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

Good day, and welcome to the ASR Nederlands Full Year Results 2021 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Michel Hulters. Please go ahead.

Thank you, operator, and good morning, ladies and gentlemen. Thank you for joining us today, and welcome to the a.s.r. conference call on our full year 2021 results. Now on the call with me today are Jos Baeten, our CEO; and Ewout Hollegien, our CFO. And Jos will kick it off with the highlights of our financial results and as customary, he will also discuss the business performance. Ewout will then talk about the developments of our capital and solvency position, and after that, we'll open up for Q&A. As usual, do please have a look at the disclaimer that we have in the back of the presentation on any forward-looking statements that we may make during this call. Having said that, Jos, there are not any special items to mention so the floor is yours.

Thank you, Michel, and good morning, everyone. Thank you for joining us on this call. I hope everyone is doing well. We are at least really glad to see some easening of the pandemic situation and government scaling down the COVID-19 restrictions. Hopefully, we can all revert back to our normal lives. We at least are looking forward to the opportunity of meeting you in person again soon. Now beyond doubt 2021 was a very good year for a.s.r. Despite the challenges coming from the pandemic we actually recorded our best ever operating result, and we have delivered on the medium-term targets, which we have set back in 2018. For this achievement, I really want to thank all of our employees who are actually drive -- the driving force behind our performance. Ewout and I will briefly present the highlights before we open the call to take your questions. So without further ado, let's now turn to Slide #2. As you have seen in the press release this morning, our operating result rose 15% to over EUR 1 billion, driven by a very strong performance in all our segments. The OCC increased to EUR 594 million, exceeding our midterm target of EUR 500 million, reflecting the strong business performance as well as an increased investment returns. Combined ratio stood at 91.8%, well ahead of our target of 94% to 96%. This is including the impact of the July floods and COVID-19. Excluding COVID-19, the combined ratio is approximately roughly 3 percentage points higher. Our Solvency II ratio continues to be robust at 196%, still on the standard formula. This is after deducting the proposed dividend, and Ewout will elaborate more on Solvency later on. Based on the record performance, we offer a significant step-up in dividend at EUR 2.42 per share. This is a 19% increase, and this step-up will be, as you already know, locked in as we move to a progressive dividend effectively this year. In addition, we announced today a share buyback of EUR 75 million, which is the final leg of our previous commitment to do a 3x EUR 75 million share buyback program. So let's now move to Slide 3, and look at our performance against the medium-term targets. As shown on this slide, for consecutive years, we have clearly delivered on our ambitious medium-term targets. The capacity of our business to deliver solid operating results and to generate capital has been very, very strong. The outperformance is driven by continued solid business fundamentals. Backed by a robust balance sheet and solvency, we were able to deploy capital profitably in organic growth, acquisitions, rerisking and absorb impacts such as the lowering of the UFR. We also delivered on all of our nonfinancial targets, except the employee contribution to society due to the COVID-19 related restrictions. So looking back, our strategy was sound, and we executed with discipline. Let's go to Slide 4. Our strategic focus is on creating sustainable value for all of our stakeholders. It is our ambition to be one of the leaders in sustainability. To further underpin our position as a sustainable insurer, we have recently joined the Net-Zero Insurance Alliance, together with our commitment to the Net Asset Manager Alliance, this means that both sides of the balance sheets are covered. To mention some examples, we acquired a significant part of the largest land-based wind park in the Netherlands from Vattenfall. This sustainable investment in renewables provides the equivalent of the energy consumption of 114,000 households in the Netherlands. And in our insurance portfolio, we are glad to see an increase in the adoption of sustainable repair instead of full replacements. Almost 25% of fire claims and almost 60% of motor claims are now being repaired in a sustainable manner. As a reliable employer, we have put a great deal of effort in inclusion and diversity, providing equal opportunity for career advancement and personal development and making sure our force remains healthy and, at the same time, engaged. And our achievements in sustainable value creation and ESG is increasingly being recognized by ESG benchmarks and indices, such as the leading Dow Jones Sustainable World Index, where a.s.r. is among the top 10 best performing insurers worldwide. And of course, our #2 position globally according to the Sustainalytics risk rating. Before moving to our different segments, let me just discuss a bit more about the recurring subject of COVID-19 on Slide #5. With most of the restrictions recently lifted by the Dutch government, we are hopefully at the end of the COVID-19 period, which has kept us in its grip for almost 2 years now. COVID-19 has caused considerable stress on society, on individuals, both physically and mentally. The longer-term impact of, for instance, long COVID are still quite uncertain and sickness leave due to COVID related mental illness can leave long-lasting marks on people's lives and society. We, as a.s.r., have helped our customers from the beginning of the COVID-19 period with tailor-made solutions and payment arrangements. So far, fortunately, we have seen only a very low number of bankruptcies and arrears in our customer base. And our employees have been able to keep customer satisfaction at a high level, measured by NPS-c. This was stable at 49 in both 2020 as 2021. Regarding our own employees, the mood monitor, which measures our employee well-being, motivation and vitality remained very high during the period, with a score of 7.5 out of 10 in 2021. From a financial point of view, COVID-19 had a net positive impact on our '21 results. On operating results, we see an indicative positive impact of EUR 77 million, same dynamics apply as earlier results with a negative -- slightly negative impact on disability due to higher level of claims and on life, mainly due to lower direct investment income. This is more than offset by a positive impact in our P&C business coming from frequency benefits in motor and lower claims in fire. So let's now move to Slide 6 and talk a bit more of our Non-life segments. In Non-life, the operating result went up by EUR 84 million, driven by strong organic growth and lower claims in disability, lower than last year. COVID-19 had a net positive impact of EUR 93 million compared to the EUR 21 million last year. This was partially offset by the reserve strengthening in the first half of 2021 as well as the floods in the south of the Netherlands, which had a negative impact of EUR 20 million. Claims related to the heavy storms this year, as we all have noticed last weekend, are currently estimated to range somewhere between EUR 40 million and EUR 60 million. Please note this is a preliminary and rough estimate as it is still early days after these storms events. Up until now, we recorded just over 4,000 claims, but there are still new claims coming in. As a reminder, our reinsurance kicks in at EUR 35 million, and our program includes a second storm cover at -- of EUR 17.5 million. Our combined ratio last year improved by 1.9 percentage points to 91.8% for P&C and disability combined, beating the target of 94% to 96%, and as mentioned earlier, excluding COVID, this would be around 3% points higher. With 5.2% organic growth for P&C and disability combined, we have even surpassed the upper limit of the target range, despite challenging market conditions, so we were able to grow the business organically. Especially in P&C, due to increased competition, this was quite a challenge. Momentarily, we do see the risk in the current market that some players are being tempted to become more actively apply the price instrument to gain market share. Finally, in health, in 2021, we saw a significant increase in gross written premium due to commercial success of our new introduced product and maintaining our financial discipline and pricing our product rationally, we benefited from the opportunity in Dutch health insurance market to grow profitably last year. And as you know, value over volume remains a key strategic principle. We have continued to remain disciplined in pricing in our health business also in the beginning of 2022, where we have seen the market become a bit softer in terms of pricing. As a consequence, not all of the customers that we won last year will stick to our business, and we assume that we will lose about half of the growth in customers last year. Let's move to Slide 7 and talk a little bit about the Life segment. Operating result of Life increased by EUR 33 million to EUR 763 million. COVID-19 had an indicative impact of EUR 16 million compared to the negative impact of EUR 22 million in 2020. This impact is mainly related to lower dividends from the real estate funds and somewhat higher rent discounts. Operating result is up mainly due to a higher investment margin driven by the further optimization of the investment portfolio and the lower required interest due to the credible runoff of the individual Life portfolio and Ewout will elaborate more on the [ cash ] optimization in his part of the presentation. Gross written premium increased mainly due to the commercial success of our Pension DC product, which saw an increase in premiums of 37%, 3-7, to EUR 634 million. The total assets under management in Pension DC including the acquisition of the Brand New Day IORP increased by EUR 1.7 billion to EUR 5 billion end of last year. And finally, our operating expenses remained at 45 bps, at the lower end of the target range. And this 45 bps already includes the investments in our IT systems needed to adapt the ongoing transition within the Pension business. So let's now turn to Slide 8 for the other segments. Operating results for the 2 fee-generating segments, Asset Management and Distribution and Services combined, amount to EUR 64 million, up 12% and exceeding our medium-term targets as announced in 2018, a 5% growth per annum. Asset Management result was driven by the continued growth in third-party assets under management, mainly related to the mortgage fund and pension DC-related mix funds. Mortgage originated -- origination amounted to a record of EUR 6 billion, EUR 1.4 billion higher compared to last year. Out of this EUR 6 billion, EUR 2.1 billion was allocated to the a.s.r. mortgage funds. Operating result of the Distribution and Services segment increased by EUR 2 million, mainly driven by small acquisitions and organic growth. In addition, as mentioned during the investor update, we have made the first step in increasing the effectiveness of the various distribution entities by putting them under 1 central management. This will be reflected in daily operations as well as the execution of our M&A strategy in the distribution landscape. Finally, Holding and Other operating result improved to minus EUR 130 million, mainly coming from the shift in pension scheme for our own employees. Let's turn to Slide 9 and talk about capital distributions. As mentioned, we clearly raised the total capital return to shareholders. This is supported by the solid capital generation we expect from our businesses and our strong current capital position. This year, we proposed a dividend of EUR 2.42 per share, which is a 19% step-up compared to last year. This is the basis for our progressive dividend going forward, where we define progressive low- to mid-single-digit growth. On top of that, we will finalize our 3-year share buyback program of 3x EUR 75 million to be executed in the coming 3 months. And as announced during our investor update, it's our intention for the coming 3 years to do a share buyback of at least EUR 100 million annually. And with that, I'll part my end of the presentation and hand over with a lot of joy to Ewout.

Yes. Thank you, Josh, and hi to everyone on this call. It took me 4.5 years to be here in front of you as CFO and present the full year numbers of a.s.r., but Michel only allowed me to talk for 15 minutes to leave ample time for Q&A. So let us agree that we make the Q&A a good one, and allow me to quickly jump into the numbers and to have a closer look at the development on Solvency and OCC. So let's turn to Slide 11, which shows the movement within our Solvency. Solvency ratio remained strong at 196% based on the standard formula. Our organic capital creation was very strong, adding 14 percentage points to the Solvency ratio, and I will talk about OCC in more detail later on. On the back of higher operating earnings and a strong solvency level, our capital returns, being dividends and the share buyback, reached record levels and took out roughly 10 solvency points. A strong OCC helped us to absorb unfavorable and incidental markets and operational movements of in total minus 6%. And we noticed 3 main negative elements in market movements: one, a negative of almost 4% due to lowering of the UFR to 3.6% level; second, a decline of the VA with 4 bps, which had an impact of minus 4% on the Solvency ratio, and to remind you, the VA per full year '21 was only at 3 bps; and third, higher inflation expectation on which the full year impact was roughly between 8% and 9% negative. These negative items were partly offset by higher interest rates and favorable impact from spread tightening in mortgages. And this proves the resilience of our balance sheet. Solvency ratio remains very robust. While we increased the shareholders' return to 10 solvency points, and, at the same time, absorbed unfavorable market movements. With #inflation being one of the trending topics in 2021, we felt it would make sense to shed some light on this. As you might remember, our products are only limited exposed to inflation. Solvency ratio is impacted with 2 percentage points for every 30 bps increase or decrease of inflation expectation. Though we are only limited exposed to inflation, we did notice an increase of inflation expectation of close to 100 bps in 2021, and that resulted in an overall impact on our Solvency ratio of around 8% to 9%, roughly speaking, equally divided over H1 and H2. And during the investor update, we already highlighted that somewhat higher inflation is, in the long run, a good thing for a.s.r. given the strong correlation it had in [ all the ] circumstances with higher interest rates. And without making it too academical, but historical data analysis points to a relevant correlation between inflation and interest rates being a 30 bps of increased inflation result in 100 bps increase of interest rates. And as we report in our sensitivities, we benefit both in Solvency stock and OCC flow from higher interest rates, something we see in -- started seeing by end of 2021, which brings me OCC development on Slide 12. The OCC came in very strong at EUR 594 million. And I'm pleased to see that the largest driver of this increase comes from business capital generation, which is driven by a strong Non-life results and increased excess returns. The Non-life result includes both the positive impact from COVID-19 as well as the negative impact from reserve strengthening and incidentals in the first half of 2021. The increased excess returns are a result of the shift to illiquid assets we did over the course of last 2 years and the higher equity and real estate valuation, which more than offset the lower mortgage spreads and credit spreads. The release of capital increased by EUR 26 million due to higher market risk SCR release and lower new business strain due to improved Non-life profitability. So undue -- the release of capital is a technical item, the main driver of this improvement of this technical item is coming from improving business performance. And lastly, the technical movements, which is primarily related to UFR drag were roughly stable. Interest rates were back up to around full year 2019 level. And given our methodology in determining the UFR drag being the average of the -- being the average of the beginning of the year and the end of the year, that makes it stable at the level of around EUR 200 million. The difference with 2020 is that we now have a positive UFR outlook of roughly EUR 40 million into 2022. All in all, a significant increase in OCC compared to 2020. And I just mentioned the extraordinary incidental benefit, and I can imagine you are looking for a somewhat normalized level on OCC. So let me try to help you on that. Please take the reported OCC deducted after-tax Non-life cost impact of approximately EUR 70 million and add back roughly the EUR 20 million reserve strengthening in the other incidentals, and that brings you at a more normalized OCC level of around EUR 540 million to EUR 550 million. Let's go to Slide 13 to talk shortly about the investment portfolio. The investment portfolio remains robust and well diversified, with a strong skew to quality. In 2021, we saw room to further optimize the investment portfolio through increasing our allocation towards illiquid assets to EUR 3.9 billion, mainly in mortgages and illiquid credit. The increase of real estate is due to revaluation. These asset classes match well with our long-term liabilities, are a good way to capture the illiquidity premium and have a strong return on SCR. So all in all, adding premium without adding risk, and we still see room for further optimization and continue to do this in a disciplined way without losing quality, which brings me to our strong balance sheet. Slide 14, please. And to stay true on one of my predecessors, I'd like to look at robustness via old fashioned metrics. The balance sheet of a.s.r. offers ample financial flexibility. Our unrestricted Tier 1 capital represents 65% of owned funds and 146% of the SCR, and we continue to have ample headroom available within the Solvency II framework, so EUR 1 billion of restricted Tier 1 and over EUR 500 million Tier 2 and Tier 3 headroom. The financial leverage decreased by 3.5% to 24.8% on an IFRS basis, and that's due to an increase an equity of EUR 1 billion. On a Solvency basis, our leverage ratio is somewhere around 26%. The double leverage and the interest coverage ratio are also in excellent shape, which all contribute to remain safely above the threshold of a single -- S&P Single A rating, which was confirmed in September. So old fashioned can still look good in a way. Let's go to Slide 15, the Holding liquidity. The Holding liquidity at the end of 2021 stood at EUR 525 million, in line with a.s.r's. policy of maintaining capital at the operating companies and upstream cash to cover dividends, coupons and Holding expenses for the current GM. Last year, due to the covert uncertainties, we did not remit any from the Non-life entity. This year, we have permitted EUR 142 million from the Non-life entity and EUR 500 million from Life, with the remaining EUR 57 million from Other segments. Solvency position of legal entities remained strong at 186% for Life and 168% for Non-life after remittance. The total level of visibility, so the [indiscernible] of dividend limits and legal entities remains fairly stable compared to 2020, increasingly supported by the Non-life segment. Our debt maturity profile, as you can see, is fairly robust and the next maturity date is in 2024. And again, we have ample financial flexibility and room to add leverage to our balance sheet. So together with the strong capitalized legal entities, this provides us ample cash flexibility. Slide 16, please. When we look at our capital return to shareholders since IPO, we have a very strong track record, with returning over EUR 2 billion of capital. With a significant step-up in dividend this year to EUR 2.42 per share, we remain at 45% of the payout ratio of net operating results after hybrids. This is the last year that we used to payout ratio of net operating result. As announced at the investor update, we have changed our dividend policy. This year, DPS of EUR 2.42 is totaling EUR 329 million, which is a significant step-up of 90% compared to 2020, and a really strong basis for the progressive dividend going forward, where we feel progressive as low- to mid-single digits. And just to confirm, the progressive dividend is over the absolute amount of EUR 329 million. So our shareholders are not paying their own buyback. The benefit of our new dividend policy is that it becomes predictable for our shareholders and that there is no uncertainty around the outcome of IFRS 16 nor being dependent on daily interest rate movements. The total shareholder return, so the cash dividend, including share buyback, result in a fairly stable payout ratio of 70% of OCC and 65% of business capital generation over the last couple of years. And although this is not a metric that determines our dividend or share buyback level, it proves that we can fund the shareholder return with the capital that we generate with our business. That concludes on my part. So our Solvency remains strong, the underlying business improves, which is a driver for increasing shareholder returns and future growth. And now back to you, Jos, for a wrap-up.

Thank you, Ewout. And not only a.s.r. lived up to the promises, but you also lived up to the promises you made to Michel to do the presentation in 15 minutes. So ladies and gentlemen, in 2021, we achieved strong delivery against ambitious targets. And for the next plan period, we have raised our ambition further, both for our financial and nonfinancial targets, which we announced at the investor update on the 7th of December. And recently, one of my seasoned CEO colleagues said that now his company feels more headwinds, they have to paddle harder. Well, looking back at our results, you could say that no matter which direction the wind is blowing on the dikes, at a.s.r., we always paddle as hard as we can. And therefore, 2021 ended up being our best result to date ever, driven by strong performances in all segments and achieving all of our financial medium-term targets. Our balance sheet is strong, with ample financial flexibility and businesses generate solid organic capital. Full dividend is up by 19%, and the step-up is locked in by progressive dividend going forward. With today's announcement of EUR 75 million share buyback, we finalized the commitment to our share buyback program of 3x EUR 75 million. And for the upcoming 3 years, we have the intention to do at least EUR 100 million share buyback per year. And finally, we have new ambitious targets focused on sustainable long-term value creation for all of our stakeholders. And this concludes our presentations, and we are very happy to take all of the questions you might have after those presentations.

[Operator Instructions] We will take the first question from Cor Kluis.

Cor Kluis, ABN AMRO ODDO. A couple of questions. First of all, on cash remittance, we see now that the last 2 years you have been remitting around EUR 700 million from the entities in both 2020 and 2021. And that's clearly higher than the 3 years before, 2017, '18, '19, it was around EUR 500 million upstreaming. So you are at clearly higher upstreaming cash remittance at this moment. Could you give some feeling, could we expect that kind of remittance going forward? Or was there something exceptional in the last 2 years because it's quite a step up? So that's my first question. Second question is about solvency. It's also to 196%, of course at the end of last year. Year-to-date, of course, rates went up, volatility just went up, when equity markets went down, which is all great for your solvency ratio. So can you give an idea of the solvency ratio at this moment, which shows clearly higher than the 196%, but -- on that one? And my last question was on the OCC for 2022. Now last year, you mentioned that it's normalized EUR 540 million, EUR 550 million. But interest rates are higher. You already mentioned the EUR 40 million echo, but I think there's a little bit more because also this year, interest rates rose. So there might be something extra on top of that. So maybe you could give that element and also Vattenfall, you bought the [ wind ] park, I think that would also add to the OCC and maybe can you give some feeling on that? So some drivers for the OCC in 2022, please? That's it from my side.

Thank you, Cor. Ewout?

Thank you, Cor, for your question and your interest. So on your question on the remittance, so the increased remittance over the last 2 years, yes, that's reflecting the higher dividends and the share buyback program that we have executed over the last couple of years. So given the policy that we have to -- on remittance that result in somewhat higher remittance. So we keep the amount of cash in the legal entities without the exception of the policy, as I earlier described. So that's on the remittance. So purely a reflection of higher dividends and the share buyback. On the solvency ratio, I think you're right that when you look to the sensitivities it is moving in the right direction for our solvency ratio. So where we are today, we could expect that the solvency would be a bit higher. But I think it's fair to say, and probably I don't have to explain that to you that it's still early days and -- well, we see volatile markets at this moment. But when we look to where are to our sensitivities and where we are today on those sensitivities, I think you're right that solvency you can expect it to be a bit higher. I think the last part was on the OCC and especially on the OCC going forward, in [ be it ] EUR 540 million to EUR 550 million is more the normalized level. If the rates were to stay where they are today, we would expect EUR 40 million higher UFR drag this year -- EUR 40 million lower UFR drag this year as a result of the methodology that we apply for the UFR drag. So the average of the beginning of the year and the end of the year. So UFR echo is around -- probably around EUR 35 million, and there's an extra contribution of EUR 5 million coming from the lowering of the UFR. So that's on the interest rate part. I think it's good to -- also to point towards the investor update when we talk about the OCC expectation. So we aim to achieve a cumulative OCC of EUR 1.7 billion to EUR 1.8 billion in the next 3 years. Based on our new business targets, asset optimization and the growth strategy, this growth is expected to be relative linear in around EUR 20 million to EUR 25 million per year. And as you know, the growth is coming from the ambitious Non-life target driven by increased profitability and more revenues and additional impact on the increased investment returns. This is driven by the further optimization of the asset portfolio and as a cherry on top also from the growth of the -- of our fee-based business. If we now look to the interest rate environment, we always have said that the investor update targets were based on where interest rates were by the end of November. And of course, in -- since the end of 2021, we see rates are increasing a bit. We have provided some sensitivities on this at the investor update that the 50 bps shift would lead to EUR 40 million higher OCC. But given our averaging methodology, this would be half the number for 2022. And before we get too optimistic for this year, OCC, we, of course, also see some other elements coming in. So we are -- of course, the storm average which Jos already touched upon, and we set a possible impact of around EUR 40 million. We have seen equity markets coming down, a bit of mortgage spread tightening. So it's all still early days and markets can be quite volatile, but this is where we are today. And maybe it's also good to mention that in December, we issued medium-term targets, which are cumulative over the next few years. And we also said it's good to do that in a cumulative way to be able to absorb the shorter-term impacts on OCC, and I think that hopefully gives a more holistic perspective on the OCC going forward.

We'll now take the next question from Michael Huttner.

Well done to again, coming on your target. I have lots of questions. I'm not sure I mean allowed but just leap the -- So the first one is, how much -- what can you say on deals? And is that part of the growth, I'd like to think about it at a.s.r.? The second is on pricing. So just the [indiscernible] call, I know it's not the same company, not the same country, but they were actually saying, no, they can price more through climate change. They've added 1%, 2.5% for household in Belgium. And by contrast, you were kind of guiding to some softness in pricing in health and I think in Non-life. I just wondered whether you can say a little bit more on that? On inflation, I understand that you gave the inflation numbers and also the risk, but the inflation sensitivity seems too [ dry ]. I just wondered if you could give a little bit more color on this. It's not that the numbers are big. It's just that your peers haven't said these numbers. So they [ seem ] unexpected that 8% to 9% points seems high. And then my last question is really simple because I don't understand very well. The EUR 40 million UFR drag or echo or nondrag, and you talked about averaging so I'm just asking to use the EUR 40 million and add it to create the 2022 figure? Or do I have to just add EUR 20 million and add the number EUR 20 million for 2022?

Thank you, Michael, for those questions. Normally, we allow only 3, but given the fact that you have been very positive on us in one of the Dutch newspapers, we will allow 4. First of all, on M&A. As you can understand, it's difficult to comment on whether there is a big or small pipeline on M&A. It's our aim on top of the targets as we have disclosed in the investor update last year to be very focused on M&A. Our preference there is to do strategic M&A in the areas that we want to grow like P&C, like the Pension DC business, Distribution, et cetera. And there are files of course, but we also want to remain very disciplined. So we're constantly on the look out and looking at possible M&A. So that to your first question. Then to your question on pricing discipline and in what sense it is influenced by climate change? Well, 2 years ago, we did -- together with the Dutch Association of Insurance Companies, we did an investigation on what is the long-term view on climate change and how could that influence pricing? Given the current coverage in our policies, today, we are confident with the pricing level, including what we know up until today in terms of what could happen due to climate change. Even when the frequency of storms, hail, water-related claims, floods, et cetera, will go up going forward, then, over the next couple of years, insurance pricing for mainly fire products needs to go up with roughly 15%, going forward. That's not yet the case, but I think the Dutch market is aware of the fact that given where we are in Europe, we are a water-rich country, prices need, going forward, to go up. In general terms, pricing discipline, up until the last part of 2021, remained fairly stable and disciplined. However, during the first couple of weeks of this year, we see -- and that's why I mentioned it in my presentation, we see that some competitors are trying to buy market share mainly in motor. So the motor market is becoming more competitive momentarily. And having said that, we remain disciplined in our pricing. So the question on inflation, I think that's a question for Ewout also your last one, the bonus question, we allowed you.

Thanks, Michael. So inflation, your question was it seems to be quite huge in comparison to competitors? Yes, it's difficult for me to know where competitors are because we didn't see that much disclosure in the market on inflation until this moment. We want to be transparent on how it has impacted our solvency ratio. So the -- in which products are we sensitive, it is we are sensitive in partly on the claims side and disability. We have some sensitivity on claims in funeral and kind. So that's the cup of coffee when someone has died. And we are sensitive on the cost of -- and we are sensitive on the cost in the Life business. Yes -- and the sensitivity is that roughly spoken that if inflation expectations rise with 30 bps, then we have a 2% impact on our solvency. Now given the fact that it plays an expectation were very much higher in 2021, so 100 bps higher, that resulted in the effect somewhere between 8% and 9%. So hopefully, it helps more to also get a view on how is inflation impacting our businesses and our solvency. On the last question, that's the UFR, direct notice you ask whether or not to take -- to take the EUR 20 million of the EUR 40 million. Now if interest rates are where they are -- stay where they are today, sorry, then you can -- then you will have a positive impact on the UFR echo in 2022 of EUR 35 million. So this is the full effect an additional EUR 5 million is coming from lowering of the UFR, which will come down to 3.45% in 2022. So full amount you can recognize in the OCC. And it's also -- in the back of the presentation, it's also presented. I think it's Slide 35 or something.

We'll now take the next question from Steven Haywood.

Thank you very much. Can I give 3 questions, please. Firstly, on the Health business. Obviously, it's had a very profitable 2021. What do you see as the current run rate combined ratio going forwards for the Health business? I know you mentioned that there would be -- potentially a bit more competition in 2022. In your presentation, I think you mentioned about disability covered in your pension portfolio having a negative impact. Can you explain a bit more what's happened in the second half of 2021? And whether this impact will continue going into the future? And then finally, I wonder if you can give us an update on IFRS 17. What progress you have done, and what costs of the implementation you're seeing? And any potential date you can set in stone for us to know more a.s.r.'s IFRS 17 accounts would be helpful.

Steven, to your first question on Health, yes, indeed, as mentioned in the presentation, we had a significant growth in 2021 in the Health insurance business. Our portfolio grew with over -- I think it's over 220,000 customers. Some of the larger competitors were not happy with that and priced their new business as from the 1st of Jan this year, quite aggressive. And that's why I already mentioned we might lose a little bit of the growth that we had in health insurance last year. Overall, since 2018, the combined growth ratio will remain above 10% and is -- I believe it's currently even 12%. To the combined ratio question, the targeted combined ratio in Health is 89% -- sorry, 98%, and there is -- there are no signals that we will not meet this combined ratio target. And where it will be as good as it was last year, of course Health was very good last year, that's to be seen. It's going to depend on how COVID developments will be in this year and whether the people that couldn't get any treatment last year will get it this year or that they don't need it anymore. So it's difficult to predict for the time being, but we don't think that we will exceed the 98% -- sorry, the 89%. So we will meet our target there.

On the disability covered in pensions, yes, so what's happening there? So maybe it's good to start with. So there is a cover in pensions that -- when an employee becomes disabled so they don't have to pay their pension premium any longer. So that's the coverage that you get from that. And it's more or less a product in addition to the main product. So it's a product that is well known for thin margins. What you now see here is that COVID is also impacting the -- well, the inflow of disabled people in this product. And that makes that we had a negative on there. So it's almost also related to -- more or less to COVID. Your question, Steven, was also what can we expect going forward? I think it still has to sort out what the long-term effect of COVID will be, especially for this type of businesses. So it's something that we have a close eye on and not fully sure how this will sort out in the coming years, but don't expect the same amount of impact as we have seen this year. To go to your question on IFRS 17, yes, the cost of the IFRS 17 program is, I think, on average over the last couple of years, around EUR 15 million, so EUR 1-5 million, at least it was in 2021. We are working towards implementation on the 1st of January, 2023, with some choices still to be made, for example, the yield curve where it has to sort out what the market practice will be on the yield curve, and that is really determining also the results. As we have said during the investor update, we are definitely going to organize a teach-in session to make clear on the assumptions that we apply and how this works for U.S. as analyst community.

Okay. And if you can hit an 89% combined ratio in any business line, that will be very, very...

We keep on paddling despite the winds.

We will now take the next question from Benoit Petrarque.

It's Benoit Petrarque from Kepler Cheuvreux. Actually, 3 questions, a small bonus one as well. The first one is on the Non-life combined ratio maybe going into 2022, just to sum up what you said there. I was wondering because as your 95% combined ratio in P&C in H2, and that we were I think at 89% in H1. So there's some deterioration into H2. I was wondering if you expect the P&C level to be at 95% or maybe slightly higher with the normalization probably less COVID benefits into 2022? And then obviously, you forget about the storm impact here. So kind of 95%, is that reachable for 2022 as well? And then also maybe looking more into the disability combined ratio, I think it's 91% in H2, still very low. What do you expect here? Do you still expect maybe COVID to be a bit of a drag on disability into 2022? I think that's what your competitor commented recently. So that's the first question. The second one is more on the OCG. So on the normalized EUR 540 million, EUR 550 million. I was looking into the unwind of risk margin and the SCR release level in 2021. Do you expect this level to be sustainable going forward? I think it was a bit more -- it was a bit higher than what we've seen in the past. And then maybe just the last one, the bonus one on the Asset Management business, which has done great in 2021. I was wondering what is your pipeline especially in the mortgage fund portfolio because I will assume that higher rate is probably creating a little bit less demand for that products. But I was wondering if that's actually true.

On the combined ratio question, first of all, we steer the business on the combined, combined ratio of P&C and disability. And even if we wouldn't have any beneficial from COVID in 2022, we're not hesitating that we will meet the combined ratio target, so between 93% and 95%. In disability, we still face a little bit higher combined ratio given the inflow as we have seen last year due to the increased number of infections in the Netherlands. But we're actually not that much worried about it going forward because what we see is that most people that call in sick return to work within 5 to 10 days, and that is in a lot of policies, the waiting period before we start to pay. On your specific P&C question, I think 95% in pure P&C would be great. But we assume that it will be a little bit higher, especially now we already have seen the storms coming in, in the last couple of weeks. On average, I think P&C is more around 96%, 96.5% and disability in the low 90s, and that will average out going forward towards the 93% to 95% combined ratio. And on the second question, Ewout?

Yes. So I think the second question was on the...

Unwind.

on the unwind of -- so the net capital release, the question it was?

I think, yes.

Yes. So the net -- sorry, Benoit. So the net capital lease indeed, you can assume it remains fairly stable also in the next year. And it was also a thought question that you raised. [indiscernible]Yes -- sorry, on the asset manager side, so we expect the mortgage fund to grow EUR 2 billion to EUR 3 billion per annum in the coming years. So we believe that we have growth -- there is more to come from growth coming from the asset manager, and that's mainly related to the mortgage fund, so that can grow EUR 2 billion to EUR 3 billion per annum. And in addition, we expect some growth also coming from real estate, probably somewhere around EUR 1 billion level. And thirdly, what we also described when we grow with our Pension DC business, that is always a double whammy for us as an insurer. We also have the Asset Management side because we can also get some growth from there. And the target that we have announced during the investor date was EUR 5 billion. So that's the growth expectation from the -- on the Asset Management side.

We will now take the next question from Fulin Liang.

Just 2 questions. The first one is, from what I heard, the market -- the P&C market in different segments are getting more competitive in motor, in Health. Does that mean that -- but do you still -- you have like a headline growth of 3% to 5%. Does that mean that we might be more likely to be on the low end in terms of the headline growth going forward? That's 1 question. Secondly is, so if I look at the Non-life, you have a very high -- very good operating results. But in terms of the remittance, you're just remitting less than half of the operating results. I just wanted to -- trying to -- if you can help me kind of breach the numbers between the 2? Or are you really just keep the cash in the operating company and instead of upstreaming to the HoldCo. Does that mean that the local entity would have a higher solvency in that case?

Ewout will dive into the second one on the remittance. On your first question, whether increased competition will bring us to the lower end of the growth -- of the organic growth. I think the clear answer is no. We don't -- the only reason I mentioned it is that we will remain disciplined there, where we some other see being less disciplined with our position with intermediary as well in the P&C business as in the disability business is quite strong. And we believe that we will be able to meet the targets and not disappoint the market there.

Thank you, Fulin. And on your second question on the remittance. So it is a.s.r.'s policy that we maintain capital at the operating companies, and that we only upstream the cash to cover dividends, coupons and the holding expenses for the current year. And then more of your question on why not more about remitting from the Non-life entity. Yes, we are actually quite opportunistic here. So we can do it both from Life and Non-life given the strong capitalization both entities have. So it's more an optimistic choice than really a policy.

So are we -- should expect to see a stronger solvency position in your kind of Non-life entity then?

Yes, it increased 5 percentage points, so...

Increased to 168% and it also increased in terms of premium. So you also see that the SCR is growing. So [ inputs ] is growing even harder than the SCR.

We will now take the next question from Nasib Ahmed.

So firstly, on the combined ratio for Non-life just excluding COVID and flood impact, it seems to have increased by 1 percentage point, 96%, 94%. So can you give more color regardless there, maybe with some [ G&A ] impact that's not in the COVID impact that you've disclosed. And then on the Life investment returns. So there's -- you talked about rerisking. So just looking at the outlook for rerisking on the operating results and OCC, I think you provided a number previously, so if you can give an update on that? And then finally, if you can talk about the opportunity for a.s.r. on -- in the Life segment on the pension reforms in the Netherlands. Would you be willing to do sort of DB derisking schemes as well if the opportunity arises?

Ewout, you take the first 2, and I will take the last one.

Yes. Thank you, Nasib, if I understand your first question correctly, your question was what if you strip out all the incidentals, what would then be more or less the normalized combined ratio. I think then you're quite right that we probably end up around 94% level. So that's -- I think your view there is correct. Your second question was on the?

Yes, it was just one the increase, it seems to have increased 1 point? If you take up all the incidentals?

Yes. No, that's correct. So correct. On your second question was on the rerisking on OCC, of what's the impact of revising on OCC. So we expect that the impact of rerisking on OCC will probably be around the EUR 10 million per annum and is part of the overall OCC target that we have disclosed during the investor update. Your question might be where is the increase coming from? So that's finalizing the shift to the illiquid credit. So we see still room for another EUR 1 billion in illiquid credit. And furthermore, the growing of the Non-life book. And thirdly, we also see the opportunity to optimize within asset categories and that result in the higher expected impact on OCC from rerisking.

And to your last question, it was not fully clear, but was the question, Nasib, that would we be willing in terms of the new pension reforms to onboard more DB, is that what I understood from your question?

Yes. Just generally, the outlook for a.s.r. in the Life segment from the new pension reforms, and if you would look to do DB derisking as well as part of that?

Well, for DB, we already last year stopped onboarding new DB. So we -- given the most recent pension reforms that were announced, we don't expect that we will do any more DB. And actually, DB has to transfer -- at least new pension buildup has to transfer to the new pension reform and to the new pension system. And we're quite optimistic. And as shown in the growth last year, where we were able to grow the new business with 37% going forward, we assume that we will continue to grow this business for the next couple of years. And that's also reflected in the target that we have announced of EUR 5 billion of additional growth in the asset management -- assets under management. A large part of that growth has to come from the accumulation of Pension DC. So that's one of the selected growth areas going forward, next to the P&C, disability and distribution business.

We will now take the next question from Robin van den Broek.

Firstly, coming back to the OCC guidance. I think the EUR 540 million to EUR 550 million as a normalized base and then adding EUR 40 million for rates versus the storm sort of cancels out. I guess the storm impact is pretax. So there's still a small incremental from that? And then with your linear growth from the businesses on rerisking, I think your -- you should land at around EUR 575 million for 2022. So first of all, is that reading correct? And in connection to that, your rates implication, I think, is still based on the end of last year. Of course, a large part of the rate developments year-to-date is not baked into that. And I appreciate what you said also on equity markets and mortgage margins. So should we assume that those factors sort of cancel out against each other? And maybe more in general, I would like to understand better how you see the mortgage margin development year-to-date, and how you embed that exactly in your OCG determination because I think every insurance company also here has a different way of establishing this mortgage margin, so it will be nice to have a little bit of a feel on how that moves around for you. Then secondly, your buyback is, of course, in line with your promises. That's very clear. But should we read anything into the short time frame in which you're willing to execute that there might be follow-up on buybacks with the H1 results in lack of M&A. And thirdly -- maybe sneak in even a fourth one, can you remind us of the remittance potential of the Health business? I think in relation to the base insurance, there were some, how do you say, you're not able to remit basically from the base insurance, but how exactly does that look for the add-on insurance? And how are you acting on that last year and going forward? And Jos, I think during the Investor Day, you also mentioned the emergence of [indiscernible] and how they could basically use data to take the people that are easiest to ensure at the lowest premiums away from your book. Is there any update there on how you think about that and how the political environment could look at that?

Okay. So Robin, your first question was on OCC and whether you're reading of what Ewout has said was right. So Ewout, maybe a brief reflection on that.

Yes. So thank you, Robin. So my brief reflection will is that I can follow what you stated. So I can follow what you stated on that.

And the second 1 was on outflows in mortgage margins into the OCC.

I think the second one, maybe to finalize on the OCC parts. This was the increasing interest rates and on the other hand, the equity markets that are more harsh at this moment. I think it's -- when you net, net it now, but please be aware, it's really a daily -- it's where we are today. So -- and it can be different tomorrow, but where we are today, I think it will be probably slightly positive when we add these altogether. On mortgages, your question was, if I understand correctly, Robin, but if not, please let me know, how does it flow into OCC. So what we do on mortgage is we determine -- every quarter, we determine the actual spread and we multiply that by the balance sheet exposure, and that provides the absolute amount that -- of contribution to the OCC.

What I meant there is, I think, for example, your big competitor [indiscernible], I think they use their own commercial rate basically to determine the margin, which, of course, is better to influence what comes out of that. And I think you are using a top-down and a bottom-up approach, which might be different from that. So I'm just trying to get a better sense of how the mortgage margin develops. So because every time I speak to Aegon, and I know you, the delta in the mortgage margin is very different. So I'm just trying to get a better understanding of that.

Yes. No, I think it's a good question. So what we do is we apply the 2 second largest in the market, so we more apply a market approach here.

Okay.

And your third question was on the share buyback, whether you should read something that we will do it in the next 3 months. The only thing you can read in it is that we've done it already last year and the year before in the same way, and we pretend to be predictable. So you shouldn't read anything in it other than that we do it in the same way as the last couple of years. And I already commented on M&A. As you know, Robin, we are consistently on the lookout of M&A. And I never try to predict whether we will do a transaction over the next couple of weeks or in this year or in the next year. But we try to be very active in adding more value also from a shareholder perspective on M&A. Then the remittance policy in health insurance. You already said it's more difficult to remit from basic health. It's not impossible, but our view is that we -- the generated capital we will use for further healthy growth in the business. And we are able to remit from the additional health insurance, and we have done so in the past. And as already said by Ewout, we are quite opportunistic in from which entity we remit and as we see that there are growth opportunities, we probably will remit from other areas where the solvency also is quite good. Then to your last question, that's a more difficult one to answer briefly. I think you referred to an interview I had with one of the Dutch newspapers, where it was my -- the journalist asked, are you -- what is your biggest worry? And then I mentioned that what we do see is that large international data players are coming into the Dutch market picking the low-risk customers and leaving the average risk customers and the customers with larger risks to the local market. And that could end up, in the longer term, in a societal separation that there are people that are able to ensure themselves against low premiums, but they actually don't need any insurance, that there is a too small group to build on your premium model and that there is a small group that isn't able any more to buy insurance. So for the longer term, I think, as a society, we should be aware that insurance companies really add value. And if the basic role of insurance company is pulling the risk and price it in a way that everybody can afford it is taken out of the society that will create a society I think nobody wants to live in. Actually, that was what I stated to this in this interview, and that's still our view.

We will now take the next question from Farquhar Murray.

Two questions, and I'll try and be brief. Just coming back to Non-life and its relation to the OCG guidance, and this is a slight echo of Fulin's question earlier. To the degree you're seeing increased competition, maintaining discipline and shedding some volume as required, should we see that as a headwind for full year '22 against EUR 20 million to EUR 25 million growth element you referred to in the kind of OCC bridging exercise. The answer seems not, but I just wondered, is that because the price effect is limited or whether you're offsetting it from growth elsewhere? And then just more generally, is the renewed competition you're seeing coming from traditional competitors or entrants, and what do you think is driving it? And should we think of it as temporary or perhaps part of a longer cyclical rollover in the market from previous levels?

Well, to your first question, I think in P&C and Disability, the answer to your questions is clearly no. As already said to Fulin's question, we are confident that we will be able to meet the targets as set. In Health, it -- I already said that we remain disciplined where some others were low bowling. And there, we definitely see some headwinds. Having said that, the impact of Health in the OCC is not that large. It might be somewhere between EUR 10 million and EUR 15 million headwind in the OCG just due to Health. And we definitely -- as you know us, we already paddle hard and we keep on doing that, and we will find, if possible, some compensation. To your second question, that's hard to see. I think the reason we are mentioning it is that I think the analyst community also has a role in keeping the insurance industry disciplined. It's not harming us yet, but we feel that some of the competitors that lost ground over the last couple of years are trying to retake that ground. And I think it would be beneficial if the whole of the industry remains disciplined going forward.

Okay. But then just to be clear, you're saying, okay, within the EUR 20 million to EUR 25 million growth element, there is actually a headwind component of minus EUR 10 million to EUR 15 million from Health within that?

No. In the health, it's profitable and will add value to the OCG. And having said that, we will lose a part of the growth of last year. That will create a little bit of lower OCG this year just from the Health business, but we will definitely find some compensation there.

We will now take the next question from Michele Ballatore.

My questions are around your target for sustainable investment of EUR 4.5 billion. I just wanted to know at what point you are towards the target at the moment after the windmill acquisition? What is the split? I don't remember if you reported this. What is the split between green bonds and actual sustainable investment like infrastructure and things like that? And the third question is about the relationship between this investment and the solvency. In my opinion, the treatment of the acquisition of the windmill was quite punitive, if we can call it that. So I'm wondering, as you're increasing this investment, I mean, what is the relationship with the solvency? What are your thoughts about how capital is absorbed by this sort of -- this kind of investment?

Yes. Thank you, Michele. So let's start with your question on the -- how many of the total EUR 4.5 billion will be in building green bonds. And so from the EUR 4.5 billion, we will do approximately EUR 3 billion in green bonds and the other EUR 1.5 billion will be in other type of investments. I think on the -- your second question was on the windmills and how this is treated on the Solvency II. What we now see -- but then it becomes very technical. But what we now see is that currently, these windmills are consolidated on our balance sheet. And it -- and because of that, we have to recognize the full amount as equity, and that resulted in quite a heavy capital charge. The windmill transaction is financed with 1/3 of equity and 2/3 of leverage, 1/3 of leverage by ourselves and 1/3 of a large Dutch bank. And when we can deconsolidate, and we aim to do that in 2022, you will see that the overall capital charge will be lowered and that we sell that in a very attractive return on SCR for this acquisition. And I think the last question was on where are we today with impact investing, that is around EUR 2.5 billion.

Okay. So just to follow up. So basically, the mechanism is when you acquire something, deemed to be sustainable, like an investment deemed to be sustainable. You initially have to consolidate and then you deconsolidate and you reverse the negative effect of the solvency. That's how it works?

Investor Relations, we will come back to this on that, but it's also related to the fact that it was only closer to 28th of December, and that leaves us ample time to do a good deconsolidation and that resulted in somewhat higher impact than you should normally get from this type of transactions.

As there are no further questions in the queue, I would like to hand the conference back to Mr. Hulters for any additional closing remarks.

Well, thank you, operator. It's actually Jos Baeten. Thanks all of you for joining us today. Thanks for all your following up on a.s.r. We were quite proud and happy with the results we presented over last year. Share price this morning reacted positive. That was also good to see. And going forward, Michel is planning, at least he's trying to plan a meeting with you in person somewhere over the next couple of weeks in London. And there, we can talk further on the results of last year and what we expect going forward. Stay healthy, everybody, and enjoy the day.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.