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Aegon NV (NYSE:AEG)

Q1 2014 Earnings Conference Call

May 15, 2014 3:00 AM ET

Executives

Willem van den Berg – VP, IR

Alexander Rijn Wynaendts – CEO and Chairman

Darryl Button – CFO

Analysts

Farquhar Murray – Autonomous Research

David Andrich – Morgan Stanley

Ashik Musaddi – JPMorgan

William Hawkins – Keefe, Bruyette, & Woods

Michael van Wegen – Bank of America/Merrill Lunch

Maarten Altena – Mediobanca

William Elderkin – Goldman Sachs

Nick Holmes – Societe Generale

François Boissin – Exane BNP Paribas

Archie van Riemsdijk – Dow Jones

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Aegon First Quarter 2014 Results Call on May 15. Throughout today’s recorded presentation, all participants would be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions) I would now hand over the conference to Willem van den Berg. Please go ahead.

Willem van den Berg

Good morning, and thank you for joining us for this conference call on Aegon’s first quarter 2014 results. We’re very much aware that this is a busy day for you, as many companies are reporting at the same time. And therefore, we’ll keep it short. We would appreciate it, if you take a moment to review our disclaimer on forward-looking statements which is at the back of this presentation.

Now, our CEO, Alex Wynaendts will share his views on the highlights of this quarter’s performance, and our CFO, Darryl Button is joining him to answer your questions. Alex, please share your thoughts.

Alexander Rijn Wynaendts

Thank you, and good morning, everyone. I will indeed provide you this time with a very short overview of our first quarter before we can go straight into Q&As.

This quarter we have again delivered a strong set of results, maintaining the positive momentum we’ve been seeing in the previous quarters. Underlying earnings were strong as a result of further growth of our business and supported by higher equity markets and lower financing cost.

Earnings from the Americas included seasonal unfavorable mortality, which has been a common theme across the U.S. life industry this quarter. The impact amounts to EUR 20 million which was offset by strong results from other units.

A highlight this quarter, our strong gross deposits, which increased by 35% and were higher in each of our business units. U.S. pension deposits were up strongly on plan takeovers, growing employee participation and higher contributions. Our U.S. variable annuity deposits also increased substantially. I am particularly pleased to report that this quarter 60% of our variable annuity deposits were invested in Aegon managed funds.

In our asset management business, we achieved exceptionally strong retail fund sales in both the U.K. and China. The deposits were affected by two exceptional items. Following the change of regulation in Poland, we have had to transfer EUR 1.5 billion in pension fund assets to the Polish government. And secondly, one of our institutional clients in U.K. replaced a EUR 3 billion low-margin overlay program by much higher margin with smaller investment mandate.

I am convinced, the high level sales we are seeing this quarter is a result of the ongoing improvements to our products, our services levels and operations.

Consistent with our strategy, we continued to execute on our objective to reduce our outstanding debt. We will achieve our objective to reach a leverage ratio of 26% to 30% and a fixed charge coverage of 6x to 8x by the end of this year. And as a result, our funding costs will further decrease in 2014, which improves our cash flows and has a positive impact on our return on equity.

At the same time, we continued to make the necessary investments to accelerate use of digital technology in order to get closer to our customers, while enhancing efficiencies across our organization.

A recent launch of Retiready, our direct-to-consumer offering in the U.K. is a good example of this. Retiready’s online proposition allows customers to easily measure their retirement readiness and provides them with simple solutions to have customers reach their retirement goals.

I am also proud to share with you the good results from Aegon’s global employee survey, which show that employees are more engaged with a strategy and more empowered to contribute to the company’s success, as our survey results continue to improve compared to previous years and Aegon is now consistently tracking above the financial services sector, and at the high-end of the high-performance norm for enablement [ph].

Having engaged and enable employees is at the heart of our strategy to transform our company. And this is why our management team is excited by the prospects for our business going forward. We believe that the benefits of the actions we have taken, together with a strong quarterly results and the strength of our capital position provides us with a clear and competitive advantage in our chosen markets, allowing us to gain new and retain existing customers that place their trust in Aegon.

Before we go into Q&As, I would like to say a few words on Solvency II. Although it now become clear that Solvency II will be implemented by January 1, 2016, there are still many key details on the implementation measures that need to be clarified before we can share with you more numbers.

During our Analyst and Investor conference, which we’ll be hosting in the New York on June 25, we will provide you with an update. Please scan the QR code on Slide 6 for more detailed information on the A&I conference and to register, or contact Investor Relations. We look forward to seeing you there. And we are now happy to take your questions. Thank you.

Question-and-Answer Session

Operator

Thank you sir. (Operator Instructions) The first question comes from Farquhar Murray of Autonomous. Please go ahead.

Farquhar Murray – Autonomous Research

Thanks for being brief there. Actually, just two questions, if I may. Firstly, on the unfavorable seasonality, a figure of EUR 27 million in the first quarter. Is that benchmark against normal experience in 1Q? I am just trying to understand whether we could expect that EUR 27 million to rollout Q-on-Q, or possibly actually a bit more given that we actually get a seasonality components on top of it? And then secondly on the normalized free cash flow figure of EUR 305 million for the quarter. Within this, you’ve made a positive adjustment of EUR 22 million for one-time items. Can I just confirm that that one-time adjustment is essentially normalizing to the AXXX solutions? When might we expect that solution to actually come through in the actual figures? I think last time you were indicating some point in 2014. I just wondered where you were there. Thanks

Darryl Button

Yes. Hi Farquhar, it’s Darryl. Let me respond to those. On the mortality, no, it’s not benchmark to a seasonal Q1 expectation. It really is benchmark relative to a level expectation for the year. So we look at that EUR 27 million as the seasonal component. So I look for that to actually reverse as we go throughout the rest of the year, if our hypothesis on the seasonality is correct.

On your second question on the operational free cash flow. Yes, we have tried to normalize out the additional strain that comes from the XXX business in the U.S., and we are looking to do some financing here in the second quarter. And so that should come into our operational free cash flows in the second quarter when we get that financing done.

Farquhar Murray – Autonomous Research

And just as a follow-on there. Once you get that solution, do we kind of backlog coming through as well?

Darryl Button

Yes. And so basically we’ve been experiencing somewhere around EUR 30 million, EUR 40 million per quarter of additional strain and we have a backlog of about, let’s call it, eight quarters that we’re looking to finance. And so we should see that come through when we get that done.

Farquhar Murray – Autonomous Research

Okay, great. Thanks a lot.

Darryl Button

Yes.

Operator

The next question comes from David Andrich of Morgan Stanley.

David Andrich – Morgan Stanley

Hi, good morning. Two questions on my side. First of all, I was just wondering if you could give us a brief update on the progress in U.K. business, particularly related to free cash expectations for 2015. And I was just wondering in terms of U.S. business and kind of the at-retirement program, when should we see, I guess, kind of a clear, kind of impact in terms of higher retention and more retained – yes, reduced outflows?

Alexander Rijn Wynaendts

Thank you. On the U.K., I think we’ve been consistent with saying that we are targeting a cash flow – operating free cash flow in the U.K. by 2015 of EUR 150 million and EUR 200 million. And we are on target to achieving that cash flow.

In terms of the U.S. markets at-retirement, what we see is that there is lot of opportunity actually to capture flows from customers that retire and maintain them in our system. We’ve put in place a number of initiatives, a number of organizational changes. And I think that what we’re seeing right now sit around a bit less than 10% of maturing retirement money, stays within our system and it’s obvious that we are targeting to increase that percentage from 10% to at least 30%.

You will get much more around this theme in the A&I conference, which we’ll be holding in New York. Actually it will be very much central to what the strategy of the U.S. will be, and we hope you’ll be there, so we can give you more color and much more numbers there, but this is at the heart of our strategy.

David Andrich – Morgan Stanley

Thank you very much.

Operator

The next question comes from Ashik Musaddi of JPMorgan. Please go ahead.

Ashik Musaddi – JPMorgan

Can you give us some color around what’s happening with equivalence and what’s DNB’s equivalence. Are they happy for you to apply equivalence assuming as EIOPA allows for that? So that’s the first thing. Secondly, on your U.K. new business value on the market condition basis declined significantly, and it keeps on declining. So can you give us some color around the absolute basis point margin that you are getting on the new flows on U.K. business? These questions will be very helpful. Thank you.

Alexander Rijn Wynaendts

Ashik, let me take the first question on equivalence. As you know, this has been a theme which we have been discussing with you many times. For Aegon, it’s clear that we have the need for equivalence. It’s very clear also for our regulator. And if you now see at the progress which is being made between European Commission, European Parliament, EIOPA, it is clear that equivalence is going to be accepted and it is going to be part that we’ll be looking at Solvency II going forward. Now, there is still number of details to be worked out.

We need to understand exactly the implementation of the deduction and aggregation, but we’re working through this with our regulator. And our regulator is clearly supportive and understands a need for it. So I am confident that we will come out within, whatever period, next month or certainly hopefully well ahead of implementation with clarity around how we will implement this equivalence, but there is no doubt that, that will be put in place.

Ashik Musaddi – JPMorgan

Okay, thank you. That was very helpful.

Alexander Rijn Wynaendts

Darryl on the U.K?

Darryl Button

Yes, Ashik, it’s Darryl. On the MCVNB for the U.K., it’s really a couple of things going on right now. We have some negatives coming into the calculation from our auto-enrolment right now. So which is effectively as we’re going into auto-enrolment and looking at some of the smaller amounts that we’re going to have to process and put onto the schemes that its actually coming on at a negative value. And that’s a short-term phenomenon and I would almost call it an adjustment. It’s obviously a downward economic adjustment to some of the existing schemes that we have. So we have to work to that period. The other issue really of just the platform and we’re just not of scale yet on the platform.

So on the margin, we don’t use greenfield status or the like, if you will, which means that we use the full expense base when valuing the business that’s going on the platform. So until we get up to scale, the margins are going to be really small.

Ashik Musaddi – JPMorgan

No, I agree. That’s clear that you have upfront cost and all, that’s why the margins are a bit depressed, but how should we think about your absolute revenue margin? I mean, what basis points are you charging on your auto-enrolment on your platform? So any color on that would be good? Thanks.

Darryl Button

Yes. Well, on the platform itself, we’re in the 40 basis points to 50 basis points range on the revenue. Obviously, the market is shaking itself out with all the changes that we’ve gone through recently. So I would say it’s still a market that’s finding itself on that front, and we still continue to optimize as we see what competitors are doing. So that’s where we’re at now and we continue to look at that going forward.

And then in terms of bottom line margin, it’s really a function of the scale that I mentioned before, and it’s really going to be another two to three years before we get the platform to where we need to be from a scale perspective.

Ashik Musaddi – JPMorgan

Okay. That’s very clear. Thank you.

Darryl Button

Yes.

Operator

The next question comes from William Hawkins of KBW. Please go ahead.

William Hawkins – Keefe, Bruyette, & Woods

Hello. Thank you very much, and thanks from my side for being brief at the open as well. Two questions on the U.K. please. Your platform funds were 1.6 billion pounds versus 1.3 billion pounds. Can you just tell us, what was the flow impact in that increase in the first quarter? And then secondly, could you give us any kind of discussion of what you see as being any potential impact from the tax changes that are being announcing during this quarter? Is that generating any risks or any opportunities for you or is it just business as usual? Thanks.

Darryl Button

Yes, on the – hi Will. On the platform flow, we are running about 100 million a month, which means it was about 300 million for the quarter in the platform. And I apologize, but I missed your last question on tax I think it was.

William Hawkins – Keefe, Bruyette, & Woods

Yes. Were the tax changes having a big impacts on the wider annuity market? I am wondering if that’s having any impacts on you guys in any parts of the business in the U.K.

Darryl Button

Yes. So in terms of the overall budget change in terms on the annuity, from annuity strategy perspective, we think that overall the annuity sales are going to be down probably in the neighborhood of 50%. We’re seeing something in the neighborhood of – I think we saw 20% to 30% now, but we think that that’s good to drift up to 50% down by the end of the year.

William Hawkins – Keefe, Bruyette, & Woods

And it doesn’t make you guys think that there is anything further that needs to be thought about the strategy. You’re still happy with your strategy?

Alexander Rijn Wynaendts

Well, obviously, I mean, from a strategy perspective, we think a lot of these flows are going to come over into the drawdown part of the market and that’s where all platform and the drawdown strategy that we have on the platform and we are working on another drawdown product to put onto the platform next year, a guaranteed drawdown product to go with the drawdown product that we now.

So we think we’re very well positioned and will be positioned for that switch of consumer flows that are going to happen. So it’s really kind of in the heart of our strategy. So we feel okay with the changes in that regard.

William Hawkins – Keefe, Bruyette, & Woods

Okay, cool. Thank you.

Alexander Rijn Wynaendts

Yes.

Operator

The next question comes from Michael van Wegen of Bank of America/Merrill Lunch. Please go ahead.

Michael van Wegen – Bank of America/Merrill Lunch

Yes, good morning. It’s Michael van Wegen from Bank of America/Merrill Lunch. I’m afraid I have to go back to the U.K. as well. Two questions there or three. First of all, your persistency in the pension business in the U.K. recovered very well in Q1. I guess it’s now closer to normalized levels. Is that something you expect to continue, or what’s the risk of seeing again volatility like we’ve seen in Q4? And that’s question number one. Question number two on U.K. cash flow. Can u disclose what the cash flow for the U.K. operations was in Q1, both as an actual numbers and if you adjust for things like securitization, etcetera? And the third question would be on your strategy in the U.K. You pointed out the 40 basis point to 50 basis point fees on platform business. I think that in the business plan it’s assumed that the overall margin doesn’t decline as much, and that’s partly driven by, for example, better margins on drawdown products. Can you talk a little bit about how the margins on drawdown products compare with the normal platform business, and how you see AUMs developing for both, the platform business and the drawdown product? Thank you.

Darryl Button

Yes, Michael. Let me take the first two questions, and Alex can take the third. The persistency in the U.K. Yes, it has come to what we think is a more normalized level. So obviously it will still fluctuate a little bit from here, but I think it is a more sustainable number that we’re seeing, and so we’ll continue to watch that throughout the year.

U.K. cash flow. We’re not currently disclosing the cash flow by pieces. What I can say is back to what I’ve said earlier is that I expect U.K. cash flow to be relatively small this year in 2014. And that’s a function of the investments we continue to make in to our Retiready and the platform combined with the securitization combined with the lack of scale in the platform and the expense reduction programs we have underway.

So 2014, I expect to and we are seeing a relatively modest small contribution from the U.K. And I expect that to step change next year. On the – Alex, you want to address.

Alexander Rijn Wynaendts

Yes, on the strategy in the U.K. Michael. In response to one of the previous questions about what are the current margins we’re making on the platform. Keep in mind that, we are not very much focusing on workplace, so that’s corporate pensions and we’ve been focusing on, what we call, advised customers, which is the higher end of the market, that obviously explains why the margins on the platform are between 40 basis point and 50 basis point.

What is now going to kick in with Retiready is much more retail part of it, the non-advised part. And it’s clear that the margins in that segment are significantly higher. So when you look overtime at the margin on our platform asset [ph], what you need to have is keep in mind this is different parts of the business. So in the workplace, the high-end of the market, advised, where we have [indiscernible] and the growing part of our business that is through the retire platform, the non-advised retail business, which will come from our back book, customers that are the orphan customers, customers that have been part of our business for many years but have been not been reserved or achieving the kind of service you would expect right now, that will be moved on the platform, but clearly at much higher margins.

I think you should be thinking in the range of 80 basis points, which as you will understand compares very favorably with very often the kind of margins they are now being paying right now. What we therefore also hope is that not only we’re converting business from the back book into the new Retiready on our platform and attract new customers and that is be in the 80% range.

So at the end, the mix will determine what spreads – what margin we’ll be getting on the business. And I believe the mix will also be determined very much by how successful we are with Retiready. And we’ve launched that, and I’m sure you all have seen it. It’s been a success in terms of launch. We see now the first customers, but we need a bit of time to get to see the flows and see how much really are we going to get on that platform. And that will determine at the end, the overall mix of the business, and therefore the margins, but that’s the strategy going forward in the U.K.

Michael van Wegen – Bank of America/Merrill Lunch

Thank you.

Operator

The next question comes from Maarten Altena from Mediobanca. Please go ahead.

Maarten Altena – Mediobanca

Yes, good morning gentlemen. Two questions on innovations. And the first one basically following up on the U.K., as you are rebuilding your U.K. franchise gradually though, profits remained subdued so to say. You currently have some EUR 1.6 billion of platform assets under administration, whereas I guess you need about EUR 10 billion to be breakeven. So could you comment on the expectations of the trajectory of how and when to achieve the breakeven level, and whether you see that to achieve purely organic or maybe via acquisitions? Second one is on innovations. In the Netherlands, as you have retail initiative, Knab, which is fully seeing [ph] to meet expectations. So I was just wondering how much money are you willing to spend on this, and what other innovations are you working on in the Netherlands? Thanks.

Darryl Button

Yes, let me just on the U.K., I’ll just repeat what I said earlier. It’s going to be two to three years is our expectation to get to scale on the platform which we put at somewhere in the EUR 8 billion to EUR 10 billion range that we need to get to. Alex, I think you want to address.

Alexander Rijn Wynaendts

Yes. On the Netherlands, right away, Maarten, I hope you have become a customer of Knab, because you probably wouldn’t have asked this question. What we see is that we are gaining momentum with Knab in terms of customers. What we’ve seen particular and that’s pleasing is that those that are customers are very satisfied with it. We’ve now launched recently a new initiative to focus on self- employed, the base for the Dutch people, self-employed. And that actually is gaining quite a lot of traction, which is not surprising because often the self-employed are more – do more things in sales, also financially. And we see actually quite some traction in that part of the market.

Having said that, we obviously would have preferred and we would have loved to see this business accelerating quicker and getting much more new customers than what we see right now.

On the other side, we see some good deposits that are coming to Knab. It is taking time, but what’s most important thing for us is that it positions us in the market as being an innovator, as being a new bank, as being a bank that is really looking after the interest in the customers in the way the customers want to see. And it will take a bit of time, but we are obviously confident that this is the right concept that we are seeing now with the expansion of our scope in the market to the self-employed. We see actually quite some traction.

Maarten Altena – Mediobanca

Okay, that’s helpful. I’m not your Knab customer, but you definitely got my [indiscernible].

Operator

The next question comes from William Elderkin of Goldman Sachs. Please go ahead.

William Elderkin – Goldman Sachs

Thank you. Good morning everybody. Couple of questions. First of all, on your Dutch business. The commentary on the pensions earnings refers to improved margins on mortgages I think, [indiscernible] can move around. I’m just wondering is that level of earnings, so maybe we can regard it as sustainable. And secondly staying with the Dutch business, when can we expect to see an improvement in those non-life earnings coming through? Second, back on the U.K. I’m afraid. You’ve quantified the fact of the DWP requirements at EUR 20 million to EUR 25 million on annual basis. At what point will we expect to see that effect to actually coming into reported earnings? And then finally just given the sort of a change in the accounting policies, is that underlying sort of model margin guidance you’ve provided in the past, is that still valid or is that something that needs to be updated in due course?

Alexander Rijn Wynaendts

Darryl?

Darryl Button

Yes, anyway let me see, I’ve got the first three for sure. I might get you to repeat the fourth one. On the pension earnings in the Netherlands, yes, I think it is sustainable. We have done some ALM repositioning on some of the assets, a few more of the mortgages have worked their way into the portfolio backing the pensions. And I think that has created additional earnings and I do look at that to be as sustainable number going forward.

You asked about non-life in the Netherlands, I think in terms of turnaround. It has admittedly been a struggle, and we have done a lot of work to re-underwrite and re-price that business. Unfortunately we’re still seeing some of the residual claims come through from the storms and the fires where we consider to be, maybe a little more one-off, if you will, and those did come into the results in the quarter.

So I still look for improving results from the Dutch non-life business on the back of re-underwriting and repricing. You asked about the U.K. DWP EUR 20 million to EUR 25 million, when. When? It’s effective in 2015. So April of 15 I think it is. So it’s when we basically implement that. So this will be a second half ‘15 effect that we’ll start to see come through the numbers.

Between now and then, we’ll obviously be sharpening our pencil and fine-tuning this number but 20, 25s are our best estimate at this point.

Fourth question, I apologize, I missed it out.

William Elderkin – Goldman Sachs

Yes. The question was, you’ve given some model margin guidance particularly for the U.S. business in the past. I was just wondering given the change in accounting policies, are those sort of model guidance levels sill valid, or is that something that needs to be revisited?

Darryl Button

We are taking a look at that right now. We’ll probably talk about it at the A&I in June. I do know that on the VA side, a few – because the VA business is growing and the new DAC policy we have, that does create some additional earnings strain that wasn’t there before. So that’s why the margin is a little bit lower this quarter at, I think 70, 75 basis points somewhere in that. So we’re taking a look at that. That’s a function of growth and the new DAC policy.

On the pension side. We are seeing a bit of a trend on the pension side in the U.S. for some of the larger cases are coming in on more of a participant charge as opposed to AUM charge, that puts a little downward pressure on the margin, if you will, but obviously doesn’t impact the earnings growth trajectory. So the U.S. is going to address that issue as well.

And the right way to look at the margin metrics in there and they’re going to address that in June as well.

William Elderkin – Goldman Sachs

Thank you.

Operator

The next question comes from Nick Holmes of Societe Generale. Please go ahead.

Nick Holmes – Societe Generale

Thank you very much. Yes, two questions. First one is on the U.S., with your very strong growth in variable annuities. I wondered, could you tell us a bit more about how your product compares with the competition? And I guess, what I am getting at is that, we have seen some of the larger players backing away. And I wondered, is your product now looking relatively more aggressive, or would you say that it’s still at the lower end of the risk spectrum, which I think is something that you’ve been quite proud of? Then the second question is on the U.K. Just I think we’ve covered annuities, but I wondered if you could comment on the pensions cap and also the proposal for examination of run-off business, whether there will be any effect from those? Thank you.

Alexander Rijn Wynaendts

Nick, on the U.S., I’ll be brief here, because we will address it in really much more detail in our conference in June and we hope to see you there. What we see is that the market actually has been attractive for us. We’ve been talking about return on equity close to 20%. And recently we have seen a little bit pressure, more pressure, but still allowing us to have very attractive returns.

In terms of products and developments, we would like to defer to June so you get a complete picture, but you know our strategy, we’ve been consistent in ensuring that we can promise that our right for customers, but also at the same time the correct risk profile for Aegon and we’ll continue to do so.

In terms of U.K., is there anything you want to add on what you just said, Darryl?

Darryl Button

Well, the pension cap is the DWP issue that I mentioned earlier, Nick, so our corporate book does have some exposure to these caps, and we have sized that at an earnings impact of about EUR 20 million to EUR 25 million per year effective April of next year, but we’ll have – as I mentioned before, we’re still doing some – as we’re closer to implementation. There is many moving pieces behind it as well. We’ll update our guidance as we go, but that’s our best number for now.

Nick Holmes – Societe Generale

And is there any quick comment on the run-off proposal? I mean, the FCA has said that it will look at run-off books, look at treatment of customers. Any concerns for you in that respect?

Darryl Button

No. I mean it’s just too early for us to comment on that. We don’t think that there is an issue, but obviously we wait and we see and we will participate in the review, and we’ll update as you know more but at this point we don’t think that there is anything to communicate.

Nick Holmes – Societe Generale

That’s great. Thank you very much.

Operator

The next question comes from François Boissin of Exane BNP Paribas. Please go ahead.

François Boissin – Exane BNP Paribas

Yes, good morning gentlemen. Two questions please. First one on the Dutch pension fund buyout market. Can you give us your views of what’s going on there, and maybe can you elaborate a bit on the past deals that you might have achieved in the present conditions? And the second question is on Solvency II and economic Solvency. When do you guys plan to disclose economic Solvency or any probability [ph] for Solvency II numbers, and are there any areas of concerns currently regarding with the calibration of the Solvency capital requirements? Thank you.

Alexander Rijn Wynaendts

François, thank you for your questions. In relation to the pension fund business, as you know, there is a big pipeline, in a sense that there is many companies that had pension funds. And clearly those pension funds are too small or it’s not sustainable for them to run them on an independent basis.

We see clearly an improvement in the market. That means that pension funds therefore are getting to the levels that they can effectively be transferred and transfer the liabilities to insurance companies like ourselves. We are well positioned in the sector. We have a strong balance sheet. I think it’s important too.

And as such, I think we will continue to see the flow, but this flow is not regular. So you’ll see certain quarters get bigger contracts, other quarters less. It’s not going to be a regular, but the trend is there. We are well positioned not only in the transfer of liabilities, but equally strongly positioned in the whole, what we call, the PPI business, which is effectively kind of 401(k) and is probably the best easiest comparison for all of you, part of the pension sector which is purely defined contribution and where the investment risk is for the account of the employees.

And that’s a segment where we are participating also in. And we see continuous good flows in there, and we’ll continue to report it. So I am pretty optimistic on that part of the business. As you know, there are not that many players active in that market. That means therefore we’re also able to maintain a pricing discipline and that’s equally important.

In terms of Solvency II, I made…

François Boissin – Exane BNP Paribas

Sorry about that, just a follow-up question on the pension fund buyout. Do you disclose any figures on the deals you achieved in the past 12 months?

Alexander Rijn Wynaendts

No, we are not explicitly giving you deals. In some cases, these are important for the company and then there is a press release. So, but in general we do not give the names of the companies. What I was trying to say is that there is a healthy flow. There is a big pipeline, but again these transactions are not taking place on a regular basis quarter-by-quarter. It’s somewhat a bit lumpy, but there is a good flow. And more importantly as I said, we are able to maintain a pricing discipline, and that’s important, and that’s because the market effectively is only limited to a very few number of players.

François Boissin – Exane BNP Paribas

Okay. And in terms of – so pricing discipline in terms of IRR or in terms of – is this like 10%, 12%. What’s your threshold there?

Alexander Rijn Wynaendts

So Darryl, you want to comment on this?

Darryl Button

Yes, I mean our pricing threshold is we have economic pricing and we look for 1,000 basis points over swaps on a pre-tax basis, and that’s our minimum threshold. And then we look to actually get a spread over and above that, but that’s our walk-away number.

Alexander Rijn Wynaendts

And that gets reflected in our NCVMB, which is positive on the pension business. I think that’s an achievement actually, not always being the case in the market had been very aggressive in the past, but that we see now that we’re able to maintain a pricing discipline.

In terms of Solvency II, unfortunately there is not much more I can say than that I said in the introduction. The one thing we now know is that we should count on January 1, 2016. We do know there is a lot of outstanding details in implementation. We also know that these details could have a quite a varying impact of which we are not at all at this point unclear about what the ranges are.

I think that’s also clear to European Commission on one side, the parliament, the EIOPA that it’s important to come to conclusion relatively soon if you want to be able to implement this at the January 1, 2016. The important one that was raised earlier for Aegon obviously is we need to get clarity around how we implement deduction aggregation in order to get the equivalence for U.S.

But again, with all these stakeholders involved and our regulator understanding the importance of it, I have every confidence that we will get to a workable solution within the timeframe.

François Boissin – Exane BNP Paribas

Okay. That’s helpful. And in terms of calendar, do you expect to bring up new numbers to the market in H2 2015, or do you expect to 2016 is the first – is the earliest we can expect numbers from you guys?

Alexander Rijn Wynaendts

As I said, François, we will – based on what we know at that time, try to give you a bit more clarity on what we will be doing in our June conference. Today it’s too early. So in June, hopefully we’ll be able to say more, but again it depends on others, not so much ourselves, so we’ll give you more clarity then [ph].

François Boissin – Exane BNP Paribas

Okay. Thank you very much indeed.

Alexander Rijn Wynaendts

Thank you.

Operator

Thank you. That was the final analyst question. (Operator Instructions) Thank you. The next question comes from Archie van of Dow Jones. Please go ahead.

Archie van Riemsdijk – Dow Jones

Yes. Good morning. One question following up on the price discipline. Could you explain to me what this entails, 1,000 basis points over swaps?

Darryl Button

Yes. So when we look at the buffer capital that we build into our economic pricing models, we price everything on an economic basis, which means we use forward curves and swap curves. We don’t use rising interest rates and we don’t use long-term economic or long-term equity return assumptions when we make market assumptions, we use forward curves.

When we build in cost of capital margins into the risk components of our pricing, we’ve build in cost of capital equal to a 1,000 basis points or 10% plus swaps on a pre-tax basis. And that represents the floor of our pricing. And that’s the basis for our NCVMB reporting. And then we set targets to achieve that or better. So that’s what I mean by a floor level. In many cases and many products we are able to achieve numbers in excess of that.

Archie van Riemsdijk – Dow Jones

Okay. All right, okay. Thanks.

Darryl Button

Yes.

Operator

Thank you. That was the final question. Are there any further points you wish to raise?

Alexander Rijn Wynaendts

Thank you very much for being in the call, and we also actually enjoyed the setting, short introduction, Q&As. And we obviously all look forward to seeing you in New York. And have a great day and a busy day. Bye-bye.

Operator

Thank you. This concludes the Aegon first quarter 2014 results call. Thank you for participating. You may now disconnect.

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