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

Good day and welcome to the ASR Nederland Investor Call Full Year Results 2020. This call is being recorded. At this time, I would like to turn the conference over to Michel Hülters. Please go ahead, sir.

Thank you, operator. Good morning, ladies and gentlemen, and thank you for switching to this channel. Welcome to the a.s.r. conference call on our full year 2020 results. On the call with me today are Jos Baeten, CEO; and Annemiek van Melick, our CFO. As is customary, Jos will kick off with some of the highlights of our financial results and discuss some of the business performance as we've seen. Annemiek will then delve into the development of our capital and solvency position after that, and then we'll open up for Q&A. We've got scheduled to 12:00 sharp, and I think it will leave us ample time for Q&A. As usual, do please have a look at the disclaimer that we have at the back of the presentation for any forward-looking statements. And so having said that, Jos, the floor is yours.

Thank you, Michel, and good morning, everyone. Thank you for switching to the a.s.r. call after having already a busy morning with one of our most beloved competitors in the Netherlands. So hopefully, in the future, we can prevent you from having 2 presentations on 1 day on Dutch insurance companies. I hope all of you are still doing well in these challenging COVID times. Before we get into the numbers, let me just start by saying that I'm really proud of the way our company and our employees have continued serving our clients in this extraordinary year. The outbreak of COVID-19 and the measures taken to combat this pandemic continue to disrupt our personal lives, the business communities and our society as a whole. And while our first and foremost concern is the health of our employees and customers, we, of course, also care for the well-being more generally as well, including job security and economic uncertainties for our customers who are entrepreneurs, business and business owners. We generally hope that we can leave this crisis behind us soon. At a.s.r., we've been able to keep up morale of our employees at a high level throughout the year. Customer satisfaction went up, and we have maintained strong commercial momentum in our business as demonstrated by the growth of our business and our financial performance. As we reported, the overall impact of COVID-19 was benign, thanks to the mix of our business in Non-life and Life that effectively neutralized this impact in 2020. We believe a.s.r. has shown resilience against challenging and uncertain economic background and has again delivered against ambitious targets. Without further ado, let's turn to the financial highlights, and those are on Slide 2. I presume you all have seen the press release which we issued this morning, so I will highlight only the most important developments. As this part shows, our performance in 2020 has been really strong. The 3.2% increase in the operating result to EUR 885 million is driven by higher results in all our segments and includes, as I just mentioned, the impact of COVID-19 being a negative of EUR 1 million. Operating return of 15.3% is well above our target between 12% and 14%. Our Solvency II ratio based on the standard formula is up by 5 percentage points to a solid 199%. This increase includes 12% from organic capital creation, which, at EUR 500 million, landed by coincidence exactly on the medium-term targets. Solid contribution from the business, higher excess returns and a higher net release of capital compensated the higher UFR drag due to lower interest rates. The combined ratio amounted to 93.6%, ahead of our target of 94% to 96%. This includes a positive effect of 0.6 percentage points out of COVID-19. Our efficiency ratios improved in all business segments despite an increase of EUR 45 million in operating expenses, which was mainly driven by acquisitions, holding costs and growth of our fee-based business. Based on the strong performance and in line with our existing policy, we propose a dividend of EUR 2.04 per share. This is an increase of 7% compared to last year. Today, we also announced a share buyback of EUR 75 million, which is supported by our strong solvency and OCC. So in sum, we have shown a solid result over 2020. Let's turn to the next slide, Slide #3. Our strategy will continue to focus on sustainable long-term value creation for all involved in a.s.r. We take our role as a sustainable company in society seriously, and we are happy to see that international investors aim more and more on sustainability. Our ongoing focus on customer service has led to an increase in the Net Promoter Score from 44 to 49, already well above the medium-term target of 44. One of the drivers behind the increase was the more personal contact with customers during the COVID-19 outbreak when everybody was working from home. Our CO2 footprint has now been measured for 93% of our whole investment portfolio. And with over EUR 1.7 billion, our impact investments have already met the targets for 2019 to 2021. Due to the lockdown restrictions and social distancing rules, our employees have not been able to do any of the activities we typically do for society. To protect the health of our employees and the people involved in these projects, we had to cancel our -- or scale down these activities. In some cases, we have been able to convert the activities into an e-version. And as soon as social distancing measures are relieved, we, of course, will -- we will scale up these activities again. ESG is more and more an integral part of our product development, for example, the sustainability repair and placements in insurances, mortgages for sustainable home improvements but also in pension DC with our specific ESG funds. And lastly, I'm very proud of the recognition we received on our sustainability. In 2020, a.s.r. has been included in the Dow Jones World Sustainability Index. We see this as a recognition of our successful strategy on which we will continue to build going further. Let's continue with some insight on the COVID-19 impact on our business, and that's on Slide 4. In dealing with this crisis, we continue to offer suitable solutions for customers who have been impacted by the COVID-19 crisis. After an initial rise in customer requests for deferrals on premium payments, mortgage payments or rents, we have experienced a decrease in these requests in the second half of the year. Also, rent arrears in our real estate portfolio have reverted to more normal levels. The number of requests have been very manageable. For instance, as per today, we have approximately 60 P&C customers with premium arrangement, 400 in the disability area and roughly 45 corona-related mortgage arrangements. So all in all, very manageable. We continue to use a weekly mood monitor to track employee morale, and this remained at a very high level. We are focusing on a sense of connection and inclusion of our employees, particularly now we are all working from home. Our approach since 2012 to build one culture based on time and place independent working proved to be a strong foundation for managing the current crisis. And financially, the negative impact of EUR 1 million on our operating results consists of a positive EUR 21 million in Non-life and a positive effect of EUR 4 million in Health. Higher claims in disability and strengthening the reserves were more than offset by lower claims in P&C. More on this when we get to the Non-life slide. In our Life business, the impact was EUR 22 million negative from lower dividend and rental income mainly in the first half of 2020. And finally, our IFRS net result is lower primarily due to the impact from financial markets and goodwill impairments. Also in 2019, we reported a purchase gain from Loyalis, which, of course, wasn't there anymore in 2020. Now let's move on to the next slide and talk a bit about how we did in progressing in executing our strategy. I would like to talk about some business developments here. First of all, the last year introduced Vitality program is continuously growing with currently over 50,000 active participants and 10,000 employees at this moment. This is helpful in improving our customer relevance and loyalty. Also, we have brought the reintegration activities of Kempen to a.s.r., of which we already owned 50%. This expands our expertise in the field of reintegration and sustainable employability and strengthens our connection with customers. But most importantly, it helps us to manage and control claims. In the Life department, we delivered on creating synergies by reducing the number of applications and converting the systems to a software-as-a-service platform, including the VvAA and Loyalis portfolios. This, ladies and gentlemen, completes the migration of all of our own books and all of the acquired books onto a.s.r.'s new platform on time and on budget. Our cost efficiency is illustrated in the Life operating expenses, which decreased from 62 basis points in 2016 to 45 basis points in 2020. Our fee-based business are doing very well. Third-party assets under management have increased by EUR 3.4 billion to EUR 25.4 billion and was mainly driven by growth in our mortgage funds and DC funds. Our mortgage origination was up 40% and amounted almost EUR 5 billion in 2020. And lastly, we have transferred the remaining accounts in the divestment of a.s.r. Bank to Van Lanschot Kempen and have withdrawn our banking license in December 2020. Now let's move to Slide 6 and elaborate a little bit on our Non-life results. A solid performance in Non-life with operating results increasing to EUR 241 million. In 2020, COVID-19 had a positive impact on Non-life of EUR 21 million. This includes headwinds of roughly EUR 71 million in our Disability business and tailwinds of roughly EUR 88 million in our P&C business. In Disability, we have seen a clear improvement in individual disability in the second half where we have been able to pick up the reintegration processes and successfully managing the backlogs from the first half of the year. In sickness leave, we have seen some COVID-19-related deterioration in the portfolio, particularly as we experienced an increase in claims from customers due to mental and psychological issues. Moreover, these claims also tend to have a longer duration. This is something we are closely monitoring, of course, and we have strengthened our reserves for this development in H2. P&C mostly benefited from favorable claims experienced. In the second half of the year, this trend has reverted as well as traffic was significantly higher compared to H1. Also, reserves have been strengthened within P&C primarily related to bodily injury, partially driven by a court verdict earlier in 2020. And you know a.s.r., we tend to take a somewhat conservative approach in these matters. And with respect to storms, although 2020 was a relatively calm year, we did record a EUR 9 million hit from Ciara. This leads to a combined ratio of 93.6% for both P&C and Disability together, beating the target of 94% to 96%. Adjusting for COVID-19 effects, combined ratio would go up with 0.6 to 94.2%, still at the lower end of the target range. The cost ratio decreased from 8.4% to 8.1%, which is driven by a higher gross written premium whilst realizing cost synergy from the Generali Nederlands IT migration. So all in all, we became even more efficient despite we had to work from home. The organic growth in the gross written premium of Disability and P&C amounted 4.6%, at the higher end of our range of 3% to 5% per annum. This is hard work, ladies and gentlemen. Make no mistakes on this. And for 2021, this is the real challenge given the economic uncertainties in which we operate. And finally, the increase in Health gross written premium reflects a strong increase in the new benefit-in-kind insurance product which we launched at the end of 2019. So far, we have seen this increase to be continued at the start of the health season in this year. Let's move to Slide 7, where I will talk a little bit about the Life segment. Some highlights to mention in our Life segments, operating results of Life segment increased by EUR 34 million to EUR 730 million despite the EUR 22 million negative impact from COVID-19. This impact relates really to the first half as it is mostly reflected in lower dividends. If you relay this to the total operating results for Life, we believe the COVID-19 impact is benign. The increase in operating result is driven by higher investment margin. This is mostly due to a positive effect from our swaption portfolio of EUR 42 million due to the amortized realized gains. Also, we have been optimizing the illiquidity premium and credit risk premium in our portfolio. For example, we have expanded our mortgage portfolio further in 2020, which represents in the meantime 19% of the total investment for own accounts. The decrease in required interest is mostly due to maturing individual life book and the average guarantee declining. I would like to refer to appendix R and S as well where we have displayed our stable investment margin over time. The decrease in technical result was mostly the result of favorable result on mortality in 2019. There was only a limited positive impact from COVID-19 on the mortality result given the diversification between our product lines. We have seen a positive impact in Pension DB, partially offset by a negative in Pension DC. And these pertain to premium-paying customers and also having a surviving pension cover. Impact on individual life was slightly positive, offset by negative impact on Funeral. Furthermore, our cost efficiency improved to 45 basis points as a share of the basic nominal provision, which is equal to the lower end of our target for 2021. So let's now turn to other segments, which performed quite well, and those are on Slide 8. The operating result for the 2 fee-generating segments, Asset Management and Distribution and Services, combined amounts to EUR 57 million, up from EUR 48 million in 2019. This confirms that we are running ahead of the medium-term target. Asset Management showed the stronger growth, EUR 7 million, mainly due to strong inflows in mortgage funds and DC funds. Operating result of the Distribution and Services segment increased to EUR 25 million mainly due to small acquisitions and organic growth. Operating results for the Holding amounted to a minus of EUR 143 million. The decrease is mainly driven by higher net service costs for our pension plan due to lower interest rates, which amounted to EUR 20 million and the increase in interest expenses of EUR 6 million from the EUR 500 million Tier 2 subordinated liability placed in April 2019. Please note that as of January '21, our pension plan for employees moved to a DC product. This means that going forward, the expense related to the employee pension plan will decrease and become less dependent from interest rates and, hence, more stability going forward. Before I hand over to Annemiek for the highlights on solvency and capital generation, I believe we have built a very strong, solid track record of financial performance and disciplined and rational allocation of capital. The results published today support our ongoing story of attractive capital return. Since the IPO in 2016, we have been committed to offering shareholders attractive returns and dividends driven by higher operating results and supported by a robust balance sheet and supplemented by share buybacks. During this period, a.s.r. has returned EUR 1.6 billion of capital to shareholders via dividends and share buybacks, including the one-off we announced -- including the one we announced today. This roughly equals 36% of our market cap. This year, we proposed a total dividend per share of EUR 2.04, a 7% increase, whilst remaining at the lower end of our payout ratio of 45%. And on top of that, we announced another share buyback of EUR 75 million. We will continue to allocate our capital rationally. If sufficient capital remains from the targeted OCC of EUR 500 million in 2021 after investing in organic growth, inorganic growth and market risk, and as long as we are above the well-known thresholds, we will decide on capital returns to shareholders. This way, we can grow our business profitably and, meanwhile, offer an attractive capital return to our shareholders. Now I will hand over to Annemiek for solvency and capital.

Thanks, Jos. Let's go to Slide 11. And despite all the uncertainty in 2020, Solvency II remained very robust, and we ended the year at 199% on a standard model or 208% if you were to exclude the full year dividend and the buyback that we executed in 2020. The share buyback we announced today is not yet included in this full year '20 solvency figure. Within the 199%, we absorbed a further UFR decline of 4% points. In total, we added EUR 425 million of unrestricted Tier 1. And if you would exclude the EUR 357 million capital return and the EUR 121 million UFR reduction, we would have added around EUR 900 million of own funds, demonstrating our ability to generate capital throughout uncertain times. Our total SCR increased by EUR 124 million as an increase in insurance risk and market risk was partially mitigated by increased diversification benefits and an increased LAC DT due to the reversal of the lowering of the corporate tax rate. Our LAC DT factors remain unchanged at 75% for Life and 90% for Non-life. The increase in insurance risk reflects an allocation of capital to growth, both inorganically with the closure of the VvAA and the Veherex acquisitions coming in as well as organically, predominantly in Disability and Health. And it also obviously includes the impact of lower interest rates. Within market risk, we mainly saw an increase in interest rate risk due to lower rates and equity risk due to increased valuations as well as the impact of some re-risking, which we mitigated by decreasing currency risk and market concentration risk. Despite these developments, market risk as a percentage of required capital remained at 44%, which is actually well below our internal limit of 50%. Now all in all, strong solvency level at 199% at a standard model with ample headroom available within the Solvency II framework, EUR 1 billion restricted Tier 1 and over EUR 500 million Tier 2, Tier 3 headroom, as you can see. If we move to Slide 12, we can see the development flow throughout the year. Strong organic capital generation of EUR 500 million or over 12% points in Solvency as well as a positive contribution of 3% points from market and operational developments more than compensated 1% point related to the closing of acquisitions and increased capital distribution of EUR 357 million versus last year's EUR 267 million, which actually took out 9 percentage points. Now if you look at the market and operational development buckets, within that 3% that you see over there, we've included a decrease in the UFR with a negative impact of 4% points. It also includes a minus 7% points, reflecting both negative market developments as well as re-risking, but they were all more than offset by updated noneconomic assumptions, 8% points, and the reversal of the tax rate lowering impacting the LAC DT, which is plus 5% points. Now the noneconomic assumption update mainly included updated mortality assumptions largely driven by the Dutch Actuarial Association, which came out with new industry-wide tables. If we turn to our organic capital creation on Slide 13, you can see the EUR 500 million, which we're actually pretty happy with. As I said, a little over 12% points of our solvency, roughly the same as last year when it came in at EUR 501 million, while we actually had to observe close to EUR 80 million of increased UFR drag. Now we did manage to absorb the additional UFR drag by both increased business capital generation and an increase in net capital release. Business capital generation came in EUR 42 million higher mainly due to an increase in excess returns driven by both re-risking within credits and mortgages as well as some spread increase and an increased contribution of our fee business, which is an important part of our strategy to actually grow that business. The increase in capital release was mainly driven by increased SCR release due to lower interest rates and the full year impact of Loyalis on the SCR release. Good to mention there that the group Disability business tends to have a high SCR in Q4 when -- which then releases throughout the year. And last year, we missed 4 months of that release because the first 4 months of the year, Loyalis wasn't part of us yet. Now for 2021, we still have an OCC target out there of EUR 500 million, which actually may sound like a piece of cake given that we reported EUR 500 million today, but it doesn't feel like that. It's actually a pretty challenging target. We'll have to absorb an echo UFR drag of around EUR 37 million, the impact of temporary spread widening in 2020, let's say, around EUR 10 million, and the impact of the tax reversal on the OCC through LAC DT and also direct taxes, which obviously would knock out another around EUR 15 million. So that would actually lower it down to around EUR 440 million. They're always positive. And if we look at the interest rates today, the sting of the UFR echo would already be reduced by half, let's say, EUR 70 million. And we will not have the adjustment in our employee pension contract flowing through the OCC, which is currently around EUR 7 million. So that leaves around EUR 460 million as a starting point for 2021. We do still see scope for OCC accretion from re-risking, and we'll continue the path that we've set in this year, let's say, around EUR 15 million or so. And the remainder is a challenge we really have to kind of live up with through our business by organic growth, cost efficiency and just good underwriting. If we then turn to Slide 14, have a quick look at the solvency sensitivities. They haven't really changed that much towards 2019. We still see limited impact of both parallel and nonparallel interest rate shocks. Sensitivity towards 50 bps parallel decline is limited to minus 3% points in solvency and 10 bps steepening limited to minus 3% points solvency as well. And in terms of managing the interest rate sensitivities, we have a limit of 15% of regulatory Solvency II ratio on 100 bps parallel shocks. So we're actually very much within our limits at this point in time. We believe that for a.s.r., the optimal strategy for managing interest rate risk is a combination of both cash flow hedging and duration hedging. We applied cash flow matching for the first 12 years. And then for the longer maturities, we applied duration matching -- duration hedging, whereby we hedged the interest rate sensitivity of liabilities including risk margin. For us, it provides a better interest rate hedge than cash flow hedging for those 10 years as it also takes the optionality and convexity into account; optionality in assets, think about mortgages, prepayments, et cetera; optionality in derivatives, EG, swaptions and liabilities, think about profit sharing. Now all of that optionality is fully incorporated in duration hedging. And on top, it also covers the risk of long-term cash flows, for example, our Funeral business. As you can see in the cash flow chart, we're relatively cash flow matched at the left part, let's say, up to 30 years. In terms of spread sensitivity, it's good to know that sensitivities we show on the top-hand chart, for instance, the 75 bps corporate credit spread sensitivities, are excluding the expected mitigating impact from the VA. You can see that in a separate chart. The corporate spread sensitivity does include the impact of spread widening on our IAS 19 pension provisioning. So that's all, I would say, for sensitivities, and we can turn to Slide 15 to get a quick overview of our investment portfolio, a few words on a gradual shift to higher-yielding assets within that as well as the resilience of our portfolio. In 2020, we lowered our exposure to sovereigns by around EUR 500 million, and we increased our exposure to retail mortgages by EUR 1.2 billion. We've also increased our credit exposure by EUR 200 million. And even more importantly, within our credit portfolio, we seek to optimize return on SCR by focusing a bit more on credits, either government guarantee, some private loans and structured fixed income. In total, we added around EUR 600 million to corporate financials there and around EUR 120 million to private structured loans. And we actually decreased our covered bond position by around EUR 500 million. We're happy with the resilience of our portfolio. Out of the EUR 53 billion, around 67% is fixed income, contains EUR 14 billion of sovereign and EUR 13 billion of corporates and financials. The average rating is A+. And of the corporate and financials book, over 97% is actually investment grade. We have limited to non-exposure in the oil and gas and leisure sector. And in general, credit migration risk continues to be very limited in terms of Solvency II impact. We have a real estate book of EUR 4.5 billion, which constitutes 8% of our investment portfolio. But it's good to note that of that EUR 4.5 billion, around EUR 1.7 billion is actually related to our rural portfolio, which is a very resilient portfolio. That also gives us a competitive edge in finding attractive investment opportunities to contribute towards the energy transition such as solar and windmill parks as the land continues to be very scarce in the Netherlands. Our retail real estate exposure is around EUR 800 million, of which EUR 650 million is via the Dutch Prime Residential Fund. Now of that fund, around 2/3 is actually high street retail based on very strict investment criteria, and 1/3 is related to supermarket district shopping centers who are actually doing quite well in COVID times. Retail vacancies remain low with 3.7% versus 3.5% last year. Now in total, our real estate portfolio saw a modest decrease in direct income and still yielded around EUR 86 million of indirect investment income as positive revaluations in our rural book, residential book and offices more than compensated for the negative revaluation that we've seen in retail real estate. Dutch mortgage market continues to be very resilient. There continues to be a shortage in housing, and house prices actually increased by 11% in 2020. Most forecast show, although on a more limited nature, still an increase in house prices for the next 2 years. 33% of our book is covered by NHG, and the average LTV is 73%. Arrears over 90 days continues to be very low at 4 basis points, and credit losses remain very low as well. So all in all, we remain very comfortable with our investment portfolio, and we do still see further room to increase investment into mortgages. And we also see further room to further optimize our credit book with some more liquid credits, government guarantee, some private loans and structured fixed income. If we would then turn to Slide 16, a couple of last words on balance sheet. It remains strong. We still have ample flexibility within there. Financial leverage decreased to 28.3% on an IFRS basis due to an increase in equity. That remained unchanged. Double leverage showed a slight increase to 103.7% due to several acquisitions in the Distribution and Services segment. Interest coverage ratio, which is based on our IFRS net result, dropped but is still well within the target range. And I guess you've all seen the S&P rating. And then a last word on cash position on Slide 17 before I hand over to Jos again. Holding cash ended at EUR 502 million, which is in line with last year, and it's really aligned with our policy to put cash at work at the opcos and only upstream cash to the holding to cover holding expenses, coupons and dividends. We also have an unused revolving credit facility of EUR 350 million, liquidity roughly equal then compared to last year. We've upstreamed cash mainly from Life and a bit from other entities. There was no need to upstream more, but there is also no impediments to do so if we would have wanted to. Our debt maturity profile, as you can see, is robust. Next maturity date is in 2024, and we still have ample flexibility and room to add leverage if we would like to. Solvency for the group is strong, as mentioned earlier. You can also see the ratios for Non-life and Life, which at 163% and 195% are well above our targets. Now with that, I'd like to hand it back to Jos for a final wrap-up.

Thank you, Annemiek. So to conclude our presentation, you can imagine we are proud on the results we've presented today. We delivered again a very solid performance in a very challenging environment, and I'm proud of our employees who have been working hard to achieve these results. We showed solid progress in executing our strategy and demonstrating financial discipline. We continue to build on our track record of rational allocation of capital and attractive shareholder returns. We're very pleased to propose the dividend, as mentioned, of EUR 2.04. And on top of that, we proposed another share buyback of EUR 75 million. Supported by a robust solvency of 199% on the standard formula, I believe a.s.r. is in a strong position to continue its pursuit of profitable growth. Looking ahead, the direct effects of COVID-19 have so far been limited. But let's be clear, we're not out of the woods yet. We're still facing the challenges from COVID-19, and we remain cautious for the effects in the longer term. The effect of the virus and the restricting measures that are being taken to control the virus is noticeable in our businesses and those of our customers. This may well impact us going forward. We believe we are strongly positioned and maintain the medium-term targets for 2021. However, given the economic uncertainties, achieving an organic growth of 3% to 5% for Disability and P&C may end up being the most challenging one of all of our targets. So having said this, ladies and gentlemen, this concludes our presentation, and I hand over to the operator to take any questions you might have.

[Operator Instructions] We'll now take our first question from Cor Kluis.

Cor Kluism, ABN AMRO. I have a couple of questions. First of all, on disability insurance, it's good to see that the reintegration, that process has picked up and improved in the second half of the year. Could you give somewhat feeling on premium increases that you have been doing in the beginning of this year, especially in the sickness leave area and also the reintegration, how's that progressing? So stockers are being vaccinated, that might also help somewhat in the process. Yes, second question is on P&C. Year-to-date, we've seen a lot in the Netherlands. We've seen some snow. We've seen some riots, no firework, lockdown continuing. It's difficult to estimate. Can you give some feeling on your P&C experience on bank ratio there, so maybe on visibility in that respect? And my last question is about M&A. Last year, a.s.r. didn't do any yearly acquisitions. Every year, you have around EUR 50 million in budget for acquisitions. So [indiscernible] even a little bit larger at this moment. Could you give a little bit feeling on the progress that we see at this moment in a COVID-19 environment? Can you do acquisitions? Or is it still difficult to do that in such an environment? Those were my questions.

Well, thank you, Cor. Let me start with the question on Disability and premium increases. Over the last year, in October, we have increased premiums for individual disability. That was not due to COVID but due to the lower interest rates. So we have increased premiums over there since the first of October. In sickness leave, we increased last year on the 1st of Jan 2020 the premiums already. And we've done the same in 2020 [ pan ] due to the developments we've seen there. In the Netherlands, in general, over the last couple of years, sickness leave went up with 4% per annum. Last year, we've seen in the whole society in the Netherlands sickness leaves going up with close to 7%. So therefore, we, again, increased premiums in sickness leave business, aiming at a positive contribution at the end of this year, which we will hopefully are able to deliver. In P&C, to your question, yes, we have seen some claims coming in on the weather-related issues. Last week, we had happily some snow in the Netherlands. We've seen a competitor mentioning a large level of claims. We, however, up until now, have seen not more than 200 -- I believe 204 is the exact number of new claims related to that, all very small. I believe the largest one we had due to the weather was EUR 15,000, which is perfectly manageable. The rise we had in the beginning of the lockdown during the evenings, we had some incoming claims. Total of that number was 7, all very limited. We're, of course, helping customers there but also very manageable. So all in all, those 2 situations will not significantly impact the combined ratio. And up until now, we haven't had any severe winter storms where we had last year Ciara with an impact of EUR 9 million. Then on the acquisition side, last year, we, of course, did one acquisition, Brand New Day. And there, we actually spent the OCC that we had in mind. It's, however, difficult to do any predictions on what might happen this year. We are still positive that there are some opportunities out there. COVID is not helpful for that, especially given the lockdowns, et cetera. So to develop relationships, to have the right conversations, it's not helpful. However, we remain active in that area and keep on looking from a more financial perspective to potential life books that need to -- that can be integrated on our very efficient own Life platform. And our preference is to do acquisitions in Disability, in Non-life and also in Distribution. And where it will happen this year is to be seen. I'm born in December, and most people born in December tend to be positive about the future, so I remain positive.

We will now move to our next question from Farooq Hanif.

So just my first question on going back to the combined ratio. You gave the positive impact of frequency benefits from COVID. I'm guessing that, that didn't include the disability reserving. So I was wondering if you could just quantify that so we can get a real kind of underlying picture of where you are. And also in Health, I noticed strong performance. I'm guessing that's because people aren't using all the services that they could be using during lockdown. So just wonder if you could comment on that. Secondly, on investment margin, I mean you talked about stability, but actually, as a percentage, invested margin continues to expand. So I'm kind of wondering whether you can give more guidance on kind of where you are in your re-risking journey and whether we should really sort of factor that in going forward as a continuing trend. And yes, that's it really.

Thank you, Farooq. You want to start on the investment margin, Annemiek, or shall I take the first 2 questions first? Okay. Farooq, on your assumption that the reserve [ pricing ] is not yet included in the combined ratio, it is included in the combined ratio. We already did that in 2020. So hopefully, that answers your question. On your second question, the -- our view on the relation between the strong performance due to a lower use of services, I think in the Non-life area, in P&C, you're right, we've seen a lower number of claims, et cetera, which impacted a.s.r. positive. That was, by the way, mostly in the first half of 2020. In the second half, we've seen that returning to more normal levels. I think we already talked about visibility. We've seen that customers used our services to call it services more in last year. Going forward, up until now, we don't see a -- really new trends compared to the last half of 2020. So we continue to see actually the same trend in the first month of 2021, so some tailwinds in P&C and a lower headwind in Disability compared to the first half of last year.

Just to come back, I realize that the -- you included reserving. I was just wondering what the amount was because you gave a 0.6 percentage point improvement in combined ratio from COVID. Presumably, there was also a negative from the reserving. I was just wondering if you could quantify that.

We haven't disclosed that specific number on the reserving due to COVID. The total negative impact due to COVID in Disability was EUR 71 million. EUR 51 million of that was already there in the first half. So in the second half, we actually saw an additional negative impact from COVID of EUR 20 million. And that included the additional reserving. So the additional reserving is included in the EUR 20 million.

Yes. And your question on investment margin, obviously, you've seen it increase last year. Three main reasons for that. We had a positive impact on our swaptions, basically result that we made on -- a positive result that we made on swaptions in the past, which actually are now falling through via amortized realized gains. That's a benefit that we'll continue to have. We also saw an increase by part of the -- a bit of a re-risking that we did and specifically optimization within the credit risk portfolio. The latter we will continue. And obviously, there was a required interest decrease due to the maturing individual life book. If you look at the investment margin, if you would do it over the basic nominal life provision, we had a slide on that in the appendix, it's actually Slide 40, you see that it has been relatively stable over the last 3 years, 2.3, 2.3, 2.5 percentage. And I think we're comfortable with that level going forward as well.

We'll now move to our next question from [ David Barma ].

First of all, just to come back on the OCC, thank you very much for giving us a sort of bridge from the end of the year. Can we just zoom in again on sort of levers you see to get to your target beyond the sort of what we've seen earlier this year, the own pension switch to DC, the interest rate pickup and all of that? How should we see the room you have for the rest of the uplift, especially considering the trends in the normalization you're talking about in P&C and then Disability which may take a bit longer? And then just on -- just a follow-up on that, on Disability, can you quantify the contribution in the OCC in the second half? And lastly, just a follow-up on the explanation on the investment margin. In the past, you gave an amount for the contribution of the realized gain reserve and the amortization of that. How much should we expect for the coming years? Because I think the previous guidelines was until this year.

All right. I'll start off with the OCC. I think you meant what your first question how we look at '21 from an OCC perspective. If we start off with the UFR drag, we always take the average UFR drag, i.e., the average drag that belongs to 1st of Jan versus end of year. And then we take the average of that. That would mean that if interest rates would not move -- would not have moved where they were at the end of December, we would have an echo UFR drag of minus EUR 37 million. We've also seen spread widening in 2020, really related to COVID, has come back again. If you would think that temporary spread widening was really temporary, you would have to know about another EUR 10 million. We've seen a positive impact on stock of the lowering of taxes via LAC DT. But obviously, that will have a negative impact of -- by the reversal of the lowering of taxes, and that will have a negative impact on flow of around EUR 15 million. Now if you would deduct the UFR drag, if you would deduct potentially the temporariness of spread widening we saw in 2020 and if you would deduct the fact that there is a negative impact on flow from the reversal of the lowering of the tax rate, then you would get to around EUR 440 million as a starting point. If you would look at interest rates, where they are today, they've actually come up a bit since the end of last year. And that would reduce the UFR echo by around EUR 15 million to EUR 20 million. We took out some additional -- we had net current service costs due to a change in our pension scheme of around EUR 20 million in the operating result in this year. And that in OCC terms equated to around EUR 7 million because we don't have everything flowing through OCC from that. Now we won't have that EUR 7 million again next year, so that's a positive. Then you would end up at roughly EUR 460 million as a starting point for 2021. Last year, we did some re-risking, as I said. Now the re-risking we did last year was around 3% points in solvency stock, and it added around EUR 15 million in OCC. I would expect us from an OCC perspective to be able to realize something similar this year. So we're definitely looking to add another EUR 15 million or so by re-risking, leaves us at EUR 475 million, meaning that another EUR 25 million or so we would have to compensate by increased business capital generation. Now as Jos just alluded to, we've done some price increases. So hopefully, we'll get -- we'll see that coming through our insurance results. We continue to look very hard on cost efficiency, and we also continue to strive for organic growth, both in the Non-life business but also in the fee business. So it's really our challenge and also our goal to compensate that by a further increase of business capital generation. And that's why we would consider the EUR 500 million as doable but challenging. And then you also had a question on what the visibility impact is on the OCC. We don't disclose that figure. I think it's fair to say that the Life contribution to OCC is relatively stable. It would be around EUR 450 million. If you would look at the total Non-life contribution in the OCC, it would be at around EUR 100 million. And then obviously, you would have to add the fee business and you would have to subtract the holding, and then you would get to the EUR 500 million again. And then you had a last question on the investment margin and the capital release, the amortization of realized gains that we see in there, and we expect that to be fairly stable going forward.

Sorry, fairly stable, that's the same EUR 300 million level that you've given before?

Well, I can't give the exact disclosed figure for this year, but by and large, we expect it to be stable.

We will now move to our next question from Steven Haywood.

On your real estate portfolio and in particular, the whole Dutch property market, how do you see the mark-to-market impact coming through in the near term? Do you see any negative drivers or resilience in the property market here? And when do you do the big sort of evaluations within your portfolio here? Secondly, on your -- on the court case, what was the actual ruling related to on the bodily injury court case? And is this an expected impact for the whole of the industry to take that additional reserving?

All right. Let me start with your question on real estate. And I guess you referred to retail real estate there, if I understood it correctly. Listen, we do see some impact of COVID there, but as I said, around 2/3 of the exposure we have via the Dutch Prime Retail Fund is actually high street retail business, and 1/3 is related to supermarket district shopping centers. Now the latter part hasn't really seen any negative revaluations. It actually went up a bit in the COVID times. Obviously, high street retail, there, we did see some negative revaluations. In total, our retail real estate had a negative revaluation of around 10%. In our total real estate book, that actually was more than compensated by the revaluation of the rural position, which is far greater than the retail real estate position and also the positive revaluation of the residential position that we have.

And sorry, can I just follow up on that in terms of the commercial side of things as well and the offices potentially? Do you expect to see any change in their valuations in the future if there's going to be more working from home going on?

Yes. What -- we only have a very small position in offices, and we actually there have seen a positive revaluation on the offices space also because we realized some new office buildings that projects were still ongoing last year. And within our -- we call it the Dutch Mobility Office Fund, they are all prime locations adjacent to the larger cities' railway stations. They tend to be all multi-tenant, and we do see that there is still quite some appetite for those locations. I think in the office side, if you would move more to the peripherical, the rural areas kind of outside of the big cities being Amsterdam, Rotterdam, Utrecht, then it's getting more difficult for those offices, but we don't have those in our portfolio. So we're really focused on big cities next to the largest, most important railway stations, multi-tenant buildings. So to the extent that there is working from home, we tend to see a shifting from large owned buildings more towards renting smaller space in these multi-tenant buildings which have good public transport opportunities in the vicinity.

And on your second question, Steven, the court case I mentioned was the same one that was already mentioned in the first half where the Dutch court decided on the interest rates you should take into account for future claims, which had to be lowered due to the lower interest in the Netherlands. In the first half, we already took EUR 8 million for that. That was based on how we looked at it after a half year. In the second half, we reviewed our whole portfolio, and we looked into all the ongoing cases. And we decided and I already mentioned that we tend to be conservative on those decisions. We took another EUR 17 million, so the total additional reserving in Non-life was EUR 25 million. And whether the whole industry will do the same, that's up to the industry, but we tend to be very, very conservative on that.

It was a good year to be conservative there.

And what was the actual change in interest rates?

Well, in the past, the industry calculated with future interest rates up to 3%. And in the court case, it was decided that it's better to calculate with an interest rate of 0 given what customers can make on the saving accounts.

We will now move to our next question from Fulin Liang.

Just a couple of questions. So first of all, thank you very much for run through the guidance of the OCC. But I've just reckoned there are a few vulnerability within the whole kind of system. And just for example, you've already taken some of the interest rate rise year-to-date so far into your OCC. And just wondering, are you doing anything else to protect your kind of volatility to interest rate? What if the interest rate goes down from here? And also, I know that you're kind of hoping that the cost -- further cost saving will help on the remaining EUR 25 million gaps in OCC. And I just wonder, if they hold kind of back to normal realized from May, June, will actually some of your cost saving reverse? What you've seen in 2020, will that reverse? So that's kind of one question, how you protect your OCC. And then secondly is just, again, I think it's probably a bit of detail. So in your UFR drag in 2020, you -- we've seen similar amounts in first half versus the second half. But if you look at the interest rate movement, the second half is much larger than the first half in terms of the interest rate movement. How did you manage it to -- within -- just manage to get the same UFR drag for very different interest rate movement?

To start off with the last question, Fulin, we average it out. So we take the UFR drag, and we calculate the UFR drag for full year based on the first of January 2020, then we calculate it for the full year based on the 31st, and then we average that. So that's a full year UFR drag. And that's also the reason why if interest rates will not change, we would have the echo of EUR 37 million within this year. So that methodology hopefully explains your last question. And in terms of -- yes, the UFR drag remains sensitive towards interest rate changes. So you're right, if interest rates would not go up, we would not have a reduction of the UFR echo drag. Obviously, it's being dented a little bit by the capital release. If interest rates would go down further, we would also have a positive impact on the capital release. And to give you some feeling around sensitivities here, if interest rates would see 50 bps decrease, for instance, that would probably -- from where they were at the 31st of December last year, that would roughly equate to around EUR 80 million reduction in OCC, which is basically 100 million UFR unwind, but it's also EUR 20 million of increased capital release. So yes, we do remain sensitive towards that and covering up EUR 80 million of OCC on top of a UFR drag that's there. That's going to be challenging from a business perspective. If interest rates remain where they are, then we would have to compensate around EUR 25 million from a business perspective. Indeed, there are some levers that we can still pull in terms of cost development. I think we may actually also receive a little bit of help by the continued lockdown that we're experiencing in the Netherlands. So from a P&C perspective, the month January, not exactly unfavorable. So there are some items that could still help our business capital generation there. And I said we will continue to look at the re-risking part specifically within credits and hope to add at least another EUR 15 million there in terms of OCC contribution.