Earnings Call Transcript
AEGON LTD. (AEG)
Earnings Call Transcript - AEG Q3 2023
Operator, Operator
Good day, and thank you for being here. Welcome to the Aegon Third Quarter 2023 Trading Update. Please be aware that today's conference is being recorded. I will now pass the conference to Hielke Hielkema, Investor Relations Officer. Please proceed.
Hielke Hielkema, Investor Relations Officer
Thank you, operator, and good morning, everyone. Thank you for joining this conference call on Aegon's third quarter 2023 trading update. My name is Hielke Hielkema, and I'm from Aegon Investor Relations team. With me today are Aegon's CEO, Lard Friese; and CFO, Matt Rider, who will take you through the highlights of the quarter and the progress that we are making in the transformation of Aegon. After that, we will continue with a Q&A session. Before we start, we would like to ask you to review our disclaimer on forward-looking statements, which you can find at the back of the presentation. And on that note, I will now give the floor to Lard.
Lard Friese, CEO
Thank you, Hielke, and good morning, everyone. It is good to speak to you all again today. Let's move to Slide 2 for our achievements in the third quarter of 2023 of this trading update. Slide 2, we are making steady progress with Aegon's transformation and the execution of our strategy to create leading businesses in investment, protection, and retirement solutions. This is demonstrated by our continued commercial momentum, especially in our U.S. strategic assets and in our growth markets. I'm pleased that Transamerica continues to deliver on growth and its strategic assets, in line with our ambition to create America's leading middle market life insurance and retirement company. Commercial results in the U.K. and our asset manager were more varied. The progress we are making in realigning Aegon is also visible in our capital generation for the third quarter of 2023. Operating capital generation before holding and funding expenses increased by 16% to €354 million. The main driver was higher earnings on in-force in Transamerica, which increased by 45% in U.S. dollars over the prior-year period. Driving this was growth of our U.S. strategic assets as well as previously taken management actions on our financial assets. This is the third quarter in a row where we saw continued commercial momentum in the U.S. strategic assets and a strong overall operating capital generation, which benefited from exceptional items. We expect the full year 2023 operating capital generation from the unit to be around €1.2 billion. This is an increase from previous guidance of more than €1 billion. We continue to have significant financial flexibility with strong capital positions of our units above their operating levels and cash capital at the holding of €2.9 billion. Our holding cash increased considerably this quarter as we received the cash proceeds from the ASR transaction. The transaction with ASR was an important catalyst for a number of changes to our profile. Aegon now owns a strategic stake in a leading Dutch insurer and is using €1.5 billion of the cash proceeds to buy back stock. We have already completed 45% of this buyback program and are on track to complete it on or before the end of June 2024. This partnership further strengthens Aegon's asset management leading positions in alternative fixed income and retirement investment solutions in the Netherlands. We are also creating value for shareholders by actively managing our U.S. financial assets. A clear example of this active management is the ongoing program of purchasing institutionally owned universal life policies in order to reduce the mortality risk of the portfolio. So far, we have purchased 20% of the face value of this book, which is half of the amount we have targeted by 2027. Finally, today, it's the first time we discuss our results after our redomiciliation to Bermuda, and I want to take this opportunity to thank our investors for their support during that process. As you will notice, the change of our legal seat has no impact on how we run the business or our capital management approach. We remain laser-focused on executing our strategy, improving performance, and creating sustainable value for our shareholders. With that, let's move on to the results of our U.S. activities in strategic assets, starting with Slide number 3. Let's start with the first of two focus areas in our U.S. Individual Solutions business, World Financial Group, or WFG. Our ambition is to increase the number of WFG agents to 110,000 by 2027, while at the same time, improving agent productivity. Momentum remains strong with the number of licensed agents at 69,000 by the end of September, which is an increase of 17% compared with a year earlier. The number of multi-ticket agents, those selling more than one life insurance policy over the last 12 months, has increased by 16% over the same timeframe. The market share of Transamerica's life insurance products sold by WFG in the U.S. remains high at 65%. This is a testament to the improvements we have made to the service experience for WFG agents and the continued competitiveness of Transamerica's products in this distribution network. Let's go to Slide number 4. The second focus area of our U.S. Individual Solutions business is addressed on this slide. We are investing in both the operating model and in product manufacturing capabilities in order to position the individual life insurance business for further growth through WFG and third-party distributors. Here again, commercial momentum has remained strong. New life sales increased by 10% compared with the third quarter of last year, mainly from higher sales of indexed universal life insurance at an attractive rate of return. World Financial Group accounted for 71% of total new Individual Solutions life sales this quarter, demonstrating how these two pillars of our strategy complement each other. Earnings on in-force increased by 25%, reflecting the strong growth of this portfolio compared with the third quarter of 2023. Slide number 5 shows the progress we made in U.S. Workplace Solutions retirement plans business. To remind you, Transamerica aims to increase earnings on in-force from its retirement business by leveraging its capabilities as a record keeper with the ambition to materially increase the penetration of the ancillary products and services it offers. Net deposits in our focus area of midsize plans amounted to $243 million, benefiting from written sales in previous periods. This quarter, written sales in this segment more than doubled to $1.8 billion compared with the third quarter of 2022, which will lead to higher inflows in the future. The written sales performance was driven by growth in sales of both single employer plans and pooled plans. Our General Account Stable Value product recorded continued growth, as did the Individual Retirement Accounts product, in line with our strategy to grow and diversify our revenue streams within the workplace solutions segment. Earnings on in-force of our strategic assets in the retirement plans business were $22 million, benefiting from increased fee revenues. On Slide number 6, we show the progress of our UK activities. Net outflows in the workplace channel amounted to £0.4 billion, driven by the departure of a low-margin pension scheme. Excluding this, net deposits were £0.5 billion due to both the onboarding of new schemes and net deposits on existing schemes. Momentum in the retail channel remains weak. This is driven by the cost of living crisis in the UK, which negatively impacts customers' willingness to invest. Annualized revenues lost on net deposits amounted to £6 million for the quarter, driven by the gradual runoff of the traditional product portfolio and net outflows in the retail channel. Let's move on to our growth markets on Slide number 7, where commercial momentum remains strong. New life sales in our growth markets increased by 34% compared with the third quarter of 2022. This was largely driven by our Brazilian joint venture, where new life sales almost doubled compared with the previous year's third quarter. Following an increase in our stake in the joint venture, we now own nearly 60% of that business. Non-life new premium production in Spain and Portugal rose 9%, as growth in accident and health insurance was partly offset by lower demand for funeral and household insurance. Operating capital generation of the international segment, excluding TLB, which we classify as a financial asset, decreased compared with the elevated level of the third quarter of 2022, when a positive non-recurring item was recorded. Excluding this, OCG increased due to the higher earnings on in-force from business growth. We turn now to Slide number 8 to address the results of our asset manager. Market conditions remain challenging, which led to third-party net outflows in both the global platforms and strategic partnership segments. Within global platforms, net outflows amounted to €1.2 billion. This was driven by outflows from two specific larger clients. In strategic partnerships, net deposits were recorded in our Chinese asset management joint venture AIFMC, which were more than offset by net outflows in a joint venture with La Banque Postale. Operating capital generation declined compared with the third quarter of 2022. This was driven by net outflows and unfavorable market conditions. We are adapting to the reality of current market conditions and have taken measures to increase the focus on improving efficiency within the global platform business. On Slide number 9, we highlight the additional assets under management coming from strategic initiatives in the third quarter of 2023. Our asset management partnership with a.s.r. has now come into effect. As part of the partnership, Aegon Asset Management will continue to manage large parts of the former Aegon NL investment portfolio, including its PPI retirement offering, and has taken over the management of the combined company's illiquid assets and mortgage funds. a.s.r. has transferred to Aegon Asset Management investments amounting to €16.2 billion, consisting of illiquid assets in the a.s.r. mortgage fund. In turn, Aegon Asset Management has transferred investments amounting to €9.6 billion to a.s.r. largely consisting of core fixed income assets. We expect that the net impact of these transfers to lead to an annualized revenue uplift of Aegon Asset Management of around €20 million. Other strategic initiatives relate to the recent acquisition of La Financiere de l'Echiquier by our joint venture with La Banque Postale, as well as our acquisition of NIBC's European CLO business. We expect that these initiatives will be accretive to our asset manager's earnings. This is important given the pressure on the global platforms business, stemming from the difficult market conditions as well as margin pressure in our Chinese Asset Management joint venture following regulatory changes in the summer. At the same time, we are working to improve efficiency and have recently decided to simplify our product offering by closing or merging subscale funds. This increases focus in the business on our key strengths, namely alternative fixed income, real assets, and responsible investing. We remain focused on improving the results of this business and will update you in more detail at an investor event in 2024. I now hand over to Matt to talk about our financial assets and our capital performance in the third quarter of 2023. Matt, over to you.
Matt Rider, CFO
Thank you, Lard, and good morning, everyone. Today we are providing a trading update focusing on our cash and capital positions. Let me start with a brief overview on Slide 11. Operating capital generation before holding, funding, and operating expenses increased by 16% compared with the third quarter of 2022. This was driven by the U.S. and reflects business growth in strategic assets and previous management actions taken on financial assets. Free cash flow in the third quarter of 2023 amounted to €79 million and mainly reflects the interim dividend we received on our shareholding in a.s.r. Cash capital at the holding increased markedly to €2.9 billion at the end of September 2023. This increase was largely due to the €2.2 billion of cash proceeds received from completing the transaction with a.s.r. Our gross financial leverage was stable at €5.6 billion. In line with previous guidance, Aegon is not reporting a group solvency ratio in the third quarter of 2023 in order to align with a.s.r.'s reporting cycle. When announcing our full year results for 2023, we will again publish a Group solvency ratio. Our capital positions remain strong as reflected by the capital ratios of our main units on the next slide, Slide 12. Compared with the end of the first half of 2023, the U.S. RBC ratio decreased to 422%, but remains above the operating level of 400%. Unfavorable equity markets drove a negative impact on the RBC ratio, which was in line with our published sensitivities. At Aegon's 2023 Capital Markets Day, we indicated that we expected a negative impact from management actions on the RBC ratio, and we guided that we would expect about 7 percentage points during the second half of 2023. That full impact has now been taken in the third quarter. The positive impact from the previously announced reinsurance of secondary guarantee universal life policies was offset by further funding of the program to purchase institutionally owned universal life policies. Other one-time items, mainly from model refinements, as well as a contribution to the own employee pension fund, had a negative impact on the ratio. Strong operating capital generation had a positive impact. The solvency ratio of Scottish Equitable, our main legal entity in the UK, increased by 1 percentage point to 167%. A positive impact from operating capital generation was partly offset by some smaller one-time items and a minor negative impact from market movements. Let me now turn to the next page to give you more insight into our operating capital generation on Slide 13. Operating capital generation before holding, funding, and operating expenses increased by 16% compared with the third quarter of 2022, benefiting from exceptional items. Earnings on in-force before holding expenses increased by 21% compared with the prior-year period. The increase was driven by Transamerica and reflects the growth of strategic assets and the impact from previous management actions on the earnings of financial assets. The increase in earnings on in-force was partly offset by higher new business strain compared with last year, mainly from growth in the U.S. This is in line with our ambition to drive profitable growth in our U.S. strategic assets. The release of required capital amounted to €171 million, an increase of 5% compared with the prior year period. This includes a favorable impact from underwriting variances in the UK. For the third quarter in a row, we saw continued commercial momentum in the U.S. and strong overall operating capital generation, which benefited from exceptional items. We expect the full year 2023 operating capital generation before holding and funding expenses to be around €1.2 billion. This is an increase compared with the previous guidance of more than €1 billion. Moving on to Slide 14, here we summarize the value we are creating from our financial assets. Improved mortality claims experience, together with the impact of previous management actions, helped to increase operating capital generation from financial assets to $65 million this quarter. The capital employed in our financial assets was stable compared with the end of the first half of the year at $4.1 billion. While capital employed reduced by $50 million due to the reinsurance of an SGUL portfolio, there was an increase in capital allocated to long-term care stemming from a higher allocation of alternative assets to the block. In long-term care, our primary management actions are rate increase programs. Since the start of the year, we have obtained regulatory approvals for additional rate increases worth $108 million or 15% of the $700 million target. We will continue to work with state regulators to get pending and future actuarially justified rate increases approved. Furthermore, we extended our track record of successfully hedging the targeted risks embedded in our variable annuity guarantees, achieving a 99% hedge effectiveness. In universal life, we reinsured 14,000 universal life policies with secondary guarantees through a reinsurance transaction, reducing exposure to mortality risk. This has freed up $240 million of capital, in line with earlier guidance. Transamerica used this capital to further fund its ongoing management action of purchasing institutionally owned universal life policies in order to reduce mortality risk. Let me go into some more detail on this on the next slide. Transamerica has a portfolio of institutionally owned universal life policies with a face value of about $7 billion at the end of 2021. We aim to purchase 40% of the face amount of these policies by the end of 2027, thereby stabilizing operating capital generation from financial assets. To this end, Transamerica has set up a dedicated entity to purchase these policies. It has been funded with $700 million as of the end of the third quarter of 2023, using capital generated from financial assets and other internal financing. Since the beginning of the program at the beginning of 2022, the entity has already purchased 20% of the face value of institutionally owned universal life policies, focusing on older age policies with large face amounts. Policies are purchased at a price in line with Aegon's investment hurdles. This locks in the future mortality expectations associated with these contracts. The policies with associated reinsurance remain in force while Transamerica negotiates with reinsurers to recapture the reinsurance coverage. After the subsequent termination of the policies, additional funds become available in the dedicated entity to purchase further policies. Since the program began, Transamerica has purchased policies for $681 million and in the meantime has recycled funds of more than $200 million, which are used to purchase further policies. Continuing to purchase institutionally owned universal life policies will help to further reduce the mortality risk of the overall portfolio and improve operating capital generation from this financial asset. I now move on to Slide 16. Cash capital at the holding increased to €2.9 billion during the third quarter. This increase was largely due to €2.2 billion of cash proceeds received from the completion of the transaction with a.s.r. on July 4 of this year. Free cash flow amounted to €79 million and was driven by the a.s.r. interim dividend. Cash outflows in the third quarter were related to capital returns to shareholders. They consisted of the payment of the 2023 interim dividend of €263 million and €473 million from the share buyback program that was launched upon the completion of the a.s.r transaction. As of November 10, 45% of the €1.5 billion share buyback program has been completed. This reduced the number of common shares outstanding by 7% compared to June 30. As previously communicated, the €1.5 billion share buyback program is expected to be completed on or before June 30, 2024, barring unforeseen circumstances. Aegon intends to cancel up to 330 million common shares and common shares to be bought back in the share buyback program or as a result of the share buyback program in the second half of December 2023.
Lard Friese, CEO
In summary, we continued to deliver on our plans and the results over the third quarter of 2023 show that we continue to make good progress and are on track to achieve our 2025 financial targets. Our next results update covering the full year 2023 will be on March 1. This is somewhat later than usual in order to accommodate bringing the results of our 30% shareholding in a.s.r. into our financials on an IFRS basis. Our second half results will also include any impacts from our expense assumption review process that we have moved to the fourth quarter for all business units in order to leverage our budgeting process. And with that final note, I now pass it back to you, Lard, for your concluding remarks.
Operator, Operator
Thank you. We will now go to our first question. The first question comes from Andrew Baker from Citi. Please go ahead.
Andrew Baker, Analyst
Great. Thanks for taking my questions. The first is on capital generation. Are you able just to provide the usual bridge to the underlying operating capital generation for the quarter? And then, I guess we've seen a few quarters now of positive experience variances. So, just you're able to help us think about how we should, I guess, think about the conservativeness of the assumptions that you use in coming back to your underlying OCG. So, should we expect structural positive experience variances going forward? And then secondly, we've seen obviously, the unit linked miss selling court ruling against a.s.r. Just curious whether this has impacted the way in which you look at a.s.r. as a strategic holding in any way going forward. Thank you.
Lard Friese, CEO
Thank you, Andrew, for your questions. Let me start with the last one, and then Matt, I'll hand over to you for the question about the OCG bridge. So, we're not going to comment on, let's say, the unit linked topic that you're referring to as this business is no longer part of us. This is owned by a.s.r., as you know. We are happy with the 29.99% share ownership that we have in a.s.r., as we have done that transaction on a strategic merit, which is that we are creating a leading business in the Dutch market where we expect a lot of synergetic benefits to come through as the business will be integrated over the coming years. Therefore, we remain pleased with the shareholding that we have. It's a strategic shareholding with an indefinite time frame. So let me hand it over to you, Matt, on the OCG.
Matt Rider, CFO
Yeah, on the OCG, I do it a bit high level, but let's say so we had €354 million of operating capital generation from the units, which was a very big amount for the quarter, but there were about roughly €81 million worth of operational variances and experience variances. About half of them are coming from the U.S. and about half of them are coming from the UK and the international business. Your question really goes to how much conservatism do we have in these estimates? We generally use our management best estimate assumptions coming with the OCG forecast and getting to a clean run rate. And yes, this was a quarter where we had some nice positive benefits, which was good, but in years past when we've had it the other way, right, so we've had unusual mortality claims experience which can pop in. So we really try to focus on that clean run rate, which we would advise that you do as well. So on that basis, you come to a clean run rate for the quarter of about €273 million, which if you sort of add that to what we've already got for the full year, for the year-to-date number of €974 million, that gets you to a number that's in excess of €1.2 billion. And that's kind of the number that we said in the speaker notes that that would be a decent guidance for the rest of the year. Looking forward, taking that €273 number as an operating capital generation clean run rate for the quarter, okay, multiply it by four, and you come to about €1.1 billion, which is going to be in line with our Capital Markets guidance. One thing that I would note on this one, and it's quite an important one, is that we do expect to see growth in the earnings on In-force because we've seen some good growth. All the positive sales that we've seen in the strategic assets in the U.S. will start to generate earnings on in-force, and you start to see that even in our third quarter results. But we do expect to see a higher new business string going forward. And that, again, we have to be able to fund the growth that we're getting, particularly in the U.S. life insurance business, but other businesses as well. So we're not changing our guidance for next year. There could be pluses and minus, let's say, but we're still comfortable with the €1.1 billion for next year.
Andrew Baker, Analyst
Very clear. Thanks, guys.
Operator, Operator
Thank you. We will now go to the next question. And your next question comes from the line of David Barma from Bank of America. Please go ahead.
David Barma, Analyst
Yes, good morning. Thank you for taking my questions. The first one just coming back on the OCG in the quarter, Matt, and picking two things that we've seen in the quarter. So, firstly, on the holding, so I understand that the cash balance should come down as you execute your buyback, so you'll benefit less from the investment return on the cash you have at the holding. But should we see the previous €250 million guidance to have improved a bit, as I think it was based on €1 billion of cash and probably lower short term rates and costs? And then the second part is on the one-off items you flag in the U.S. I understand some of this is reserve releases linked to the level of interest rates. Is that completely a one-off, or should we expect a bit more in the quarters to come if interest rates stay where they are? And then my second question is on the policyholder buyout in universal life, which seems to be making very quick progress. Can you remind me what the operating capital generation impact is if you manage to buy out, say, 50% more of what you originally planned, so the 40% of the €1.2 billion face value? Thank you.
Lard Friese, CEO
Thank you, David, for your questions. Matt, they're all for you.
Matt Rider, CFO
Regarding the OCG guidance, we have become slightly more optimistic because we are holding a significant amount of cash. We planned to maintain a large cash reserve, and with rising interest rates, we are earning a bit more while continuing our share buyback program to return cash to shareholders. We expect that the cash reserves will decrease, but this should have a minor effect. We have observed positive growth and earnings from our in-force policies in the U.S., possibly better than we anticipated, and we have seen a slightly lower new business strain so far this third quarter. However, we expect that new business strain might increase in 2024, which is why we are maintaining our OCG guidance of €1.1 billion for 2024. The one-off items consist mainly of reserve releases and some timing of expenses, which I consider as positive, one-time occurrences rather than recurring events. Regarding the buyout of institutionally owned universal life contracts, we are making good progress towards our goal of buying out 40% of the approximately $7 billion in face value of these contracts that we set for the beginning of 2022, and we have already bought out 20%. We are utilizing a fund of $700 million for this purpose, and we anticipate that the operating capital generation benefits from what we have already accomplished will yield about $25 million in 2025. By 2027, this figure should rise to about $50 million once we achieve the 40% buyout goal. I hope this offers some guidance on the buyback program. In response to your inquiry about doing more, it has been progressing well, but we plan to proceed cautiously because we must approach the market for these institutional contracts and they are costly investments. Before committing additional capital, we need to ensure we can meet our pricing requirements and achieve our desired results. There may be an opportunity for further investment, but currently, the program is funded at $700 million, which should help us reach our target of reducing the total outstanding in-force by 40%.
David Barma, Analyst
Excellent. Thank you.
Operator, Operator
Thank you. We will now take the next question. And your next question comes from the line of Michael Huttner from Berenberg. Please go ahead.
Michael Huttner, Analyst
Thank you. Good morning, Matt, and good morning, Lard. On the U.S. mortality and morbidity and then the mechanism of the recycling of the cash. I'm really curious to see to understand how this works. On mortality and morbidity, I understand from your wonderful IR team there's negative variance in the quarter of 12 million each, $12 million. And I just wondered because normally Q3 is positive variance, particularly in mortality. I just wondered if there's any trend, anything to say here. And on the recycling of the cash, so you gave us some figures, $680 million or $690 million cash used so far for the 20%, and you recycled $200 million. Can you explain how you recycle cash from an asset you bought? I don't understand, and I'm just curious because it seems like a perpetual motion machine, which would be rather nice.
Lard Friese, CEO
Thank you very much, Michael, and good morning. Matt?
Matt Rider, CFO
So first, maybe I start with the institutionally owned contract. So, no, not a perpetual motion machine. This is a way to basically manage mortality risk and mortality fluctuation, particularly among large face amount contracts, obviously ones that are institutionally owned. The fundamental principle here is that we are repurchasing contracts at a price that is lower than our economic liability, much like you would have seen in the, let's say, the buyback program that we did for variable annuity contracts. We therefore lock in our claims cost when we purchase the contract, and then we get a future OCG benefit through reduced claims costs in the future. The way the recycling works, I can go through a very brief example, one that does not involve reinsurance. So reinsurance complicates things a bit, but I can give you the basic headline. Assume that you have a $1 million face amount contract for an old age individual, and the thing has, let's say, a value that we might pay to a third party institutionally owned of $500 million. That would be $500,000 out of that $1 million. If there's no reinsurance on the contract, then we would immediately collapse the contract. What would happen is our life insurance company in the U.S. would repay $500,000 to this funding vehicle that we have set up, release reserves and release capital. And at that moment, we've locked in our mortality cost. Reinsurance complicates the matter a bit, but it's an important one because meanwhile, if we have reinsurance on these contracts, we are negotiating reinsurance to get our portion of the fair value of the reinsurance agreement that we have in place in that contract. So timing can vary and so on. As we said so far, we've been able to recycle about $200 million that we have used and will use in the future to buy back additional contracts. So there is no free lunch here. What we are getting is a buyout at lower than what we think of as the economic price. And then, I'm sorry, you had asked a question about mortality in the third quarter.
Lard Friese, CEO
And morbidity.
Matt Rider, CFO
Yeah, mortality and morbidity. So, on the mortality side, I would not regard this as a trend. We had slightly lower reinsurance recoverables than what we would have expected given the direct claims. On morbidity, we are using an outsourced provider to do some claims management for us. And there's actually a backlog of cases that have come through in the third quarter for morbidity claims. So that's more of, I think, a timing issue than anything else.
Michael Huttner, Analyst
Brilliant. Thank you so much.
Operator, Operator
Thank you. We will now go to the next question. And your next question comes from the line of Iain Pearce from Exane BNP Paribas. Please go ahead.
Iain Pearce, Analyst
Hi, everyone. Thanks for taking my questions. The first one was just on new business strain, which was up just shy of 30 million this year. But the new business strain increase in individual life only looks like it's about 6 million. So, just wondering where the other areas of new business strain are coming from in the quarter. And then with the guidance that new business strain is expected to increase next year again, sort of which lines of business are you expecting to drive the increase in new business strain going forward? And then just a quick one. On the Bermuda redomiciliation, I mean, it seems like the guidance is it doesn't change anything. Is there anything at all that it does change in terms of the business or any benefits you expect from it? If not, why you thought Bermuda was the right place to relocate to? Thank you.
Lard Friese, CEO
Thanks, Iain, for your questions. Let me start with Bermuda and then I'll hand over to Matt for new business strain. First, on Bermuda, you asked why we chose Bermuda. When we divested our Dutch business to a.s.r. and combined it with a.s.r., we closed that transaction on July 4. As a result, we no longer have a regulated insurance business in the Netherlands, which means DNB has no legal basis to continue as our group regulator. The next question is, who would our new regulator be? If our legal seat had remained in an EU member state, specifically the Netherlands, then Solvency II regulation would still apply to a company with most of its subsidiaries not governed by Solvency II. Additionally, this would likely have led to the Spanish regulator becoming our regulator. However, the Spanish regulator has indicated that this would not be the appropriate outcome for our group’s regulation. Consequently, we decided to move our legal seat outside of the EU, choosing Bermuda, and learned from the Bermuda Monetary Authority that after consulting with the college of Supervisors of Aegon, they would take on the role of our Group regulator. We believe Bermuda is the right location for our legal seat, as it is a recognized hub for insurance companies, with many established here, including large reinsurance firms and life insurers. Transamerica has also had some subsidiaries based in Bermuda for decades. As we mentioned during our announcement, we have an agreement with the Bermuda Monetary Authority to have a transitional period until 2027, allowing us to shift from our current regime to the Bermuda regulatory system. We do not expect any significant changes in our capital management or how we treat bondholders. Now that we’ve moved our legal seat, we are in the process of acclimating to this new situation. We’ll need to increase our team in Bermuda to foster a strong working relationship with our new regulator, but we do not foresee any considerable changes in how we operate our business or manage our capital. Now, with that, I’ll hand over to you, Matt, for new business strain.
Matt Rider, CFO
Okay, so the new business strain, and I talk about the U.S. individual life, it's the lion's share of the total amount and they had about $90 million of new business strain in the third quarter. Other elements importantly, workplace had about $54 million of new business strain and we are starting to see some increases in the, we call it, the RILA registered index-linked annuity contracts, which is an area of focus for us. It's an annuity product that is very easily hedged, not a VA and we promote that business heavily. So those are the big components. But overall new business strain primarily driven, as you said, by individual life insurance. But we're starting to see some increases in other areas.
Operator, Operator
Thank you. We will now go to the next question. And your next question comes from the line of Ashik Musaddi from Morgan Stanley. Please go ahead.
Ashik Musaddi, Analyst
Thank you. And good morning, Lard. Good morning, Matt. Just one question actually not U.S. So just focusing a bit on UK and asset management. Now UK had seen a big outflow of about 1 billion including workplace and retail and Asset Management is seeing still outflows as well. So I guess the thing I'm trying to understand is in UK, especially workplace, there was outflows which you mentioned that there was one large contract, but can we get some color about what's the inflows of excluding that large contract? Because my gut feeling is that a workplace is a business which should be getting inflows for many years to come. So, I was a bit surprised to see outflows in workplace. And in retail would you say that it is driven by Cofunds or is it something else? Is it just macroeconomic backdrop basis or is there something else going on as well and what needs to happen for that to get fixed? I appreciate that you mentioned that this topic will be discussed later next year at Capital Markets Day, but any color today would help as well. And on asset management as well, any color on what are the nature of those outflows, the margins of those outflows? Because it's still reasonably sizable outflows in asset management as well. Thank you.
Lard Friese, CEO
Hi, Ashik. This is Lard. Good morning. First, let's discuss the UK. It's important to differentiate between the workplace business and the retail platform. Starting with the workplace business, I agree that the market dynamics suggest we will see more inflows over the long term. We have experienced consistent commercial momentum in the workplace sector in recent quarters. If we exclude a single client that we lost, our net flows were positive at 0.5 billion. This underlying sales trend in the workplace remains strong, which is promising. However, we did lose a client to another provider, which happens in competition, though I don't prefer it. It's worth noting that the margin on that contract was relatively low. Now, regarding the retail platform, the situation is more influenced by the macroeconomic environment. The UK is experiencing high inflation and a cost of living crisis, leading consumers to prioritize their spending. Consequently, retail investors are hesitant to increase their investment portfolios, impacting our business dynamics. Additionally, we face competition from various technology platforms, with many independent financial advisors opting to use our platform over others for asset management. Over the past few years, we've heavily invested in integrating the Cofunds acquisition, enhancing our services, and improving the platform's usability. We are nearing the rollout of a significant update, the ADX update, which we believe will greatly enhance user-friendliness and create better commercial opportunities following its implementation. However, the macroeconomic conditions will continue to be a significant factor, and it may take some time for the retail landscape to improve. In asset management, particularly for firms with a focus on fixed income, rising rates lead to declining asset values and reduced revenues. This results in outflows from institutional clients needing to manage liquidity. The key question is how to navigate and adapt to this new reality. We are increasingly concentrating on alternative fixed income strategies, responsible investment strategies, and real estate strategies. Initiatives like the acquisition of a CLO platform in Europe and our partnership with a.s.r. aim to bolster our capabilities. On the cost side, we are also implementing lower expenses in asset management and finalizing a new technology platform, which we expect to complete by the end of the first quarter. This should enhance our efficiency, resulting in improved profitability. In our Chinese asset management business, we have seen net inflows, although not as significant as in 2022, partially due to the macroeconomic conditions and regulatory changes that have capped asset management fees. This is a complex situation. We will provide a detailed overview of both the asset management business and the UK in 2024. There are definitely areas where we need to work hard to adjust to the new macroeconomic conditions and enhance our offerings.
Operator, Operator
Thank you. We will now go to the next question. And your next question comes from the line of Farquhar Murray from Autonomous. Please go ahead.
Farquhar Murray, Analyst
Morning all. Just one question from me. I just wondered if you could elaborate on the reasoning for appointing Albert Benchimol to the Board. I imagine it's probably his very broad international experience, including Bermuda, but I'm just wondering if there's anything particularly specific within Italians that you wanted to bring on board. And has he been tasked with anything slightly more specific as well? Thanks.
Lard Friese, CEO
Thank you, Farquhar. Yes, we are very pleased to have announced last week our proposal to stockholders. We will need to confirm this in June. Albert Benchimol will join our Board. As you pointed out, he has extensive experience in the industry, which is very beneficial for us. He is leaving his position as CEO of AXIS Capital, where he has successfully led the company for the last decade. He also has a wealth of experience from various other companies. He brings both financial expertise and strong leadership skills, so we are thrilled to have such an experienced industry leader on the Board. While he does have experience in Bermuda, the most important aspect is his overall talent and industry knowledge, and we look forward to gaining from his insights and expertise.
Farquhar Murray, Analyst
And will he be focusing on anything in particular in terms of topics or issues or is it a much broader sphere?
Lard Friese, CEO
No, he will become a non-executive member of the Board of Directors. Our Chairman at a certain point will meet with the Board and also decide on participation in various committees. But at this point in time, he's a non-executive Board member, like the other non-executive Board members are as well.
Operator, Operator
Thank you. We will now go to our next question. And your next question comes from the line of Najeeb Ahmad from UBS. Please go ahead.
Najeeb Ahmad, Analyst
Hi, thanks for taking my question. So, first one on the UK, on the platform, specifically or generally around consumer duty, what implications do you see for your business? Do you need to make any changes? And then specifically on the platform, do you charge or retain any cash margin on the platform? Because that's been a key focus for the regulator in the UK. Second question on Bermuda redomiciliation. Sorry, that's a mouthful. Yeah. So the question here is, you've redomiciled your legal seat. Why not change the tax domicile to Bermuda as well? There were some proposed tax changes in the Netherlands. Share buybacks, of course, you're doing one. And hypothetically, if you were to change the tax base, what would stop you from doing that?
Lard Friese, CEO
Yes, thank you very much, Najeeb. By the way, redomiciliation, that tongue-twister word, is something that I've been practicing as a non-native English speaker many, many times in front of the mirror, hoping that I would trip over it, but it's redomiciliation indeed. Matt will take that question. On the UK platforms, we have implemented, let's say before that, new regulation, a lot of things. So we're actually in a good place to comply fully with the customer duty regulation that is already in place. So, we're fine there. And then about maintaining a cash margin. Yes, we do. Matt, the Bermuda...
Matt Rider, CFO
Yeah. So I think the question was, why do we maintain our tax residency in the Netherlands. It's a very simple reason. By doing so, we don't pay tax on the dividends that are received from the U.S. business. Just a very simple one.
Lard Friese, CEO
You mentioned the share buyback tax proposal. It is still in Parliament. It has passed the Lower House, but it still needs to go to the Senate. So, it is currently in progress, and there is considerable debate surrounding it.
Operator, Operator
Thank you. That concludes the Q&A for today. I would like to hand the call back over to Hielke Hielkema for the closing remarks.
Hielke Hielkema, Investor Relations Officer
Thank you, operator. This concludes today's Q&A session. On behalf of Lard and Matt, I want to thank you for your time this morning. Should you have any remaining questions, please contact us in Investor Relations. Thanks again for your participation in today's call, and have a good day.
Operator, Operator
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.