United Kingdom & Ireland Adrian Grace Clare Bousfield CEO CFO - PowerPoint PPT Presentation

United Kingdom & Ireland Adrian Grace Clare Bousfield CEO CFO Analyst & Investor Conference - London - January 13, 2016

Today’s storyline • Delivered an award winning unique multi-channel platform Achievements • Successful implementation of significant regulatory changes since 2010 • Reduced operating costs by ~35% • Simplify our business Priorities going • Maintain competitive cost base forward • Continue to grow, upgrade customers to the platform and consolidate assets • Resume dividend payments in 2017 Financial targets • RoC of 10% post completion of upgrading (planned for 2019) 2

Achievements on previous targets 3

Delivering significantly improved results Operating expenses Operational free cash flow* Underlying earnings GBP million # million GBP million GBP million 175 300 3 120 125 250 100 75 80 200 2 60 150 25 100 1 40 -25 20 50 -75 0 0 0 -125 2013 2014 2015 2013 2014 2015 annualized annualized -175 Pension flexibility DWP Underlying earnings SII de-risking 2013 2014 2015E Transformation Normal operating Customers (rh) * Solvency 1 • Underlying earnings grew despite • Stable costs despite ~20% growth • Auto-enrolment & Reduction in impacts of de-risking for SII in pension customers since 2013 commission (RDR) • 2016/2017 earnings to be impacted • Continue to maintain a competitive • Move to IRR discount rate has by regulatory change and Upgrade cost base removed market volatility • Consistent earnings growth • ~35% cost savings since 2010 • Generated OFCF of ~ GBP 125 million 4

Good progress in 2015 against a challenging regulatory landscape 2015 Target Delivery Key drivers • Operating cost reductions achieved by end 2011, with cost  Reduce operating base reduced a further 5% to ~35% despite growing customer expenses by 25% numbers Revised OFCF target ~ • Solvency I volatility removed and on track to generate of GBP 150 million ~GBP 125 million OFCF in 2015 •  Capital injections required in 2011 and 2013 to stabilize our Return on capital 8.0% Solvency I capital position, primarily in relation to the annuity book and regulatory changes More than double ~ • Fee-based earnings increased by 44% from end of 2011, fee-based earnings impacted by regulatory change reducing fee income 5

Committed to executing on the strategic growth plan • We will split our company into a ‘digital future’ & a ‘legacy past’ • We will grow our capital-light , fee-based platform business providing customer solutions ‘to & through’ retirement via multiple distribution channels • We will upgrade customers from our heritage systems to our digital platform business • We will simplify our business and address our historic DAC position • We will consider options for our residual unit linked/with profits business • We will continue to provide guaranteed solutions and protection while enhancing our investment propositions for our customers Creating a digital business which delivers customer-centric solutions 6

Priorities going forward 7

Executing on strategy • Digital engagement to drive asset • Maintain stable cost base consolidation and growth • Simplify the business by splitting into • Capturing more of the value chain Digital Solutions & Legacy and fulfill customer promise • Continue upgrading clients to the • Further expand workplace platform capabilities • Explore options for the annuity book • Continue to attract and retain talent • Consider options for the residual unit • Focus on learning & development linked/with profits business via talent review, management drives and education programs • Continue to provide guaranteed solutions 8

Strong growth potential in the UK Driving customers to lower …in one of the biggest markets …has created the need to rethink cost digital platform & in the world… traditional business models Retiready … Projected AUM Growth 2013-20 Advisor 3% pa Fuelled by pension freedom reforms Key value drivers £343bn Delivered through customer value management 6% pa • Long lasting relationships DC 2002 2014 Platform assets (+£480bn off Workplace • Asset consolidation & growth • platform) Customer research drives core Fuelled by DB to DC customer promise & Auto Enrolment • Retention into retirement 3000 (Simple, Rewarding & Reassuring) 2000 • New flows DC • Customer-centric engagement 1000 • Provision of broader services DB strategy gets closer to customers 0 15% pa • Fair-value pricing 2012 2022 • Move to platform enables Direct • Investment proposition consolidation of assets , delivery of Fuelled by the advice gap and online appetite additional services & better customer outcomes (flexibility) • Right for customers, advisors & Aegon  Advised  Non-Advised  Disengaged 9

Leading the UK market in transforming the customer journey Multi- channel, ‘to & thru’ proposition on … which is delivering significant …creating a low cost platform with a single digital platform… momentum… sustainable income streams Existing business £6.4bn Pro- tection Pension Annuity book Plat- book £2.7bn form £1.3bn Future Upgrade 2013 2014 2015 Separate Platform Upgrade Pension Platform book Pro- tection Multi-channel proposition with Platform supporting Growing for the future • • • Competitive advantage through simplicity Flexibility for customers & advisors with Focusing on platform business and convenience efficient servicing • Accelerate & extend upgrades • • Retail wealth strategic relationships Digital engagement • Continue growing the platform • • Workplace superior member outcomes Lower marginal costs • A complete digital proposition for employees, employers and leavers • Customer retention • Customer proposition for existing • Engaging tools providing a simple, • Scalable tools to offer other services customers rewarding & reassuring solution • Extend services along the value chain • Low cost solutions 10

Clear competitive space to be the retirement expert… £3.7bn Decumulation 243,000 of assets added to the Aegon platform Aegon platform in 2015 customers in 2015 Investment & asset Risk based products management capabilities Omni channel: Retail, Upgrade Advice partnerships Workplace & Non-advised Straight through processing Service levels New technology Financial strength and long term commitment …with the UK’s fastest growing platform in £ and % 11

Simplifying our business 12

Simplified financial reporting (DAC) Upgrade Plan • Change the DAC recoverability test to reflect managing the UK as two separate businesses – Digital Solutions Change in DAC policy and Existing Business • Recognizing the upgrade plan • Engaging customer-centric, digital service • Improved communications with customers • Simpler and more transparent • Digital Solutions will be on an income and expense model proposition Mobile accessible with limited historical and new DAC created. This will • Plan to upgrade ~GBP 21 billion of UK assets by 2019 improve results by ~GBP 50 million post upgrade • implications Enables greater control of retirement planning • DAC of ~GBP 1 billion before tax will be written off as part • Customers expected to be better off • Customers have option to opt out of this accounting change Creating a long term sustainable profitable Digital Solutions business 13

Exploring options for the annuity book GBP 170 million p.a. ~GBP 9 billion ~GBP 1 billion new business from ~250,000 customers of reserves of capital supporting internally vesting (net of reinsurance) our annuity book annuities • • New vesting annuities from our existing Aegon UK stopped actively writing customer book has reduced following open market option business at the pensions flexibility start of 2010 • • Future new business primarily arises Credit and longevity risk for annuities from guarantees offered by the with- makes it capital intensive profit sub fund 14

Cash and capital deployment 15

Solid Solvency II capital position • Year-end 2015 ratio estimated to be ~140% Solvency II SCR by risk type based on the approved partial internal model (in %) • Remaining uncertainty is the extent of the loss- absorbing capacity of taxes. Potential impact 5% 3% on Solvency II ratio is approximately minus 3 7% to plus 5 percentage points Credit Risk 30% Longevity Risk • 7% Aegon is undertaking initiatives to improve Equity Risk the Solvency II ratio Persistency 10% Expenses Risk • The key risks before diversification are Credit Interest Rate Risk Risk and Longevity Risk which are driven by the Currency Risk 13% Other Risks Annuity Book 25% • The next largest risks are Equity Risk and Persistency Risk which are driven by the Pension and Platform Books 16