the impact from unfavorable market movements on assets under administration.

Full year net deposits on the platform amounted to GBP 1.3 billion in 2022, a 5% increase compared to 2021. Net deposits in the Workplace channel of GBP 2.2 billion over the full year 2022 were the highest level in recent years, demonstrating the improvements Aegon is making to the franchise. Net outflows of GBP 0.9 billion were recorded in the Retail channel, largely as a result of negative investor sentiment. Over the full year net deposits on the platform had a small positive contribution to annualized revenues. The decline in revenues from the anticipated gradual run-off of the traditional product portfolio was more than offset by operational improvement measures which have reduced addressable expenses.

Financial Assets
Financial Assets are blocks of business that are capital intensive with relatively low returns on capital employed. New sales for these blocks are limited and focused on products with higher returns and a moderate risk profile. Dedicated teams are responsible for managing these businesses and maximizing their value through active in-force management, disciplined risk management, and capital management actions. To achieve this, Aegon considers unilateral and bilateral actions as well as third-party solutions. Unilateral actions are those that can be executed fully under Aegon’s control, while bilateral actions require the interaction and consideration of other stakeholders.

Americas
Transamerica is managing a book of variable annuities with interest rate sensitive riders, fixed annuities, and the long-term care book as Financial Assets. An active management and the implementation of in-force management actions has resulted in a de-risked legacy Variable Annuities portfolio that runs off over time. As previously indicated, the company remains exposed to the impact of equity markets on variable annuity base contract fees. Transamerica has intentionally left this risk open, as this is fundamentally an asset management type of exposure and a key driver of future variable annuity capital generation. In order to reduce the volatility of the RBC ratio caused by the exposure of base contract fees to equity markets, Transamerica established a voluntary reserve in the fourth quarter that more closely aligns the recognition of the fees in capital with when they are earned. This led to a one-time reduction of the RBC ratio and has substantially reduced the sensitivity of the ratio to equity market movements. Consequently, Aegon will benefit from an even more stable and higher quality capital generation from the variable annuity portfolio, mainly driven by the emergence of base fees and the release of required capital as the book runs off.

Previously, Transamerica had expanded the dynamic hedge program to variable annuity products with guaranteed minimum death benefits and guaranteed minimum income benefits. In the fourth quarter of 2022, Transamerica achieved a hedge effectiveness of 96% on its variable annuity dynamic hedge program, continuing its strong track record.

Transamerica is actively managing its long-term care business. The primary management action regarding long-term care are rate increase programs. The total value of approvals achieved since the start of the program now stands at USD 471 million, with USD 21 million additional approvals for rate increases obtained in the fourth quarter of 2022. The company had achieved the USD 450 million target for this program already in the third quarter of 2022. This was the upgraded target compared with the targeted USD 300 million value of rate increases that Aegon communicated previously. Transamerica will continue to work with state regulators to get pending and future actuarially justified rate increases approved.

Claims experience for the long-term care business in the fourth quarter was somewhat favorable to expectations mainly from higher claims terminations, while the frequency of new claims has returned to pre-pandemic levels. Actual-to-expected claims experience was 96% for the fourth quarter of 2022.

Transamerica Life Bermuda
Transamerica Life Bermuda (TLB) is Aegon’s high-net-worth business operating out of Hong Kong, Singapore, and Bermuda. Following the reinsurance transaction of the closed block of universal life insurance liabilities with Transamerica, TLB is now managed as a Financial Asset. In line with Aegon's strategy to maximize its value through disciplined risk and capital management, TLB remitted EUR 57 million to the Holding in the fourth quarter of 2022. This brings the total remittances in the full year 2022 to EUR 112 million, supported by operating capital generation of the business and upstreaming of excess capital.

The Netherlands
The dedicated team responsible for the Dutch Life business – Aegon Levensverzekering N.V. – is actively managing risks and the capital position to enhance the consistency of remittances to the Holding. The Solvency II ratio of the Dutch Life business increased during the fourth quarter of 2022 from 207% to 210% largely driven by model and assumption updates. Market movements had a negative impact, driven by lower real estate revaluations.

Growth Markets and Asset Management
In its growth markets – Spain & Portugal, Brazil, and China – Aegon is investing in profitable growth. New life sales from these markets increased by 44% to EUR 74 million in the fourth quarter of 2022 mostly due to strong sales growth and increased business ownership in Brazil. For the full year 2022, new life sales totaled EUR 248 million, an increase of 15% compared with the full year 2021.

Market consistent value of new business (MCVNB) for the life business decreased by 28% to EUR 19 million in the fourth quarter of 2022, which reflects the impact of the divestment of Aegon’s stake in the joint venture with Liberbank and a less favorable product mix in Spain & Portugal, with a partial offset from the inclusion of Brazil. For the full year 2022, MCVNB amounted to EUR 73 million, representing a 22% decrease compared with the full year 2021. This was mostly due to industry‑wide lower demand for critical illness products in China.

New premium production for property & casualty and accident & health insurance amounted to EUR 29 million and remained stable compared with the fourth quarter of 2021. In Spain & Portugal, business growth in accident & health was offset by lower demand for property & casualty products. For the full year 2022, new premium production for property & casualty and accident & health insurance increased by 10% when compared with the full year 2021 to EUR 117 million.

In October 2022, Aegon announced that it successfully completed the divestment of its 50% stake in the Spanish insurance joint venture with Liberbank to Unicaja Banco. The sale followed the change of control in Liberbank after its merger with Unicaja Banco in 2021. Aegon Spain has upstreamed EUR 146 million of proceeds from the transaction to Aegon Group in the fourth quarter of 2022. Aegon will continue to grow its business in Spain & Portugal through its key life and non-life joint ventures with Banco Santander as well as through its own channels, which have generated significant profitable growth over the last years.

Aegon Asset Management (Aegon AM) aims to increase the operating margin of its Global Platforms by improving efficiency and driving growth. However, challenging market conditions resulted in third-party net outflows of EUR 2.4 billion on the Global Platforms in the fourth quarter of 2022, as customers freed up liquidity in a rising interest rate environment. Adverse market and economic conditions in China impacted the Chinese asset management joint venture Aegon Industrial Fund Management Company (AIFMC) and led to third-party net outflows of EUR 1.4 billion in Strategic Partnerships.

Annualized revenues lost on net deposits for Global Platforms amounted to EUR 7 million for the quarter, predominantly as a consequence of net outflows in the third-party business. The operating margin for Global Platforms decreased to 4.7% in the fourth quarter of 2022, driven by lower revenues as a consequence of lower asset balances that were negatively impacted by both outflows and adverse market conditions.

Full year third-party net outflows on the Global Platforms amounted to EUR 3.8 billion in 2022 compared with net deposits of EUR 5.0 billion in 2021. This was driven by customers freeing up liquidity in a rising interest rate environment. Annualized revenues lost on net deposits for Global Platforms for full year 2022 amounted to EUR 22 million. The operating margin of Global Platforms for the full year 2022 was 11.9% compared with 12.6% in 2021, with lower expenses – including from lower variable compensation accruals and expense savings initiatives – partly offsetting the decrease in revenues.

Operating result
Aegon’s operating result increased by 4% compared with the fourth quarter of 2021 to EUR 488 million. At constant currencies, the result decreased by 1%. Lower fees due to adverse markets and outflows in US Variable Annuities and Asset Management broadly offset benefits from expense savings, growth initiatives, one-time reserve releases in the Netherlands, and improved claims experience.

The operating result from the Americas increased by 26% compared with the fourth quarter of 2021, or 14% on a constant currency basis, to EUR 233 million in the fourth quarter of 2022. This was primarily due to an improvement of the unfavorable mortality claims experience in Life, reducing from EUR 83 million in the fourth quarter of 2021 to EUR 13 million in the same quarter of 2022. In addition, the result from the Americas benefited from recognizing the result from TLB for the second half of 2022 following the reinsurance transaction between TLB and Transamerica that commenced retrospectively on July 1, 2022, with a commensurate offset in the International segment. This was partly offset by a lower result from Variable Annuities where fee income was negatively impacted by adverse markets and expected outflows, and from less favorable morbidity claims experience which reduced from EUR 30 million in the fourth quarter 2021 to EUR 16 million in the fourth quarter of 2022.

Aegon’s operating result in the Netherlands increased by EUR 25 million compared with the fourth quarter of 2021 to EUR 220 million. The results of Bank and Workplace Solutions showed a strong increase, supported by higher interest rates, business growth, and non-life reserve releases, while the results of Life and Mortgages decreased, reflecting lower investment income from mortgages. Benefits from expense savings initiatives across all lines of business more than offset higher pension costs for own employees and expenses related to growth initiatives.

The operating result from the United Kingdom increased by 3% compared with the fourth quarter of 2021 to EUR 50 million. Lower addressable expenses as a result of expense savings initiatives more than offset a decline in fee revenues as a result of unfavorable market developments in 2022 and the run-off of the traditional product portfolio.

The operating result from International decreased by EUR 37 million to EUR 9 million in the fourth quarter of 2022. The main driver was the previously announced reinsurance transaction between TLB and Transamerica, with a commensurate positive impact in the Americas segment. Adjusting for this impact, the result increased by 31%, which was driven by Brazil, and reflects improved claims experience and business growth.

The operating result from Aegon AM decreased by 35% compared with the same quarter of 2021 to EUR 32 million in the fourth quarter of 2022. This was driven by lower management fees in both Global Platforms and Strategic Partnerships, mainly as a consequence of lower asset balances due to adverse market conditions, and lower performance fees in the Chinese asset management joint venture Aegon-Industrial Fund Management Company (AIFMC).

The operating result from the Holding was a loss of EUR 56 million, and mainly reflects funding expenses.

Non-operating items
The result from non-operating items amounted to a loss of EUR 445 million in the fourth quarter of 2022, mainly as a result of fair value losses and realized losses on investments. Fair value losses were mainly driven by the Netherlands, largely due to the negative impact from real estate revaluations following the decrease in Dutch housing prices. Realized losses on investments were primarily from the sale of bonds in the Americas at the beginning of the fourth quarter to maintain a robust liquidity position consistent with Aegon’s strict liquidity framework, and adjustments to the Transamerica’s interest rate risk profile following the increase in interest rates.  

Other charges
Other charges amounted to EUR 2.0 billion and reflect a EUR 1.8 billion impairment loss triggered by classifying Aegon the Netherlands as held for sale, as a result of the transaction with a.s.r. This represents the majority of the expected reduction in equity as a result of the transaction. One-time investments related to the operational improvement plan amounted to EUR 81 million.

Net result
The result before tax amounted to a loss of EUR 2.0 billion. The tax charge for the quarter amounts to EUR 384 million, mainly driven by a previously announced one-time tax charge related to the anticipated settlement of a tax position in connection with the transaction with a.s.r. It also reflects that the aforementioned impairment loss is not tax deductible. The net result was a loss of EUR 2.4 billion.

Expenses
Addressable expenses decreased by 7%, or EUR 55 million on a constant currency basis compared with the fourth quarter of 2021 to EUR 753 million. The benefit from expense savings initiatives and lower performance-related compensation expenses was only partly offset by additional investments in growth initiatives across the group.

Operating expenses of EUR 1,013 million increased by 11% compared with the fourth quarter of 2021. This was mainly driven by non-recurrence of a one-time benefit in the fourth quarter of 2021 and increased project costs for IFRS 9 and 17 implementation, which more than offset the impact from lower addressable expenses and the impact of the completion of the sale of Aegon’s businesses in Hungary and Turkey. 

Shareholders’ equity
Shareholders’ equity excluding revaluation reserves was EUR 16.2 billion, or EUR 8.06 per common share, on December 31, 2022, a reduction of EUR 3.5 billion compared to September 30, 2022. The reduction in equity was driven by the net loss and unfavorable currency movements.

Gross financial leverage
Gross financial leverage decreased by EUR 0.2 billion in the fourth quarter of 2022, to EUR 5.6 billion per December 31, 2022. This decrease was driven by the weakening of the US dollar against the euro.

Cash Capital at Holding and free cash flow
Aegon’s Cash Capital at the Holding increased from EUR 1,368 million to EUR 1,614 million during the fourth quarter of 2022. The main contributors were free cash flow of EUR 318 million, EUR 146 million of net proceeds from the previously announced divestment of Aegon’s stake in the joint venture with Liberbank. These cash inflows more than offset capital returns to shareholders of EUR 240 million in the fourth quarter, which consisted of a share buyback to neutralize the 2022 interim dividend paid in shares and the last EUR 100 million tranche of Aegon’s EUR 300 million share buyback program in 2022. Other items led to an inflow of EUR 22 million, driven by benefits from rolling currency hedges related to Aegon's gross financial leverage.

Capital ratios
Aegon’s Group Solvency II ratio decreased from 212% to 208% during the fourth quarter of 2022, driven by negative capital generation after holding expenses of EUR 664 million, as well as the deduction of the final 2022 dividend and the EUR 200 million share buyback announced today. Unfavorable market movements totaled EUR 369 million, and notably included the impact of lower real estate valuations in the Netherlands. One-time items amounted to a loss of EUR 585 million and were mainly driven by a previously announced tax charge related to the anticipated settlement of a tax position in connection with the transaction with a.s.r. Operating capital generation amounted to EUR 290 million after holding expenses. 

The estimated RBC ratio in the United States increased from 404% on September 30, 2022 to 428% on December 31, 2022, and remains above the operating level of 400%. The main positive impacts were from previously announced management actions. Following an internal reinsurance transaction, Transamerica is able to recognize its equity in TLB as available capital for solvency purposes. This more than offset the impact from setting up a voluntary reserve for the variable annuities portfolio. One-time items also include a negative impact from industry-wide regulatory updates to factors that determine required capital. Market movements had a positive impact, driven by higher equity markets and interest rates. Operating capital generation contributed favorably to the US RBC ratio, while the dividends from the operating companies to the intermediate holding company had a negative impact.  

The estimated Solvency II ratio of NL Life increased from 207% on September 30, 2022 to 210% on December 31, 2022, and remains above the operating level of 150%. The increase was mainly due to the positive impact of model and assumption changes, which included the favorable impact of a higher factor applied when calculating the loss-absorbing capacity of deferred taxes (LAC-DT). Market movements had a negative impact, driven by lower real estate revaluations. Operating capital generation more than offset the EUR 50 million remittance to the Holding in the fourth quarter.

The estimated Solvency II ratio for Scottish Equitable Plc decreased from 179% on September 30, 2022 to 169% on December 31, 2022, and remained above the operating level of 150%. The decrease in the ratio was mostly due to the impact of model and assumption changes, remittances paid, and market movements. These more than offset the positive contribution from operating capital generation.

Implications of transaction with a.s.r. on Aegon’s reporting
Upon completion of the transaction whereby Aegon will combine its Dutch pension, life and non-life insurance, banking, and mortgage businesses with a.s.r., Aegon will receive a 29.99% strategic shareholding in a.s.r. In addition to the shareholders' approval obtained in January 2023, the closing of this transaction is subject to customary conditions, including regulatory and antitrust approvals. Aegon’s strategic shareholding in a.s.r. will be accounted for at the net asset value of a.s.r. Aegon will align its future reporting dates and frequency with those of a.s.r. to allow for the inclusion of Aegon’s share in the net asset value of a.s.r. in Aegon's financial reporting. This means that Aegon will adjust its reporting format to trading updates for the first and third quarters focusing on selected key performance metrics, including operating capital generation, capital positions and sales figures. In line with a.s.r., Aegon will report IFRS results in the second and fourth quarter. To provide consistency for the financial year reporting, this change in reporting format will become effective as of the first quarter of 2023 and is expected to remain in place until a.s.r. would move to quarterly reporting.

In light of the transaction with a.s.r., Aegon will no longer report the operating result and operating capital generation for its Dutch business going forward. This change will be implemented as of the first quarter of 2023. The results of Aegon’s Dutch business will be reported as non-operating results for both IFRS segment reporting and capital generation. Until the transaction closes, Aegon will not recognize remittances received from Aegon the Netherlands in Cash Capital at the Holding. Upon closing of the transaction, the company expects to recognize EUR 2.2 billion cash proceeds in Cash Capital at the Holding.   

Final dividend 2022
Aegon aims to pay out a sustainable dividend to allow equity investors to participate in the company’s performance, which can grow over time if Aegon’s performance so allows. The Executive Board will, in the absence of unforeseen circumstances, propose a final dividend for 2022 of EUR 0.12 per common share at the Annual General Meeting of Shareholders to be held on May 25, 2023. If approved, and in combination with the interim dividend of EUR 0.11 per share paid over the first half of 2022, Aegon’s total dividend over 2022 will amount to EUR 0.23 per common share or approximately EUR 454 million. This represents an increase of EUR 0.06 compared with the total dividend per common share over 2021. Following the transaction with a.s.r., Aegon increased its dividend per common share target from around EUR 0.25 to around EUR 0.30 over 2023.

Aegon intends to move to a cash-only dividend as of the final dividend of 2022. To this end, Aegon will present an update to its dividend policy for discussion at the next Annual General Meeting of Shareholders.

If the proposed dividend is approved by shareholders, Aegon’s shares will be quoted ex-dividend on the New York Stock Exchange on May 26, 2023 and on Euronext Amsterdam on May 29, 2023. The record date for the dividend will be May 30, 2023, and the dividend will be payable as of June 29, 2023.

Share buyback program
Aegon today announces a new EUR 200 million share buyback, in line with the company’s intention to return surplus cash capital to its shareholders. The share buyback will be funded from the company’s Cash Capital at Holding, which stood at EUR 1.6 billion at the end of 2022, above the operating range of EUR 0.5 billion to EUR 1.5 billion. Barring unforeseen circumstances, the share buyback program will commence on February 10, 2023, and is expected to be completed on or before June 30, 2023. Aegon will engage a third party to execute the transactions on its behalf. The common shares will be repurchased at a maximum of the average of the daily volume-weighted average prices during the repurchase period. The new share buyback is in addition to the previously announced EUR 1.5 billion capital return to shareholders that is anticipated to be executed after closing of the transaction with a.s.r., barring unforeseen circumstances.

Outlook for 2023

Aegon provides the following outlook for 2023 based on the current market circumstances and barring unforeseen circumstances:

• At least EUR 1.0 billion operating capital generation before holding funding and operating expenses, which excludes the contribution from Aegon the Netherlands;
• Around EUR 600 million of free cash flow, which excludes remittances from Aegon the Netherlands and includes an anticipated interim dividend to be received on Aegon’s strategic shareholding in a.s.r.; and
• A dividend of around 30 eurocents per common share over 2023.

Please note that this outlook assumes the closing of the transaction with a.s.r. in the second half of 2023. Aegon intends to return EUR 1.5 billion of the cash proceeds from the transaction to shareholders. This, together with anticipated synergies from the transaction in the form of growing a.s.r. dividends to Aegon, is expected to lead to an improvement of free cash flow per share over time.

Aegon remains committed to reducing its gross financial leverage by up to EUR 700 million using cash proceeds from the a.s.r. transaction.

Americas

Operating result
The operating result from the Americas increased by 14% to USD 239 million in the fourth quarter of 2022 from USD 210 million in the same prior year period. This was primarily due to an improvement of the unfavorable mortality claims experience in Life, reducing from USD 98 million in the fourth quarter of 2021 to USD 14 million in the same quarter of 2022. In addition, the result benefited from the reinsurance transaction with TLB. This was partly offset by a lower result from Variable Annuities where fee income was negatively impacted by adverse markets and expected outflows, and from less favorable morbidity claims experience which reduced from USD 35 million in the fourth quarter 2021 to USD 17 million in the fourth quarter of 2022.

• In Individual Solutions, the operating result increased USD 9 million to USD 149 million in the fourth quarter of 2022 compared with the prior year period. The operating result was supported by lower operating expenses, an improvement in net claims experience, and the one-time recognition of the TLB operating result from the third quarter of 2022 of USD 28 million, following the reinsurance treaty between TLB and Transamerica that commenced retrospectively on July 1, 2022. This reinsurance treaty contributed additional USD 30 million to the operating result in the fourth quarter of 2022. This was partly offset by lower fee revenues in Variable Annuities, a consequence of expected outflows and the impact of lower equity markets as well as higher interest rates on account balances. In addition, investment income decreased in all lines of business due to lower asset volumes.

In individual Life, the unfavorable mortality experience reduced from USD 92 million in the fourth quarter of 2021 to USD 14 million this quarter, half of which was directly attributable to COVID-19 as the cause of death. This improvement was partly offset by unfavorable persistency.

Morbidity experience in individual Accident & Health was USD 11 million favorable relative to expectations in the fourth quarter of 2022, and was mainly a result of higher claims terminations. This compared to USD 37 million of favorable morbidity experience in the fourth quarter of 2021. Higher interest rates led to a benefit from new annuitizations in Fixed Annuities.

• In Workplace Solutions, the operating result increased by USD 21 million compared with the same period in 2021 to USD 91 million. The operating result of Retirement Plans increased by 13% to USD 51 million, as higher revenues from the Advice Center, participant fees, and transaction fees, as well as higher investment income more than offset a decrease in fee income from lower account values as a result of market movements. The result from Workplace Life increased to USD 11 million driven by better mortality experience and the result from Workplace Health increased to USD 9 million driven by favorable morbidity experience. The result of Stable Value Solutions remained constant at USD 19 million.

Net result
The net result for the Americas amounted to a loss of USD 213 million in the fourth quarter of 2022 compared with a profit of USD 599 million in the fourth quarter of 2021. This quarter’s loss was driven by a loss from non-operating items, while the profit in the prior year period was driven by favorable non-operating items and Other income. Non‑operating items resulted in a loss of USD 392 million driven by realized losses on investments and compared with a USD 385 million gain in the fourth quarter of 2021.

Fair value items resulted in a gain of USD 4 million in the fourth quarter of 2022.

• Fair value hedges with an accounting match led to a gain of USD 120 million largely from gains on unhedged items, mainly credit spread and fund basis risk.
• Fair value hedges without an accounting match resulted in a gain of USD 35 million, mainly related to the impact of higher interest rates on Life intangibles. The dynamic hedge program for GMDB and GMIB riders targets to hedge the economic liability, and remained highly effective with a fair value loss of USD 8 million from equity market movements during the quarter. This supported a hedge effectiveness of 96% for the overall variable annuity portfolio.
• Fair value investments resulted in a loss of USD 150 million for the fourth quarter of 2022. This was driven by real estate with commodity exposure, private equity investments, and multi-family property investments, which underperformed in the current macro-economic environment.

Realized losses on investments amounted to USD 389 million, partly from the sale of bonds at the beginning of the fourth quarter to maintain a robust liquidity position consistent with Aegon’s strict liquidity framework. In addition, losses resulted from adjustments to the Transamerica’s interest rate risk profile following the increase in interest rates. Net impairments of USD 7 million were driven by gross impairments of fixed income assets, which was partly offset by recoveries from residential mortgage-backed securities.

Other charges amounted to USD 129 million were driven by USD 44 million of one-time investments related to the operational improvement plan and by various in-force management actions as well as model and assumption changes.

The loss before tax amounted to USD 282 million. The income tax benefit was USD 69 million in the fourth quarter of 2022, implying an effective tax rate that is higher than the statutory rate due to tax benefits and credits. The resulting net loss was USD 213 million.

Expenses
Addressable expenses decreased by 10% to USD 370 million in the fourth quarter of 2022 compared with USD 412 million in the fourth quarter of 2021. This decrease was mainly driven by higher spend on shared services accounts and on performance-related compensation in the fourth quarter of 2021. In this quarter, the successful implementation of expense initiatives as part of the operational improvement program helped to decrease expenses on technology development and real estate, which was partly offset by higher third-party expenses.

Operating expenses increased by 15% to USD 433 million, as the prior year quarter included a USD 104 million one-time benefit from changes to the US employee pension plan. Excluding the one-time benefit, operating expenses decreased by 10% compared with the fourth quarter of 2021 in line with addressable expenses.

Sales

New life sales increased by 26% to USD 136 million from USD 107 million in the fourth quarter of 2021.

• The Individual Solutions business generated new life sales of USD 124 million in the fourth quarter of 2022. With an increase of 30% compared to the fourth quarter of last year, Individual Solutions achieved the highest level of quarterly new life sales in the last five years. The increase was driven by higher indexed universal life product sales across all distribution channels. The improved service experience and continued competitiveness of Transamerica’s products supported an increase in market share in the WFG distribution channel to 67%. WFG further expanded its distribution reach by growing its number of licensed life agents to a record level of more than 62,600 agents, a 20% increase compared with the fourth quarter of 2021. Also, Transamerica launched a new indexed universal life product specifically designed for the brokerage distribution channel, complementing our current product that is successfully marketed through WFG. Term Life and Whole Life sales remained broadly stable in a competitive market.
• New life sales in Workplace Solutions remained even at USD 12 million compared with the same period of 2021.

New premium production for accident & health insurance decreased to USD 24 million in the fourth quarter of 2022 from USD 46 million in the same period of 2021. Last year’s fourth quarter included USD 22 million of one-off long-term care sales in Individual Solutions. Excluding these sales, new premium production for accident & health insurance were broadly flat with lower sales in supplemental health products offset by new premiums in disability and Medicare supplement products.

Total net outflows increased to USD 10.3 billion in the fourth quarter of 2022 compared with USD 8.0 billion in the fourth quarter of 2021.

• In Individual Solutions, net outflows decreased from USD 2.6 billion in the fourth quarter of 2021 to USD 2.5 billion in the fourth quarter of 2022. Net outflows in Variable Annuities amounted to USD 1.1 billion this quarter compared with USD 2.1 billion in the fourth quarter of 2021. This is a consequence of lower surrenders in the current market environment and the non-recurrence of outflows as a resut of the lump-sum buyout program for certain variable annuities policies in the fourth quarter last year. In Mutual Funds, net outflows of USD 1.1 billion were the result of challenging market conditions, and compared with USD 0.2 billion of net outflows in the fourth quarter of 2021. Furthermore, the run-off of the Fixed Annuities book contributed USD 0.3 billion in net outflows.
• Workplace Solutions reported net outflows of USD 7.9 billion, USD 5.2 billion of which were due to the discontinuance of one large Multiple-Employer-Plan in the Middle-Market segment of Retirement Plans. Excluding this contract, the Middle-Market segment saw net outflows of USD 0.5 billion, an improvement of USD 0.2 billion compared with the prior year quarter. In the fourth quarter of 2022, the Large-Market segment of Retirement Plans saw net outflows of USD 2.3 billion compared with net outflows of USD 5.1 billion in the fourth quarter of 2021, which included a significant contract discontinuance. Net deposits in individual retirement accounts (IRAs) from consolidation and customer retention efforts by the Advice Center amounted to USD 0.2 billion.

Market consistent value of new business
Market consistent value of new business decreased from USD 123 million in the fourth quarter of 2021 to USD 104 million in the fourth quarter of 2022. Adjusting for last year’s new business value in Brazil, which is reported in the International reporting segment from 2022, the market consistent value of new business decreased by USD 15 million. The value of new business in Individual Solutions decreased by 4% to USD 89 million this quarter, mainly from one-time sales in Individual Health in the fourth quarter of 2021. This was largely offset by higher sales volumes in Individual Life. The value of new business in Workplace Solutions decreased to USD 15 million in the fourth quarter of 2022 and was driven by lower written sales and a less favorable product mix.

The Netherlands

Operating result
Aegon’s operating result in the Netherlands increased by EUR 25 million compared with the fourth quarter of 2021 to EUR 220 million. The results of Bank and Workplace Solutions showed a strong increase, supported by higher interest rates, business growth, and non-life reserve releases, while the results of Life and Mortgages decreased, reflecting lower investment income from mortgages. Benefits from expense savings initiatives across all lines of business more than offset higher pension costs for own employees and higher expenses related to growth initiatives.

• The operating result from Life decreased by 13% to EUR 120 million in the fourth quarter of 2022. The main contributor was lower investment income, driven by lower prepayment compensations and lower yields on mortgages. The shortening of the balance sheet as a result of the sale of fixed income assets in response to the rising interest rate environment was partly offset by higher margins from a shift to higher yielding assets in recent quarters. Other drivers included the impact of the longevity reinsurance transaction announced in December 2021 and lower fees and revenues from the closed individual life book.
• The operating result from Mortgages decreased by EUR 3 million to EUR 17 million compared with the fourth quarter of 2021. The impact of higher fees resulting from business growth was more than offset by the combination of lower revenues from lower customer prepayment compensations and lower yields on mortgages.
• The operating result from Bank increased by 66% compared with the fourth quarter of 2021 to EUR 51 million. The main contributor was a higher interest margin due to higher interest rates. Furthermore, higher fee income from more fee‑paying customers at Knab and reduced costs from expense savings initiatives contributed favorably.
• The operating result from Workplace Solutions increased by EUR 25 million to EUR 33 million in the fourth quarter of 2022. This primarily reflected increased earnings of the non-life disability business, due a release from the incurred but not reported (IBNR) reserve, elevated recoveries, and lower claims. Furthermore, business growth at the pension administration business TKP and income protection provider Robidus contributed favorably.

Net result
The net result amounted to a loss of EUR 2.2 billion, and reflects a EUR 1.8 billion impairment loss triggered, which is not tax deductible, by classifying Aegon the Netherlands as held for sale, as a result of the transaction with a.s.r. This represents the majority of the expected reduction in equity as a result of the transaction. A one-time tax charge of EUR 454 million, related to the previously announced settlement of a tax position in connection with the transaction with a.s.r. also impacted the net result.

The non-operating result amounted to a loss of EUR 39 million and was driven by fair value losses. These reflected the negative impact from real estate revaluations, following the decrease in Dutch housing prices.

Other charges amounted to EUR 2.0 billion and were mainly driven by the aforementioned impairment. Model and assumption updates also had an unfavorable impact.

Expenses
Addressable expenses decreased by 3% compared with the fourth quarter of 2021 to EUR 151 million. The benefit from expense savings initiatives was only partly offset by higher expenses related to growth initiatives and other elements, mostly due to higher own employee pension costs as a consequence of higher interest rates. 

Operating expenses increased by 5% to EUR 194 million as lower addressable expenses were more than offset by higher expenses related to customer due diligence and higher one-time investments related to the operational improvement plan, which totaled EUR 12 million in the fourth quarter of 2022.

Sales
Workplace Solutions net deposits increased by 14% to EUR 212 million in the fourth quarter of 2022, supported by. higher recurring gross deposits from continued strong demand for defined contribution pension products (PPIs).  

For the Bank, net deposits amounted to EUR 13 million in the fourth quarter of 2022, supported by the growing number of Knab customers.

Mortgage production decreased by EUR 0.4 billion to EUR 1.9 billion in the fourth quarter of 2022, of which EUR 0.9 billion was originated for third-party investors, who pay Aegon a fee for originating and servicing these mortgages. The decrease in production is due to reduced refinancing activity as a result of increased mortgage rates and a decline in home sales.

New premium production for accident & health increased by EUR 1 million to EUR 3 million compared with the fourth quarter of 2021, while new premium production for property & casualty insurance increased by EUR 2 million to EUR 7 million. The latter was in part driven by pricing changes.

New life sales decreased by 22% to EUR 14 million, driven by lower production of immediate annuities.

United Kingdom

Operating result

The operating result from the United Kingdom increased by 5% compared with the fourth quarter of 2021 to
GBP 44 million. Lower addressable expenses as a result of expense savings initiatives more than offset a decline in fee revenues as a result of unfavorable market developments in 2022 and the run-off of the traditional product portfolio.

Net result
Aegon UK reported a net result of GBP 43 million in the fourth quarter of 2022, primarily driven by the operating result. Non-operating items and Other income broadly offset each other.

Non-operating items amounted to a loss of GBP 26 million driven by fair value losses. This reflects the negative revaluations of hedges used to protect the solvency position and were mainly the result higher equity markets.

Other income was GBP 29 million. One-time investments related to the operational improvement plan were more than offset by charges from policyholder taxes. Charges from policyholder taxes are fully offset in the income tax line.

Expenses
Addressable expenses in the fourth quarter of 2022 amounted to GBP 79 million, which is a decrease of GBP 5 million compared with the same period in 2021. Expense savings initiatives reduced expenses compared with the fourth quarter of 2021 and more than offset slightly higher personnel expenses due to a higher headcount.

Operating expenses decreased by GBP 6 million to GBP 90 million, driven by lower addressable expenses. One-time investments related to the operational improvement plan amounted to GBP 8 million in the fourth quarter of 2022.

Sales
Net deposits amounted to GBP 0.5 billion, compared with net deposits of GBP 9.2 billion in the fourth quarter of 2021 when a large client was onboarded in the Institutional business. The main drivers of net deposits this quarter were the Workplace and Institutional businesses.

Net deposits in Workplace amounted to GBP 655 million, higher than the comparable quarter of 2021. This was driven by onboarding of new schemes and no significant exits.

For Retail, net outflows were higher than in the comparable period of 2021, and amounted to GBP 432 million. Gross deposits decreased compared with the fourth quarter 2021 following reduced customer activity due to weak investor sentiment in the current macro-economic environment.

Net deposits for the Institutional business, which is low-margin and for which net deposits can be lumpy, equaled GBP 0.5 billion in the fourth quarter of 2022. This is lower than the deposits recorded in the same period of 2021 when a large client was onboarded.

For Traditional products, net outflows amounted to GBP 239 million as this book continues to gradually run off.

New life sales of GBP 5 million were slightly below the level of the fourth quarter of 2021.

Market consistent value of new business
MCVNB for the fourth quarter of 2022 totaled GBP 13 million compared with GBP 14 million in the fourth quarter of 2021. The decrease was mainly driven by lower overall business volumes, which more than offset a more favorable product mix.

International

Operating result
The operating result from International decreased by EUR 37 million to EUR 9 million in the fourth quarter of 2022. The main driver was the previously announced reinsurance transaction between TLB and Transamerica. Adjusting for this impact, the result increased by 31%, which is driven by Brazil, and reflects mostly improved claims experience and business growth.

• The operating result from Spain & Portugal was EUR 20 million, 15% lower than in the fourth quarter of 2021. This was mainly driven by the divestment of its 50% stake in the insurance joint venture with Liberbank. Adjusted for this, the operating result increased, mostly due to business growth and favorable life claims experience.
• China’s operating result decreased by 14% to EUR 8 million in the fourth quarter of 2022. The reduction was due to setting up a provision in anticipation of the effects of lifting the COVID-19 restrictions and was partially offset by expense management.
• The operating result from Brazil improved by EUR 10 million to EUR 8 million, reflecting business growth, a normalization of COVID-19 mortality claims experience, and the benefit from an increase in Aegon’s economic ownership in the business.
• TLB, the high-net-worth business, recorded an operating loss of EUR 21 million, which is EUR 42 million lower than in the fourth quarter of 2021. This was mostly the result of the previously announced reinsurance treaty with Transamerica that commenced retrospectively on July 1, 2022. This led to a lower fourth quarter result in the International segment and to the derecognition of the majority of the previously reported third quarter operating result, which amounted to EUR 26 million.
• For the Others segment, the operating result worsened by EUR 1 million to a loss of EUR 6 million.

Net result
The result before tax amounted to EUR 98 million in the fourth quarter of 2022. This reflects the operating result and an Other income of EUR 82 million, mainly as a result of the tax-exempt book gain on the divestment of Aegon’s stake in the joint venture with Liberbank. It also reflects EUR 9 million of realized gains mainly from optimizing the asset mix in China. After a tax benefit of EUR 1 million, the net result was EUR 98 million.

Expenses
Addressable expenses amounted to EUR 30 million and remained stable on a constant currency basis compared with the fourth quarter of 2021. Additional expenses related to business growth and inflation were offset by savings from expense initiatives.

Operating expenses were EUR 81 million in the fourth quarter of 2022, a decrease of 22% compared with the fourth quarter of 2021. This largely reflects the sale of Aegon’s businesses in Hungary and Turkey and expense reductions throughout the businesses, which more than offset higher expenses in Brazil and Spain & Portugal due to business growth.

Sales
New life sales increased by 39% compared with the fourth quarter of 2021 to EUR 75 million.

• New life sales in Spain & Portugal remained stable at EUR 13 million, as the impact of the divestment of Aegon’s stake in the joint venture with Liberbank was offset by business growth.
• China’s new life sales increased by 18% to EUR 24 million, reflecting higher sales following a sales campaign through the broker and bank channels while COVID-19 related challenges remained.
• For Brazil, new life sales increased by EUR 19 million to EUR 37 million, driven by business growth and increased business ownership.
• For TLB, new life sales decreased by EUR 2 million as a result of COVID-19 related challenges and increased competition.

New premium production for accident & health insurance amounted to EUR 12 million, an increase of 28% compared with the fourth quarter of 2021, driven by business growth in Spain & Portugal. New premium production for property & casualty insurance decreased by 8% to EUR 17 million driven by less demand for lower margin burial and unemployment insurance products in Spain & Portugal.

Market consistent value of new business
MCVNB in International decreased by EUR 3 million to EUR 19 million in the fourth quarter of 2022. This reflects the impact of the divestment of Aegon’s stake in the joint venture with Liberbank and a less favorable product mix in Spain & Portugal, which were partly offset by the inclusion of Brazil.

Asset Management

Operating result
The operating result from Aegon AM decreased by 35% compared with the same quarter of 2021 to EUR 32 million in the fourth quarter of 2022. This was driven by lower management fees in both Global Platforms and Strategic Partnerships, mainly as a consequence of lower asset balances due to adverse market conditions, and lower performance fees in the Chinese asset management joint venture Aegon-Industrial Fund Management Company (AIFMC).

• The operating result for Global Platforms decreased by 63% to EUR 5 million in the fourth quarter of 2022. Revenues declined due to lower management fees, as asset balances reduced due to adverse market conditions and outflows. This was partially offset by lower addressable expenses driven by a reduction of variable remuneration accruals.
• The operating result from Strategic Partnerships decreased by 24% to EUR 27 million in the fourth quarter of 2022. Revenues declined mostly due to lower performance fees for AIFMC, which reduced compared with the elevated level in the same period of 2021, as well as lower management fees.

Net result
The result before tax of EUR 41 million in the fourth quarter of 2022 was 5% lower compared with the same period of 2021. The lower operating result in the fourth quarter of 2022 was partially offset by higher Other income. Other income included a one-time release of variable remuneration accruals, which more than offset higher one-time investments related to the operational improvement plan for Global Platforms. After the income tax charge of EUR 18 million, the net result amounted to EUR 22 million. The effective tax rate equaled 44%.

Revenues
In the fourth quarter of 2022 total revenues decreased by 15% compared with the same period of 2021 to EUR 163 million. This was largely driven by the aforementioned decrease in performance fees in AIFMC from EUR 13 million in the fourth quarter of 2021 to EUR 4 million in the same period of 2021. Management fees decreased compared with the same period last year both within Global Platforms and Strategic Partnerships, which was driven by adverse market conditions and despite of favorable currency movements. Other revenues decreased by EUR 3 million to EUR 15 million in the fourth quarter of 2022.

Expenses
Addressable expenses – related to Global Platforms – decreased by EUR 6 million to EUR 96 million in the fourth quarter of 2022 on a constant currency basis. These were driven by lower performance-based employee expenses in Global Platforms, partially offset by inflationary pressure.

Operating expenses amounted to EUR 145 million, the same amount as the prior year period. Higher one-time investments related to the operational improvement plan within Global Platforms, which amounted to EUR 16 million in the fourth quarter of 2022, were offset by a one-time release of variable remuneration accruals in Strategic Partnerships.

Sales
Third-party net outflows amounted to EUR 3.8 billion in the fourth quarter of 2022, and consisted of EUR 2.4 billion net outflows for Global Platforms and EUR 1.4 billion net outflows for Strategic Partnerships.

Global Platforms third-party net outflows in the fourth quarter of 2022 were largely related to fixed-income products, as customers freed up liquidity in a rising interest rate environment, and to a lesser extent in Real Assets. Net deposits were recorded in fiduciary management, structured assets and equities.

Strategic Partnerships third-party net outflows were driven by AIFMC due to the adverse market and economic conditions in China and were only partly offset by net deposits in the joint venture La Banque Postale Asset Management (LBPAM).

Net outflows from the general account were EUR 0.2 billion in the fourth quarter of 2022, compared with net outflows of EUR 1.6 billion in the prior year period. Net deposits from affiliates totaled EUR 1.0 billion in the fourth quarter of 2022 mostly in US fixed-income products in line with the strategy to increase penetration of Aegon funds in this channel. These more than offset the impact of the gradual run-off of the traditional product portfolio in the UK.

Assets under management
Assets under management decreased by EUR 117 billion compared with December 31, 2021, to EUR 293 billion. This was mainly driven by unfavorable market movements and a transfer of EUR 49 billion assets under management following the completion of the divestment of LBPAM’s 45% stake in Ostrum AM.