Aegon Ltd. (NYSE:AEG) Q3 2023 Earnings Conference Call November 16, 2023 3:00 AM ET

Company Participants

Hielke Hielkema - Investor Relations Officer
Lard Friese - Chief Executive Officer
Matt Rider - Chief Financial Officer

Conference Call Participants

Andrew Baker - Citi
David Barma - Bank of America
Michael Huttner - Berenberg
Iain Pearce - Exane BNP Paribas
Ashik Musaddi - Morgan Stanley
Farquhar Murray - Autonomous
Najeeb Ahmad - UBS

Operator

Good day, and thank you for standing by. Welcome to the Aegon Third Quarter 2023 Trading Update. [Operator Instructions] Please note that today's conference is being recorded.

I would now like to hand the conference over to your speaker, Hielke Hielkema, Investor Relations Officer. Please go ahead.

Hielke Hielkema

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

Yeah, 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 period -- 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 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 of 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

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, or 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 the 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 in 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 be bought back in the share buyback program or as a result of the share buyback program in the second half of December 2023.

Let me now turn the page for my concluding slide. 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 the 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.

Lard Friese

Yeah. Thanks, Matt.

So, we go to Slide number 19. As we move to the fourth quarter, our continued commercial performance and strong operating capital generation provides a solid basis as we continue with the next chapter of our transformation. Creating shareholder value is the key factor in our decision making, which is evidenced by the progress we are making on our financial assets, the asset management partnership with a.s.r., as well as the good growth we have seen in our U.S. strategic assets and growth markets. Our actions are bearing fruit.

Operating capital generation was strong in the third quarter of 2023 for a large part due to successfully growing our U.S. strategic assets and tightly managing our financial assets. More work is needed to improve profitability and commercial momentum in our asset management and UK retail business. We will address this topic at an investor event in the course of 2024. But in the meantime, we remain focused on improving the results and we are seeing some of the benefits of actions we have already taken in these businesses.

We are happy that the shareholders have almost unanimously approved our redomiciliation to Bermuda. This move provides stability for the Group to continue to execute upon its announced strategy. And, with this milestone behind us, we remain fully focused on accelerating the execution of our strategy, driving growth in strategic assets, and creating value.

I would now like to open the call for your questions. Please limit yourselves to two questions per person. Operator, please open the Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We will now go to our first question. And the first question comes from the line of Andrew Baker from Citi. Please go ahead.

Andrew Baker

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

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. So, 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

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

Very clear. Thanks, guys.

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

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

Thank you, David, for your questions. Matt, they're all for you.

Matt Rider

So, on the OCG guidance, what we've seen is -- you're absolutely right, we're pumped up a bit because we're holding a lot of cash. We had intended to hold a lot of cash, by the way, but interest rates are up, so we're making a little bit more as we continue with the share buyback and put that cash back to shareholders in the form of share buybacks, we would expect that to come down, but I would say that's a relatively minor impact.

We have seen positive benefits from growth and earnings on In-force from the U.S., maybe a little bit better than we had expected. And we saw slightly lower new business strain so far in the third quarter anyway. So, we would expect actually to see that new business strain come up in 2024, which is why we're not changing our OCG guidance of €1.1 billion for 2024.

The nature of the one-off items is, yeah, these are really one off reserve releases that we pick up together with there's some timing of expenses that comes into it. And I would really regard those as positive one-time items not recurring.

On the buyout of institutionally owned universal life contracts, indeed, we are making good progress on that. We have a target to buy out 40% of the roughly $7 billion of face amount of those types of contracts at the beginning of 2022. We've already done 20%. We have basically a fund of $700 million that we're using to do that. We expect that the operating capital generation benefits of the stuff that we've done already would have an ongoing impact in 2025 of about $25 million. By 2027, that increases to about $50 million once we've got the 40% done. And I'm hoping that that gives you some kind of a guidance if we did even more. But that's the basic information on the buyback program.

Your specific question is, well, what if we do more? What if we do more? So far it's going well, but we actually want to be pretty cautious because we have to go to the market. These are institutionally owned contracts that we buy in blocks of business. They are expensive kind of things. Before we put capital into it, we want to make sure that we can get our own, maintain our pricing hurdles and get the results that we want. So there might be a possibility to do more. But at this point, the program is funded at $700 million and that should be able to get us ultimately to that 40% of the total outstanding in-force reduction.

David Barma

Excellent. Thank you.

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

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

Thank you very much, Michael, and good morning. Matt?

Matt Rider

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 -- excuse me, 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. And 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.

Michael Huttner

Thank you.

Matt Rider

And then, I'm sorry, you had asked a question about mortality in the third quarter.

Lard Friese

And morbidity.

Matt Rider

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. And 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

Brilliant. Thank you so much.

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

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? And if not, why you thought Bermuda was the right place to relocate to? Thank you.

Lard Friese

Thanks, Iain, for your questions. Let me start with Bermuda and then I'll hand over to Matt for new business strain, etc. First on Bermuda. You're asking why Bermuda? At the time that we divested our Dutch business to a.s.r. and combined our Dutch business with a.s.r., we've closed that transaction on July 4, as you know, we no longer have an insurance business, a regulated insurance business in the Netherlands, and as a result, DNB has no legal basis to continue as our group regulator.

Subsequently, then the question is, okay, who would become your regulator? And if our legal seat would have remained in a EU member state, in this case the Netherlands, then Solvency II regulation would continue to apply to a company that overwhelmingly its subsidiaries are not governed by Solvency II. That's number one.

Number two, it would automatically lead that most likely the Spanish regulator would become our regulator. And as you can see from a statement that is placed on our website, the Spanish regulator believes that is not the appropriate outcome for the regulation of this Group.

So as a result, we've decided to move our legal seat outside of the European Union, in this case to Bermuda, and then, we learned from the Bermuda Monetary Authority that after consulting the college of Supervisors of Aegon that they would become our Group regulator as a result. And that is what has happened.

We believe that Bermuda was the right place for our legal seat, as it is a well-recognized center for insurance companies. Many insurance companies are on the island, as you know, probably a thousand large reinsurance companies have their headquarters there, P&C companies, but also life insurance companies. And Transamerica, in fact, already had for decades also a domicile of some of the subsidiaries on the island.

As we have said at the time that we announced this, we have agreed with the Bermuda Monetary Authority that we expect a transitional period until 2027 to move from, let's say, the current regime and approaches to, let's say, transition into the regulatory system of Bermuda. And we have said that we do not expect a material change in the way we approach capital, for instance, and the way bondholders are treated.

Now, what the -- we are settling in in this new situation. We've moved our legal seat a month ago after two stockholders' meetings and we are now settling in in this new situation. It will obviously mean that we are going to increase our team. So, if you ask about what does it mean for your business, not nothing for our business, but it will mean that we will increase the number of people that we will have on Bermuda to facilitate a mature relationship in the same time zone with our new regulator. But for the remainder, we do not expect any material changes as a result for the way we run capital or our capital management approach or anything else like that and also not the way we run our businesses.

Now with that, I'd like to hand over to you Matt for new business strain, et cetera.

Matt Rider

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, individual life insurance. But we're starting to see some increases in other areas.

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

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

Hi, Ashik. This is Lard. Good morning. So first let's start with the UK. We have seen -- let's make a clear distinction between indeed the workplace business and the retail platform. So let's start with the workplace business first. I concur with you that the outlook of, let's say, the market dynamic of more inflows in the workplace business is also what we believe longer term will happen. And in fact, we have seen for the last quarters continued commercial momentum in the workplace business.

And quite frankly, if you exclude from that one client that we lost, our net flows were positive 0.5 billion. So that underlying trend and sales trend in workplace is still buoyant and that is good. But yes, we did have one client that chose another provider and as a result we lost one client. I mean this is competition. I don't like it obviously, but these things happen. By the way, the margin on that one contract was quite low in this case. So it may be good also to take that into account.

When it comes to the retail platform -- when it comes to the retail platform, this is really more a macroeconomic backdrop. I mean we're seeing high inflation levels in the UK. I would say it's really suffering from -- in a retail segment, it's suffering from a cost of living crisis where people have to make real priorities as to how they spend their money. And as a result we're seeing continued apprehension from retail investors to add more to their investment portfolio. And as a result we're seeing that back in the dynamics of that business.

Now, the second component, of course, is that we're competing with the technology platform that we have there and there's more technology platforms, as you well know, on the market, especially in the retail segment. So we're competing heavily that IFAs are using our platform for the administering of the assets rather than the platforms of other people. What we have done over the last years is we've been investing a lot in finalizing the integration of the Cofunds acquisition.

We've also improved the services and the intuitive use of the platform. And we're actually at the brink of rolling out a very important new update on that platform. An ADX update that we have started to roll out, will continue to be rolled out to our investment financial IFAs in the coming months. And we believe that will really improve materially, the user friendliness of the overall platform and will form a good basis for continue for, let's say, a better profile and more commercial opportunity post that implementation. But the macroeconomic, backdrop of course, remains to be an important part there as well. And that of course remains -- we will probably need some time before that backdrop in the retail space is going to turn. Good news is that inflation, as you have seen, is still high in the UK. But it has come down in line with the rest of the other developed markets.

Now, if you look at asset management, on asset management, we are faced with the reality that if you're a fixed income skewed asset manager with your strategies, that you're seeing rates going up, the values of your assets under management coming down, revenues are less, you see outflows because of institutional clients, for instance, that need to manage liquidity. And as a result, they have some redemptions. That what we're seeing, for instance. So the real question is that's a reality? How do you act and how do you adjust yourself to that new reality?

Number one, we are focusing our asset manager more and more on alternative fixed income strategies, on responsible investment strategies and real asset strategies. And we are building out our capabilities. For instance, the acquisition of the CLO platform that we announced in the second quarter in Europe, the partnership with a.s.r. [Technical Issue] those are all ways and means to strengthen the capabilities. The acquisition of the company that together with Banque Postale Asset Management in France, all these things aim to improve on the capability side.

Then on the cost side, we need to adjust as well. We are adjusting that with lower expenses in the asset management business and with the finalization of the implementation of a new technology platform that once that is done, and we expect that to be happening by the end of the first quarter, we should be able to make our company way more efficient and as a result, a profitability improvement will take place.

Now, on the Chinese asset management business that we have, we have seen actually net inflows up, but not as much up as you saw in 2022. This has to do with the macroeconomic backdrop in China and we also see some margin pressure there, given new regulations that was put in place in China, which basically caps the fees that you can ask for managing those assets.

So, it's a multilayered answer. We will give you in the course of 2024 a deep dive on both the asset management business and the UK. But these are certainly areas in our company where we need to do a lot of work to adjust to a new reality in the macroeconomic environment and improve our propositions.

Ashik Musaddi

Thank you. Thanks a lot, Lard. This is very clear.

Lard Friese

Go ahead, Matt. Or was it me? No, it was only me. Right. You're welcome, Ashik.

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

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

Thanks, Farquhar. Yes, we're very pleased to have announced last week that we aim to that -- we proposed to our stockholders. We'll need to prove that in June, Albert Benchimol to our Board. Albert comes with, as you rightly point out, a very long and broad industry experience that is very helpful for us. As you know, he is signing off as CEO from AXIS Capital, which is run and turned around very successfully in the last decade. Before that, he spent also a lot of time in other companies. He's got both a financial profile as a general leadership profile. So we're very pleased to have an experienced industry leader on the Board. And yes, it includes Bermudan experience, but that's not the key point. The key point here is that it's a highly talented, very experienced industry leader and we're pleased to benefit from -- in the future, to benefit from his wisdom and expertise.

Farquhar Murray

And will he be focusing on anything in particular in terms of topics or issues or is it a much broader sphere?

Lard Friese

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.

Farquhar Murray

Great. Thanks a lot.

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

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

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

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 very simple one.

Lard Friese

By the way on the -- you mentioned one thing, Najeeeb, on the share buyback tax proposal. That is still a proposal in Parliament. It's past the Lower House, but it needs to move to the Senate. So, it's still in progress, and there's a lot of debate around that at the moment.

Najeeb Ahmad

Thank you. Thanks a lot.

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

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

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