Professional Documents
Culture Documents
Rights Offering
l
h
ff
WHY HIGHFIELDS CAPITAL IS VOTING NO
TheinformationinthispresentationrepresentstheopinionsofHighfieldsCapitalManagementLP("Highfields"). Thecontentsofthispresentationarenotdirectedatanypersoninanyjurisdictionwhere(byreasonofthatpersonsnationality,residenceorotherwise)thepublicationor
availabilityofthepresentationisprohibited. Thepresentationdoesnotconstituteaproxysolicitation,anofferorarecommendationtobuy,sellordisposeofanyinvestment,toengageinanyothertransactionortoprovideanyinvestmentadviceor service. Highfieldsisnotacting,nor
doesitproposetoact,inconcertwithanyothershareholderinconnectionwiththemattersdescribedherein. Highfieldshasobtainedtheinformationprovidedinthepresentationfrompubliclyavailablesourcesthatitconsidersreliable,butitcannotguaranteeitsaccuracyor
completeness. Exceptwhereotherwiseindicated,thepresentationspeaksasofthedatehereofandHighfieldsundertakesnodutytoandwillnotupdatethepresentationinlightofnewinformationorfutureevents.
Nothinginthispresentationisintendedtoconstituteafinancialpromotionforthepurposesofsection21oftheFinancialServicesandMarketsAct2000("FSMA").Totheextentthatanymaterialinthispresentationmayamounttoafinancialpromotion undersection21FSMA,itisbeing
madeonlytoandisdirectedonlyat(i)personsintheUnitedKingdomhavingprofessionalexperienceinmattersrelatingtoinvestments,beinginvestmentprofessionalswithinthemeaningofArticle19(5)oftheFinancialServicesandMarketsAct2000(FinancialPromotion)Order2005,as
made
only to and is directed only at (i) persons in the United Kingdom having professional experience in matters relating to investments being investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as
amended(the"FPO"),(ii)highnetworthcompanies,unincorporatedassociationsandotherbodiesintheUnitedKingdomwithin themeaningofArticle49(2)oftheFPO,and(iii)personstowhomthepresentationmayotherwiselawfullybemade(together"RelevantPersons").This
presentationmustnotbeactedonorrelieduponbyanypersonswhoarenotRelevantPersons.AnyinvestmentorinvestmentactivitytowhichthispresentationrelatesisavailableonlytoRelevantPersonsandwillbeengagedinonlywithRelevantPersons.
ABostonbased,longtermvalueinvestmentfirm
with~$12Binassetsundermanagement
ith $12B i
t
d
t
Afirmwitha17+yeartrackrecordof
compoundingcapitalforourinvestors,working
closely,andbehindthescenes,withpublic
company managements to help maximize
companymanagementstohelpmaximize
shareholdervalue
Averageholdingperiodof35years
ExtensiveexperienceinvestinginEuropean
financial sector
financialsector
FirstinvestedinDeltaLloydin2013
Wesubstantiallyincreasedourinvestment
startinginAugust2015andnowownover
p y
9%ofthecompany
Webelievestronglyinthelongtermvalue
ofthisbusinessforitspolicyholders,
employeesandshareholders
Activists
Highfieldshasnotbeenlookingforadispute
withDeltaLloydmanagement,buttheir
actionsaresodetrimentaltoshareholdersand
theirExecutiveandSupervisoryBoardsso
unresponsivetoourprivateconcernsthatwe
arecompelledtopubliclyvoiceouropposition
tothisrightsissue,pointouttheflawsin
managementsapproach,andprotectthe
value of our investment
valueofourinvestment
Th f ll i
The following slides will lay out out the reasons to vote No
lid
ill l
t t th
t
t N
2
Executive Summary
y
II.
DeltaLloydisadequatelycapitalizedtodayandforitsfuture
Doesnotneedtobecomeovercapitalizedlikesomeofitspeers
E
Eveninaseverescenario,DeltaLloydwillstillbesufficientlycapitalized
i
i D lt Ll d ill till b
ffi i tl
it li d
Managementisputtingforthaseriesoffalsecrisesandassumptionstojustifythiscapitalraise
Theireffortistoforceshareholderstoacceptdilutionthatonlyservestomaketheirjobseasier
III. ShareholdersbenefitbyvotingNo
Sellingequitytopayadividendbacktoshareholdersiscircular
Sellingunderpricedequitytorepayzerocostcommercialpaperismismanagement
TheDNBrequiredVIVAT(SNSReaals
insurance entity) to have a Solvency II
insuranceentity)tohaveaSolvencyII
ratioof150%whenitwasacquiredby
AnbangInsuranceGroupinJuly2015
AEGONhasaSolvencyIIratioof~160%
under the Partial Internal Model (would
underthePartialInternalModel(would
belowerundertheStandardModel)and
feltsufficientlyovercapitalizedto
announcea400millionsharerepurchase
withatleasthalftobecompletedinQ1
a.s.r.referstocapitallevelsinexcessof
140%asthecashdividendpaymentlevel
%
p y
andabove160%asentrepreneurial (1)
Managementhasconsistentlysaidarangeof140180%isadequatebutnowtargetsthetopendoftherange(2)
However,sincetheywillreceivePartialInternalModelapprovalinthenearterm,managementshouldcurrently
be targeting the lower half of the range
betargetingthelowerhalfoftherange
(1)
(2)
a.s.r. presentation: a.s.r. capital management considerations. Slide 11. November 2015.
Delta Lloyd Full Year 2015 Analyst Call. Slide 20. February 24, 2016.
A.
B.
C.
D.
G.
B. LACDT:Despitemanagementsvaguethreatsofthe
p
g
g
consequencesofshareholdersrejectingtherightsissue,we
donotbelievethedisallowanceoftheLACDTwillcostmore
thananadditional~5pts
C. EQUITYTRANSITIONALS:Thephaseoutofcertainequity
transitional arrangements will cost 2pts
transitionalarrangementswillcost2pts
D. VANLANSCHOT:Divestiturewilladd~8pts
E. MANAGEMENTACTIONS:SolvencyIIbalancesheet
optimizationwilladdatleast1015pts
E
E.
F.
A. LONGEVITYSWAPS:Assumehalfoftheloss(=7pts)related
toDNBschangedtreatmentofDeltaLloydslongevityswaps
willbeaddedbackasmanagementrestructurestheswaps
F. ORGANICCAPITALGENERATION:Assume200250mm
basedonexcessivelyconservativemanagementguidance
G. PARTIALINTERNALMODELAPPROVAL:Managementhas
saidendof2017butshouldbesoonergivencompetitors
have received approval, and Delta Lloyd has been intensely
havereceivedapproval,andDeltaLloydhasbeenintensely
workingontheprocesssince2012(SeeAppendixA)
155160%
(33%)
~10%
(4%)
>140%
1015%+
140%
120%
100%
2016ES2ratio
(1)
2017ES2ratio
Partial Internal Model approval should have a greater than 1015 point impact, particularly if the December 2015 longevity swap disallowance is not fully
reversed as longevity assumptions are materially less severe under the Partial Internal Model.
If the UFR were lowered without a transitional period, Delta Lloyds ongoing capital generation capacity would immediately increase by an estimated
3040 million.
According to DNB
Bulletin from the DNB confirming that Dutch
insurers are sufficiently capitalized under
Solvency II as of the end of 2015 (Translated,
Emphasis Added)
DutchinsurersarewellpreparedforSolvencyII andmake
relativelylittleornouseofthesetransitionalmeasures.The
Netherlandsappliesinthatrespectafairlypureformof
SolvencyII.InsomeEuropeancountries,transitionalmeasures
usedareusedonafairlylargescale(2)
(1)
(2)
http://www.nrc.nl/next/2016/02/02/wijvragenveelvanonzebeleggers1583719
http://www.dnb.nl/nieuws/nieuwsoverzichtenarchief/dnbulletin2015/dnb335114.jsp
10
Capital adequacy
Capital adequacy
Managements Argument
Objective View
Oursolvencyratioistoolow
Solvencyratioisadequatenowandwillimprovein2016/2017both
organicallyandviamanagementactions
We
Wehavetoomuchsensitivityto
have too much sensitivity to
marketmovements
Q1
Q1marketmovementshaverevealedtheresilienceofDeltaLloyds
market movements have revealed the resilience of Delta Lloyds
SolvencyIIcapitalposition,notweakness
Regulatoryrisk
Noregulatoryrequirementforacapitalincrease
Delta LloydoperatesprimarilyinasinglegeographyanditsHoldCoand
operatingentitiesshareacommonregulator
OurHoldColiquiditypositionisweak
Holding company
liquidity and leverage
Poorhistoryofremittances
DeltaLloydhasalwaysrunwithnegativecashandits
currentpositionisashealthyasithaseverbeenpostIPO
Weneedtobuildatargetcashbuffer
attheHoldCo
SignificantamountofHoldCocashflowobligationsarecontractual
passthroughs
LifesubsidiariesnowwellcapitalizedsodividendstoHoldCowill
increase
Capital generation
ability
Partial Internal
Model timing
Capitalgenerationisweakerthan
anyoneexpected
Managementsuseofexcessivelyconservativeassumptionsservesto
understatecapitalgenerationsignificantly
Ignores bank earnings and presence of deferred tax assets among other
Ignoresbankearningsandpresenceofdeferredtaxassetsamongother
items
Peermodelshavebeenapproved;consultants canbehiredtoshare
bestpractices
Byendof2017
Companyhasbeenworkingoninternal modelsince2012
C
Companycontinuestouseinternalmodelforeconomiccapital
ti
t
i t
l
d lf
i
it l
purposes(1) theirmodelcannotbethatbad
(1)
See Delta Lloyd Extraordinary General Meeting of Shareholders, p. 19. February 1, 2016.
11
Delta Lloyd Even Admits that Highfields Earlier Objections to its Assumptions
Were Correct, But Stubbornly Clings to Other False Arguments
Highfields
Original Criticism
Delta Lloyds
February 24 Response
Management should
further optimize Solvency
II balance sheet before
raising equity
Additional1015pointsfromfurther
ALMactions(beyondVanLanschot
saleandQ4actions)
LACDTresolutionatcostofonly2
pointsofcapital
Management threateningshareholdersthatavoteagainstthe
rightsissuecouldresultinahittocapitalinexcessof2points,
butrefusestoquantifyhowmuchmore(weestimatelessthan
5points)ordisclosetheminimumcapitalraiserequiredto
keepcurrenttreatmentofLACDT
Cutcapitalraiseto650million
Even650 millioncapitalraiseandresultingdilutionis
unnecessary
Managementincreasedguidanceto
53bpsofexcessspread
(2) of netinvestmentincome
Despiteanadditional~25million
p
andthebanksstrong2015pretaxearningsof55million,
capitalgenerationguidanceisunchangedat200250million
becausemanagementoffsetthesepositiveswithnegative
assumptionsinotherareasincludingincreasingthetaxrate
andassumingthebankcontributesnofutureearnings
Management assumption
of 45 50 bps of excess
of 4550 bps of excess
spread is too low, and
bank earnings are well in
excess of managements
guidance of 15 million
(1)
(2)
Financieele Dagblad. Oudtopman Delta Lloyd haalt uit naar DNB. February 25, 2016. http://fd.nl/beurs/1140999/niekhoekhaaltuitnaardnb
Updated management guidance versus previous guidance of 4550 bps .
12
Management is Now Changing the Rights Issue Capital Rationale into a Holding
Company Liquidity and Leverage Issue, But This is Also a False Argument
2008
2009
2010
2011
2013
2014
2015
(200)
(~155)
(300)
(245)
(400)
(500)
(344)
(313)
(358)
(469)
Generalinsurance,assetmanagement,andABNAMROJVs:Consistentsourcesof
holdingcompanydividends
Lifeandbanksubsidiaries:Nowfullycapitalizedandshouldbesourcesof
significantholdingcompanydividendsin2016;mainlifesubsidiarylegallyableto
distributedividendstoholdingcompanyaslongasSolvencyIIratioisabove100%
(431)
(526)
(553)
8
(321)
(313)
29
82
47
(155)
Capitalfungibilityisnotasubstantial
issueforDeltaLloyd.Thevastmajority
ofouroperationsareinthe
Netherlands,sowedonotfacethe
difficulty of multiple jurisdictions
difficultyofmultiplejurisdictions
AnnemarieMijer
DeltaLloydChiefRiskOfficer
(November30,2015)
Theholdingcompanyhasnettangibleequityof~2.4bn(3)
(1)
(2)
(3)
(2)
(100)
(600)
2012
ProForma
2015
Negative net cash defined as credit on demand less cash and cash equivalents from Delta Lloyds Separate Financial Statements in Delta Lloyd Annual Reports.
Sale of one remaining private equity security (29.2mm) expected to be finalized in Q1 2016 and deferred payment of 46.7mm related to the sale of a part of the
private equity portfolio to be settled within two years.
Delta Lloyd 2015 Annual Report.
13
Management Argument
Reality
DeltaLloydisnotamaterialuserofdebtmarkets
Additional capital is
required to prevent a
ratings downgrade
ratings downgrade
Thenextmaturityisa575millionnotedueinNovember2017thatisstilltradingabovepar
despitetheuncertaintyaroundtherightsissue
Thenextandonlyothermaturityisnotuntil2042
DeltaLloydsbusinessisnotmateriallydependentonitscreditrating
Managementhascorrectlydeemphasizedthelargecorporatedefinedbenefitbusinesswherea
creditratingcanbeimportant
Companynowfocusesonsmallerdefinedbenefitbusinessandincreasinglythecapital
lightdefinedcontributionbusinesswhereacreditratingisnotasimportant
A100%SolvencyIIratioimpliessufficientcapitalfora1in200yearevent.DeltaLloyd
runssignificantlyinexcessofthislevelundertheStandardFormulaandcapitalratio
willgrowfromhere
Additional capital is
q
p
required to protect
against uncertainties
Dilutingshareholdersisexpensivedisasterinsurance.Ifmanagementwantslessrisk, itisless
expensive to further de risk the investment portfolio
expensivetofurtherderisktheinvestmentportfolio
Delta LloydsSolvencyIIcapitalratioappearsresilienttomarketshocksas Q1marketmovementshave
leftthesolvencypositionnoworsethanmodestlylower(1)
(1)
Delta Lloyd Full Year 2015 Analyst Call. February 24, 2016.
14
15
DeltaLloydmanagementhasnoeconomicalignmentwithshareholders;
l l d
h
l
h h h ld
CEOHansvanderNoordaadoesnotownasingleshare(1)
Itiscertainlyinmanagementsintereststoraiseequityandovercapitalizethecompanyasitallowsthemto:
Avoidmakinghardchoices,suchasmoreaggressive
derisking
Declarevictorybypayingorincreasingdividendswith
shareholdersownmoney
shareholders
own money
SincehebecameCEOinJanuary2015,DeltaLloydsharesare
downalmost70%,(2) makingittheworstperforminginsurance
stockinEuropeandtheworstperformingstockintheAEX
WilldilutionfromaYesvotebeevenworsethanexpected,
giventhatmanagementhastherighttothenissueanother10%
ofshareswithoutshareholderapproval?(3)
(1)
(2)
(3)
16
( inmillions)
(1)
ProposalRejected
(1)
Highfields
Estimate
Proposal
Rejected
~350
AnnualCapitalGeneration
~225
TradingMultiple
10x
10x
EquityValue
2,250
2,250
RightsOffering
(650)
AdjustedEquityValue
1,600
2,250
CurrentSharesOutstanding
228
228
228
FairValueperShare
7.03
9.89
15.38
5.76
5.76
5.76
22%
72%
167%
CurrentSharePrice
%Upside
(1)
(2)
(2)
~225
10x
3,500
3,500
17
Old: Nov. 30
New: Feb 24
Highfields View
4550bps
~53bps(1)
MarketyieldsfromBloombergsuggestexcessspreadisgreaterthan60bps.(2)
Adds~25million
B. Financing costs
~120million
123million
SolvencyIIinterestexpenselowerthancashinterestexpensebecauseoffset
ofdebtbeingmarkedaboveparinSolvencyIIcapitalcalculationisreduced
interestexpense.Adds~10million
10%(3)
EffectiveRate
27.9%
StatutoryRate
Statutoryrateignorespresenceofdeferredtaxassets.Adds~25million
D. Bank earnings
~15million(3)
Zero
(noHoldCo
dividends)
Thebankearned~40millionin2015andisfullycapitalized.Allearnings
goingforwardshouldbeavailableforHoldCodividends
Roughlyzero
Roughlyzero
4050million(3)
30million
A. Excess spread
AsproductionmixshiftstowardstowardDCproductandfiveyearextension
periodfornegativemarginDBbusinessrollsoff,capitalgenerationshould
improve dramatically
improvedramatically
Whatchanged?
400
~40
~25
300
~25
200250
~10
k
bl b
Unknowablebut
materially
greaterthan
zeroovertime
1020
>310370
200
Management A. Excessspread B. Financingcosts C. Excessspreadtax D.Bankearnings E. Valueoflifenew F. Unwindofrisk RealisticS2capital
guidance
rate
business(net)
margin
generation
(1)
(2)
(3)
Pretax excess return of ~223mm on 41.7bn of invested assets. Please see slide 29 of Delta Lloyd presentation FY 2015 results and capital plan update.
See Appendix B.
The company never gave a public quantitative buildup but provided sellside analysts with inputs for their capital generation guidance. We are using a Goldman
Sachs (Delta Lloyds advisor) research note from December 3, 2015.
18
No Rights Offering
No Rights Offering
Sale
Sale
Gradual Runoff
Gradual Runoff
Adequatelycapitalized;capitalwill
continuetogrow:organicallyand
throughmanagementactions
Capitalgenerationpersharewillbe
materiallyhighergivennodilution(~1
1.50/share)(1)
Thecompanyisadequately
capitalizedsothealternativesto
arightsofferingarenotasaleor
arunoff
However,eveninarunoff,the
companyisworthsignificantlymore
thanitscurrentsharepricegiven
IFRSbookvaluepershare(~11),
AdjustedSolvencyIIUnrestrictedTier
1 own funds per share (~10)
1ownfundspershare(
10),((2)) or
or
DeltaLloydsownestimateofits
intrinsicvaluepershare(~18)(3)
Portionofacquisitionpricecanbe
financed(i)bymovingDeltaLloydonto
acquirersPartialInternalModeland(ii)
throughPVoffuturesynergiesthat
S l
SolvencyIItreatsasimmediatecapital
II
i
di
i l
Giventhesecapitalsynergiesan
acquisitionwouldbehighlyaccretiveona
FCF/sharebasis
Impliesstockworth~10/share(if
managementcapitalgenerationis
correct)to~15/share(ifHighfieldsis
correct)
(1)
(2)
(3)
Buyercanpayamaterialpremiumgiven
accretionfrompurchasingacompetitor
atadiscounttoAdjustedSolvencyII
UnrestrictedTier1ownfunds(2) (DL
currently trades at a ~40%
currentlytradesata
40%discount)
discount)
Assume 225 million (midpoint management guidance) to 350 million (Highfields estimate) and 228 million shares.
Defined as Unrestricted Tier 1 own funds of ~2.0bn and bank equity of ~0.2bn.
As of June 30, 2015. Delta Lloyd has not yet published its yearend Embedded Value report.
19
Goldmanhasfacedrevenueheadwinds,significantregulatoryuncertainty,andavolatilemacroeconomicenvironment
Asofthesecondquarterof2012,GoldmanSachsBaselIIITier1CommonRatiowasslightlybelow8%(1)
WhileGoldmandidnotknowthatitultimatelywouldeffectivelyneedaratioabove12%,
y
y
%,(2) itsmanagementknewthatits
g
capitalrationeededtoimprove(asituationnotunliketheoneinwhichDeltaLloydcurrentlyfindsitself)
GoldmanSachscouldhavefollowedtheadviceitisgivingDeltaLloydandincreaseditsratiotogreaterthan12%immediately
viaa~$30billioncapitalraise(Goldmansmarketcapitalizationatthetimewas~$50billion).Instead,becauseGoldmans
managementarealsosignificantshareholders,Goldmantookthecorrectapproachandoptimizeditsbalancesheet,grew
capitalorganically,andrefusedtodiluteitsshareholders.DeltaLloydmanagementshoulddothesame
Sincethebeginningof2012GoldmanSachshasincreaseditsTier1CommonRatioto>12%,whilereturning$25billion
toshareholdersanddecreasingitssharecountby14%!(3)
WearecertainthemanagementteamatGoldmanSachs(significantshareholdersoftheirownstock)isgratefulthattheydid
notfollowtheadvicetheyaregivingDeltaLloyd
t f ll th d i th
i i D lt Ll d
Ourorganizationremainsintenselyfocusedonmaximizingrisk
adjustedROEsthroughthecycleforthebenefitofourshareholders
GaryCohn,GoldmanSachsChiefOperatingOfficer(May31,2012)
Goldman Sachs Q2 2012 earnings call for fixed income investors. July 24, 2012.
Current standardized Basel III Tier I common ratio of 12.9% per Goldman Sachs 2015 10K.
Goldman Sachs Presentation at the 2016 Credit Suisse Financial Services Forum. P. 4.
20
Conclusion
DeltaLloydisnot inneedofmorecapital
Managementsrationaleforthiscapitalraisecannotwithstandscrutiny
Valuewillbecreatedthroughbettermanagement,notshareholderdilution
HighfieldswillvoteNo
Contact Info
EmailAddress:
MailingAddress:
DeltaLloydInfo@highfieldscapital.com
HighfieldsCapitalManagement,LP
Re:DeltaLloyd
200ClarendonStreet
Boston,MA02116
21
Appendix
pp
22
APPENDIXA
Timing
Management
Guidance
Highfields
Response
Suggest
Suggestre
restarting
startingthe
the
processisnecessary
andtwomoreyears
requiredforapproval
DeltaLloydhasbeenworkingoninternal
y
g
modelapprovalsinceatleast2012
Multiplecompetitorshavealreadyreceived
approval:AEGON,NN,Achmea
Comparable
Comparablelifepeershaveexperienced
life peers have experienced or
or
expect moreofanuplift:
Quantity
1015pointsbased
onOliverWyman
assessment
NNsPartialInternalModelapproval
added33pointstotheirSolvencyIIratio(1)
a.s.r.sinternalmodel,ifapproved,would
add~20pointsofSolvencyIIcapital(2)
Theinternalmodelapplication
processhasbeengoingon
forthreeyearsalready...Weare
atleastabove20,000pages
whichwehavealreadyprovided
totheregulators
TheoBerg
(former)DeltaLloydDirector
GroupActuarial&Risk
Management
(November21,2014)
Delta Lloyd can anticipate a material increase in its capital ratio in the
not too distant future
(1)
(2)
NN Group press release: NN Group receives approval to use its Partial Internal Model for Solvency II. December 21, 2015.
a.s.r. Annual Results 2015 Analyst call. February 18, 2016.
23
APPENDIXB
Versus the midpoint of prior guidance of 4550 bps of excess spread on 42bn of invested assets.
Pretax excess return of ~223mm on 41.7bn of invested assets. Please see slide 29 of Delta Lloyd presentation FY 2015 results and capital plan update.
Following Delta Lloyds approach for calculating reference rates on its equity portfolio per slide 29 of their FY 2015 presentation: 4.81% 3.44% 0.06% = 1.31% or 13Y point on the swap curve as of
12/31/15. Using a similar approach for the fixed income portfolio gives a reference swap rate of 1.02% (1.65% 0.57%
12/31/15. Using a similar approach for the fixed income portfolio gives a reference swap rate of 1.02% (1.65%
0.57% 0.06%). 1.02% was the 10Y point on the swap curve as of 12/31/15.
0.06%). 1.02% was the 10Y point on the swap curve as of 12/31/15.
Delta Lloyd presentation: Sailing Through Difficult Times, slide 12, March 18, 2014.
Aftertax capital generation using Delta Lloyds new tax rate guidance of 27.9%. ~35 million pretax.
See Delta Lloyds bank website for current mortgage rates: http://www.deltalloyd.nl/hypotheek/hypotheekrente/rentedriesterrenhypotheek.jsp. Range is reflective of 10 to 20 year nonNHG mortgages
with LTVs below 100%.
24
APPENDIXB
(Continued)
Highfields Approach
Annual
Balances
YTM
Income
( in billions) 12/31/2015 ( in millions)
Sovereign bond portfolio
Netherlands
Germanyy
Austria
Belgium
France
Spain (net of CDS)
Italy (net of CDS)
Total sovereigns (1)
Sub-sovereign bond portfolio
European Investment Bank
European Commission
Other sub-sovereigns (2)
Total sub-sovereign bond portfolio (1)
Total sovereigns and sub-sovereign bond portfolio
Corporate fixed income securities
Rabobank
AA-rated
A-rated
BBB and below
Total corporate bond portfolio (3)
Total fixed income portfolio
Mortgages (4)
Equity (4)
Property (4)
Hedge funds/alternatives (4)
Gross investment income (A)
Required interest life (5)
Required interest income and protection(6)
Unwind of UFR (pre-tax) (7)
Total cost of liabilities under Solvency II (B)
3.1
3.1
2.2
1.8
1.7
0.8
0.6
13.4
1.23%
1.08%
1.33%
1.47%
1.40%
2.25%
2.06%
1.37%
38
33
29
27
24
19
13
183
1.0
08
0.8
4.2
6.0
19.4
1.38%
1 44%
1.44%
1.40%
1.40%
1.38%
14
11
59
84
267
0.7
2.2
2.0
6.0
10 9
10.9
30.3
7.8
2.2
1.4
0.1
41.7
35.6
2.0
37 6
37.6
37.6
2.01%
1.92%
2.28%
2.97%
2 57%
2.57%
1.81%
2.42%
4.81%
3.31%
3.56%
2.14%
1.43%
0.32%
0 29%
0.29%
(1.66)%
14
43
45
178
280
547
189
104
48
4
892
(508)
(6)
(109)
(623)
269
0.64%
223
46
27.9%
33
25
HighfieldshasbuiltabottomupanalysisofDeltaLloydsinvestment
portfoliobasedonthecompanysvariousdisclosures(8)
ThereareinconsistenciesinDeltaLloydsreporting,sosimplifying
assumptionshavebeenmade
p
WehaveusedDeltaLloydsdisclosureandmodeledourinvestment
portfoliodurationslightlylongerthanthedurationofDeltaLloyds
liabilities(~13years)(9)(10)
TheportfoliousesmarketyieldsperBloombergasof12/31/15
ThecorporatebondportfoliousestheBAMLEuropeanCorporate
Bond(57Yduration)index(swappedtoextendduration)to
mirrorDeltaLloydscorporatebondportfoliobyrating
Highfieldshaserredonthesideofconservatismbyroundingourestimate
downtoinexcessof~25mm ofincrementalcapitalgenerationversus
managementsguidance
(1)
(2)
((3))
(4)
See slides 5859 of Delta Lloyd FY2015 presentation for sovereign/subsovereign split.
Other subsovereigns based upon weighted average yields of EIB and EC bonds.
Corporate bond split based upon fixed income breakdown by ratings on slide 59 of Delta Lloyd FY2015 presentation.
p
p
p
y
g
y
p
Yields on mortgages, equities, property, and hedge funds are Delta Lloyd guidance . See slide 29 of FY2015
presentation.
(5) Required interest life based upon 13Y point on the EIOPA curve (including volatility adjustment) as of 12/31/15.
Balance taken from slide 29 of FY2015 presentation, adjusted for general insurance liabilities.
(6) Required interest income and protection based upon 4Y point on EIOPA curve (including volatility adjustment) as of
12/31/15. Balance taken from 2015 Annual Report, p. 112.
(7) Amortization of UFR benefit uses Delta Lloyd disclosures on slide 29 of FY2015 presentation: 29 bps (pretax) on
37.6bn of liabilities.
(8) See slides 29, 47, 58, and 59 of the FY2015 presentation.
(9) Delta Lloyd presentation: Sailing Through Difficult Times, slide 12, March 18, 2014.
(10) Delta Lloyds asset duration is actually slightly greater than its liability duration, as shown by the sensitivities on slide
67 of FY2015 presentation.
25
APPENDIXC
DeltaLloyd
Delta
Lloydssmainlifeinsurancesubsidiaryhasaproforma
main life insurance subsidiary has a pro forma
SolvencyIIratioof160%(StandardFormula)(1)
NNLifehadaSolvencyIIratioof176%(StandardFormula)
(2)
priortoitsadoptionofthePartialInternalModel
p
p
AEGONsDutchsubsidiariesarecapitalizedtoa~150%
SolvencyIIratio(PartialInternalModel)(3)
AEGONfurtherdefinesitstargetrangefor
AEGON
further defines its target range for
subsidiariesas130150%underitsPartialInternal
ModelandexpectsitsDutchsubsidiariestoprovide
significantremittancestoitsholdingcompany(4)
(1)
(2)
(3)
(4)
Oursegmentsareadequately
capitalizedforcommercial
purposesandratingagency
requirements
AnnemarieMijer
Delta Lloyd Chief Risk Officer
DeltaLloydChiefRiskOfficer
(November30,2015)
Delta Lloyd presentation: FY 2015 results and capital plan update. Slide 21. February 24, 2016.
NN Capital Markets Day presentation: Finance and capital update. Slide 13. November 19, 2015.
AEGON Strategy Update presentation: Returning capital to shareholders. Slide 7. January 13, 2016.
AEGON Strategy Update presentation: The Netherlands. Slide 18. January 13, 2016.
26