Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ABERDEEN EMERGING MARKETS EQUITY INCOME FUND, INC. (AEF, Financial) reported a EUR0.16 interim dividend for 2024, which is EUR0.02 higher than the previous year.
- The company achieved a EUR588 million operating capital generation for the first half of 2024, putting it on track to meet its EUR1.1 billion guidance for the year.
- Strong performance in the asset management segment with third-party net deposits reaching almost EUR8 billion and assets under management increasing to EUR318 billion.
- The US business showed a 27% increase in operating results for strategic assets, driven by growth in indexed universal life and retirement plans.
- The UK workplace platform saw net deposits of GBP1.7 billion in the first half of 2024, indicating strong growth and progress towards future targets.
Negative Points
- The IFRS operating result was negatively impacted by adverse mortality and morbidity claims experience, particularly in the US, amounting to EUR750 million.
- Net outflows in the UK adviser platform amounted to GBP1.8 billion, driven by competition and low levels of consumer activity.
- New life sales in the international segment decreased by 20% compared to the first half of 2023, with weaker sales in China and Spain.
- The Group's solvency ratio decreased by 3 percentage points since December 2023 to 190%, partly due to the redemption of a subordinated bond and a new share buyback program.
- Operating capital generation before holding funding and operating expenses decreased by 5% over the first half of 2024, impacted by unfavorable claims experience.
Q & A Highlights
Q: To what extent may the assumption changes in the US make it easier for you to do third-party in-force management actions in the future? Can we expect more in-force deals in universal life?
A: The assumption updates reflect our best estimate of experience and do not impact future management actions. Universal life is considered a financial asset, and we aim to reduce this over time, as it has shown negative mortality experience. The reinsurance deal with Wilton Re and the repurchase of institutionally owned contracts are steps towards this goal. (Matthew Rider, CFO)
Q: What do we need to see for you to be comfortable reducing the holding cash towards the midpoint of the target range?
A: Currently, cash capital at the holding is EUR2.1 billion. By the end of the third quarter, it will be near the top end of our range (EUR500 million to EUR1.5 billion). We will consider reducing the level of cash at the holding over time as the transformation continues, with the next evaluation likely at year-end. (Matthew Rider, CFO)
Q: Can you give more color on the alternative investments portfolio performance and impairments? Is this a trend you're concerned about?
A: The main driver is the revaluation of real estate linked to oil and natural gas prices, reflecting lower energy prices. This is a non-cash item and does not affect our capital generation ability. Impairments are driven by IFRS 9 expected credit loss models and are also market value noise. The assumption updates mostly relate to mortality and are expected to reduce future claims experience variances. (Matthew Rider, CFO)
Q: Does the change in assumptions have any impact on operating capital generation (OCG)?
A: The mortality assumption updates will result in a small drag on OCG, but this is minor compared to the positive impacts from business growth. The business growth in strategic assets, such as life and retirement plans, is driving OCG improvements. (Matthew Rider, CFO)
Q: Can you talk about the large life mortality miss and the recurring noise from institutional contracts?
A: We had unusual large claims in the first half, but we are reducing the amount of insurance among institutional investors. We are on track to reduce the capital deployed to this book of business over time. (Matthew Rider, CFO)
Q: Can you explain the walk from today's operating result guidance to the new range of EUR800 million to EUR900 million per half year?
A: The increase is driven by business growth in strategic assets, such as life and retirement plans, and the general account stable value product. The new guidance reflects our expectations for the next half year, not a gradual increase over time. (Matthew Rider, CFO)
Q: How much of the reduction in capital employed in financial assets since 2022 has been due to management actions versus market movements?
A: We do not have a precise split, but the reduction is driven by both management actions and favorable market impacts. The goal is to reduce capital employed in financial assets to around $2.2 billion by the end of 2027. (Matthew Rider, CFO)
Q: Any update on US GAAP reporting?
A: Work on US GAAP has not begun as we are focused on solidifying our IFRS 17 figures. The decision to adopt US GAAP will be made in the future, considering its potential value for comparison with US peers. (Matthew Rider, CFO)
Q: Can you provide more details on the drivers of the high actual-to-expected ratio in long-term care (LTC) and the timing of the next rate increase approvals?
A: The higher ratio is mainly due to a claims backlog. We expect this to normalize over time. Rate increase approvals are ongoing, and our long-term expectations are already reflected in the CSM. (Matthew Rider, CFO)
Q: At what point might you decide to increase remittances from the US, given the high RBC ratio and positive experience trends?
A: The RBC ratio is high, but we are in the middle of a transformation and prefer to maintain a strong capital position. Future decisions on remittances will depend on ongoing evaluations by the management team. (Matthew Rider, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
