ASR Nederland N.V. (ASRNL) Earnings Call Transcript & Summary

Good day, and welcome to the a.s.r. Investor Full Year Results 2019 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michel Hülters, Head of Investor Relations and Ratings. Please go ahead, sir.

Thank you, operator. Good morning, ladies and gentlemen. Welcome to the a.s.r. conference call on our full year results 2019. On the call with me today are Jos Baeten, CEO; and Annemiek van Melick, our CFO. Jos will kick off, as customary, with an overview of the highlights of our financial results and then discuss the business performance. And then Annemiek, she will delve into the development of our capital and solvency position, and after that, we'll open up for Q&A. I have to remind you that we have scheduled till 12:00 sharp. We need to catch a flight to London to see some of our investors and also some of the analyst community. So we need to keep it within the hour. [Operator Instructions] And as usual, please do have a look at the disclaimer that we have at the back of the presentation. So with that said, Jos.

Thank you, Michel. I'm happy to be here again today with Annemiek, our new CFO, who joined us very recently. So together with Ingrid de Swart, the Board team of a.s.r. is complete and ready for a bright future of a.s.r. Ladies and gentlemen, as you have seen from the numbers, which we have published this morning, 2019 was again a very, very strong year for a.s.r., beating the record operating performance of 2018. I'm proud of our overall performance as it demonstrates our discipline in executing our strategy and our successful pursuit of profitable growth. a.s.r. is consistently delivering against ambitious targets, and also in 2019, we offer our shareholders an attractive, progressive dividend, and we intend to do so going forward. And as I am sure you have noticed this morning, we also announced a share buyback of EUR 75 million as part of our review of our capital management policy. More about that later in our presentation. So let's move to Slide 2. As said, our performance in 2019 has been really strong, operating result of EUR 858 million exceeding the already record level of 2018 by EUR 109 million. Especially favorable weather-related claims compared to 2018 helped our operational result and the acquisition of Loyalis, this on top of overall improvement of all our business segments. The operating return, 15.1%, well above our target. Combined ratio also well above target with 93.5%. And we remain sharply focused on our cost levels. Operating expenses declined slightly by EUR 5 million when adjusting for the cost base of the acquisitions like, for example, Loyalis, and some incidental costs mainly related to M&A projects. Solvency II ratio, still based on the standard formula, remains robust at 194% after the proposed full year dividend. There are quite a number of items that impacted solvency such as the 18% point impact from the lower VA, the impact of the acquisition of Loyalis, but also the issue and redemption of hybrid capital. Organic capital creation amounted to EUR 370 million, stable with last year and absorbing the additional UFR unwind, higher new business strain and flattening of the yield curve. In 2019, we also reviewed, as promised, our OCC definition and return assumptions on this new definition, which is now more aligned with the market. Our OCC for 2019, based on new definition, amounts to EUR 501 million. Annemiek, of course, will provide further detail on this. Based on the strong performance and in line with our existing policy, we offer a progressive dividend. We propose to raise the dividend with 9% to EUR 1.90 per share. Taking into account the end dividend we paid already in September, there remains a final dividend of EUR 1.20 per share. So in sum, a very strong set of results achieved in 2019. Let's move to Slide 3 and talk a bit about our capital review. You are all familiar with the Solvency II management ladder here on the slide on the left. With a Solvency II ratio of 194%, we are comfortably above the management level of 160%, the level we tend to call the entrepreneurial zone. This means that we can allocate capital to pursue profitable growth, both organically and through bolt-on acquisitions, such as we did with, for example, Loyalis, and we remain active in optimizing and rerisking the balance sheet wherever we see attractive opportunities. It also provides a buffer to absorb the impact from regulatory changes such as the ongoing decline of the UFR. As announced at the half year results, we undertook a review of our capital policy in the second half of 2019, in particular with regards to the possibility of additional capital distributions. In doing so, we took into account the level of solvency, our organic capital creation and the potential opportunities for allocating capital for acquisitions or -- and rerisking. While we still continue to see opportunities to allocate capital to profitable growth, we also believe there is scope for additional capital distributions. We are comfortable with the current level of stock. Our intention for the medium term is to make an additional capital distribution of EUR 75 million per year. A condition is that our solvency ratio needs to remain above 180% as we aim to maintain a robust balance sheet. And as is shown on the right of this slide, we expect that regular dividend, additional capital distribution and value-creation opportunities will be covered by the OCC. If larger and value-creating acquisitions present themselves, we will, of course, give priority to those. As you know, we maintain strict financial discipline and require at least 12% return on invested capital. We will assess the possibility of additional distribution on an annual basis. The new policy will be implemented with immediate effect, and we have decided to buy back euro -- to buy back EUR 75 million of shares starting as from tomorrow. So let's now move to Slide 4, business strategy. This slide is mainly self-explaining, so I will restrain myself to 2 remarks. I'm especially pleased with the inflow of 11,000 customers in the first 2 months of the Vitality program, which is aimed at prevention. This marks our long-term ambition to become an even more relevant insurer in the daily lives of our customers, on top of providing cover for risk and the accumulation of financial assets for later. Second remark I would like to make is we finished the migration of all a.s.r.-owned Individual Life books to our variable cost platform. Over 800,000 policies are migrated. Now Loyalis and VvAA are the next in line to migrate to our new platform. And so we're again open for new business for new acquisitions. On Slide 5, we elaborate a little bit on our strategy in the pursuit to becoming -- to become the most sustainable insurance company in The Netherlands and possibly in Europe. A few remarks there. We consistently aim to improve the service we provide to customers. The increase of the Net Promoter Score from 42 to 44, and even more important, for our intermediaries from 60 to 62 show as an example that we are successful in this. Also, as an investor, we are committed to a more sustainable world. Our impact investments amounted already EUR 900 million, and the CO2 footprint has been measured for close to 90% of our investment portfolio. So we are on our way to meet our targets there. We increasingly receive external recognitions for our achievements. For example, for the third year in a row, we are the #1 sustainable insurer in the fair insurance guides, and we have been voted to the most sustainable investor by VBDO, a Dutch organization, twice in 1 year. And finally, in our business operations, we focus on reducing our direct CO2 footprint. Since this summer, our office is -- no longer make use of gas and is fully CO2 neutral. Let's move to the Non-life segment on Slide 6. In Non-life, a very strong year, up EUR 83 million to EUR 226 million. All major product lines are doing better as demonstrated in the improved combined ratios. The 2 key drivers, the significant improvement in weather-related claims. The Jan storm in 2018 added up to EUR 32 million, and the addition of Loyalis, which is, for the full year, EUR 24 million, of which EUR 17 million in the second half. Combined ratio assets, 93.5%, a beat on the target of 94%-96%. And on top of that, our gross written premiums increased by almost 6%, driven by a solid 4% organic growth by P&C and Disability. By the way, for Loyalis, it makes sense to look at the net earned premiums and annual contracts, gross written premium, not appropriate measures to this broken year. The uptick in the expense ratio is, first of all, a consequence of the inclusion of the Loyalis portfolio. Without Loyalis, the expense ratio would have declined to 8%. The absenteeism portfolio reported better performance as we took measures within this portfolio. And as you may have noticed, we took some additional provisions in Disability and P&C for changes in the discount rate for bodily injury, which added up to a total of EUR 15 million. Let's move to Slide 7, our Life business. Some highlights to mention here. Operating result up by 3.7%. The increase was primarily driven by higher investment margin, EUR 44 million. This reflects lower required interest for individual Life and higher direct investment income as a result of rerisking of investments and the integration of Loyalis investments, partially offset by lower amortization of realized gains. Operating results from H2 last year to H2 '19 is relatively stable, and it is up when adjusted for the EUR 10 million nonrecurring benefit from Generali Netherlands in 2018. Gross written premiums grew 3.4%. The additional contribution from Loyalis, which was close to EUR 60 million, and the new pension DC portfolio growth exceeded the decline in the individual Life and the decrease of the existing DB pension portfolio. Like operating expenses, in basis points of basic Life provision improved to 53%, so already meeting our medium-term targets. So last slide before I hand over to Annemiek. Other segments, I think mainly self-explaining. Two remarks. As we already expected, the distribution and segment -- distribution and services segment declined a bit towards EUR 23 million, but still better performing than target. This was mainly due to the lower fees for mandated brokers, which is a market phenomenon, and this was offset by solid organic growth. Operating results of the holding amounted to a minus of EUR 112 million. Decrease in operating result of holding and other is mainly driven by the increase in interest expenses from the EUR 500 million Tier 2 subordinated liability placed in April. So having said this, I will now hand over to Annemiek and she will deep dive into solvency and capital.

Thanks, Jos, and good to meet you all by phone. And I see some familiar names from my time as a bank CFO and some new names and I'm looking forward to meet you live at one point. I was asked by IR to keep it relatively short, so I will try to restrain myself. Having said that, I do want to take you through solvency stock flow, the new OCC definition and some sensitivities. So it won't exactly be 2 minutes either. If we go to Page 10 and start with the stock. Solvency II came in very robust at 194% on a standard model, especially robust if you consider that we absorbed the impact of a further UFR decline of 3% points, a VA decline of 18.4% points and the acquisition of Loyalis of 6.5% points. We added EUR 410 million of unrestricted Tier 1. And if you would exclude the impact of roughly EUR 490 million in hybrid capital, the own funds we acquired through Loyalis of EUR 176 million as well as the impact of own funds of the lower UFR and VA decline of EUR 91 million and EUR 582 million, respectively, we would have had around EUR 900 million of own funds during 2019. Now I believe this EUR 900 million of own funds generated reflects the company's resilience to absorb the UFR decline and VA volatility while still being able to invest in organic and inorganic growth as well as returning capital to shareholders. With that in mind, we have announced the intention for a yearly additional capital return of EUR 75 million, as Jos already pointed out earlier. Capital generation is also reflected in our IFRS equity. You can see that in Appendix E, which grew by EUR 611 million last year. In terms of required capital development, we've made a conscious allocation this year through the acquisition of Loyalis and Non-life growth, particularly in Disability and P&C, as well as some rerisking into mortgages. We've reduced capital allocated to counterparty default and concentration risk. Now obviously, in terms of required capital, the real movement here is the increase of market risk, which only for minor part is driven by rerisking. It's mainly driven by positive revaluations of equities and real estate. And it also includes some additional risk to interest rate risk, driven by lower interest rate, which we partly mitigated by increasing our hedge, primarily in the first half of the year. Despite the development, our market risk as a percentage of required capital remains well under the soft limit of 50% with 44%. Now insurance risk also saw some increase with slightly over EUR 500 million, and that predominantly relates to Life and Health, Life due to the impact of lower interest rate on longevity risk and health primarily due to the acquisition of Loyalis. Our diversification benefits increased by EUR 248 million, and we've seen a slightly higher LAC DT impact, which was mainly driven by changed tax plans. The [ Vpb ] changed from 20.5 to 21.7 there. Good to point out that we still have ample headroom available, actually slightly more than in 2018 with EUR 923 million for restricted Tier 1 and EUR 500 million (sic) [ EUR 502 million ] for Tier 2, Tier 3 combined. So all in all, strong solvency level of 194% based on a standard model with ample headroom. And if you were to adjust that for the announced buyback of EUR 75 million, which will start tomorrow and which will actually flow into the stock in H1, solvency would be 192%. A bit on flow now, if you turn to Page 11. As Jos already indicated, we've reviewed the OCC definition in H2 and we've aligned it a bit more with market practice. Now in terms of consistency and transparency, I'll first present the OCC on the old method and then indicate the delta asset towards the new method. If you start at 197% in '18, you can see that we issued the EUR 500 million Tier 2 to absorb the Loyalis acquisition, and we issued and redeemed some Tier 1, Tier 2 capital in H2, basically offsetting each other. Now if you release those exogenous factors aside and look at what was really generated by a.s.r. itself, i.e. the OCC, you can see the EUR 370 million, which is close to 10% point of our required solvency. That OCC number is roughly the same as last year's. But within that OCC, we see an increase of business capital generation with EUR 61 million to EUR 344 million. And that's really the capital generated by running the business, i.e. the underwriting result, investment results, fee income. And that EUR 61 million increase there more than offsets the EUR 35 million higher UFR unwind, which you can see in the technical movements at minus EUR 125 million, really caused by lower interest rates. Now please be aware that our methodology takes the average over a year in terms of view of our unwind. So that basically means that there will be a comparable echo of an additional UFR drag in 2020, obviously, depending on rates this year. The release of risk margin was somewhat less compared to last year, primarily reflecting new business and the contract renewal cycle of Loyalis, which typically occurs at the end of the year. So we'll see that impact -- we've seen that impact in Q4. But it's profitable business and it will generate OCC in the future. Impact of market and VA decline as well as the lowering of the UFR rate fall in our bucket market and operational developments, as you are aware. So all in all, OCC comparable to last year, absorbing a higher UFR drag with EUR 60 million higher contribution of business capital generated. As we already indicated previously, we were looking at a more market consistent/harmonized OCC definition. That has been worked out through the second half of last year and is now finalized and will be introduced in 2020. Now let's go to the next slide, Slide 12, so I can talk you a little bit through the changes that we've made there. On the new definition, the OCC would have been EUR 501 million, which is an increase of EUR 131 million versus the old definition. Key changes here really relate to the return assumptions for the investment portfolio. For fixed income, including VA, we will move from excess returns to market-observable spreads. And for equities and real estate, we will move to a -- from an excess return over swap to a total return assumption. And our total return assumption is post-tax 5% for equities and 4.1% for real estate. These new return assumptions align better with market practices we see around us. And the total return assumptions for equities and real estate are actually consistent with the long-term assumptions we use in our strategic asset allocation. If you look at the impact of that change in LTIM assumptions, you would see EUR 182 million more of business capital generation. And you can break that down in fixed income, which is EUR 56 million, and then equities and real estate, which is EUR 124 million. And within fixed income space, we lost a bit of govies, both core and noncore, but we gained on corporate bonds and our mortgages there, and we actually gained on VA a bit. And within equities and real estate, the split is relatively equal between equities and real estate in terms of gains that we made there. We've also made some of our model refinements whilst we were at it and those included the net release of capital bucket. In the old OCC, we only included a release of insurance risk, in line with the unwind of our Life book. And then the new OCC, we will also include the related market risk capital requirements, i.e., predominantly related to interest and spread risk. We've also included a revision of the new business strain methodology, leading to a higher but more accurate required capital for new business. Now that those 2 factors combined had an impact of minus EUR 63 million in terms of release of capital. Technical movements. We only used to look at the unwind of the UFR there, but we consider it more appropriate to also include the unwind of the TVOG. That time value tends to get smaller as time passes by. All in all, that new definition of OCC would have come in at EUR 501 million for 2019. And bear in mind, it still remains quite sensitive, obviously, to movement in interest rates, UFR drag, and it is more sensitive now to market-observable spread movements for fixed income and VA. In terms of target setting, we did introduce an OCC target at the Capital Markets Day of 2018 of more than EUR 430 million for 2021. You would obviously need to add Loyalis to that and then you would get to EUR 465 million, all based on interest, prevailing interest rates at the Capital Markets Day, I believe that was in October 2018. If you would adjust for the additional UFR drag of EUR 90 million since then and for some flattening of the curve, which knocked another EUR 40 million, you would get to around EUR 335 million, if you would translate that EUR 465 million target at full year 2015 -- 2019 rate, and you'll get some more -- you can find some more information on that on Appendix I. I think we've done well, reaching an OCC of EUR 370 million in 2019. But bear in mind that there will be some echo impact of the UFR drag on that going forward and that you will also see on the new OCC model. The new OCC came in at EUR 501 million and you may consider the EUR 500 million target for 2021 not that challenging. But as said, bear in mind, UFR drag echo that we will have and bear in mind that 2019 was a very strong performance year weather-wise for P&C. The new OCC is really the basis from which we intend to invest annually in organic growth, in some inorganic growth and rerisking. And obviously, it's the basis from which we intend to pay the regular dividend and the additional capital return of EUR 75 million. Page 13, we show some sensitivities. I think you're all familiar with this page. It really presents an indication of the stock solvency today if a lower UFR would be applied without any capital generation added to it. You can see what the impact would be of applying an economical UFR, i.e., close leading to our actual investment returns that we've kept at 2.4%, and this would actually lower the stock to 153%, but it would obviously simultaneously enhance the OCC by EUR 63 million annually. That economical UFR has actually been pretty stable for the last year. We've added a broader sensitivity in Appendix G, which is broadly in line with H1 2019, indicated that our current 194% solvency is still well placed within the entrepreneurial zone, even after applying the sensitivity similar to what we've seen at the half year. Returning to balance sheet on Page 14. As already touched upon earlier, a strong balance sheet with ample headroom within our capital structure. Both market risk and financial risk are low, market risk at about 44% of total risk, something we feel very comfortable with. We aim to keep that below 50% pre-diversification benefits. Financial leverage today at 29.2% on an IFRS basis, slightly up versus last year as we issued a Tier 2 instrument, but still well below our max of 35%. Risky assets as a function of unrestricted Tier 1, our risky asset ratio relatively stable at 107%, which we feel very comfortable with. A few words on cash and then I'll hand back to Jos on Slide 15. Holding cash at the end of the period was EUR 458 million. It was up from last year and it's still aligned with our policy to cover holding expenses, coupons and dividends. In addition to that cash position, we have an unused RCF of EUR 350 million. We've upstreamed cash from Life, EUR 356 million; Non-life, EUR 80 million; and other entities, EUR 65 million. There was no need to upstream more as given our holding policy, but there are also no impediments to upstream more. And the remittances that we've done are in line with the remittances that we have done in the previous years, percentage-wise. We are comfortable with the opco solvencies with Life at 192% and Non-life at 162% levels, all well above management targets. Our debt maturity profile, as you can see, very robust, evenly spread. Our next maturity is at 2024, something, again, that demonstrates that we have some more flexibility. Double leverage, as expected, just above 100%. So all in all, very comfortable with the balance sheet and cash position as it currently stands. And with that, I'd like to hand it back to Jos for a final wrap-up.

Thanks, Annemiek. Well done. Let's move quickly to Slide 17 so we're not making Michel more nervous than necessary for the Q&A. Two graphs on this slide. The first one to highlight our steady multiyear increase in our operating result. And as you can see, our Non-life business and capital-light-free, income-generating business in asset management and distribution represent a greater part of the total company. And the new business we are writing in those businesses will push this further going forward. Second remark, those results will fuel our capacity to pay attractive dividends to our shareholders. And as you know, it's our ambition to offer shareholders a progressive dividend per share in the long term. As said, full year dividend will grow towards EUR 1.90 per share, an increase of 9.2%. And on top of that, we aim to provide additional capital distribution, as we announced this morning, with the share buyback program of EUR 75 million for this year. So all in all, since our IPO in 2016, we returned well over EUR 1 billion to our shareholders in dividends and share buybacks. If we would be able to execute on our intention, as we just discussed, then we would again return another EUR 1 billion in the current plan period. So concluding on Slide 18 and guiding you a little bit towards the outlook for 2020. Again, a very strong set of numbers. So a very solid performance again from a.s.r. As is evidenced from all the key metrics that we discussed, our business is running very, very well, and we're happy that everything we can influence has done according to targets or better than targets. Looking ahead, we are positive about the commercial and operational outlook for a.s.r. However, we are keeping a close eye on developments in the financial markets, and in particular, the impact of the exceptionally low interest rates. And while there are no new facts on the EIOPA review, we will, of course, monitor any regulatory change that may have an impact. At the same time, we remain interested in growth through small- and medium-sized acquisitions, and we still see opportunities there. Our strong capital position provides sufficient scope for this. So looking forward, acknowledging that our performance in 2019 was very strong and significantly increased compared to the prior year, we would be very happy if and when we could deliver those results again in 2020. So with that, I hand over to the operator to go into all the questions you probably will have.

[Operator Instructions] We'll now take our first question over the phone from Cor Kluis from ABN AMRO Bank.

Cor Kluis, ABN AMRO. I've got a couple of questions. First of all, maybe just for the record this year, Ciara storm and the Dennis storm, maybe you could give clarification -- clarity on that? And related to that, of course, the reinsurance contracts that you have for such kind of events. Second question is about M&A. Currently, you basically make clear that you will return around 30%, a little bit more of your capital generation back to shareholders via dividend and share buybacks. There's still around a little bit less than 30% left for M&A and rerisking. Could you elaborate a little bit more on the M&A pipeline? You already say you see those opportunities. Each year, you delivered this instance since the IPO that you found fewer acquisitions. Did anything change after VIVAT? Or do you still see similar kind of pipelines and possibilities and interest for the potential acquisitions? And my last question is a technical one. On the EUR 500 million OCC target, of at least EUR 500 million OCC target that you have, what amount of UFR strain is included in that figure? And you mentioned there will be a little bit extra UFR drag, of course, for 2020 versus 2019. So the UFR drag could be a little bit higher. But in that EUR 500 million, how much UFR drag is there? And if you could bring it back to [ where you were, ] which you put on the slide to a lower level, what might be offsetting the positive effect? Is it the EUR 63 million? Or have you not included that EUR 63 million for the extra UFR drag that you look at this year in 2020? So those are my questions.

Well, thanks, Cor, for those questions. Annemiek will go into the last one. I will take the first 2. Ciara and Dennis together, they make a nice couple. And the proof that Ciara caused a bit more claims than Dennis proves that in most families, females are the boss. Having said that, the weather-related claims in 2018 added up to EUR 32 million. We had lots of large claims by then. Looking at the first feeling this year, we had again lots of claims, but very small ones, fences and some smaller car incidents. Our first feeling is that the total claims for the 2 storms jointly will be somewhere between EUR 10 million and EUR 15 million, hopefully on the lower side. But the projected range today is between EUR 10 million and EUR 15 million. On your second question, M&A, we still do see, in line with what we said last year, a chance for M&A. They may not be as big as Generali or Loyalis, but there are still some medium-sized chances we see going forward. And that's why we've explicitly said that we want to reserve a little bit of the OCC that we expect for M&A and rerisking. So actually, the storyline there didn't change over the last few months. And yes, we are looking at a pipeline. But it's, as usual, we're not communicating about what's in the pipeline and what, when, could happen. M&A is lumpy business. It could happen overnight, but it also can take a couple of months more. And then for the third question, I hand over to Annemiek.

Cor, on the question on target OCC, if look at the EUR 500 million target that we have, that includes this year's UFR drag, which was EUR 125 million. And then you would have to add the echo of the UFR drag of 2019, which would add another EUR 35 million. So all in all, that would be around EUR 160 million.

Okay. I mean one -- sorry, go ahead, Cor.

Yes. So you said -- following on that UFR drag offset, EUR 160 million, that you -- on Slide 13 that you showed there where you basically say if we bring UFR down from 3.9% to 2.4%, that will be EUR 63 million approximately for the OCC. Was it based on the EUR 125 million or was it based on EUR 160 million?

That was based on the current EUR 125 million. I mean on the sensitivities to stock, Slide 13.

And one addition to the question about Ciara. Our reinsurance cover started from EUR 35 million for the first storm, so this is all on account.

[Operator Instructions] We'll now take our next question from Albert Ploegh from ING.

Yes. The first one is, I mean a.s.r. has always been known to be conservative and you have a good track record of under-promising and over-delivering in the end. And now today, you're aligning more of the excess spread assumptions in the OCC. But I was wondering, are there also maybe further alignments possible and other, for example, let's say, product lines where you are maybe excessively prudent in terms of reserving that you could revise as well? So in a way, do you think you're still also in a way understating operating earnings in certain areas? That's the first question. The second question on the capital return decision and the dividend. I noticed that you keep the link with operating earnings with 45% to 55% as a base payout ratio range. And you're clearly at the low end, so you can basically grow that and show the progression. But the reason that you did not decouple like one of your peers, should we also take therefore confidence that you still see room to grow operating earnings despite a very solid level of operating unit we saw over 2019. So just thinking around that. And finally, on the progression itself. Now you have announced a buyback, which will, of course, result in a reduction in the share count. Yes, what kind of progression in the percentage, yes, you would feel comfortable with? So to frame that a little bit.

Okay. Annemiek will take the first one.

Shall I start with the under-promising, over-deliver question and whether that's also somewhere in our operating results? I don't think there is a lot of additional conservatism or prudence versus our peers on that side. I think where we've mainly seen it was really related to the OCC and a bit to the solvency side. So no, I don't see that on the operating result side. On the solvency side, I think on the OCC definition we've now really aligned it with peers. If you look at stock solvency, it's good to bear in mind that we're still on standard model there. And I think, yes, that probably sums it up.

And to your second question, we think it remains important to base dividend policy on an audited number. That's why we've said we will stick to the 45% to 55% of the operational, et cetera. There is still a lot of room to increase the nominal dividend because we're now at 45%. We also trust that we will be able to continue to grow a.s.r. as provided in the targets on the Capital Markets Day, the 3% to 5% growth in P&C and in Disability. And we've always said we want to have a steadily growing dividend, and we're happy with the current 9%. So everything that is between 5% and 10% will make us and shareholders, hopefully, also happy going forward.

We'll now take our next question from Farooq Hanif from Crédit Suisse.

Firstly, there's been a further decrease in interest rates, so as well as the echo of UFR, its potential -- there's potential for further UFR drag in 2020. So I was just wondering, is there a rule of thumb we could use for each basis point in swap curve reduction to measure that? And aligned with that, mortgage spreads going down as well, will that impact now your OCC? And second, obviously, with the change of CFO, is there now a change potentially of policy towards internal model?

Thanks, Farooq. In terms of your first question related to the year-to-date OCC/solvency position, yes, obviously, we've seen a lowering of the UFR further to 3.75%. We've seen interest rates decrease. We've seen some movements on the -- on mortgages spreads. So all in all, that may have an impact on it. There's no real rule of thumb to use there. And I understand that you would like to know that as of year-to-date, but we're going to give any numbers there. In terms of change in CFO, whether that would impact the internal model stance, the answer is no. I think an internal model is quite costly. If we were only to do that to get the capital out, that may not be the right movement. Having said that, if the standard model is very punitive to us or if we really see M&A opportunities where we would have to need it, we will definitely look at that. So I can assure you, it is something that is constantly on my mind and that we're constantly evaluating and looking through it to see whether and at which point it may be a good move to do.

We'll now take our next question from Fulin Liang from Morgan Stanley.

I have 2 questions. So first of all is, if I -- so you have EUR 500 million OCC and then your ordinary -- your cost of ordinary dividend plus buyback or special divi would be like roughly EUR 340 million, EUR 350 million. That will leave you like EUR 100 million budget for M&A, which I understand that you still have a pipeline for M&A. Just wonder that if you don't use all the capital for M&A, what's your sort of time frame or kind of way of returning the unused M&A budget? Will you like, say, okay, every 3 years, 5 years, I will review what's not used? Or will the review frequency by per annum every year? So that's my first question. And the second one is you talk about that using the rerisking -- use the capital to rerisk. But if I look at your investment portfolios, your mortgage is substantially lower in 2019, is substantially lower than the percentage in -- the percentage in 2018. So apparently, you are shifting your investment out of mortgage, is that -- is my understanding correct? And then also, if I compare the allocation of -- within the -- like the fixed income or by credit rating bucket, I did not see any kind of sign of taking high risk. Could you just give a bit of clarification on what you mean by rerisking?

Okay. Annemiek will go into the second one. In terms of what to do with unused M&A budget, first of all, we assume that the part of the OCC that not will be used for dividends or buybacks, that could be used for rerisking and/or M&A. If and when we, in a certain period, haven't done any M&A, we take it from there and will, on an annual basis, decide whether there is a nearby pipeline which we believe that we can invest in or that there is no pipeline and then we will decide at that moment in time what to do with the potential additional OCC that we have generated.

And in terms of your question on investment portfolio, in the appendix on Slide 30, we need to have an overview of that. We did add over EUR 1 billion of mortgages on nominal value last year. You only see EUR 400 million of that in the actual category mortgages, auto loans. Around EUR 700 million, EUR 800 million is allocated to the fixed income portfolio because it's done through mortgages funds, partly our own, partly some other funds. So we did add over EUR 1 billion of mortgages. In terms of relative size of mortgages, the other components have increased in market value, so the relative size is not a true reflection of the additional investments that we've made there. Now if you look at further room to optimize the investment portfolio, I think overall we're pretty comfortable with equities and real estate as it currently is. We do see some more room to rerisk into mortgages and a little bit within the fixed income space where we could move a bit more from govies to credits.

We'll now take our next question from Johnny Vo from Goldman Sachs.