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

Good day, and welcome to the ASR Nederland N.V. Conference on the Half Year Results of 2022. Today's conference is being recorded. At this time, I would like to turn the conference over to Michel Hülters. Please go ahead.

Thank you, operator, and good morning, ladies and gentlemen. Thank you for joining us today. Welcome to the a.s.r. conference call on our first half year results. Now on the call with me are Jos Baeten, our CEO; and Ewout Hollegien, our CFO. And Jos will kick it off, as is customary, with highlights of the financial results, and he will also discuss the business performance. Ewout will then talk about the development of our capital and solvency position, the OCC investment portfolio. And after that, we'll open up for Q&A. As usual, please do have a look at the disclaimer that we have at the back of the presentation for any forward-looking statements that we may make during the call. Having said that, Jos, the floor is yours.

Thanks, Michel. And also on my behalf, good morning to everyone joining on this call. I hope all of you have been able to enjoy a relaxing vacation and that you have returned with fresh energy and new ideas to deal with these erratic and volatile markets. Despite geopolitical tensions and economic uncertainties, our financial performance in the first half year was strong, and our balance sheet remained very resilient. I am proud that in these times, our commercial momentum remains strong and allowed us to grow profitability going forward. Without further ado, let's turn to Slide 2 for the financial highlights. And I'm sure you have been able to review this presentation this morning already. So let me just briefly discuss the key achievements. We continue to run our business with focus and discipline and strong performance of the business was offset against the impact of storms in Feb. Operating results decreased just slightly to EUR 513 million, which includes next to the storm impact, also the ongoing normalization of claims post COVID-19 as COVID-19 restrictions had been lifted in the first quarter this year. Combined ratio of 92.8% includes the impact from the storms in February this year, which amounted to about 2.6 percentage points. Even including the storms, we are still outperforming the target range of 93% to 95%. In my introduction, I already mentioned the strong commercial momentum. In the first half this year, organic growth of P&C and Disability amounted to almost 8%. And in combination with continued rational pricing, this drives our strong underlying business performance in Non-life. Our capital -- our organic capital generation is strongly up by EUR 56 million. The increase reflects mainly the lower UFR drag due to the higher interest rates as well as higher investment returns. But of course, these positive impacts come on top of the fundament of continued solid business performance. Later on in this call, Ewout will provide further detail on the OCC number, and will give you some guidance for the second half of this year. But I believe it is important to note that in line with our current capital management policy, a higher capital generation than anticipated translates into an enhanced capacity for higher share buybacks, but as you know, we would prefer inorganic growth. The upside for 2022, at least, seems considerable though. Our solvency has remained resilient and stood at 214% after interim dividend and the SBB of EUR 75 million, which we executed in the first half. And as you all have seen, there have been quite considerable changes in various drivers of our solvency such as interest rates, spreads and the volatility adjustments. And finally, today, we announced an interim dividend of EUR 0.98 per share, which equals 40% of the dividend for 2021. Let's now briefly discuss our progress in the first half year in executing our strategic plan, and that's on Slide 3. Just as a quick reminder, the bottom half of this slide shows the key parts of our strategic plans which we have presented at the investor update at the 7th of December last year and are executing diligently. These 8 focus areas drive continued profitable growth and sustainable value creation for all of our stakeholders. Let me highlight some of our achievements in the first half of 2022. In P&C and Disability, we realized strong growth with solid profitability. And in Pension DC, we continued the solid commercial momentum, with a 32% increase of gross written premium compared to last year and increasing the number of active participants to over 140,000, up from 130,000. And in our IORP Pension business, we have seen a growth in our participants to over 150,000, up from 120,000. Enhancing the customer experience is important, and we are steadily increasing the number of customers that we can serve fully in a digital way. This was up by 5 percentage points in the first half to 47.5%. Ewout, of course, will discuss developments in our investment portfolio. I would like to highlight that we have been fairly active in adding specific asset categories such as wind and solar farms and we announced the acquisition of a portfolio of private loans of EUR 250 million, which will be added in the second half of this year. With regard to M&A, we have acquired a real estate investment management company that strengthens our position towards institutional clients in the field of real estate and especially infrastructure investments. Activity in this market was admittedly a bit slow in the first half, but we continue to believe that consolidation of smaller and midsized players should provide opportunities in the coming years. We have received improved recognition in certain ESG benchmarks, therefore, regaining our #2 position worldwide by Sustainalytics and improvement in the ISS Oekom rating to C+ Prime, and the #1 position in the Dutch Fair Insurance guide. I do not want to overemphasize the relevancy of these benchmarks, but being highly ranked by quite a few is saying something. Let's turn to Slide 4 to look at our business performance in the Non-life segment. I'm actually proud of the performance in this segment. Solid underlying business and underwriting performance was more than offset by the impact from the Feb storms with EUR 38 million, and an ongoing normalization of claims post cover due to the fact that all restrictions have been terminated in the first quarter of this year. You may recall that in the same period last year, the Non-life operating results benefited a positive impact from COVID-19 for an amount of EUR 68 million. Unfortunately, it's not really possible anymore to identify and quantify the impact from COVID-19. And I think we should assume that from here onwards, we are operating at a more normalized level. Organic growth of almost 8%, exceeding the target of 3% to 5% per annum and is driven by higher sales volumes and some selective tariff adjustments. Our Disability business continued to grow strongly by well over 10%. The growth is approximately 2/3 driven by price increases and 1/3 in sales volumes. So profitability improved, reflecting price actions and the quality also improved by better portfolio management of the sickness leave and individual portfolios. Growth in P&C amounted to 5.1%, driven by higher sales volumes, particular -- I'm particularly pleased to see that we have realized further growth in the Commercial Fire business. Combined ratio of 92.8% includes, as said, 2.6 percentage points impact from the storms and the normalization of claims and is still ahead of medium-term target of 93% to 95%. So far, we are seeing only limited inflation risk in our Non-life segment. We are relatively protected by the fact that products can be repriced annually and that the product terms and conditions include annual inflation charge. The full year number in February, we already alluded to the anticipated decline of the Health portfolio, which is reversing part of the extraordinary growth in the prior year. While we maintained our rational pricing policy and continue to pursue value over volume, we did experience more price competition primarily in the basic Health proposition. It shows in our Health gross written premium and combined ratio. Let's now go to Slide 5 about our Life business. Operating results of the Life segment increased by EUR 9 million to EUR 385 million. The operating result is mainly due to a higher investment margin driven by the further optimization of the investment portfolio and the lower required interest due to the regular runoff of the Individual Life portfolio. The higher contribution to operating results in the Life segment was partially offset by a decline in the technical result of EUR 34 million, driven mainly by the EUR 26 million of additional unit-linked provisioning due to lower equity markets and higher interest rates. GWP increased by 3.9%, mainly to the commercial success of our Pension DC products which saw an increase in premiums of 32% to EUR 450 million. The total assets under management of Pension DC, including the former Brand New Day IORP, decreased slightly to EUR 4.7 billion due to revaluations reflecting the higher interest rate environment. And finally, our operating expenses are really stable at 46 bps and in the middle of our target range. And these basis points includes the investments in our IT systems needed to adapt the ongoing transition within the Pension business. So let's now turn to Slide 6 for our other segments. Operating result of the 2 fee-generating segments, Asset Management and Distribution and Services, combined amounts to EUR 36 million, up 6.4% compared to last year. Asset Management result was driven by positive revaluations within real estate. The inflows into the mortgage funds and Pension DC-related mix funds were offset by lower market valuations due to higher interest rates and lower equity markets. This led to EUR 1.1 billion decrease of assets under management. Mortgage origination amounted to EUR 3.7 billion, up EUR 1.1 billion compared to last year, but in the current interest rate environment is something we expect to come down a little bit in the second half. Operating result of the Distribution and Services segment increased by EUR 1 million, mainly driven by small acquisitions and organic growth. Finally, Holding and Other operating result decreased slightly to minus EUR 58 million due to higher operating expenses on one-off projects. So this concludes the final -- the financial highlights and business overview, and I now, with pleasure, hand over to Ewout, who will discuss our solvency and capital generation.

Yes. Thank you, Jos, and good morning to everyone on the call. Let me start by saying I kind of feel sorry for all the analysts trying to crunch the numbers of insurance in an eventful first half year of 2022. Modeling all the different movements during the first 6 months of this year and the way these movements are impacting each other must have been a pain, or putting it differently, my respect for those whose estimates came close to the actual numbers. But when this has settled and numbers are out, we are proud that we can conclude that our financial and solvency numbers remain strong, and we trust you are pleased as well. Having said that, let us start at Slide 8, which shows the movements within our solvency. And of course, I'm happy to see that the solvency position has been robust in these volatile markets, where our Solvency II ratio increased to 214% based on the standard formula, an 18%, 1-8 percent, increase compared to the full year number, which proves the resilience of our balance sheet. A significant portion of the ratio increase comes from market and operational movements, which reflects positive impacts from higher VA, higher interest rates and lower equity markets, which together more than offsets lowering of the UFR, some re-risking, higher inflation and spread widening of mortgages and non-core government bonds. Much more important than the favorable market movements is that the higher ratio benefits from a very strong OCC, adding 11 percentage points to the solvency ratio. And I will talk in more detail on OCC later on. The capital distribution consists of EUR 131 million interim dividend and EUR 75 million share buyback, which we executed in the first half of this year. Capital distributions took out roughly half of the OCC contribution. These developments brings us at a very strong level per H1. On the 214% ratio, I should note that I tend not to look too much at our solvency position as a snapshot on a certain reporting date, but also look at it a bit more on a through-the-cycle basis. And to explain a bit, so the average VA over the last 6 years was around 11 to 12 basis points. So the current 25 basis points is at the high end. OCC spread on mortgages was per H1 160 basis points. But as mentioned before, we believe the longer-term range of 80 to 100 OCC spread is more realistic. So applying a more through-the-cycle spread level, NPA means that over the cycle, the 214% would be somewhat lower, but will be at the end of the day, very robust and a strong basis for further organic and inorganic growth and capital distributions. Let us now have a closer look at our OCC presented on Slide 9. The OCC came in very strong at EUR 428 million, an increase of EUR 56 million compared to the same period last year. Interest rate development has been very favorable this half year and is actually the biggest driver for the higher OCC. This leads to a lower UFR on right, which is positive, as you know, for our OCC. Higher interest rates have a negative impact on the net release of capital because there is a lower SCR release. But in H1, we benefited from lower capital spread in Non-life, mostly due to the decrease of the Health portfolio and improved profitability in self-employed Disability. And there is also a positive impact from high solvency ratio since in our OCC, we multiplied the SCR impact with the solvency ratio. The underlying business performance is strong. In business capital generation, we see similar effects, as Jos mentioned, for the operating result compared to last year, with lower Non-life contribution due to normalization of claims and the impact of the triple storm. This is largely offset by higher investment returns as a result of asset optimization over the last 12 months. So all in all, a significant increase in OCC compared to H1 2021. And I can imagine you are looking for some guidance for H2. When taking sort of normalized OCC level of H2 last year of EUR 200 million as a starting point, I would add around EUR 20 million on the back of executing our strategic plan as announced at the investor update. So this includes growth in Non-life, fee-based business and optimization of the asset management portfolio. In this number, we also expect some tailwind from higher mortgages and credit spreads to come through in our Q3 excess returns. And of course, interest rates are a bit lower than end of June, but I would still expect a positive contribution on the UFR drag based on the rates of last Friday of around EUR 30 million to EUR 35 million. On the other hand, I would expect lower net capital release due to the growth of the business and the lower SCR release due to the higher rates and, as a consequence, lower SCR. That impact is roughly minus EUR 20 million combined. Based on those elements, I would get to around EUR 230 million for H2 this year and, therefore, around EUR 660 million for the full year. And now, of course, we will have to see what we will be able to bring at full year date, given where markets are today, I believe this is the direction of [indiscernible]. And if the rates stay where they are today for the rest of the year, based on our methodology of averaging the UFR, we would also expect a positive UFR echo drag into 2023 of around EUR 40 million, being the net amount of lower UFR drag and lower SCR release. Let's go to Slide 10 to talk about the investment portfolio. The investment portfolio remains robust and well diversified with strong skew to quality. The quality of the portfolio is, for instance, underlined by the low loan-to-value within the mortgage portfolio being almost 30% government guarantees and having an average loan-to-value of the book of only 64%. In addition, the payment arrears over 90 days are below 2 basis points and the credit losses are below 0.1 basis points (sic) [ 0.7 basis points ]. And we don't see any increases in the level of arrears or credit losses underpinning the quality of the Dutch mortgage market. The credit portfolio is of high quality with 97% being investment grade. And even when 20% of the portfolio gets a full letter downgrade, it will only cost us 4 solvency points. But in H1, we haven't have any downgrades or default and depending also the quality of the credit portfolio. The real estate portfolio is showing its quality through positive revaluation in H1 and a sharp decrease in payment arrears compared to the same period last year. We are a bit overweighted due to the positive revaluation of the portfolio while other asset classes had a negative revaluation due to higher rates and deteriorating equity markets, but we are using existing assets to fulfill third-party demand, which will further lower our exposition going forward. In the first half year -- in the first half of this year, we executed our plan by optimizing the investment portfolio, increasing the exposure in liquid credits, adding some extra mortgages to the balance sheet and doing some additional investments in equities with EUR 200 million, amongst others, by expanding our impact investments in wind and solar farms, becoming a relevant hedge to higher inflation due to increasing energy prices. In the second half of this year, as part of the portfolio optimization, we will add EUR 250 million of private debt to our balance sheet, a result of the private loan portfolio acquisition for net capital. Risk profile of this portfolio is moderate with an average rating of BB, loans are having a floating rate. So we will benefit from increasing rates. And portfolio is valued at actual spreads at the moment of the acquisition. So an attractive addition to our investment portfolio. Additional benefit from that transaction is that the transaction offers our institutional clients the opportunity to invest in an external party alongside a.s.r. in our diversified private debt fund and offer us the opportunity to grow in third-party asset management. So overall, I'm happy with the investment portfolio, which remains of high quality, and we are on track in execution of the operational plan to optimize the investment portfolio. Let's turn to Slide 11 to discuss the flexibility of the balance sheet. As you have seen, the balance sheet of a.s.r. remains strong with ample financial flexibility. The unrestricted Tier 1 capital represents 54% of own-funds and 158% of the SCR and we continue to have ample headroom available within the Solvency II framework. Financial leverage increased by 2.1% to 26.9% on IFRS basis due to a decrease in equity of EUR 731 million. On a solvency basis, we are around the same number of leverage. Double leverage and interest coverage ratio are also in excellent shape, which all contributed to remain safely above the thresholds of S&P single A rating, which was confirmed in June. And our debt maturity profile, as you can see, is nicely staggered and first goal date is 2024. And again, we have ample financial flexibility and room to add defers to our balance sheet. And now let's move to Slide 12. The holding liquidity at the end of June stood at EUR 437 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 year. Cash remittance consists of EUR 245 million from the Life entity and EUR 88 million from Non-life. In the graph on the bottom left corner, you can see that remittance have been strong over the last period, and while we typically aim to upstream only what is required in line with our policy, the actual upstreams taken into the context have been in line with or even higher than the OCC. Solvency position of legal entities improved to 199% for Life and 173% of Non-life after remittance and cash at HoldCo, together with the strong capitalized legal entities, provide us that we have ample cash availability. Let's move to Slide 13 for capital returns. When looking at our capital creation, capital deployment and capital return, our message at the investor update has been clear. We announced a cumulative OCC target for the coming 3 years of EUR 1.7 billion to EUR 1.8 billion, a progressive dividend and a share buyback of at least EUR 100 million per annum. I mentioned the H2 OCC outlook before and, given current circumstances, our 2022 OCC may end up considerably higher than what we anticipated when we announced the EUR 1.7 billion to EUR 1.8 billion target range. With regard to the medium-term OCC target, we are now only 6 months into our plan period, and therefore, we think too early to change the 3 years cumulative target. However, if current market circumstances stay positive, it would make sense to revisit this when we privilege our updated IFRS 17 targets before the summer next year. But independently from the target higher OCC in 2022 already providing us additional capacity for investments in inorganic growth and leave further upside in our commitment to buyback shares at the full year stage. Share buyback is continued on our level of stock solvency and on potential M&A. But if we generate additional capital and we cannot deploy it, it will be returned to shareholders. And just to run you through my line of thinking on potential extra capital distribution above a minimum of EUR 100 million for the year 2022. When you take into account the proxy payout range of OCC based on total shareholder return, which I mentioned at the investor update of around 70% to 75%, and you then have to look at the OCC numbers that we currently have reported and the outlook that I just provided to you, I can understand you are modeling a share buyback number above EUR 100 million for 2022. And of course, this remains an annual decision at the full year results. This concludes my part. And now back to you, Jos, for the wrap-up.

Thank you, Ewout. And to wrap up our presentation, let's look at Slide 15 for some key takeaways. And I think I dare to state that we have delivered a very solid performance, our operating result, absorbing the impact of the storms and normalization of claims and only slightly lower than the record result of last year. Commercial momentum in P&C, Disability, Pension DC and mortgages remained very strong driven both by sales and volume and pricing initiatives. Our balance sheet has proven to be resilient. Once again, I should say, and we reported higher solvency with strong growth in organic capital creation, higher quality and well-diversified investment portfolio, and I am pleased to see a continued expansion into allocation to renewables and other illiquid investments, such as private loans. And last but not least, certainly, we are committed to deliver on capital return commitments expressed at the investor update. And rest assured, we are not going to award capital. So additional capital generation needs to find economic and rational deployment or else will be part of our capital return. So let me hand over to the operator and start the Q&A, presuming there are at least some questions.

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

Cor Kluis of ODDO. And congratulations with the good results, especially the OCC. Especially the OCC, I got some questions on that. The EUR 428 million was quite high and based on your guidance or at least indications for the second half, you will probably arrive at EUR 660 million, EUR 665 million for the full year. Your target that you've given last year -- at the end of last year was EUR 570 million to EUR 600 million a year. So you're already well above the target range. So -- yes, could you comment on that? And if there would be a moment for updating that to the new interest rate environment, when would that moment be, so full year results or do we have to wait for another Capital Markets Day? So that's on the OCC target. And then the second question is on the OCC for H1, and the EUR 428 million, of course, out of excess return and also the UFR drag improving. Thanks for the guidance for the OCC for the second half of this year. I think the OCC -- the UFR drag [ EUR 108 million ] or something really negative this year. Last year, I think it was -- of 2020 was [ EUR 205 million ]. What will be the UFR drag for next year based on the current interest rates because I think next year, you'll get the next step [indiscernible]. So the full year UFR drag for next year would be appreciated. And then more operational in P&C and Disability Insurance, do you see any price competition there because your organic growth remains quite high? So something about the price competitive environment in Health and there's more competition that's clear, but also P&C and Disability. And also on Disability, could you comment on the inflationary environment and how are the 3 different lines of Disability operating in that? And could you comment how a.s.r. will manage through the higher inflationary environment there? Those were my questions.

To your first question, Cor, when are you going to update on targets. I think, between the lines, it was already mentioned by Ewout. We are fully aware that our OCC is growing harder than what we assumed when setting targets. However, we are only 1.5 year since then. We're not going to wait up until a next Investor Day, but as already announced that given the fact that IFRS 17 will be in place as from next year, we definitely will come up with adjusted targets for that. So that will be somewhere around mid next year. And that would be a logical moment to take a new look at the level of the expected OCC going forward. The second -- yes, Cor?

No. I think [indiscernible].

Yes. The second question, I think, Ewout, you would love to answer.

Absolutely. So that was the question on the UFR echo for 2023, if I understood correctly, Cor. So thank you for your question. As you know, to determine the UFR drag, we look at the UFR drag at the beginning of the period and the UFR drag at the end of the period. So we take the efforts of both in our reported numbers and to explain this by numbers where this will end. So the UFR drag at full year 2021 on an annual basis was EUR 164 million, the UFR drag based on rates per H1 2022 was EUR 45 million. So indeed, the reported drag is then EUR 105 million. That means that we will have a UFR echo of EUR 60 million based on rates per H1. Though capital release will be somewhat lower, let's assume EUR 20 million, the net-net additional OCC will be roughly EUR 40 million. And that means that the UFR for the full -- the annualized UFR will be EUR 45 million for 2023.

And on your last question, Ewout will elaborate a little bit on the inflation part of the question. On the competition, we do see increased price competition, especially in P&C and in Disability. In P&C, it's not only in price competition, but also in commission for brokers. We have seen -- where we lowered the commission for brokers, we have seen some competitors increasing a part of the commission for brokers a little bit. So there is a strong competition ongoing. But we remain disciplined as well in our pricing and also in our commissioning to brokers. And maybe you want to elaborate a little bit on -- because it remains your first business [indiscernible] Disability, so I allow you to elaborate on that.

Yes. So on the -- the question was on the inflationary environment in Disability, right? So the -- when you look to the inflationary sensitivity in Disability, that is part of the sensitivity that we also provided in a solvency sensitivity. So the -- in Disability, we are sensitive for inflations and claims and expenses. Claims were part of the portfolio, expenses were the large part of the portfolio. So it's actually for the long-term business where we have some inflation sensitivity. We already recognize the impact of the higher inflation in our balance sheet. So you will see that -- so we don't expect any additional inflation coming from that. What we do see is that also in the Netherlands and as part of the discussion in the society, we have seen that the minimum wages increased with additional 2.5% compared to the regular indexations and that will also have an additional impact on the provisioning. So we took additional EUR 27 million of provisioning to cover the extra increase of 2.5% of minimum wages in the Netherlands. So that was an addition to the regular inflation sensitivity that we have in Disability.

We will take our next question from Andrew Baker.

Two for me, please. The first, just to clarify on the buyback. So you're saying absent M&A, the best way to think about that is broadly a 75% payout ratio on OCC with EUR 100 million floor? And then I guess, interrelated on -- just on M&A, can you just give us a sense of how active the M&A pipeline is right now and where you're seeing the most activity, whether it's Life, Non-life or fee-type businesses?

Thanks, Andrew. On the buyback, I think it's correct that the floor, as we see it today, is the EUR 100 million. Our preference remains that the capital we generate is invested in the company either in organic growth or in inorganic growth. And to your question on the pipeline, as stated earlier, we look at 2 different ways at M&A. The more strategic ones in the area of Non-life, Disability, Pension DC, distributions, not to forget, real estate, and we've been active there on smaller transactions. We have done some transactions in the area of distribution. We have, as said, acquired a small real estate company. And that's where we are focused on. The second part is the more financial M&A that will be mainly in the Life area. On the pipeline, it's always difficult to comment on -- to make comments on whether it's a large or a small pipeline, but be assured the M&A team at a.s.r. is quite busy and looking into all kind of opportunities. And maybe I don't know whether you have to add something on the OCC part of the question of Andrew.

So what I highlighted during the presentation, Andrew, so thanks for your question, is that we -- well, that we have an eye on the OCC payout ratio, and I mentioned a ratio of something between 70% and 75%.

We will take our next question from Robin van den Broek.

I have to say, I think the introduction of your commentary was already quite good, good forward-looking also. Maybe a few additional questions when it comes to that. Going into 2023, I think you've already given a bridge to EUR 660 million for this year, EUR 40 million of positive echo from rates coming in on [indiscernible] gets you to EUR 700 million. I guess, EUR 20 million for business growth is achievable as well. And then when it comes to the storm impact, is it fair to say that your normalized storm budget would be EUR 50 million, and that the residual EUR 50 million might be taken out by further normalization on the frequency side? So is EUR 720 million a realistic OCC for next year? And that's basically question number one. Question number two, just a little bit of a follow-up of what Andrew just asked. If I listen to your commentary, you're basically saying you're running roughly EUR 100 million ahead of your OCC budget versus your business plan this year. Should we, therefore, simply assume that at least EUR 100 million buyback is basically EUR 175 million for this year? Or is that too detailed to confirm at the moment? I was also interested to get the excess return dynamics on the wind and solar farm and the capital book that you took over because it feels to me a fair bit of the beat on OCC today is also driven by better excess return. And I'm not sure whether your guidance for H2 is incorporating these dynamics. So your commentary there will be quite helpful. Then the fungibility of OCC, I mean, you're clearly an insurance company that benefits from the current macro scenarios both on the stock side and on the flow side. So can you just clearly confirm that the full OCC is basically fungible towards free cash flow? And then -- sorry to be quite elaborative, I'm asking questions. But you yourself mentioned about looking at the Solvency II ratio from a through-the-cycle perspective. I was just wondering if you could give us an actual number when it comes to that. Is that still well above 200% or -- yes, will leave it there.

A lot of questions indeed. First of all, on the OCC assumptions and the numbers you mentioned there, Ewout will elaborate on that a little bit. Your second question on your calculation, whether we would end up with a buyback of EUR 175 million next year. I think that's a bit too early to put a number on that. We've been quite clear on our view. Our preference, one is investing in business organically or inorganically if and when we wouldn't be able to do any transactions which consume significant capital, then there will be room to increase the EUR 100 million that we have announced at least. And whether that will be with EUR 25 million, EUR 50 million or EUR 75 million, that's out there and the first moment in time to elaborate on that will be with the full year numbers. But I think you, at least, can read in our wording that we are positive on the developments going forward. And on the excess return question, I think, Ewout, you're burning to answer that one.

Yes -- no, I will try to answer all the other 4 questions, Robin. So thank you for your questions. So on the OCC outlook to 2023, and of course, it's early days, but, I think, I couldn't do the math better than you have done. So I recognize the EUR 660 million. I recognize the EUR 40 million echo, the net number of the UFR echo drag, and the lower SCR release. And I recognize that we want to grow organically with roughly EUR 20 million to EUR 25 million per annum. So I would probably end up with the same number as you just mentioned. I think when we look to the excess returns and how that is incorporated in the outlook, it is incorporated in the outlook. So we believe that we will benefit a bit from higher rates for Q3, but we also expect it to normalize in Q4. So on all -- in the outlook that we've provided to you, we believe excess returns is -- so that the current level of excess returns is well recognized with a kind of normalization in Q4. I think your fourth question was on the OCC and whether or not that is also free cash flow. I think when you look to the current capitalization of the legal entities, and we have provided the numbers both on Life and Non-life, we indeed are well capitalized also in the legal entities and thus well able to [indiscernible] the capital that we generate in our businesses. So I tend to say yes to that question. And on your question on the solvency ratio year-to-date, it's indeed correct that we like to look at it on a more through-the-cycle basis. Also given the fact that -- well, the numbers today incurred, circumstances will be different than the numbers tomorrow. So that's why we believe it's wise to look at a through-the-cycle number. I think when we -- what I already tried to say is that when we look to the VA, the VA was at H1 25 basis points, which we believe is really at the high-end level because the average of the past 6 years have been 11 to 12 basis points. So that will probably reduce the ratio with 12% to 14%. I think when you look to the mortgage spreads which was 88 basis points higher than last year other than the full year spreads -- well, maybe the full year spreads were at a bit low level, but normalize would still at probably 3% to 5% ratio. When we look to more the year-to-date rates, they went down a bit. It might take out a couple -- 1 or 2 percentage points. And we also see that the equity markets went up. So probably that will also cost us a couple of percentage points. So net-net, if you normalize mortgage spreads, if you normalize VA, probably around the 200% level would be -- I believe, it would probably be around that level. But again, it is very volatile.

Maybe one additional remark, Robin. In your first question, you assumed that our annual budget "for storms" is EUR 50 million, but the winning number in our plan is EUR 35 million.

We will take our next question from Farquhar Murray.

Just 2 questions, if I may. Firstly, on the Non-life business, growth of 7.9% and looks very solid. Could you just decompose that figure between tariff increases and volumes? And kind of, perhaps, elaborate maybe on what your expectations might be for that looking forward from here? And then more generally, can you just elaborate on the pricing backdrop, which you kind of described as rational at present? And then additionally, on the Non-life business, can you just outline where you're seeing inflationary pressures come through at present? And could you maybe also discuss the nature of your repair contract and how much of a fixed price period that, perhaps, gives you as compared to renewals?

On your first question, in the P&C business, I think it's roughly -- 2/3 of the growth is due to price increases and 1/3 is organic growth. And that organic growth was especially in the SME business and more specific in Fire Insurance. And we are quite happy with that. In the Disability business, we have significantly increased sickness leave. And I think you could assume the same relation between growth due to premium increases as in other Non-life business. So 2/3 due to premium increases and 1/3 due to new business inflow. And we see a continued new business inflow also today. So we are quite happy with the commercial way we deal at this moment. Despite the interest -- sorry, despite the inflation environment, we still see a lot of commercial traction ongoing, and we are proud and happy with that. And that -- let's maybe step up to the second question on Non-life. We don't have that many repair contracts with fixed prices going forward. So yes, we have to deal with price inflation and repairs take sometimes a bit longer than what a customer would hope for and what we would hope for. On the other hand, in all of our Non-life contracts, we have a clause stating that premiums will automatically go up on an annual base with the inflation number. So we might see some delay in that because inflation and prices might go up higher than the first new renewal round of premiums. But at the end of the day, the inflation will be matched by the increase in prices. That's why, normally, we tend to say 1/3 of the top line growth is due to prices and 2/3 new business. And that's why it's now reversed because a larger part of the price increases are due to the growing inflation.

We will take our next question from Benoit Petrarque.

Yes, a few questions on my side. Just wanted to come back on the EUR 230 million for H2. Just wondering how much kind of -- what is the level of combined ratio embedded in that guidance? Will that be roughly 93%, 95%? Or is that something different? And also about looking at the investment returns into H2, do you expect, like one of your competitor, higher investment spreads, for example, coming from mortgages? Or do you think that would be offset by amortization of [indiscernible] over items, i.e., a pretty neutral investment return pattern into H2? The second one is actually on -- sorry to come back on that on the buyback. So on 70% on the EUR 660 million guidance, you come to EUR 120 million, 75% would put at EUR 160 million. So -- where are you -- which camp are you -- are you more on the EUR 120 million in the current market? Or are you potentially on the EUR 160 million side? So just to clarify that because that's a pretty large gap obviously. And then just want to ring in terms of normalized combined ratio in H1. What will be the level, if you will be stripping out everything basically? Could you give us an indication? And so do you see also post COVID a bit of longer-term trends in terms of frequency trends, maybe a bit lower than before? Any behavior change on the -- especially on the P&C side, that will be useful.

A lot of questions, Benoit, and assuming that you're sitting in your shorts under an umbrella because I think you're still on vacation. Good questions. Together with Ewout, I think we will be able to answer them. First of all, the question to where are we on the share buyback? Are we closer to the EUR 120 million or EUR 160 million, I think as stated earlier, if and when there are no transactions in the M&A area, we do see that a higher OCC will lead to an increased buyback. But it's too early to put numbers on it. I think the first moment in time, it will be on the full year. But I think the EUR 120 million would be on the lower side of our thinking. So having said that, moving towards the combined ratio and as well in the EUR 230 million H2, you had a combined ratio question as on the trend going forward. I think our assumption today, if and when there are no further large weather-related claims in the second half of the year that we would be able to operate the business on the lower side of the bandwidth of our targeted combined ratio. And that's in line with actually what we've always said. In a very bad year, we would end up at the higher side. In a very good year, we would end up at the lower side of the 93%. And assuming that there will be no weather-related claims in the second half, I would tend to say that, that would be a good half year. So I think those were the questions I -- Yes.

I will answer the other one...

There was 1 question that didn't come through quite...

It was, I think, your second question Benoit...

Yes, your second. Yes, on excess return.

Excess return, yes. Yes. Mortgage spreads going up significantly in the third quarter. They were also much higher at the end of June, which is not fully captured in the H1 OCC. So any thoughts on that? Any upside from that?

Yes. No, okay. That one is clear. So that's what we tried to -- what I tried to say when I say in the -- well, in the EUR 20 million growth coming from the business plan for H2, there are a couple of millions also a tailwind that is coming from the higher excess spreads indeed for mortgages and also for credit. So that's still -- so a couple of millions is incorporated in the EUR 20 million number. I think you also asked a question on the underlying combined ratio. So what is the more normalized combined ratio when you look to the H1 number. I think that when we look at the number that we've reported is more or less the number, maybe slightly -- the combined ratio may be slightly better. It's also the underlying number. And to explain a bit, so we still had some COVID benefits, especially in the first quarter of this year. We, of course, had this triple storm impact, which was higher than [indiscernible] the that we include in our expectations. And we had also some larger fire claims, which fell under category of bad luck, and it's not what we believe is a structural -- and we -- what we also discussed is we had the extra provisioning in Disability coming from higher minimum wages that resulted in additional provisioning of EUR 27 million. So when you bring it all together, probably the combined ratio is close to the reported number, probably a bit better.