Earnings Call Transcript - AEG Q4 2022

Jan Willem Weidema, Head of Investor Relations

Thank you, operator, and good morning, everyone. Thank you for joining this conference call on Aegon's Fourth Quarter 2022 Results. 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. With me today are Aegon's CEO, Lard Friese; and CFO, Matt Rider, who will take you through the results for the fourth quarter and the progress we are making in the transformation of Aegon. After that, we will continue with our Q&A. And on that note, I will give the floor to Lard.

Lard Friese, CEO

Thank you, Jan Willem, and good morning, everyone. We appreciate that you're joining us on today's call. I want to start by running you through our achievements on slide number two. The fourth quarter closes out a year in which we accelerated our transformation and the execution of our strategy. During the quarter, we announced a transaction to combine our Dutch businesses with a.s.r., which was a historic milestone for the company. We are very pleased that we have received broad-based support from our shareholders for this transaction at our AGM in January, and we continue to be on track to close the transaction in the second half of this year. Despite challenging market circumstances, we also made significant progress in further strengthening our balance sheet and in improving our operating performance. At the 2020 Capital Markets Day, we launched our operational improvement plan with more than 1,100 initiatives, together with ambitious, but realistic savings and growth targets. The success of this program is evidenced by the fact that the benefit to our operating results has exceeded our target one-year ahead of schedule. This year's commercial results underscore the importance of offering a broad range of products to our customers. For example, as a result of the uncertain macroeconomic environment, we saw outflows in Asset Management and in the U.K. retail channel. In the U.S. Workplace Solutions, we experienced net outflows as a consequence of the departure of one large customer. But at the same time, many of our strategic assets are performing well. Our life insurance sales increased in our growth markets and in the U.S., where individual solutions achieved the highest level of quarterly new life sales in the last five years. Furthermore, the Workplace business in the U.K. recorded the highest level of net deposits in the past four years, demonstrating the improvements we are making to our U.K. franchise. As a result of the progress we have made, both strategically and financially, we will propose a final dividend for 2022 of EUR0.12 per common share at our Annual General Meeting. This brings the full-year dividend to EUR0.23 per common share, compared with a EUR0.17 dividend over 2021. Furthermore, we are announcing a new EUR200 million share buyback program for the first half of 2023, which underscores our disciplined capital management and commitment to return surplus capital to our shareholders. Slide three highlights the success of our operational improvement plan since its launch at the 2020 Capital Markets Day. We have now fully implemented almost 1,200 initiatives. This is more than we set out to do, and we continue to implement more. The plan was not only aimed at improving operating performance and propositions to our customers but also fundamentally changed the way we work at Aegon. For example, we have embedded a continuous focus on efficiency and operational execution in the organization, with accountability clearly assigned, more granular planning, and real-time tracking. The increased operational rhythm has created a culture of transparency and a focus on developing talent to meet future challenges. On slide number four, we show the financial results of the operational improvement plan. When we launched this program, we targeted an operating result uplift of EUR550 million by the end of 2023. As of year-end 2022, the operational improvement plan has resulted in an operating result uplift of EUR627 million, outperforming our expectations and one year earlier than expected. Growth initiatives contributed EUR262 million to the operating results. This is well above our target and required approximately EUR60 million less of additional expenses than we originally envisaged. Compared with the base year 2019, we recorded a benefit from the expense savings initiatives of EUR366 million or 92% of the savings targeted for 2023. Now if you combine this with a lower-than-expected spending on growth initiatives, the operational improvement plan has actually led to a net reduction in addressable expenses of EUR280 million, compared with a target of EUR250 million communicated at the Capital Markets Day in 2020. Given the overall success of the program and in light of upcoming changes to the group's structure and reporting, due to this transaction with a.s.r., we have decided to close out the reporting on the operational improvement program. Now it goes without saying that improving efficiency and driving commercial momentum remain key focus areas for us going forward. Moving to slide five, we'll zoom in on the progress of our U.S. strategic assets. As you know, in Individual Solutions, we have the ambition to regain a top five position in selected life products over the coming years. And as you can see, commercial momentum remains strong in this segment. New life sales increased by 20% in 2022, compared with 2021, and have accelerated during the course of the year. This was supported by the World Financial Group, or WFG, distribution channel, where the number of licensed life agents grew 20%, compared with 2021 and now stands at a record high of over 62,000 agents in North America. In addition, our market share in this WFG channel has increased from 59% in the fourth quarter of 2021 to 67% this last quarter on the back of improvements made to our customer service experience and continued competitiveness of our products. We recently launched a new indexed universal life product specifically designed for the brokerage channel, which complements our current product that is successfully marketed through the WFG channel. In the Retirement business, Transamerica aims to compete as a top five player in new middle-market sales. Written sales were at $7.9 billion in 2022. This reflects the difficult market circumstances with lower equity markets and higher interest rates negatively impacting planned assets. Net outflows for the middle-market segment were driven by one single large multiple employer plan exit and would have been positive for the year, excluding this discontinuance, driven by strong written sales in previous periods. Turning to slide six for the highlights of the performance of our U.K. and Dutch strategic assets. So let me start with the U.K. On balance sheet, it was a positive year for the platform business. On the one hand, the workplace channel generated the highest level of net deposits on record in 2022. On the other hand, the retail channel recorded outflows on the back of weak investor sentiment in line with what we have seen across the industry. Over the year 2022, net deposits on the platform contributed positively to revenues, but were more than offset by the anticipated gradual runoff of the traditional product portfolio. Despite the unfavorable impact of adverse markets on assets under administration, we were able to keep the efficiency of the platform stable, because of the steps we have taken to reduce expenses. Now moving on to the Netherlands. Here we clearly see signs that the housing market is cooling down, leading to lower mortgage sales. Nevertheless, the mortgages portfolio continues to grow and now amounts to almost EUR63 billion. Our workplace business and bank continued to show consistent growth, thanks to the commitment of our Dutch employees, who remain dedicated to delivering a high level of service to our customers in the run-up to the transaction with a.s.r. So let's jump in on Asset Management and the Growth Markets on slide number seven. The challenging market conditions negatively impacted our Asset Management activities in 2022. Now despite the difficult economic conditions in China, our Chinese Asset Management joint venture, AIFMC, delivered another year of net deposits. Third-party net deposits in strategic partnerships amounted to EUR3.6 billion. These were more than offset by third-party net outflows in Global Platforms of EUR3.8 billion as our customers freed up liquidity in a rising interest rate environment. The operating results from strategic partnership decreased by 29%, primarily driven by lower performance fees for AIFMC from elevated levels in 2021. In our Growth Markets, we continue to invest in profitable growth. New life sales from these markets increased by 15% to EUR248 million in 2022, mostly as a result of business growth in Brazil. Summarizing on slide number eight. We remain focused on executing our strategic agenda and continue to maintain a high pace in transforming Aegon. We are closing out the reporting on the successful operational improvement plan. Expense savings initiatives have contributed EUR366 million to our operating results in 2022. Operating capital generation was solid at EUR1.5 billion in 2022, above the outlook that we provided a year ago, despite difficult market circumstances. Free cash flow amounts to EUR780 million in 2022. In the last two years combined, we achieved EUR1.5 billion of free cash flow. This means that we have delivered one year early on our cumulative free cash flow target of EUR1.4 billion to EUR1.6 billion for the period 2021 to 2023. Our gross financial leverage is in line with the target we set ourselves two years ago, and we intend to further reduce our leverage by up to EUR700 million using part of the cash proceeds from the a.s.r. transaction. Our proposal for the final dividend brings the total dividend over 2022 to EUR0.23. And for the full-year 2023, we target a step up to EUR0.30 per share, well above the level we targeted at the 2020 Capital Markets Day. In addition, we are announcing a new share buyback program of EUR200 million after having just completed last year's EUR300 million buyback program. On top of this, we still intend to return EUR1.5 billion of the cash proceeds to shareholders once the a.s.r. transaction has closed. This is testimony of our commitment to offer attractive shareholder returns. And finally, before I hand over to Matt, I kindly want to invite you to our Capital Markets Day on June 22 in London, where we will provide an update on our strategy and targets. The focus of the event will be on our U.S. activities and our path to creating value through profitable growth and active management of the in-force business. I now hand over to Matt for the financial performance of Aegon in 2022.

Matt Rider, CFO

Thank you, Lard, and good morning, everyone. Let me start with an overview of our financial performance over the last year on slide 11. The operating result for the year was stable at EUR1.9 billion. The result was supported by expense savings, benefits from growth initiatives, improved claims experience, and strengthening of the U.S. dollar. This was offset by lower fees due to adverse market movements and outflows in variable annuities and asset management. Operating capital generation before holding funding and operating expenses amounted to EUR1.5 billion for 2022. The increase compared with the previous year reflects similar drivers of the operating result and the benefit from higher interest rates in the Netherlands. Cash capital at the holding increased to EUR1.6 billion at the end of 2022, supported by EUR780 million of free cash flow for the year. Our gross financial leverage amounted to EUR5.6 billion or EUR5.4 billion based on a euro-U.S. dollar exchange rate of $1.20, which is the rate at which we set our deleveraging target in 2020. This means that we remain within our target range. Despite volatile markets, we maintained strong capital ratios with each of our three main units remaining above their respective operating levels. This underscores the effectiveness of the actions we have taken over the past few years to improve our risk profile and to reduce the volatility of our capital position. Transamerica, in particular, has taken several actions to strengthen its capital position and increase the predictability of its U.S. RBC ratio. This includes setting up a voluntary reserve for variable annuities, achieving additional long-term care rate increases, and freeing up capital by reinsuring the legacy Universal Life portfolio of Transamerica Life Bermuda, our Asian high-net-worth business. Furthermore, the dynamic hedging program, which we expanded in 2021 to include all variable annuity guarantees, continued to perform well in difficult markets during 2022. Let me now turn to Aegon's quarterly performance, starting with the operating result on slide 12. In the fourth quarter, the operating result came in at EUR488 million, up by 4% compared with the fourth quarter in 2021. The operating result in the U.S. increased by 26% or 14% on a constant currency basis to EUR233 million. This was partly due to improved mortality claims experienced in life. Unfavorable mortality claims experienced in the quarter amounted to EUR13 million, a significant reduction from the EUR83 million of unfavorable experience we saw in the fourth quarter of 2021 as the impact from COVID subsided. Morbidity claims experienced continued favorable relative to our expectations and contributed EUR16 million in the fourth quarter of 2022. In addition, the result of 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. There's a commensurate offset in the International segment. In the Netherlands, the 13% increase in the operating result was driven by our online bank, Knab, and our Workplace Solutions business supported by higher interest rates and a non-life reserve release. The operating result of the U.K. increased by 3%. Lower addressable expenses driven by expense savings initiatives more than offset a decline in fee revenues as a result of unfavorable market developments and the runoff of the traditional product portfolio. When adjusting for the impact from the reinsurance transaction between TLB and Transamerica, Aegon International increased its operating result driven by improved claims experience and business growth in Brazil. Finally, the operating result of Asset Management decreased by 35%, driven by lower fees in both global platforms and strategic partnerships. This is a result of lower asset balances due to adverse market conditions and outflows in the global platforms. Let's move to slide 13, where we show that the net loss for the quarter totaled EUR2.4 billion. Non-operating items totaled a loss of EUR445 million, mainly driven by realized losses on investments in the Americas. This was primarily 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 and adjustments to Transamerica’s interest rate risk profile following the increase in interest rates. Other charges amounted to EUR2 billion. This was mainly driven by an impairment loss of EUR1.8 billion that was triggered by the classification of Aegon in the Netherlands as held for sale as a result of the transaction with a.s.r. This represents the majority of the previously announced expected reduction in equity as a result of the transaction. Finally, the income tax position was impacted 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 the fact that the impairment loss I just mentioned is not tax-deductible. On slide 14, I want to walk you through the capital positions of our main units, all of which ended the quarter above their respective operating levels. The U.S. RBC ratio increased by 24 percentage points over the quarter to 428%. The main positive impacts were from previously announced management actions. Following the internal reinsurance transaction, Transamerica is now able to recognize its equity and TLB as available capital for solvency purposes. This more than offset the impact from setting up the voluntary reserve for variable annuities. Additional one-time items include a negative impact from industry-wide updates to required capital for mortality risk. Market movements had a positive impact, driven by higher equity markets and interest rates during the quarter. The Solvency II ratio of the Dutch Life unit increased to 210%, due to a positive impact from model and assumption changes, which included the favorable impact of a higher factor applied when calculating the loss-absorbing capacity of deferred taxes. Market movements had a negative impact, mostly from lower real estate revaluations. The Solvency ratio of Scottish Equitable, our main legal entity in the U.K., decreased by 10 percentage points to 169%, mostly driven by model and assumption changes, remittances, and market movements. On slide 16, you can see that cash capital at the holding increased to EUR1.6 billion during the quarter, which is above the top end of the operating range. This allows us to announce a new share buyback program today of EUR200 million. In the fourth quarter of 2022, we returned EUR240 million of capital to shareholders through dividends and the third tranche of the share buyback program announced in March of last year. Free cash flow for the quarter was EUR318 million, consisting of remittances from the U.S., the U.K., and our international activities. The proceeds from the sale of our stake in the joint venture with Liberbank also contributed positively. Remittances from the Netherlands were not included in cash capital at the holding following the transaction with a.s.r. Slide 16 summarizes the great strides we have made in recent months in maximizing the value of our financial assets. In the fourth quarter, we continued our track record of successfully hedging the targeted risks embedded in our Variable Annuity guarantees, achieving a 96% hedge effectiveness. In long-term care, our primary management actions are rate increase programs. We have obtained regulatory approvals for additional rate increases worth $21 million. The total value of approvals achieved since the start of the program now stands at $471 million, exceeding the increased target of $450 million worth of rate increases. We will continue to work with state regulators to get pending and future actuarially justified rate increases approved. The Dutch Life business again paid a quarterly remittance of EUR50 million. TLB's reinsurance transaction with Transamerica freed up capital and strengthened Transamerica's capital position. Disciplined capital management enabled TLB to contribute EUR57 million to the free cash flow of the holding in the fourth quarter. On slide 17, I want to go into some of the reporting consequences of the transaction with a.s.r. First, we continue to expect the transaction to be closed in the second half of this year. Ahead of the closing, we intend to simplify the reporting of Aegon the Netherlands in the context of our group reporting. Beginning with reporting over 2023, the results of our Dutch business will be reported as non-operating results for both IFRS segment reporting and capital generation. Remittances from the Netherlands will not be reported as free cash flow and will not be reflected in cash capital at the holding. We will reflect these as part of the EUR2.2 billion net proceeds at the closing of the transaction. After closing, Aegon's strategic shareholding in a.s.r. will be accounted for at the net asset value of a.s.r. We will include dividends received from a.s.r. in our free cash flow. Obviously, Aegon will cease to report operational and performance metrics for the former Aegon the Netherlands operations. The transaction also has consequences for our reporting cycle. a.s.r. does not currently disclose quarterly financial results. As we need to include the net asset value of our strategic shareholding in a.s.r. into our results, Aegon will adjust its reporting cycle so that we will provide trading updates for the first and third quarters. These trading updates will focus on key performance metrics. The half year and full-year disclosures will encompass the full comprehensive set of IFRS financials and performance metrics. Furthermore, we will also shift our reporting date to around a week later than a.s.r. to allow for inclusion of our share in the net asset value of a.s.r. in our results. This new reporting cycle will start effective immediately, meaning that the first quarter 2023 results will be communicated in the form of a trading update on May 17. Before handing it back to Lard, I want to close out with an outlook for 2023 on slide 18. Let me start with the operating capital generation. We expect at least EUR1 billion operating capital generation from our units outside the Netherlands in 2023. This reflects an expected increase in new business strain as we aim to profitably grow our U.S. business. Free cash flow will exclude remittances from Aegon the Netherlands, but will include the interim dividend that we expect to receive from a.s.r. in 2023. On this basis, we expect free cash flow to amount to around EUR600 million for 2023. Over time, our free cash flow per share is expected to benefit from the planned reduction of our share count and an increase in dividends from a.s.r., as synergies from the combination emerge. In addition, our funding costs will decrease as we reduce our gross financial leverage. As a reminder, we are targeting a dividend over 2023 of EUR0.30 per share, EUR0.05 more than we communicated at the 2020 Capital Markets Day, which is an attestation to the strength of the strategy of the company. Finally, we have decided to transition to a cash-only dividend as of the final dividend of 2022. This has several benefits for our company including the fact that it removes the need to buy back shares to neutralize the dilutive effect of the stock dividend. It also provides more room to execute the planned share buyback in relation to the transaction with a.s.r. And with that final note, I now pass it back to you, Lard, for your concluding remarks.

Lard Friese, CEO

Thanks, Matt. In summary, on slide number 20, we have significantly accelerated our strategy execution. And equally important, we have delivered on our financial commitments in 2022. Looking forward, we remain fully focused on executing our strategy. We are continuing to improve the performance of our company. We are investing in profitable growth by introducing new products and expanding our distribution footprint. We are remaining disciplined in our capital and risk management. And we are continuing to provide attractive returns to our stockholders. Therefore, I'm confident in delivering on our financial and strategic commitments for the year 2023 and beyond. But as a whole, I'm very proud of all our colleagues who work hard every day to make our strategy a success and to continue to support our customers' needs. I would now like to open the call for your questions. Please limit yourself to two questions per person. Operator, please be so kind to open the Q&A session.

Operator, Operator

Thank you. We will now take our first question. One moment, please. Our first question comes from Andrew Baker from Citi. Please go ahead; your line is open.

Andrew Baker, Analyst

Hi, thank you for taking my questions. First, regarding the new capital generation guidance of at least EUR1 billion, can you provide some insight into your assumptions for new business strain and how that compares to 2022? Are you considering any factors for mortality in that estimation? Additionally, are there any other significant items worth mentioning in relation to the EUR1 billion figure? Secondly, could you give us an update on your progress toward your top five goals in Retirement Plans sales and the selected individual life sales you've mentioned? How much additional new business strain do you expect beyond the 2023 level to achieve those market positions, and what time frame do you anticipate for this to occur? Thank you.

Lard Friese, CEO

Thank you very much, Andrew. Matt, over to you.

Matt Rider, CFO

Yes. Regarding the new business strain, we have indicated an increase compared to our 2022 levels. You may have noticed a growing additive new business strain throughout the year, so consider the fourth quarter figure as a reasonable estimate. In terms of mortality, if you look at both mortality and morbidity together, they roughly balance each other out, leading us to expect a neutral effect for 2023, despite past fluctuations in mortality and morbidity.

Andrew Baker, Analyst

And on the top five positions?

Matt Rider, CFO

Yes, I think we're performing well with our top five positions. However, regarding your question about the impact of increasing those positions and what new business strain will mean for 2023 and beyond, we plan to provide a capital markets update in the second quarter of 2023, where we can give you more information.

Operator, Operator

Thank you. We’ll now go to our next question. And your next question comes from the line of David Barma from Bank of America. Please go ahead. Your line is open.

David Barma, Analyst

Good morning. Thank you for taking my questions. The first one is on the dividend. So you guide for, in conjunction with the free cash flow guidance of EUR600 million, including the a.s.r. final dividend in there, you'd be closer to EUR700 million. And your 2023 targeted dividend cost will be somewhere nearly EUR200 million less than that. So how should we think about the difference between the two figures? And secondly, on Asset Management. So naturally, it was quite pressured and market movements didn't help last year. What's your outlook for flows so far in the year? And can you remind us what sort of uplift in earnings we should expect from the different actions you've been taking on cost, asset diversification, the streamlining of the different platforms, etc.? Thank you.

Lard Friese, CEO

Yes. Thank you very much, Dave. Let me take the Asset Management questions, and then half of that to Matt, can you take the free cash flow and dividend question. So on Asset Management, I think in line with what you've been seeing in the wider industry, the fact that both interest rates have been shooting up, reducing the values of bonds and corresponding fees, obviously, that's one thing. And secondly, having equity markets going down. That entire market backdrop has not been helpful for, let's say, the Asset Management business in the last year. When it comes to the Global Platforms, and you look at the third-party net outflows, this is mainly also because our clients freed up liquidity as a result of all this volatility. However, it was offset positively by AIFMC, which is our Chinese Asset Management joint venture, which was able to bring in EUR3.6 billion of positive net deposits over the entire year. That could not completely offset the loss that we had in the Global Platforms in the third-party business, but it was something that came quite close. Over the total year, the Global Platforms lost a net deposit of EUR3.8 billion, while our Chinese joint venture came in with EUR3.6 billion. So it could not completely offset it, but it was pretty close. And that's that. Of course, depending on the market backdrop this year, we will see how the Asset Management flows and Asset Management business will continue. The start of the year, if you look at the markets, they've been better, but at the same time, it's early days. So I think it's far too early to call the market on this. What we are doing to improve the Asset Management business structurally is a couple of things. First of all, we are implementing a new technology platform to support our overall Asset Management business. This is a very comprehensive change that we are implementing. We have worked on that for the last couple of years, and we aim to finalize that in the course of this year. After which we expect it to be far more efficient and will reduce costs after we've implemented that Aladdin technology fully. So that will help to improve structurally the Asset Management margins. At the same time, we aim to push through, obviously, in the chosen investment strategies. And I also want to remind you that in the context of the a.s.r. transaction, we've been able to strengthen the Asset Management business by becoming a strategic partner of the combined company, especially in particular, investment categories like illiquid assets, etc., which as we announced at that time, were accretive and are accretive to the overall Asset Management business. So 2022, it was a difficult year against a very difficult market backdrop. 2023, early days, markets are better now, but let's see how it goes. More importantly, what we have in our control, we are implementing to improve efficiency, reduce expenses, and make sure that we improve the margins. And at the same time, we're pushing through with more commercial activity on selected strategies. With that, to you, Matt, on free cash flow and dividends.

Matt Rider, CFO

On free cash flow, I want to provide a basic overview. If you have detailed questions, feel free to follow up with our Investor Relations team. For 2023, we're projecting EUR600 million in free cash flow, which includes the interim dividend from a.s.r. This brings us to approximately EUR600 million. We will be starting with a share count of just under 2 billion. When you do your calculations, keep in mind that we've announced a share buyback of EUR200 million, and we plan to achieve a total share buyback of EUR1.5 billion throughout 2023. Based on these figures, we're likely to distribute around EUR500 million, while generating about EUR600 million, resulting in a gap of approximately EUR100 million. This is a fairly typical payout ratio.

Operator, Operator

Thank you. We’ll now go to our next question. And your next question comes from the line of Michael Huttner from Berenberg. Please go ahead. Your line is open.

Michael Huttner, Analyst

Thank you very much and congratulations on achieving your goals for 2022 and setting your sights for 2023. I have two questions. First, you mentioned the EUR1.5 billion buyback planned for 2023, and I would appreciate any additional insight you could provide on that. If you were to execute it as a standard buyback over six months, it seems you would be handling around 25% or 30% of daily volumes. Could you elaborate on your strategy here? Secondly, regarding the U.S. business, which appears to be performing well with a 428% RBC ratio and plans for new business investment, I noticed a somewhat negative outlook from Moody’s despite the strong performance supported by the TLB boosting capital. Could you share your thoughts on that?

Lard Friese, CEO

Thank you, Michael, for your question. Yes, Matt, do you want to take it?

Matt Rider, CFO

No, thanks.

Lard Friese, CEO

Regarding the share buyback program, we plan to initiate the EUR 1.5 billion buyback as soon as we finalize the transaction. We anticipate that most of the process will involve share buybacks, which will take some time to complete. While we haven't specified the exact duration, it will be under a year, and we aim to execute it as quickly as possible, considering daily trading volumes. In the U.S. business, we observe a high solvency ratio, and the Life segment is performing exceptionally well, which is favorable in the eyes of rating agencies due to strong commercial activity. However, upon announcing the a.s.r. transaction, we were placed on negative watch by the rating agencies. They will assess the situation, but should a downgrade occur, it would not significantly impact our business or commercial activities. Interestingly, when we announced the a.s.r. deal, our hybrid and debt values actually increased, illustrating that even a potential downgrade wouldn’t have much commercial consequence for us.

Michael Huttner, Analyst

Thank you.

Operator, Operator

Thank you. We’ll now go to our next question. And your next question comes from the line of Nasib Ahmed from UBS. Please go ahead. Your line is open.

Nasib Ahmed, Analyst

Thank you. Good morning. And thanks for taking my questions. So first one on the U.S. In the OCG, the quarter-on-quarter OCG sell, but even on earnings, if you even exclude the TLB allocation of EUR55 million, the earnings improved. So what is the difference there, may be new business strain? And I guess related to that, the investment into the U.S. to get to top five, is that all coming from Transamerica? Or do you expect some of that to come from the holdco? And then, I guess, second question is on the two strategic assets, well three assets, the U.K., U.S. and Asset Management. Can you talk about what kind of learnings you can apply from the U.S. to U.K. and vice versa? And how you think you are kind of the best owners of both assets at the same time and whether the Asset Management plays into that as well? Thanks.

Lard Friese, CEO

Let me address the last question and then Matt can answer the first two for Nasib. Thank you, Nasib. On the learnings, it’s interesting that in the U.S., the U.K., and our long history in the Netherlands, we've been operating in Workplace Solutions and Retirement Plan businesses for a long time. It's enlightening to observe the insights we can gain from different regions and markets. It’s important to realize that there are many local differences, including tax regulations regarding retirement plans, local preferences, and differing legislations. While there are many differences across these markets, there are also many similarities that we can learn from one another. In the U.S. Workplace Solutions business, we’ve seen our average margin per participant increase. This is evident in the numbers, as our advice center actively reaches out to plan participants to assist them with decisions, including consolidating pension buildups from various plans. This successful approach in the U.S. is informing similar initiatives we are implementing in the U.K. In terms of Asset Management, we manage approximately EUR900 billion in assets flowing through our products, which largely consist of asset accumulation products, including pension plans and individual products like annuities. Our asset managers handle a portion of this while we also collaborate with external managers to provide our clients with comprehensive options. This situation presents two opportunities. Firstly, it allows us to grow our asset manager's share over time. Secondly, it highlights the importance of having a strong asset management capability. We aim to be versatile and accommodate various client needs through partnerships with multiple asset managers. For our asset management, we need to maintain our current position while striving to expand it over time, underscoring its significance as one of our core activities. I’ll pause here and turn it over to you.

Matt Rider, CFO

Thank you, Nasib. Regarding the OCG performance quarter-over-quarter in relation to the operating results, there are a few straightforward points. Firstly, we experienced poor mortality results on the IFRS side, which affected the operating results, but it was somewhat more severe for the operating capital generation due to the reserving mechanics involved. Secondly, the strain from new business is a key factor for operating capital generation, and we noticed an increase in the fourth quarter, which is a positive sign as we are securing profitable new business. This reflects well on our efforts throughout the quarter and the entire year. In terms of the need for cash injection into the holding company in the U.S., with a solvency ratio of 428%, they are in excellent condition. It's beneficial to have the buffers available in the holding company. We are still in restructuring mode at the group level and aim to keep our cash at the higher end of the range. If there are management actions we want to take in the U.S., we have the buffer available in the holding company. Technically, we don't need it for growth funding, but we will provide more details during our Capital Markets Day in the second quarter of this year.

Operator, Operator

Thank you. We will now take our final question for today. Sorry, the last but one question for today comes from the line of Steven Haywood from HSBC. Please go ahead. Your line is open.

Steven Haywood, Analyst

Good morning. Thank you. One question, one clarification here. The model and assumption changes that have occurred in your Solvency II ratios in both the Netherlands and the U.K., can you give a bit more detail on these, whether they are company-specific or industry-specific as well? And then a clarification, my line went a bit fuzzy when you were talking about the EUR1.5 billion capital return. Can you say what time scale this is done over? Thank you.

Lard Friese, CEO

Thanks, Steven. Matt, do you want to take over?

Matt Rider, CFO

The changes in the model and assumptions are specific to our company. We conduct an annual review of all key assumptions, particularly those related to expenses, mortality, longevity, and similar factors. These updates are a regular part of our business operations, and we carry them out every year, particularly in the fourth quarter for the Solvency II countries. Regarding the EUR1.5 billion return of capital, as I mentioned earlier, the majority will be executed through share buybacks. We will begin this process immediately after closing the transaction and aim to complete it as swiftly as possible, likely within a year, depending on daily trading volumes.

Operator, Operator

Thank you. We will now go to our last question for today. And the question comes from the line of Robin van den Broek from Mediobanca. Please go ahead. Your line is open.

Robin van den Broek, Analyst

Good morning. Thank you for taking my question. I have a clarification regarding the EUR1.5 billion return. You mentioned that you would be paying out EUR500 million while receiving EUR600 million, which only includes the interim dividend from a.s.r. As you noted, this reflects a normal payout ratio. As we look ahead to 2024, will there be an automatic adjustment to the dividend when the final dividend from a.s.r. is incorporated into the free cash flow for that year? That's my first question. My second question pertains to the like-for-like OCG run rate. I'm not sure if this was addressed, as my line cut off during the call. Could you provide a comparison of the run rate on a like-for-like basis within your guidance? Thank you.

Lard Friese, CEO

Robin, sorry to hear that you had problems with the connection at a certain point. So we will help you. So Matt, can you take both?

Matt Rider, CFO

Yes. Regarding 2024, we're essentially providing guidance based on 2023. We plan to offer updated guidance during our Capital Markets Day in the second quarter, and we will let them set new targets at that time. For the OCG run rate, if we focus on the fourth quarter, we reported a total of EUR370 million in OCG. There are various factors to consider. If you add back the negative impact of poor mortality, particularly from that quarter, and account for some positive adjustments we experienced, including one-time releases in the U.S. and the U.K., you arrive at a clean figure of EUR350 million. So, when planning ahead, consider EUR350 million as a clean number. If you exclude the EUR100 million from our performance in the Netherlands during the fourth quarter, you would end up with EUR250 million, which annualized would give you roughly EUR1 billion. There are also currency fluctuations and other details to discuss with Investor Relations, but generally, that's a clean number.

Robin van den Broek, Analyst

Alright. That’s very clear. Thank you very much.

Operator, Operator

Thank you. I will now hand the call back to Jan Willem for closing remarks.

Jan Willem Weidema, Head of Investor Relations

Thank you very much. This concludes today's Q&A session. On behalf of Lard and Matt, I want to thank you for the lively interaction. Should you have any remaining questions, please do get in touch with us in Investor Relations, we're here to help. Have a good day, and thank you for your participation in today's call.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please standby.