NN Group N.V. (NN) Earnings Call Transcript & Summary

Good morning, everybody and welcome. Welcome to NN Group's Investor Update. Let me start by saying that I'm very glad that you manage through the weather today. Very good to see you all here. Many of you know me already. I'm Ruben van der Hulst, Head of Investor Relations, and I will be your moderator for today. It has been a while, actually 5 years ago since we last hosted our in-person Capital Markets Day event. Back then, that was in Rotterdam in the Van Nelle Factory. And of course, our CMD in 2020 was fully virtual event as that was in the midst of the COVID pandemic. Investor Engagement is extremely important for us and we have had many interesting conversations with you over the past year on a variety of topics ranging from the macro environment to free cash flow to cash flow to OCG outlooks to capital returns. And we appreciate all the feedback and the good conversations we have had in the last year. Our key objective of today is to give you an update on NN Group, and to do this, we have a full schedule. 7 presentations by under management, including 3 Q&A sessions. So there will be plenty of opportunity to ask all your questions. Before we get started, let me mention a couple of formalities. First, we will be recording today's session. And second, we would appreciate if you would take a moment to review our disclaimer on forward-looking statements, which you can also find at the back of the presentation. Having said that, I would like now to hand it over to David to kick off the day with this presentation on the strategy of the group. David, the floor is yours.

Yes. Good morning. Yes, Gary? Good morning, everyone, and also for me, a very warm welcome. Very happy to see you guys. So you guys all coming in and it does feel like a long time despite all the online meetings what is always -- of course, interesting also for us is to talk to all of you in between breaks and before and after, which is not possible on online meeting. So really looking forward to this morning to catch up and also get your perspectives and views. So indeed, as Ruben van der Hulst was saying, 2 years ago, we had our CMD and we presented our strategy at that point in the middle of the global pandemic. And understandably, a lot of you had a lot of questions at that point because we came out with a target of EUR 1.5 billion OCG and our 2020 was below EUR 1 billion. So we still had quite a step to go and there was, of course, an unprecedented virus going around the world. So I remember our thinking, well, this is not an easy time to set targets in the middle of a COVID pandemic and certainly at the beginning of the pandemic. Now since then, we have seen that with a very strong balance sheet and a very resilient business model, We've proven that NN can weather such volatile conditions very well, while we continue to deliver on growth and attractive capital returns. And we've clearly overachieved our targets in these challenging times. Now today's environment is obviously no less challenging. And we have the -- obviously, the war ongoing in the Ukraine. I think most of you know, we have 4 countries where we operate that are bordering to the Ukraine. So of course, there's an enormous amount of things heading there. And I must say I'm very proud of all the NN colleagues also because the amount of refugees that come out of the Ukraine come into the Polish markets, the Slovakia and the other markets. I'm very proud actually on how people are trying to help out in such a horrible war. Now obviously, energy crisis driving up inflation. That is clearly now starting to impact the purchasing power of households, and we've seen, of course, an increase of rates and very volatile financial markets. So today, with the world probably at the brink of a recession, it's also not much easier to set long-term targets. At the same time, it is really not only doom and gloom when we look at what's happening with customers in our markets. Given the experience of the pandemic but also everything we see happening around climate change that customers are starting to feel, we see that customers now more than ever are actively looking to protect themselves, but also actively look to protect what they care about what is around them. And it is a real opportunity for us as a company. So based on our strong balance sheet and our resilient business model and further building on the strategy that we have said, we are announcing today our new financial targets and obviously, also our new strategic targets around customer, people and society. So the aim for today is to explain how we will deliver on these targets. But to be honest, more importantly, by the end of the morning, I hope you will not only share our conviction that we will deliver on these targets that we have set. But yet you will also share our enthusiasm for NN as a company. So that brings me to today's key takeaways. So we've been successful in delivering on our strategy launched in 2020 and have therefore overachieved on our targets for 2023. Also, our strategic KPIs show real improvement. At the same time, we've laid a foundation for long-term sustainable growth by investing in our businesses and by strengthening our portfolio through acquisitions and divestments. And this has led not only to a stronger set of businesses, but also to a better diversified company. Now following all these actions and despite the challenging environment, we are well positioned to increase our OCG target to EUR 1.8 billion from our target of EUR 1.5 billion in 2023. And continuing to achieve a mid-single-digit OCG growth in the long term, also from the higher base of OCG at 2021. So despite having brought forward some of the OCG growth in the past 2 years and by achieving a mid-single-digit growth of free cash flow. We also updated our strategic targets with new goals for 2025 with continued focus on customer employees, climate action and society. And finally, we will continue to be very disciplined in returning capital to you, our shareholders. So let's get started. So this is our NN Group's strategy. In the middle of the slide, you can read our ambition that we set in 2020. And our ambition was in 5 to 10 years, we want to be an industry leader known for customer engagement, talented people and contribution to society. And I would argue that these 3 elements are even more relevant today than they were in 2020 when we launched our strategy. Attracting and retaining talent to drive transformation in our business forward is even more urgent today. Given the war on talent, almost all markets where we operate in today have full employment. And many business leaders now cite this as their biggest challenge. So I'm glad that we already started with this in 2020. Playing an active role in society and particularly meeting our net 0 ambition has again increased also in importance in the last few years. And finally, customers will always remain central to our business. The next slide shows the progress that we have made measures against our strategic targets for customer employees and society. We have seen underlying improvements in customer engagement. Strong improvement in our broker satisfaction scores, but we are not yet beating the competition in all of our markets. In the middle, you can see the good results on our targets for employee engagement and diversity. As I was saying, we operate in markets with full employment and therefore it's crucial that we are an attractive employer for talent from all backgrounds and that we keep our cliques highly engaged. On the right-hand side, you can see that we have taken big steps in integrating ESG in our Scope 3 investments and working towards a net 0 investment portfolio. It's still early days in terms of sustainable customer propositions, but our first offerings are doing well. Now of course, most companies claim strong performance in these areas. So external recognition matters and is the result also from investments from our side for many years now. On this slide, you can see some of the examples of the awards we have been receiving, such as a very recent award for a Human Capital Planner, which supports our SME customers based on data analytics. Top right, you see the recognition as an employer, top employer for the fourth time in a row. As well as being an employer that supports diversity by being included in the Bloomberg Gender Equality Index. And then has been included in the Dow Jones' Sustainability Index in the FTSE4Good Index since 2016. Most recently, we were ranked #8 out of the 400 largest financials in the world by the World Benchmarking Allowance, which is something that we're also very proud of. Now our focus on our strategic commitments, underlying investments in our business have allowed us to lay the foundation for further growth, which you can see on the next slide. This slide gives you more insight in the progress we have made, and it's based on the 3 pillars of our strategy. Firstly, a strong balance sheet with group solvency ratio at 205% at the end of September, while returning EUR 3.7 billion to shareholders since 2020. Secondly, strong cash flow generation in the Netherlands supported by an additional EUR 200 million of OCG from the shift to higher-yielding assets, which was achieved 1 year ahead of plan. Growth in defined contribution assets to EUR 27 billion with a continued net inflow and a structurally improved non-life combined ratio with an expense ratio below 10%. Netherlands Life steadily remittance each year as seen in the chart, while Non-life and Banking also continued to remit. The third pillar is profitable growth in Europe and Japan, and this is driven by outgrowing the market in Life Protection in Europe with an end growing around 10%, while the market grows at around 5%. We maintain a leading position in the SME life insurance space in Japan despite headwinds from tax and regulatory changes, and we are leveraging on our strong multi-distribution platform, both in Europe and Japan. Now we have combined these investments in our business with decisive portfolio actions. 2 years ago, we said that when it comes to acquisitions, we would apply strict financial and strategic criteria. And this slide shows that we did exactly that. For example, with the strengthening of our #3 position in Poland and creating the #1 player in Greece, we expect to make a double-digit return on this deal. We also committed 2 years ago to continue to evaluate whether we are the right owner of portfolios and business units, which we did, as you can see in the lower table on the side, such as exiting Bulgaria, selling a closed book in Belgium and of course, the strategic partnership with Goldman Sachs Asset Management due to a lack of growth perspective of the Asset Management business stand-alone. The result of all these actions is that we have a robust and well-positioned set of businesses, providing diversification, as you can see on Slide 8. On the left-hand side, you can see diversification of cash generation versus long-term growth, and we expect the growth part to become larger over time, also due to the significant VNB generated by our growth businesses, which you can see in the middle of the chart. On the right-hand side, you can see the diversification in sources of income, which is increasingly coming from fee and technical margin and also that trend we expect to continue. Moving on to Slide 9. We show you how these actions in the past 2 years are reflected in our performance. In terms of our financial targets that we said in 2020, you can see that we are ahead of plan for the 2023 plan, not only for group, but also for the underlying segments. All individual business units have shown strong operational performance and have either already delivered or are on track to deliver. So an overall strong business performance is also translating into solid financial results. Now of course, the next question is whether the strategy that helped us navigate through the COVID pandemic is also the right strategy in the current volatile economic climate. Yes, it is. We are relatively insensitive to interest rates, thanks to our strategy of closely matching assets and liability cash flows. An approach that has worked well for many years, and it means that we're economically well hedged. As you know, it does give some volatility on our Solvency II balance sheet, but the stock and flow items are manageable. As you will see in Bernhard's presentation, increasing rates marginally support our ratio. Higher rates also can reinvest at higher yields and higher rates are positive for sales. Overall, therefore, higher rates are generally supportive for our business. As you know, inflation has significantly increased, impacting the purchasing power of our customers. With regard to our own financial exposure, we have largely hedged our inflation risk and the impact of inflation on our expenses is manageable. On the DC side, the DC pension business is less sensitive to inflation risk. For the closed books, we will continue to be vigilant on running the expenses down in line with the run-off of the book. For the P&C business, the expected claim inflation can be largely offset by premium increases, and we have already taken action. In the Disability business, we continue to update wage inflation assumptions. In Europe, too, premiums can be adjusted for premium for inflation. However, we do expect some pressure on sales in the short term due to lower disposable incomes. Over time, the structural demand for protection products should mean a return to sales growth. In summary, increasing rates support our business and current inflation levels are manageable. Now going forward, there's, of course, a lot more happening in the world. This slide shows our strategy that our strategy aligns well with long-term market trends. One of the consequences of COVID is that it has an increased awareness for the need of protection, especially in markets where health care is less developed. We have built strong market positions in protection in the markets we operate. The shift to risk to individual households continues with governments and employers not willing to take on the risk anymore. We offer life protection products and strong life cycle products in DC pensions to fill this gap. We believe that in order to remain relevant in the lives of customers, we need to continue to enhance customer engagement and offer them solutions that go beyond the financial services and meet our chain demands. An example of this is our Carefree retirement platform. Clearly, investing in technology, in data, in engagement platforms remains crucial in our business. Finally, we see an increased demand for sustainable propositions, and we offer a range of products and services to meet this. In conclusion, this is the right strategy for NN Group going forward. So how does our strategy translate into concrete actions at the business unit level? Starting with the Dutch life on Slide 12. We have a strong starting position. Also after the ASR A home combination, we remain #1 in pensions with a 40% market share, #1 in Individual Life and #1 in non-life. We continue to take effort to support our ongoing cash flow generation. This comes from growth in D.C., possible buyout opportunities, but also from efficiency gains such as benefiting from the increased scale after the ABN AMRO Life acquisition. We are further improving the profitability of the Non-life company, leading to a lower combined ratio guidance between 93% and 95%. And we're using digital and data capabilities to further improve the efficiency at NN Bank. Leon and Tjeerd will talk more about the Dutch units later today. Now all of these actions are reflected in new and higher OCG targets for each segment, life, non-life and banking. The international businesses are the true growth engines of the group, reflected in an increase of target from EUR 325 million to EUR 450 million OCG for Europe. while Japan increases from EUR 100 million to EUR 125 million OCG. And we will achieve this by leveraging on our leading protection positions in the 10 markets that we operate. We have unique multidistribution platforms, providing both diversification and excellent opportunities for accelerated growth. We see a structural market demand for protection products that we offer in Europe, but also in the SME market in Japan, where we continue to be able to allocate significant amount of capital with high double-digit IRRs. At the same time, we invest in digital capabilities, leading to more digital customers and increasing amount of digital leads, improving lead to sales conversion and agent productivity ratios. Despite the occasional headwinds in Japan from tax and regulatory changes, we expect our shift to protection products will compensate for the declining sales of financial solution products, leading to an increased target for Japan of EUR 125 million OCG. And Fabian will talk more about the international units later this morning. In summary, these international units are becoming a more substantial part of the total group OCG as reflected in the new higher OCG targets for Europe and Japan. So let's bring a strong balance sheet, strong cash flows in the Netherlands and the growth of the international business together. Now this is a core slide for us, and it's an updated version of the slide that we presented at the 2020 CMD. It confirms a very important point, despite the fact that OCG growth has been brought forward, with the original 2020 expectation and that it grew much faster than the mid-single-digit rate. We can reconfirm the mid-single-digit growth to 2030, starting from the higher 2021 basis. And this is driven by organic growth drivers. Firstly, the underlying runoff of the life portfolio is offset by DC growth and potentially buyouts. International -- these units are expected to grow faster, given the underpenetration action and our unique distribution platform. The Non-life business can grow slightly faster than GDP by investing in data, underwriting and other select pockets of growth. So overall, this remains an attractive long-term growth profile. The long-term growth profile of OCG enables us to continue to provide strong and sustainable capital returns to you, our shareholders. This chart slows our strong track when it comes to our commitment to attractive capital returns. We have achieved a dividend growth of 7% since 2019 and have continued to provide a recurring share buyback of EUR 250 million per year, plus an additional EUR 750 million buyback this year following the completion of the sale of NNIP. On the right-hand side of the slide, you can see the attractive dividend share buyback yield. Therefore, we reconfirm our capital return policy going forward and we will remain disciplined around capital deployment. Our first priority is to invest in the organic growth of our business and to deliver on our capital return policy via dividends and share buybacks. Excess capital will be returned to shareholders, unless we can invest it in value-creating opportunities such as inorganic growth, but always subject to our strict criteria. Later on, Annemiek will provide some more details on how we think about the deployment of excess cap. Now obviously, you also want to know what this means for the coming years and that this is not only a long-term promise. Therefore, in summary, this slide sets out our financial targets for 2025. Our strong market position and organic growth drivers means we're confident to grow OCG to EUR 1.8 billion in 2025, and we will achieve a mid-single-digit growth in the long term taken into account the OCG growth brought forward. This will translate into mid-single-digit growth of free cash flow. The segment targets reflect higher expected growth for the international units, higher OCG at Netherlands Life and an improved combined ratio nonlife. Expense control has always been important and even more so in the current inflationary climate. And that's why we've also set targets on expenses for our Dutch units, such as administrative expense ratio for the Non-life business below 10% and a cost income ratio of below 55% for the bank. As I said, capital return policy is unchanged with a progressive dividend per share and a minimum share buyback of EUR 250 million. At the same time, we have updated our strategic targets to 2025 with a focus on customer engagement, attracting talent and working towards our net 0 pledge because ultimately, these targets drive our long-term growth. In line with our overall ambition, we aim to significantly outperform our competitors in terms of customer engagement. We have further increased our target for employee engagement to ensure that also in tight labor markets, we have the capacity to drive our transformation. We have aligned our society target with our commitment to reach net 0 investment portfolio by 2050. Therefore, we commit to reduce greenhouse gas emissions of our corporate investments, and we are doubling the investment in Climate Solutions, and I will say more on this in the coming slides. Finally, we continue to support the communities around us with a focus on contributing to the financial, physical and mental well-being of 1 million people. Now climate change obviously is a significant global concern, as discussed also during the recent CUB Summit in Egypt as well. The financial sector can play an important role in the transformation to a low-carbon economy. Therefore, we are taking action in our investment portfolio, in our underwriting, our products and services as well as in our own business operations. We can make the biggest impact with our investment portfolio, and I will talk about that on the next slide. Then products and services. Sustainability is more and more top of mind for retail customers, too. We want to help them by offering specific products like coverage against severe weather events, or sustainable defined contribution life cycle pension products. We also have a sustainable mortgage label Woonnu, which is aimed at supporting people to make homes more energy efficient. On the insurance side, we joined the Net-Zero Insurance Alliance, and we aim to transition our underwriting portfolio to net 0, while at the same time working with other insurance companies to develop metrics and set targets. And also our own footprint, even though it's a small part of our total environmental impact, we aim to reduce the emissions from our own operations by 70% in 2030. Now then to our proprietary investment portfolio. As an asset owner, we can make a real difference in helping companies to decarbonize. And our goal is to transition to proprietary investment portfolio to net 0 carbon emissions by 2050. And we have set interim targets on this, reducing the carbon emission of our corporate investment portfolio by 25% in 2025 and 45% by 2030. We also aim to invest an additional EUR 6 billion in Climate Solutions by 2030, more than doubling our current investment to EUR 11 billion. These are investments in green bonds, renewable energy projects such as solar and wind farm and energy-efficient real estate. On the funding side of our business, we launched a sustainable framework in February this year and completed our inaugural green debt issue in August. To sum up, we are committed to help to limit the impact of climate change in all areas of our business, and this is embedded in our strategy, in our targets and in our day-to-day activities. Now if we bring this all together, the question, of course, is what does this mean for you as a shareholder. We are reconfirming our commitment to investors. And if I would sum this all up in 1 sentence, it means that we're committed to being a stable provider of attractive and growing capital returns in a currently volatile world, which then brings me to the conclusion and the final slide. Today's key takeaways are: we have over delivered on our targets up to 2023. We have laid around work for future profitable growth. We have set ambitious strategic and financial targets for 2025. We can do this because NN has a resilient business model and a relatively low risk profile. And we're well positioned to weather volatility and to continue to grow OCG in the long term. And we remain committed to delivering attractive returns to shareholders. Now with that, I would like to give the floor to Annemiek, who joined us this summer, and I'm also very happy that she joined us. So very happy to have you on board, Annemiek, and over to you, and I will see you later on the Q&A.

Thank you, David. Good morning to all of you. It's nice to meet you in person again as it has been a while, and it's actually the first time since I became CFO of NN about 4 months ago. In the last 4 months, I've visited many of the businesses, and I've spoken to a lot of colleagues. And I have to say the colleagues both within the management board and also outside the management board have been extremely helpful in getting me up to speed quickly as a new CFO. And obviously, with the macroeconomic uncertainty and with the market volatility, it's a very interesting time to start as CFO and the key message that really stands out to me here in the first 4 months is really about NN's predictable cash flow that allows us to continuously invest in growing the business while providing predictable and considerable capital returns to shareholders even in uncertain times. And that also ties into the key takeaways that I would have today. Over the last couple of years, NN steer this business very well through volatile markets and delivered considerable capital returns. We're confident that we will continue to do so, and we have increased our OCG target of EUR 1.5 billion in '23 to EUR 1.8 billion in '25. All businesses contribute to this increased OCG target. And although we did bring growth forward versus what we indicated at the previous Capital Markets Day, we do confirm our mid-single-digit long-term OCG growth target. We also expect mid-single-digit growth of free cash flow, both towards '25 and over the long term. Based on this free cash flow growth in our resilient balance sheet, we confirm our current capital return policy consisting of a progressive dividend per share and a buyback of at least EUR 250 million. NN has done historically. If we have excess capital, we will either invest it in value-creating opportunities or we will return it to shareholders. Let's take a step back and look at the financial developments since the last Capital Markets Day. Since 2019, we generated EUR 4 billion of OCG and returned 55 percentage points of solvency to shareholders and generated 55% solvency points in OCG. We returned EUR 3.7 billion or 42 percentage point of solvency to shareholders and the OCG generated also allowed us to partially mitigate the impact of regulatory changes of which we observed quite a few. You can see that in the bucket dollar. This includes the 15% UFR step-downs, the 10% impact on group solvency by including the bank and the solvency ratio and a few more. In addition to the capital returns, we also significantly invested for inorganic growth in both non-life and Europe with the acquisitions of VIVAT Non-life, MetLife. This was broadly offset by the sale of NNIP and therefore, largely self-funded. During this period, we observed significant market volatility, yet the overall impact of it was relatively neutral with 4%, demonstrating the resilience of our balance sheet. So in short, we managed risk well through volatile markets and our resilient balance sheet as well as strong operating capital generation allowed us to invest for growth, absorb regulatory changes and continuously provide an attractive return to shareholders. And we will continue to do so, which is reflected by our new targets. Let's have a look at these. At the last Capital Markets Day, we guided for mid-single-digit OCG growth long term, a guidance that we will reconfirm today. For the medium term, as said, we've increased our OCG target of EUR 1.5 billion in '23 to EUR 1.8 billion in '25, and all segments contributed to this growth. For Life, we increased the OCG target of EUR 900 million to EUR 1.15 billion, reflecting both the shift to higher-yielding assets that we've done so far and the current market environment. In addition, expenses are guided to continue to decrease in line with the run-off of the portfolio, which remains a crucial element for our Life business. On Non-life, we increased OCG guidance of EUR 250 million to a target of EUR 325 million and we've also decreased the combined ratio with 1 percentage point to 93% to 95%, showing our confidence that we can further optimize the business also post the current benign environment. In Europe, we continue to see strong performance despite the current macroeconomic challenges. We've, therefore, increased the OCG target from EUR 365 million to EUR 450 million. For Japan, we increased the OCG target of EUR 100 million to EUR 125 million. And for the bank, we've upgraded the OCG target from EUR 70 million to EUR 80 million. For the bank, we also maintain our minimum ROE of 12% and a cost income lower than 55%. For group, we now expect mid-single-digit free cash flow growth in line with our long-term OCG growth. We reconfirm our progressive dividend per share and our buyback annually of at least EUR 250 million. Let me give you some more insights into these OCG targets. As you can see on the slide, the originally targeted OCG growth of EUR 1.5 billion in '23 was actually brought forward with a '22 level clearly ahead of plan and exceeding this. There are 3 key drivers for this acceleration. We accelerated the shift to higher-yielding assets in Netherlands Life as we took advantage of dislocated market during COVID. We also saw very strong business performance, mainly reflecting the non-life transformation and the current benign claims environment in the Netherlands, as well as a profitable growth in Insurance Europe, which is all reflected in the business improvement bucket. And we saw market impacts clearly visible in '22. Whilst we do not expect this acceleration of OCG to continue with the same trend, we do expect to be able to continue to grow OCG mid-single digit from the reported '21 levels onwards. For illustrative purposes, we've also updated the chart that we show in the previous Capital Markets Day, which indicates the expected longer-term OCG evolution. As you can see on the slide, we continue to expect mid-single-digit OCG growth over time, but from a higher starting base, the EUR 1.6 billion in '21 versus the EUR 1.3 billion that we had in '19 and this is really driven by underlying business growth. The basis is formed by a large and stable contribution of Netherlands Life. We've seen an uplift due to markets in '22 so far. And over the next years, the impact from the runoff of the portfolio is broadly offset by a lower UFR drag growth in DC and to a lesser extent, buyout opportunities. As Bernhard will explain later, we expect limited upside from further optimization of the investment portfolio. Insurance International remains a key driver for OCG growth. In Europe, continued profitable new business sales in growing markets will continue to increase OCG, while in Japan, we focus on long-term modest growth by a shift to protection. For Non-life, further improvement of the combined ratio and growing fee business contribute to a long-term gradual increase of OCG. The bank will first have to recoup the OCG decrease experience in '22, driven by lower income and a higher RWA, but the expected net interest margin expansion and moderate portfolio growth is expected to lead to modest growth from '21 levels over time. We expect the increased contribution from the segment to more than compensate some increased holding expenses, which largely relate to higher debt servicing costs due to interest rate rises. Now let's move from a long-term growth perspective to the key drivers of our OCG target in '25. The updated target of EUR 1.8 billion reflects over EUR 300 million growth versus the '21 figure of EUR 1.6 billion, if you would adjust that for the sale of NNIP. It reflects overall moderate growth from current levels as the market-related uplift has already largely materialized in '22, which is reflected in the second bucket on the slide. This is mainly why we expect the life contribution to be relatively stable from current levels. It increased materially since '21, mainly driven by higher interest rates, so a lower UFR drag and an increased investment portfolio and an increased investment return, which was also based on the shift to higher-yielding assets. Going forward, we expect limited further upside here, as I indicated before. For Europe, we do expect strong OCG growth to continue also towards '25 as new business feeds into OCG and the contribution from MetLife, Poland and Greece expenses. This is reflected in the second bucket and also the reason why we increased the third bucket. And also the reason why we increased the target of Poland of international from EUR 365 million to EUR 450 million. Now although we do expect both Non-life and the bank to further improve their underlying business performance, you don't see any clear contribution of them to the EUR 1.8 billion growth target in '25. Non-Life reported very strong full year '21 results, benefiting from a very benign claims environment and strong market sentiment in both P&C and D&A. Over time, we would expect some normalization here of claims and also of that market environment, but we do expect to compensate that by a further improvement in -- by further underwriting improvements and also by the growth in the fee business. Bank enjoyed a very strong '21 as well, which was largely driven by high prepayment penalties and high fee income based on strong investor demand for mortgage. This obviously really reverted into '22, driven by higher interest rates, but we're confident that the gradual expansion of the net interest margin and selective portfolio growth will get the bank close to those levels again over time. So summarizing. We expect the positive impact of markets largely captured already in '22 as well as the continued OCG growth of Insurance Europe to more than offset the increased debt servicing cost and to be the key drivers of growth to EUR 1.8 billion in '25. Whilst at the same time, we expect the underlying OCG of Non-life and bank to improve. Now it is stating the obvious, but the OCG does remain sensitive to market movements. We've listed a few here on the slide, and there are a few more in the appendix as you're all aware of. So let's move from OCG to free cash flow. Main message here is that we expect free cash flow to grow mid-single digits. This is based on a normalized 2001 level adjusted for items such as the sale of Asset Management, which is now completely out as well as a higher catch-up dividend from the bank following a COVID dividend ban earlier. For free cash flow, we expect mid-single-digit growth, not only in the long term but also towards 2025. And as especially the dividends from Insurance Europe and Non-Life are expected to grow materially driven by strong business performance in those areas and also by improved local solvency positions. Let me point out that free cash flow doesn't always fully follow OCG as there tend to be items that impact the local solvency ratio and remittance capacity that are not part of the OCG like the UFR step-downs. As we've seen on 1 of the earlier slides, they reduced the solvency by around 15 percentage points. There could be another UFR step-down in '24, which will have to be absorbed by the solvency of Life. For the bank, we have now been imposed a countercyclical buffer of 2%, which we will need to grow into in '23 and '24, which is also not captured by the OCG figure. And for the international business, we see local restrictions on dividend. They are typically based on U.S. GAAP, which is the basis for OCG, leading to partially nonavailable owned funds and impacting remittances. However, the remittances are expected to grow over time, as OCG growth also grows over time based on local GAAP profits. Having said that, we do expect free cash flow to grow long term in line with our OCG growth. A few words on our balance sheet. Our balance sheet is strong and it offers sufficient financial flexibility. Our group solvency position ended at 205% in September, and all business units are well capitalized. With a Tier 1 headroom of EUR 1.2 billion, Tier 2 of EUR 900 million, we continue to have ample flexibility. We also have a robust liquidity framework in place, both at entity level and at group level. This consists of immediately available cash, repos, committed repos and a revolving credit facility at group. Zooming into leverage on the next slide, I will say the key takeaway being here that we're comfortable with our current leverage position. We've historically had low financial leverage, and we continue to have a well-balanced maturity profile and strong debt servicing capacity driven by our strong free cash flow generation. Our credit ratings are well in line with a single rating target, and we successfully replaced an old 9% coupon Delta Lloyd legacy bond in August. Now the strength of our balance sheet and leverage position are important drivers for our capital framework, as is shown on the next slide. As you know, NN has a 3-pillar framework that looks at solvency, cash capital and financial leverage. We've added a solvency letter as an indication on how we look at the solvency pillar within this capital framework. Obviously, it's not mechanical. It will take onboard macroeconomic outlook, OCG expectations and upcoming regulatory and model and assumption changes. We've defined the comfort level between 150% and 200% of solvency. And within this level, we expect to pay a progressive dividend per share and a regular buyback of up to EUR 250 million. If the solvency ratio is sustainably above the 200%, this will provide opportunity for additional capital returns. For the operating segments, we keep capitalization at a level to be commercially successful. Any surplus capital is upstreamed to the holding. For Netherlands Life though, we continue to manage the business on sustainable and stable remittances and on maintaining a strong solvency level. This is key to the predictability of our capital return. The second pillar, cash capital at holding enables us to have cash available to cover stress events in the operating segments as well as to cover holding expenses for 1 year. The third pillar relates to financial leverage, where we aim to maintain a level consistent with our single A financial strength credit rating. We manage our capital in a holistic way. Looking at these 3 parts in conjunction that are closely linked were the aim of providing attractive and predictable returns even in these volatile markets. In doing so, we remain absolutely committed to have a progressive dividend per share and an annual buyback of at least EUR 250 million. And has done historically, whenever we have excess capital, we will either invest it into value-creating opportunities or return it to shareholders in the most efficient way, similar to the return of the net M&A proceeds of EUR 750 million over the sale of NNIP and the recent acquisitions. Now let me wrap up and conclude that. Over the last couple of years, NN steered its business very well through volatile markets and created substantial capital returns to shareholders. We're confident that we will continue to do so, and we've upgraded our EUR 1.5 billion OCG target of '23 to EUR 1.8 billion of '25. And although we did bring growth forward versus what we indicated on our last Capital Markets Day, we do reconfirm our long-term mid-single-digit growth guidance. We also expect mid-single-digit free cash flow growth to '25 and also over the longer term. Based on this and our resilient balance sheet, we confirm our current capital policy consisting of the progressive dividend per share and an annual buyback of at least EUR 250 million. With that, I'd like to hand over the floor to Bernhard, our CRO.

Thank you, Annemiek. And hello, everyone. Good to see you. In my part of the presentation, I will give you insights into how we manage risk in these uncertain times. And I want to address how our diversified risk profile supports operating capital generation. And I want to discuss the strength and resilience of our balance sheet. So let me start with our risk profile and the financial strength. Our capital position is strong with a solvency ratio of 205% end of September. If you look at the development of our solvency capital requirements since our previous capital market day, this is the table to the left-hand side of the slide, there are 2 main changes. Market risk increased and insurance and business risks decreased. Increase in market risk is reflecting the shift to higher-yielding assets. We now have achieved a good asset mix with capital requirements for interest rates being close to 0. The main driver for the decrease in insurance and business risks is the reduction of longevity risk. Even so longevity remains the largest insurance risk driver, we achieved the reduction of longevity risk via the reinsurance transactions that we did over the last years. So we have a well-diversified risk profile, which is supporting sustainable operating capital generation. Now let me go through the key sensitivities of our solvency ratio. At current interest rates, our close economic interest rate position leads to a relatively low interest rate sensitivity for both parallel shifts and steepening of the interest rate curve. Interest rate sensitivities have reduced over the last years. There are some moderate changes to the other sensitivities. Those are mainly reflecting our rerisking and rebalancing activities within our asset portfolio over the last 2 years. For example, a joint 50 basis points spread widening of corporate credit and mortgage spreads would now lead to a minus 5% total impact on our solvency ratio. Please note that our sensitivities are point-in-time estimates and linear approximations. And therefore, if market movements are larger, the range of the application of the sensitivities is limited. For all of our key sensitivities, we have defined tolerance levels. We monitor the respective exposures on an ongoing basis, and we take actions to stay within the levels if needed. And since the introduction, we have never had a breach of these tolerance levels. And even so, we have not changed our tolerance levels in the last years, and our sensitivities have not changed very much. We observed in the current environment, a higher volatility of our solvency ratio simply because of elevated market volatility. So let's discuss the key drivers of volatility of our solvency ratio in a bit more detail. And I will start with interest rates. Our approach to interest rate risk management has not changed. We continue to view interest rate risk as a nonrewarding risk, and therefore, we do not make interest rate bets. We apply strict cash flow matching of assets and liabilities on an economic basis using fixed income securities and interest rate swaps. As you can see on the visual on the right, this means the economic impact from changes to interest rate is close to 0. And there is a remaining interest rate sensitivity of the solvency ratio according to Solvency II valuation principles, so resulting from risk margin and with UFR impact. But in this environment of higher interest rates, the resulting sensitivity is now low. When we manage our interest rate position within our economic steering approach, we take these sensitivities and the impact on the solvency ratio into account. Lastly, on interest rates, the recent increase of interest rates triggered additional collateral requirements for our swap portfolio. We actively manage the liquidity requirements for required collateral, and our conservative balance sheet is very liquid and we have prudent liquidity policies in place on group and on legal entity level. This consists of immediately available cash on legal entity and on group level, but also committed repo facilities and revolving credit facility at group. So with this, we feel very comfortable with our current liquidity position. Another driver of volatility of our solvency in this year were mortgage spreads. You see from the chart on the left, mortgage spreads this year were exceptionally volatile. This is a result of larger volatility in interest rates while commercial client mortgage rates are typically adjusted with a time lag. So our whole mortgage portfolio is valued on the Solvency II balance sheet using the current point in time mortgage rates offered to clients in the Dutch market. And so the volatility of these rates directly translates into volatility of our solvency ratio, and this is obviously leading to artificial volatility. In addition, unlike for corporate bonds and government bonds, there is no dampening effect on the liability side in the form of a volatility adjustment for Dutch mortgages under Solvency II, which are problematic as mortgage spreads are not moving in line with other credit spreads. So the underlying volatility -- of the resulting volatility is really not an adequate representation of the underlying risk. What are potential measures to mitigate this artificial volatility. One way is to address noneconomic point-in-time effects and another way is to include a dampening mechanism specifically for Dutch mortgages and the internal model to enhance the volatility adjustment. These adjustments take time to explore and implement and therefore, it's too early to comment on visibility. To wrap up this section, please be reminded that the impact of changes of interest rates and credit spreads, including mortgages, are mainly related to stock and flow items. So an immediate negative impact of market movements on the solvency ratio means an increase of operating capital generation over time and vice versa and the related volatility is not impacting the real underlying cash flows. Now some more insight into our financial strength and resilience in this environment. An essential part of our NN Group strategy is to remain a strong and resilient balance sheet, which is supported by our high-quality investment portfolio. And we will continue with our conservative approach to investment risk. What we have achieved is that the target that we said previously on Capital Market Day 2020 to increase operating capital generation by at least EUR 200 million shifting to higher-yielding assets. This is something we have achieved. And our current asset allocation is close to our target strategic asset allocation. So we now gradually further optimize our asset allocation without further increasing market risk. And therefore, we expect only limited further upside on OCG. Let us go through the key asset classes in a bit more detail and how they are impacted in a recession or inflation scenario. One of the asset classes that we have strategically invested in Dutch mortgages, representing around 1/4 of our total investment portfolio. The profitability of this asset class is good. Its spreads are around 200 basis points. The risk profile is low. Most of the mortgages are originated by NN Bank, providing unique sourcing capabilities. We stick to a very disciplined underwriting approach, and our investment portfolio, we hold long maturities and long maturity mortgages with fixed rates. This asset is embedded into a strong institutional framework in the Netherlands. So there's strong social security, adequate unemployment benefit. There are restrictions on LTV, special tax treatments and around 30% of the portfolio is backed by the Dutch government. So therefore, we do not expect a large number of sellers in this market even in an inflation or recession scenario with less disposable income of households. The current loss loan-to-value level of our mortgage investment portfolio is low at around 55%, which is even lower than pre-COVID levels. And that means that even with pressure on housing prices, we do not expect large impacts given current low LTV levels. And lastly, there is still a large shortage of houses in the Netherlands, which will also offset the pressure from higher mortgage client rates. Historically, mortgage losses in the Dutch market in terms of recession and especially in NN portfolios have been low, as shown on the next slide. In a recession scenario with high unemployment, we expect losses to increase but unemployment levels and losses currently are at historical lows in the Netherlands. And at a reference point, after the financial market crisis, we have observed peak losses of around 10 basis points, which is still a low level. So overall, this makes us -- makes our mortgage business a very attractive asset class from a risk-return perspective. It's matching our long-term liabilities. And we are very comfortable with this asset class also going through an economic downturn despite the volatility it implies on our solvency ratio. Now I move to real estate and corporate bonds. We have a well-diversified real estate portfolio across sectors and geographies, in good locations. Overweight is Western Europe, and we underweighted U.K. Ireland, which served us well in the Brexit context. And overall, we also overweight industrial and underweight offices, which has helped during COVID times. And the occupancy ratio of the portfolio is high with 94% and we put much focus on location and selection. In some markets, we see house prices already declining and in a potential recession, there could be a negative impact on valuations also on our real estate portfolio. But as a long-term investor, we can look through the economic cycles and real estate is over the long run, profitable and an inflation-protected asset class. For corporate bonds, first thing to note is that our exposure is small, representing only 60% of our total investment portfolio. The majority are single name exposures and the credit quality of the corporate bond portfolio is high. And also, this becomes clear when we look at the limited impact from credit migration and defaults, which is on the next slide. So on the left-hand side of the slide, the results are shown for 1 big letter downgrade for 20% of the total corporate bond portfolio to assess the impact from credit risk migration. From such a scenario, we expect a negative impact of around 3 percentage points of solvency. And we also looked at peak level default rates during the Great Depression and the financial market crisis in 2008 to calibrate the impact of default risk scenario. And you can see that the impact in both scenarios on the Solvency II ratio would be in the order of a few percentage points, representing our very good underlying credit quality of the portfolio. So now how are we doing in the current economic environment? So far, the impact from inflation and the economic headwind has been limited. For Netherlands Life, the majority of liabilities are not sensitive to inflation for Netherlands Non-life, the impact so far is also low, which will Tjeerd will cover in more detail later. And the impact of market value changes on our risky assets on our solvency has also been limited. So we've done remarkably well in this current turbulent environment. And even in a more adverse economic environment, we are well positioned to weather the storm, as just explained, potential impact from default credit risk is rather limited and in general, inflation, higher real rates are good for savings products and life insurance and also to reinvest at higher rates. To close this section, a few words on the regulatory environment. We still assess the impact from the Solvency II 2020 review to be digestible implementation of the new regulation is not expected before 2025. Regarding IFRS 17, we expect no additional constraints on remittances capital management of solvency and our strategy and business model is unaffected. But more -- on this also later in the IFRS 17 presentation. For NN Bank, the regulation introduced now the phasing in of the countercyclical buffer for NN Bank. It's also relevant for 2023 and 2024, which will increase SCR and therefore, also has a negative impact on the group solvency ratio. On ESG, we are implementing the various regulatory requirements and embed those be it internal into our strategy and goals, also the external requirements in our risk management processes. And we continue to have a regular dialogue and discussion with supervisors and regulators on various topics. So to summarize, we have over the last years successfully implemented our strategy and improved the risk profile, which is well diversified and supports sustainable operating capital generation. Obviously, we cannot fully mitigate solvency ratio volatility, especially not in these markets. But most of the volatility goes back to stock and flow items and does not impact the real cash flows. And we have a strong and resilient balance sheet supported by our high-quality investment portfolio with low credit risk, and we are well positioned to weather even more severe economic scenarios. With this, I will hand over back to Ruben and for the Q&A.

Yes. Thank you, Bernhard. So now it's time to move to the first Q&A session. A lot of hands. I see, so that's a good sign after the session of Bernhard on the update of the strategy and our targets. So I've been finding David and Annemiek on stage as well. [Operator Instructions] So thanks, guys. Maybe we can start on the right with Ashik.

Ashik Musaddi form Morgan Stanley. Just a couple of questions. So first of all, would like to get a bit more color as to what is the definition of sustainable when you think about this above 200% solvency and like higher dividend, i.e., you want your solvency to be sustainably above 200% to think about extra buybacks. So how do we think about that definition of sustainable, especially in light of presentation by Bernhard that market risk is not really a big thing. I mean, whichever way you look at it, it doesn't look like your solvency will move around a lot given the diversification of the book. The second thing is, if I remember correctly, in the past, there is always a view that free cash flow and OCG would more or less be similar over time. Are we trying to say that now going forward, there will always be a gap between the 2 because OCG is moving mid-single digit, free cash flow is moving mid-single digit. But with a lag of $300 million, which is 20% GAAP. So is that gap going to stay in the near future?

Yes. Thank you, Ashik. Annemiek?

Yes. I think they're both mine. Your question on sustainability, sustainably above the 200%. What we mean by that is that based on the forecast that we have at that point in time, which take on board the macroeconomic situation, the OCG outlook, upcoming model and assumption or regulatory changes. We feel that we're sustainably above that 200% level. Your question related to OCG versus free cash flow. As I already said in my presentation, there are some items that are actually not captured within the OCG that do impact the free cash flow. I've mentioned the UFR step-down. There could be another one which will have to be absorbed by life, which is not in the OCG but is actually reflected in the free cash flow. Same goes for the bank, where we have to absorb for the countercyclical buffer. That would roughly be -- it's divided over 2 years, but in total, it could be 3% on group solvency ratio. And then for the international business, the actual remittances are defined on local GAAP. And we typically have some non-available own funds there. As a rule of thumb, you could maybe think about 1 percentage point of solvency over the year. So there are always some items that are just not in there.

Sorry, just one clarification on this. So if I understand the bank mortgage thing and the UFR thing is a drag on OCG, but why would it be a drag on free cash flow? Because I mean, bank is -- if you increase the capital requirement for bank our OCG comes down, but probably -- so that should actually mean that free cash flow should be even higher than OCG, if I understood correctly.

No. That's not the case for the bank. And also what we've seen in the UFR step-downs for life, they will have to absorb that within their solvency ratio, and it is not part of the OCG. So in total, that is a difference between the actual capital generation that we see and the OCG. So it's not fully aligned. But the growth trend will be similar.

Next question. Cor, please go ahead.

Cor Kluis, ABN AMRO. Two questions. First of all, on re-risking you made during the last Capital Markets Day, of course, clear that you had EUR 200 million OCG by re-risking or optimizing I think if you look through your balance sheet versus peers, it's still clearly less risked than in others, 2% equities, I think it's one of the lowest around at least in Europe. Why not re-risk more, stock markets are down 20%, 30%. In the past, you had some nice timings that your in Covid sometimes, buy some equities. You don't do it now. Is there a signal or is there something about solvency? Or what's the view? Or do you have a quite pessimistic view on the world in the next 3 years that normally you buy in times of crisis. And I think somebody in the U.S. bought EUR 60 billion in the last 9 months was not generally good in timing, but why not re-risk and especially in the current environment with low stock market nice credit spreads? And second question is Japan Life. Of course, you can never say what you're going to do with it, but I think it's around quite some ineligible capital, [indiscernible] excess capital there, which you cannot touch how committed are you to Japan? Do you totally exclude a divestment in the future? Or what's your view on that? That's my 2 questions.

Yes. Let me start on Japan, yes. So as I was saying also in my introduction, so we continue to evaluate all the units and portfolios in our businesses. And you've also seen that we have been taking action on the portfolio. So -- and that includes Japan. The reason why we haven't set any steps in Japan is that there's a couple. First of all, it's a business that we know very well. We started this over 30 years ago ourselves. We have a leading position in the corporate life space. Obviously, Japan is a very large market. It's the third largest market in the world. So it enables us to deploy a significant amount of capital at attractive IRRs at the previous Capital Markets Day, we talked about 14% IRR, and that's still the case. In fact, protection products actually given -- even a higher IRR than that. So that's the positioning of that business makes it attractive. Now additionally, it also helps to diversify the profile of the group. So in terms of cash and growth, but also in terms of spread, originally, when we IPOed the company we were very much a spread-oriented company because of the dominance of NN Life, and we've seen, over time, a better diversification. Because of the VNB coming out of Europe and Japan that we now see a more diversified mix between spread and also technical margin and fee business. And Japan helps to diversify that profile and then there's some smaller benefits in terms of diversification as well in our internal model. So that all in all, makes Japan an attractive business for us. But again, the -- as I say, we'll continue to evaluate if we feel at some point, but that is not specifically for Japan if we feel we're not the right owner, then we will take action on that. Yes. Let me start on re-risking and maybe Bernhard can add. So at previous Capital Markets Day, we announced a EUR 200 million uplift of OSG because of re-risking. We didn't do that because we didn't think they were more possible, but it was also because we want to maintain a very strong and predictable balance sheet. And that's -- that's also why we came up with, let's say, the EUR 200 million. Now as you know, COVID created some very good opportunities. I think some of the things that we did were very well timed and therefore, it was actually achieved ahead of plan. Now if we look today at where we are, there might be some room left and right to increase for example, investment-grade corporate bonds, if we would look at our strategic asset allocation, there might be some room. But first of all, today, we don't think this is the right moment to do that. And second, even if we would, it's certainly not as material as the steps that we were looking at in the past. Now this can change over time. But today, given the economic climb, but also that we really want to maintain a strong and predictable balance sheet. We're really looking more at optimization than really a big additional step in terms of re-risking.

All right. So maybe we can then move over to Benoit.

Benoit Petrarque from Kepler Cheuvreux. So the first question is really on OCG growth and maybe focusing more on 2022, 2025. So you have the EUR 1.8 billion level for 2025. Now if we do the math on 2022, I think we will get towards the EUR 1.7 billion, maybe a bit more than EUR 1.7 billion So it looks like the CAGR 2022, 2025 will be kind close to 1%. So I wanted to get your view on -- yes, did kind of growth for the coming 3 years, basically, what you expect? Is that a realistic level or that's just a very cautious growth outlook for NN. The second one will be on the dampening effect on the mortgage portfolio, what you plan to implement. Can we expect some effect on the stock at implementation date? Or will that be just a dampening effect going forward with no impact on the stock of capital. So just wanted to clarify that. And maybe to come back on this, yes, the 200% level and the sustainability. I know it should not be too mechanical, but if we are above 200% for say 2, 3, maybe 4 quarters in a row, can we expect at some point action on your side?

Okay. Thank you, Benoit. Annemiek, you talked about the OCG growth and the 200% not-mechanical, as you say. And then Bernhard can do the question on mortgages.

On the OCG growth, I think your expectations on the '22 level is a fairly good one. And also your conclusion that there is then towards '25, still some growth but it's towards '25, not mid-single digits from the '22 level. I think that's a good conclusion. And it's based on a couple of items. I think Life is fairly stable. What we've seen versus the last Capital Markets Day, we actually brought part of that growth forward. By the re-risking and we still have the benefit if the book runs off that we have a lower UFR drive, but the UFR impact has just become less than what it was in 2020. So that's more or less stable. Where we compensate the runoff of the book still by or impact of the UFR and also by a bit of the increase in the DC proposition. So that's stable. Europe is expected to grow. And if you think about the '22 expected versus '25 level. That growth has also really coming from the European business. We see some impact there from rising -- from the rising interest rates on our own debt cost that you would have to mitigate for. And then for Non-Life and for bank, we've indicated that 2021 were very good years there. On Non-life, we still had cohort frequency benefits in there. That was just in general, a very good year in a very benign environment. We expect underlying further improvement of the combined ratio, but also that the market sentiment in Non-life and the claims to normalize a bit. That's why we more or less would assume that to be relatively flattish towards '25. On the bank, '21 was really good as well because we have very high prepayment penalties, very high fee income. That obviously reverted in '22 by the rise of interest rates, the income from bank looks different. But we do expect that the expanding net interest margin will recoat. So on the line, there will be improvements from Non-life and for Bank, but an actual growth, '22 to '25, we don't expect a material impact from that. Your question as to the sustainability, if we would be several quarters above the 200 percentage point of solvency ratio, and we will have a good outlook, I would qualify that as sustainable.

And on mortgages, it's too early to tell because this is something we are exploring, and this involves also discussions with auditors, regulators and to manage expectations, I would not expect something before mid of next year. And also this question you touched on has an effect on stock of capital, yes or no, that is too early to say.

All right. Maybe move one gentlemen to the right of Benoit.

Andrew Baker from Citi. I guess, first one, just on the OCG work on, I think, B7. Just to clarify, the -- I think it's as of the half of June 30 markets, you indicated at half year, you're expecting EUR 150 million benefit in the second half of this year. I know that's come down probably to EUR 100 million or so. But is that number in the EUR 1.8 billion? Or is the EUR 1.8 billion actually EUR 1.9 billion if you were looking at the markets today, if that makes sense? . And then second one, just on the 1 in 20 year cash at holding company constrained. What does that look like right now in a sort of absolute number? And how volatile is that one in 20-year stress to market moves?

Yes. Thank you, Andrew. Busy day for you, Annemiek.

If you look at the on B7, I'm going to get the slide there. We did indeed guide at the half year results when we had the EUR 899 million out that we would expect for the second half of the year, an uplift of around EUR 150 million, EUR 100 million was related to interest rates EUR 50 million mortgages, and that was based on June. These figures are based on June. On September markets that would obviously be different. Given we always lag a quarter behind on OCG, half of that EUR 150 million, so EUR 75 million we locked in, in Q3. On September markets for Q4, that would not be EUR 75 million that would be EUR 25 million because of the change in mortgage spread. Having said that, if you roll forward a bit to end of October market, we're probably roughly in line with June market. So it continues to be volatile. But given we have a quarter delay, in total, I would say that guidance of EUR 150 million for the second half year market impact would now be not EUR 150 million, but EUR 100 million in total.

Sorry. Just -- and is that on -- in the EUR 1.8 billion or no?

Yes. It is. The cash capital level, that was EUR 2.5 billion in June. Since then, we've obviously continued with the buyback program of EUR 1 billion that we announced and we've paid out the interim dividend. We haven't disclosed the figure, but it's fair to assume that, that would be down low.

Let's move on gentlemen further of the table.

Hadley Cohen, Deutsche Bank. Just an extension from Andrew's question, which I'm not sure was necessarily answered, but the target range for the HoldCo cash has changed and you've effectively removed the EUR 0.5 billion to EUR 1.5 billion with the EUR 1 million in '20. so can you give us a bit more color of how we think about that EUR 1 billion in '20 shock scenario where that's in relation to the EUR 1.5 billion level right now and how volatile can that be going forward? My second question is on the real estate sensitivity. I appreciate that you all aiming to reduce the volatility of the balance sheet and what have you. But for a 10% fall in real estate is a 12% hit to solvency. And I think we've already started to see some real estate prices come down in the Netherlands. Bond yields continue to push higher, which could put further pressure. So how do we get comfort around that sensitivity within the solvency calculation? Yes. The rest of my questions have actually been asked already.

Okay. Thank you, Hadley. Annemiek, on the -- where do we sit today in terms of the $1 billion in '20 shock scenario. And then Bernhard can take the real estate question.

Yes. On the cash capital on the EUR 1 billion in '20 shock, I think historically, we've always guided for being EUR 0.5 billion and EUR 1.5 billion, which was a couple of years ago, the company grew, obviously. And the EUR 1 billion in '20 shocks depends on the starting level of solvency. It also depends on the scenarios you would take on board. I think it would be fair to say that we would be between EUR 1 billion, EUR 1.5 billion more on the upper end of that previous range. Having said that, if I would look at and try to get a feel of where -- at what level would there be excess capital. I would more look towards the solvency letter where we've indicated that it were sustainably above the 200%. That would be the trigger point for additional capital returns.

On real estate, we are definitely not immune against market movements. But this 10 percentage point drop of sensitivities that we show is assuming it's a shock 1 point in time and the impact then on solvency. So if you look at the forecast or if you look at also how mortgage valuation works, it also in a recession, how the recession scenario will look like. We also expect that some of our mortgages or not mortgages, but also real estate is doing better than other areas. It will be a longer process in this time, we also earn quite substantial return on this asset class. So this is, from my perspective, not a sensitivity or a stress that will materialize in a week or in a month. but it's more really something over 1, 2, 3 years. And then it's also about, again, the earnings that we have on the other side. So therefore, a little bit into context compared to equity shock, which is instantaneous and hit.

All right. Let's move over to the gentleman in the front [ Farooq ] right? Please go ahead.

Just 3 questions actually for me. Firstly, starting with David in terms of you've talked about the kind of protection opportunity. I just wondered if you could maybe just give us some proof points about where you are you're actually seeing that come on the ground? And then also maybe in terms of new business value, could you just give us a sense of what your IRRs are currently running at on new investments and how much of that maybe is Japan. I'm going to have to come back on Solvency II to Annemiek. If we come back to the issue of sustainability of the Solvency II ratio, you talked through kind of regulatory changes that are coming through and a bit about non-availability. I think the blunt question for me would be, are we at sustainable solvency levels today given where we are, I think from the math which they're looking forward, it would sound like we are both in a fairly definitive answer on that one. And then thirdly, just going to Bernhard on real estate. You very much profited from being kind of underweight offices, but just on the office portfolio give us a sense of what you're seeing on the ground, particularly in terms of rent renegotiations and actually, wherever you can see at levels sit now versus, say, more recently in history?

Yes. Okay. Thanks, [ Farooq ]. You're already allocating the question, too. So that's very helpful. So let's start on protection. The...

Shall I do Protection and you Solvency.

Yes, we could just mess with you and I'll turn it around. But -- protection, yes. So as I mentioned, the -- so far, we've seen in the last few years, the market growing around 5%, and we've been growing 10%. And I think that's because of the early focus we put on life protection. We shifted a bit earlier away from traditional endowment guaranteed products and to a certain extent, also unit-linked towards life protection I think that has served us well. I mean, for Europe, we report that in VNB and you've seen the strong development of VNB in Europe. If you look at also the growth that we're forecasting for Europe in terms of OCG, which is we now give a target of EUR 450 million. There's a bit of help of rates, but it's -- a lot of it is driven by new business contribution. If you would break down the growth in OCG, new business contribution is a very important contributor. So that -- and the reason why we're comfortable saying that is that we have been doing it already. So the growth has been there. And in fact, we would argue that the demand actually has been increasing by -- for customers. I think the biggest challenge today is actually the affordability. I mean most of the markets where we operate have double-digit inflation. So there will be pressure on purchasing power of people. And I think that will be the challenge for our distribution channels on work our way through that. In terms of returns, we all know that protection just has a higher margin than general life products. I think your question on IRR for Japan. We said earlier around 14%. In Japan, we are shifting the mix. I mean there's -- if you make it very simple with 2 types of products that we sell, which is a protection product and then more of a hybrid product that also has a savings element in there. we're more and more focusing on the protection part. We see that the fire alarm will start in a minute. So anyway, we'll see. So we're more and more focusing on the protection part. That actually has today an IRR of around 17%. So it is even more attractive. But it's still quite a bit of work to get distribution channels to sell more protection because -- well, typically short-term savings products often in the past have been a bit easier to sell for these channels, but it continues to be a very attractive market. So we guide around EUR 150 million VNB also for Japan in 2025, leading also supporting the OCG growth. I think on both cases were actually positive that despite some of the economic challenges that the product mix is a high customer demand and very good margin, and then we will also sustain that in the coming years. Please stop now. Here you go.

We'll just have a break for our maintenance, I guess. . [Break]

Perfect, yeah. Okay, so towards sustainability, are we today sustainable, Annemiek? And then Bernhard will take the real estate.

So our solvency is in general, sustainable, but the question is, is it sustainably above the EUR 200 million and would it trigger additional capital return, I guess, that's where you're coming from. We reported 205% at Q3. Obviously, we've seen quite some volatility in markets thereafter with mortgage spreads widening again, partially offset by [ VOLA ], et cetera, probably be marginally lower in October, hovering around 200%. But at this point in time, not qualify as sustainably above 200%. Now let's wait and see when we get to the full year results where we are then any decision we'll take an additional return will be based on that full year results and full year result situation and outlook.

And on real estate offices but also logistics centers, they had a specific dynamics during COVID over the last 2 years where also there was some tenants and then also rethinking, for example, their whole office program or the way of working. So -- but that led more to adjusting contracts are typically rather long-term contracts. So therefore, until now, we have not seen pricing or rent pressure in this time. Too early to tell what now happens in -- if the recession is really kicking in. The main pressure is coming via comparable real estate that is via sales. So if now in this environment, there are sales. And then in the portfolio, you see you have something equivalent so this is more where the pricing pressure, so to say, comes from now. It's not so much the underlying tenants or occupancy ratio or so.

Yes, I think it's fair. I mean if you look at our real estate portfolio, it's very well diversified, and I think we spoke about it across sectors and geographies. And I think that will definitely help. At the same time, nobody can argue that you're immune if markets really come down significantly. But I would say so far so good. .

All right. Then let's move over to Farooq.

Farooq Hanif from JPMorgan. I just want to come back on your capital targets overall. I mean in the past, you've really focused on the cash target, I just want to understand why you've shifted to above EUR 200 million because you're saying you're going to do a buyback above EUR 150 million. You're clearly comfortable with giving capital back to the market. You're also saying that you're kind of above a EUR 1 billion in '20 right now on cash or you're indicating you're at the upper end. So I just don't understand what's driving that decision? Question number 2 is, obviously, you've just said, look, mortgage spreads have widened [indiscernible] wed and you've had some market movements. What does that do to your OCG? And is that in the EUR 1.8 billion target? .

Annemiek?

Well, to start with the latter, I think we're already briefly covered it when we went through the bridge as well with the OCG target. And we based the EUR 1.8 billion on June markets. In September, obviously, we've seen mortgage spreads come in, which was good for solvency, but for the flow, it's a bit worse. But if you then look again end of October, we're probably for mortgages more or less in the same area where we were in June. So I think from an OCG perspective, OCG target perspective, not that much has changed there, actually, if you would forward it from June to kind of end of October -- end of October levels.

EUR 50 million?

Well, roughly, if you think about mortgage spreads, that could be right. I think that they first came down with around 50 bps in 3 months, and then they went up again with 50 bps and around 1 month, which also indicates a bit of volatility clearly driven by fed interest rates movements and then the lag in time with which bank actually adjusts the client rates, which happened in October. We're now seeing some indications of that being adjusted downward again, but it continues to be volatile. If we look at the latter, we really try to focus on sustainable and predictable capital returns, right? If we're sustainably above the EUR 200 million, if we have a strong outlook, there will be room for more. If we within the EUR 150 million to the EUR 200 million range, we'll focus on a progressive dividend per share, and we'll also focus on this EUR 250 million buyback. It's not mechanical, as we said before. But having said that, if you look at it, we continuously delivered on that EUR 250 million. We also delivered on it when Solvency ratios were a bit higher since 2019. but also in June, when group was at EUR 196 million when life was at EUR 187 million, even a bit further depressed in July when markets move further, we continue to remit the EUR 250 annual buyback. So we do feel very comfortable about it. Now the cash capital target that we had, it wasn't a hard target, right? We just indicated we want to have a EUR 1 billion in '20 shock, we want to be able to absorb it. but it fluctuates over time. And I guess it's also quite hard for you from an outside-in perspective to get a feel on where is that target, what is it now? Where is it going? And we feel a solvency letter that we also take into account on our decisions on dividend is more effective of how we think about it, and it's also more aligned with what peers do and therefore, a bit more -- a bit better to understand also from an outside-in perspective.

So just to confirm, it's internally driven, not regulatory-driven?

Correct.

Michael, let's move to the gentleman in front.

And I had three questions, I'm sorry. In the U.K., we've been obsessed by LDI and you mentioned your cash collateral. I wonder if you can give some numbers. And I think one of your peers actually give numbers on stress and how much it would cost. I remember from the 2020 presentation, and that wasn't there in person, I was on the screen. The -- there was an uptick in the curve from the maturing life back book. So there's a lot of cash release coming in 2027, that does doesn't appear to be here anymore. And I just wondered if I remember too probably -- and then the other thing is 2 of your peers are doing something really big. So there'll be some disruptions. You haven't spoken about opportunities. Don't you see any opportunities yet?

Okay. Thanks, Michael. I think Bernhard can take the cash collateral. I'll pick up the curve. I'll try to answer them, but I'm not sure I understood your question.

I can do that.

Yes. And then yes, peers no opportunities. Well, then I didn't do a good job in explaining, yes we see a lot of opportunities. So when we talk in the European business, obviously in the Japanese business, we spoke about the growth in protection that we see, but also in the Dutch market and later today or this morning, Leon and Tjeerd will speak around that. I think we lowered our guidance for the Non-life business, [ 93% to 95%. ] We also see some pockets of growth for example, in the direct business on the Non-life side. D.C., obviously, and well, again, we'll talk about it after the Q&A. D.C. has continued to grow. There is the possibility that the pension reform will further increase the amount of growth. But even if it doesn't, we already see today that between EUR 1 billion, EUR 2 billion net inflow we've been seeing, and there is no expectation that, that will slow down. So expectation around DC growth, there is the potential with higher rates that we might see some buyouts coming to the market on the Life side. And then we have, obviously, on the Non-life side, we have some growth opportunities and a lower ratio. I think the market is still relatively hard. If you look at pricing, we've been doing premium increases. The competition also has. And so we still expect even though there's always more pressure on retail motor than in some of the other books, a market where we think we can sustain our profitability without actually losing volume and in fact, grow the business a bit. So -- yes, I think there's more than enough opportunities out there also in the Dutch businesses. Bernhard, on liquidity.

Yes. So what was observable in the U.K. market, if you take this as an indicator of daily movements, these are movements where our cash position is sufficient to cushion this and are if this kind of liquidity squeeze would last longer. We are very well prepared to even have a higher -- or cash and higher liquidity requirements. We do not publish a specific number, and that's also not a, let's say, requirement around this in the way of kind of standard. Therefore, it's also a little bit difficult to compare a number with another. But a very good question on the costs and opportunity costs until now, we were able to do the kind of liquidity free up that we needed also for the collateral as part of our normal SAA activities as we have had enough short-term liquid bonds. So also until now, there's no opportunity costs involved for us.

And then on your question on the 2020 presentation and the uptick in the curve in maturing life book. I guess you would refer to one of the deep dives that been held, which was kind of in where we said at end 2020, the UFR drag on OCG was around EUR 1 billion per annum at that point in time. And with the runoff of the book every year, that drag becomes a bit lower. And that in itself is a bit of compensation for the actual runoff of the book and the loss of investment income that we've seen there. That was also 1 of the reasons why that attributed a bit to the growth going forward. And by the higher interest rates, we actually brought that forward because that EUR 1 billion is no longer EUR 1 billion of a UFR drag it is on a per annum basis, it's actually much lower now because interest rates have gone up. That means we have already captured that in the OCG and the actual growth of a declining book and not having that every year, is already captured in there. So there is lower growth from that perspective coming out of it.

Then before we go to the break, maybe one last question from David.

David Barma from Exane. I have 2 questions on the Netherlands Life, please. The first one, coming back on cash versus capital. So wouldn't you say in the current rate environment, what we see as capital generation in Dutch Life is a much better reflection of the real generation capacity of your business. And hence, I'm now trying to understand the gap we were talking about before between the 2 and why those 2 couldn't convert sooner? Or -- and to put it next to that, you talk about commercial levels for your capital positions in your local entities. And that Life has been anywhere between EUR 200 million and EUR 220 million in the last few years. Is that really a commercial level for Dutch Life. And the second question is on longevity. You showed a slide development on longevity SCR. What's your thinking about your opportunity still there to reduce that?

Yes. Thanks, David. So on cash capital in the commercial levels, obviously, EUR 200 million is not -- Annemiek and then Bernhard on longevity.

Yes. If we capitalize all units on commercial capital levels, except for Life because for Life, we really focus on having a stable and sustainable remittance out of that. And if you look at the remittances for Life in 2019 and 2020, Life actually remitted more than its OCG. And that was partially driven by the expected uplift of investment return because we knew we were going to do the shift to higher-yielding assets. And it was also related to a longevity transaction that we did at that time where we freed up capital, which was also contributed. I think we're now moving more towards an era where the based on current market levels, the OCG will be relatively in line with the free cash flows coming out of Life, except when they would have to absorb another UFR step down or other regulatory impact. We would probably like them to absorb that within the solvency ratio as it currently stands, if it has been built up forward and if it is sustainably above 200 percentage level as well, then that would not be needed and that would be able to be converted. But that's what we mean with potential regulatory impact. It could be something that you would have to absorb within the solvency of Life.

Yes, on longevity. So we -- as I indicated, reduced our longevity risk but it's still the highest insurance business risk-related risk driver. So there is still potential for additional reduction and also to free up capital. but because it's no longer such a concentration risk in our portfolio and also because of higher interest rates in this environment, from a risk return perspective, it's less attractive compared to the deals we've done 2 years ago. And therefore, this is, of course, what we also mainly take into account.

Yes. So with that, I would like to thank you, David, Bernhard, Annemiek, for taking all the questions. Also, I would like to thank you for all your questions. I do realize that we might -- or that might have still quite a few of them that you would like to ask. But the good thing of a physical meeting here is that you can -- well, I have a coffee with them to ask all the remaining questions in the remaining break. We will be breaking for roughly 30 minutes, and then we will continue the program with presentations on the businesses. So thank you all for now, and see you back in half an hour. [Break]

All right. Welcome back, everyone. Good to see you here again. I hope you had the opportunity to ask all your remaining questions to David, Annemiek and Bernhard. I did see Annemiek talking with a lot of people and answering a lot of questions still. So that is -- that's very good. We now move over to the business presentation. So before I hand over to Fabian, after that, we will have presentations from Leon and Tjeerd on the Dutch Life and Non-life businesses. And now I would like to give the floor to Fabian.

Thank you. Good morning, everybody. It's a pleasure to be here in person, and I had quite some interesting and good conversations with you already. So I will now present to you as responsible for the International Insurance activities, where we are in achieving our targets that we set 2 years ago? How we will actually grow the business? And what our growth ambitions for 2025 looks like? So our International Insurance activities, they are in Eastern and in Southern Europe, they are in Belgium and in Japan. With those 10 International Insurance business units, we generate meanwhile, close to 30% of the OCG of the group. And so we are a major contributor. And we expect this year to grow even further as we are driving most of the VNB of NN. So 2 years ago, in the middle of the COVID crisis, we set ourselves ambitious targets for 2023. And we achieved them both for Europe and for Japan. And that was possible, thanks to the inherent market growth and fueled by actually the increased awareness around protection where the COVID crisis for sure, helped. But a strong contribution came actually from the implementation of our strategic investments and the commitments and efforts of the teams on the ground. So let's get started with Europe. We've put ourselves a target of EUR 450 million OCG, and that translates into a year-on-year growth of 9% from '21 to '25. And we can comfortably build on the following levers. First of all, we have tailwind from the higher interest rates that support the investment margin going forward. Second, -- we have had very, very good years of growth in the past already. And this growth and this new business, as you know, will now be recognized gradually in our OCG figures going forward. And third, of course, we are in the middle of the integration with MetLife. So those 3 levers are there and they will help us to ensure that growth. And then to sustain our growth, both in the short and the long term, we will continue to drive our new business up. And this will be possible, thanks to our strong positions in really attractive markets, and thanks to the scaling of our strategy that has already shown clear traction. So our international markets, they have all in common that the insurance penetration in those markets is much lower than in mature markets. So when you look at the slide, you see on the left side, you see Romania, you see Greece, you see Turkey, they have 1%, 2% compared to an average of 9% of the OECD countries. But even if you go to the right side, you see that with Spain and Belgium, with 5% and 6%, even there is a gap to the average. So what does that mean? That means that when the GDP in the country grows, sales of insurance will even grow faster. And that is simply said because if households have more budgets, insurance will be then one of the categories people invest first into. And that will overall be a very important part of our growth. Then we have a strong position in most of the markets in Life and in Pension, which is actually quite a scale business. We're the #1 in Romania, in Slovakia and in Poland, these are our big pension businesses. And then all of those businesses, they have been built organically. So we just celebrated 25 and 30 years of existence in markets like Czech, in Greece, in Japan, even 35 years. And the fact that they have been organically built that were so long and stable in those markets, that of course, helps our reputation, helps the trust, and ensures that we have been building teams over the time with a solid know-how in what they do. Let me now speak about the principal drivers of new business growth. The first one is Protection. David already mentioned it. We are focusing already since quite some time on protection as a market in which we believe. And you see that over the last years, we have been growing at 10% compared to market, which is at 5%. And we plan to continue on that path and to invest into data and product innovation. And to give you an example, we have a new cloud-based platform that can be deployed in any country. And that allows us to develop in really a very short time because it's fully prioritized and innovative, fully digital protection products. And we're just in these states launching a new innovative health product in Spain. And thanks to that platform, we have been able to launch it to the market in about 30% of the time, which we would have needed with the old system. So it's a real tangible advantage which we can use in order to drive that. So then the second driver of growth is our partnership management. You've seen that in the past, we have had a very, very strong growth with our partners. And here, it's important that we continue to invest jointly with them, with brokers or banks into digital road maps fully API-driven. And we just launched such platform for brokers in Belgium for the retail protection. And here, one of the most important USPs, which we actually have is our capability that we can offer the banking products of our bank partners and their services and through our distribution channel to our customer base. So this becomes a [ reciprocal ] relationship. So it's not only the bank selling our products as well the other way around. And a good example for that is when you look at the mortgage businesses, which we have in Spain, Poland, Slovakia and Romania, so these are mortgage products from our bank partners, we've become in those countries, in those markets, the #1 external distributor of mortgages of our partners. So it's really building strategic relationships, which, of course, is a very, very attractive value proposition. And then another differentiator is that we have built a strong position in sustainable investment solutions. So for example, we just launched last year in Slovakia, the first ESG-driven pension fund. And in just a little bit more than a year, we got more than 35,000 customers, more than EUR 200 million of assets into that fund. And so that's a very nice differentiator to have. So this is about now the third pillar, or the third driver of growth, which is the leveraging and the growing of our own customer base via digitalisation. So we have built our own customer base through our agents. These are our customers. It's around 7 million customers, which we have and fully directed towards us. And here, we did investments since several years, and we get now already quite encouraging results and really traction. So -- in most cases, we have started pilots in one market. And -- now it's about to roll out those into the other markets. And to give you an example here as well. in Romania and Poland, these 2 markets have been leading in the digital sourcing of our customers. We have in those markets between 25% to 45% of our new business is already digitally sourced for our own customer base. And this initiative is now being rolled out and the objective here is in 2024, that 50% of our business is digital sourced. And of course, that helps a lot in terms of customer service because you use the data, you understand the customer much better. And it helps as well the agents to become more productive because they will be much more targeted whenever they are needed, and it's not a full direct flow. And then we have created, and I refer now to the fourth to the point on the bottom. We have created open platforms for our own distribution, allowing them to sell third-party products. An example of how we do that is in Slovakia, where we have brought 70% of a broker portal, and we will transform now our tight agent organization into a broker organization. And that broker organization then will use the services of that portal. And that means that we give our customers and our X agents basically excess to the products, to all products from all providers in the markets. And while at the same time, we can leverage that technology from the portal, and we don't need to invest and to build it ourselves. And so these are the 3 drivers of growth, which I showed to you, protection, partnership management and the leveraging and growing of our own customer base via digitalisation. And that will be the fundamental for the future. I'd like to give you a short update on where we are with the acquisition of MetLife. So the integration is going fully according to plan. We have actually been able to close the business in Greece 3 months earlier than what we had originally expected and planned for in Poland just on time. The teams are now already working together from the 2 companies. You can do that really after the closing of the deal. And they are now preparing for the legal mergers, which are going to happen beginning of next year. So therefore, we are really confident on the OCG guidance, which we gave to you to fulfill that and to be really on top of that. So that is just a few words on MetLife. And now given the macroeconomic environment, of course, you'll be interested in a short assessment, how that macro environment affects our businesses. And here, we expect that -- and I think David and Annemiek both mentioned it, that our new business will be impacted by the higher rates, first through the higher technical discount rate, so that's a technical effect. And then, of course, by the lower disposable income of the households in the short term. But that is really short term because medium to long term, we see the inherent market growth. We see the continued productivity increases that we have in sales and the progress we made through all our investments and leveraging our customer base. So medium to long term, we see it back to a growth which we are used to, which is double digit. And on OCG. So OCG in international is resilient and will be growing. And that will be in the short term, supported by the higher investment returns, the renewals from the new business in the past. And then the new business growth then will continue to be the key driver in the mid- to long term. That's how we see the effect. So it's a very limited effect on our business, and that's why we are so positive about the growth opportunities, which we will have. So now let's go to Japan. I have shared with you at the beginning how Japan contributes to the group. So in Japan, it's really a rapidly changing market environment in the SME space with quite attractive opportunities. So we see in the market and you see it on the table there, we see in the market growth in protection and in the category of long-term financial solutions. And then the short-term financial solutions, which has been kind of a major pillar of volumes in the past, and -- so those are trending down. And we have been leading the protection space with double-digit growth rates in the past, and we plan to extend and to drive the growth to higher levels going forward. And as mentioned before, it's a highly profitable business, very, very attractive margins with double-digit IRRs and in a country where risk-free rates are still close to zero. And so that is on the protection side. And then we plan to enter into the long-term financial solutions in addition. We considered this segment now more attractive than before, that was very much determined in the past by traditional profit share products. And we see now variable products getting more and more traction. And that, for us, makes that segment much more attractive. In addition, we see as well that in the ownership of SMEs, there's a change of generation. So as the younger owners come online, they look more for the longer-term solutions, whereas the older ones were more focused on the short term. So that gives us really the strong belief that in this market, there are shifts that market will be quite attractive going forward. And so that means that the overall VNB, so there where we took just over the last 2 years, advantage of higher-than-expected sales in that long-term financial solution space that in that -- for that overall VNB, we will see some volatility going forward. So there -- in the short term, it will be lower, but then we'll be growing back to current levels in the midterm, driven by the growth in protection and the opportunities in the long-term financial solutions space. And for that, we have a clear action plan how we will achieve that growth. So we really differentiate ourselves in the space of insurers in Japan, my bet 2 things: The first one is that we are really the SME specialist, so that is our market. So there's a much bigger market around, we focus on that. And we do that by offering to SMEs not only classical insurance but a lot of services around. And so the teams have created, for example, the platform Kagyo Aid which is a platform for SME successors who can exchange advice and can get connected. And that has become one of the most used SME platforms in the market now. And then in addition, we offer software solutions for administrative matters to SME owners who are often small companies, so they have a real need. So we do all of that in direct contact, in direct contact with the SME companies instead of going through the broker. So that means that our name, our brand, becomes -- is very, very known now in the SME segment. And of course, that builds trust over time. And with that, even though we work with brokers and with banks, we have our position very, very clearly defined in that market. And then -- and that builds brand and of course, gives us those solutions, give us, of course, very valuable data, which we can then use as well to go to our customers. And then compare the other differentiator is really that compared to the very traditional hierarchical companies we see in Japan around that we are able to get quicker and faster to the customer, and that these customer-centric really solutions. And one example, which I show here is a living benefit product. We just launched in 2019 and in only 2 years, it reaches already 15% of all protection shares and EUR 10 million of VNB, which is for a new product quite amazing. But the advantage is if you're customer-centric, if you're first, that is where you get to. And so that is our action plan going forward. And when you look then at the OCG target, the target which we have set ourselves is EUR 125 million OCG, and that is when you start from a normalized level in 2021, actually 5% growth rate year-on-year. And that is as always, mainly driven by the strength of the in-force book, which we have built over time. And then in addition, of course, the new business then will be the driver for the mid- to the long-term OCG growth. A little bit similar to Europe. So this is our story on Japan. And let me now summarize. So you saw that our 2023 targets, we already essentially met in 2021. You see me very positive on the continued growth in Europe, based on the inherent market growth and today's strategic actions, which we are taking and that despite the impacts, which we expect from the macro environment. Important is that protection products in Europe. And the protection products in Japan, they all have in common very, very attractive margins, which really makes it worthwhile to invest as much as we can into a growth in those segments. And altogether, with that international businesses are set to deliver the mid- to high single-digit growth in NN Group. Thank you for your attention. And I hand over to Tjeerd, my colleague.

So that is the most exciting introduction I've had in a long time. So -- but good morning to you all, and thanks, Fabian. I'll be talking a bit about the bank and Non-life today. So last time, I talked about my passion for cycling and what it takes to win. It's always some hard work and efforts, teamwork, the right technology, using data. And I stand here proud today that we've really delivered on that in recent years, and I'll talk about that a bit later in the coming slides. And when I look ahead, I indeed see again an exciting race. The usual hills for the ones that love cycling, I think hills are fantastic, but also unpredictable weather. When there was unpredictable weather, it's about a big part of the right team, being fit, being prepared. And that's in a nutshell, the story that I have for you today. So if I go to the first slide, we are the market leader in Non-life, of course, also the market leader in Life, and Leon will talk about it later. So we have a very good starting position. We believe we can further benefit from the scale that we have in the Netherlands in both of these businesses. And we have increased the target for Non-life to EUR 325 million. It came from EUR 250 million in the last Capital Markets Day. And we've also increased the target for the bank from EUR 70 million to EUR 80 million and I'll explain how we get to that in the specific slides for the bank and for Non-life. So let's move to the track record. So I'm very proud to say that Non-life has delivered all of its targets ahead of plan. Now that may sound easy to some of you, but when you do an integration of Vivat and Delta Lloyd, you're rationalizing product portfolio, so migrating systems, and you want to keep your talent in the midst of a war on talent, you want to keep your brokers and your customers happy because you want to retain the volume that you have, plus you want to improve margin. That is actually quite a difficult task. And I'm proud on what they achieved on the combined ratio, the admin expense ratio, completing Vivat integration ahead of plan and also strategically extending the position both in distribution with Heinenoord, but also on the HCS side, which is the services side of the D&A business at the same time. Now the bank is on track to deliver its ROE target for 2023, and the CI ratio of the bank is higher as was flagged in previous Capital Markets Day due to the investments we do in digitalisation, but also in strengthening compliance. Now I have 2 examples for you today on the strategy. So the first one is about sustainability. Now sustainability -- if you look at the theory, we follow, of course, the PCAF methodology, which is still under development, but what we know of it today is what we follow. And this typically starts with estimating your CO2 emissions of the Non-life business is related to underwriting portfolio of motor and then the buildings that you ensure. And for the bank is, of course, very much related to the underlying mortgage book, which is to deal with houses. So then you estimate based on these model points, your CO2 emissions at a point in time, and you set a target towards 2030 and 2050 with a concrete action plan of how you get to it. Now you may think this is only theory, and this is a regulatory requirement. But actually, customers and society really demand this. And this is not just good for them, but it's also good for business. So what we do on the Non-life business, for instance, motor already there, 65% of the business there in claims is through repair rather than replacing things. But we also help our clients in electrifying car fleets, and we also look at new risks that the energy transition brings such as recycling plants. So we visit them, we look at what they have in place. And these are new risk opportunities that we can also add to the underwriting portfolio. Now for the bank, it's, of course, about helping these clients to make their houses more sustainable. So on average, we have a system of energy labels in the Dutch market. So A is better than C. So on average, we want the mortgage book to move from C to an A level, and we help clients by insulating their houses or by installing heat pumps. And that is, of course, good for clients because it lowers the energy bills, but it's also for a sustainable mortgage book to have, let's say, a much more greener underlying house portfolio is also healthy for the business, healthy for the bank balance sheet and of course, also for the balance sheet of the other companies that carry mortgages. Now the second example that I have is on digital transformation. So here, what we do typically is, first and foremost, we invest in talent. It's people and talent that really make a difference in the digital transformation. It's of course having the right technology, and then it's about the use cases of how you apply it in your business. Now the example that I show here in the middle is an example of pet insurance, where we process now 500,000 claims automatically through the use of smart OCR. And you see here that the customer effort score is 1.5, which is extremely low. It's basically customers telling you this is almost effortless to do an inner take. And that is extremely important because for broker satisfaction and for customer satisfaction the effort that you need to take in order to do business with a partner is determining very much whether they want to continue to do business with you. Of course, it also helps in lowering costs. And if you do this, not just for pet insurance and our strategy, of course, to do this at scale in all of the different interactions that we have with customers and brokers, you see the increasing trend of broker satisfaction where already we are above market average in broker satisfaction. And on the transactional NPS there, you see that you get continuously increasing trend on the transactions that customers do with you. And this is the strategy for all of the business lines that we have in the Netherlands. Moving to Non-life. So you're aware, of course, of our non-life business. We are the market leader. We have a strong distribution position. So we have 4 out of the 5 largest banks in the Netherlands, we have a bancassurance partnership with a very stronger broker, #1. And we, of course, have our own direct franchise, OHRA, and the pet example I just showed is indeed an example from OHRA. We added, of course, HCS and Heinenoord since last CMD to our portfolio. We have an attractive product mix, about 2/3 is P&C and 1/3 is D&A. And on the right bottom side, you see the structural trend of lowering the combined ratio in line to what we also indicated last time to reach a 93.5% combined ratio in the full year of '21. Now going to the strategy of Non-life. So the strategy is to further invest in digitalisation and digital, to increase these customer broker journeys, as I explained in the previous examples. So we'll continue to do that over the coming years. And the other investment that we do there is in data. And data is used, of course, for pricing, pricing monitoring, doing these improvements, differentiating the risks per client and per distribution channel. Of course, the underwriting criteria that you said, but also the claims management, continuously improving this underwriting cycle. It's the core business and, of course, also the core strategy that we have for investing in data in the Non-life business. And with that, we come from a position where we were integrating Vivat, we were integrating Delta Lloyd. And now that you pull all the data, the key game will be to use the data to the benefit of improving the underwriting cycle for the coming period. Moving to the next slide. This is a bit more about the market position. So after the recent announcement, if the deal would close, as was announced you would see that, let's say, the top 3 in the Netherlands have about 70% market share in the Dutch Non-life market, where we are the market leader. We expect the Non-life market to grow slightly above GDP growth, and we target selective growth in this market. So we want to grow in SMEs. And of course, broker because all of the SME businesses distributed via brokers in direct, in bancassurance and in further strengthening the noninsurance and fee business profile of this business. So -- now that we've completed these integrations, and we've been focused on improving the margins. Our aim is to stay at a level of, let's say, what you saw in 2021 in terms of combined ratio. That's why we've increased our target to a best-in-class combined ratio of 93% to 95% for the Non-life business and an OCG target of EUR 325 million. Now if you compare that to 2021, and you would correct for some of the COVID frequency benefits, both in P&C and in D&A, you see that the main contribution towards 2025 come from the contribution of the insurance business, where we target the selective growth that I explained on the previous slide, and also growing the fee business or the noninsurance profile. And let me explain why this is ambitious to achieve. So if you want to sustain a best-in-class combined ratio and selectively growing in a very competitive market, it means that you need all these improvements in your underwriting cycle, knowing where to grow, taking the right risk to grow the volume and keeping the margin at a very high level. Now heading into a mild recession period, I mean it's always hard to predict where this goes. But in a competitive market where this is going, this is what we aim to do, let's say, on a combined ratio level. Now another question that we get on the Non-life business is with regard to inflation. And the key message there is twofold. So the first message is, and I think it was David already highlighted that, is that we are -- for 50% of the portfolio, we have quite a low sensitivity to inflation. And let me give you a couple of examples. So for instance, in fire and motor, we do a lot of cash settlements on repair rather than this is a, let's say, immediately an increase in prices from what repair shops bring. Legal aid for instance, is fully reinsured. For bodily injury, we use a long-term inflation assumption on what we do in that business. For the SME liability business, we use premium settlements that are linked to wages directly, so that is automatically corrected. And in accident, for instance, we use fixed benefit. So if we add that all up, we have 50% of the Non-life portfolio that has a low sensitivity to inflation. For the other 50% of the business, what we do is we have typically 12-month renewable contracts. So we monitor inflation, we look where it's going. We look at each of the specific items on expenses and what we see. And then we price it in like we've also done this year. So in that -- we don't think we are immune to inflation. I think nobody is, but we do think that inflation is very manageable for our Non-life business. So the summary on Non-life market leader, strong delivery over the past years, low sensitivity to inflation, and we believe that we can further benefit from the skill and the position that we have. And that's why we've also increased the target to 93%, 95%, and the EUR 325 million. Now let me move to the bank. So the bank you know is the #5 retail bank in the Netherlands, about 1 million customers. strong CET1 ratio of 14.6% at the first half of 2022. And we have at the bank, a hybrid business model. So on the one hand, we originate to distribute and we earn a fee income. And on the other hand, we produce mortgages to put them on the balance sheet of bank, where we have, of course, the savings, where we fund together sort of savings mortgage bank where we have the net interest margin that we earn there for the bank. Now the strategy is to be an efficient digital retail bank. So what does that mean? What is an efficient digital retail bank? So it means retail only, so no SME or that type of business. So it's savings products, it's mortgages and the retail products and services that you expect with a retail proposition. And then it's focused on digital. So really digital first, mobile first for a bank, no branches and automating all these interaction points with brokers and with customers to achieve the low customer effort scores that you've also seen in the previous example. And with that, you have a high customer satisfaction, you're able to attract and retain clients, you're efficient, of course, if you use digital throughout the bank. And you earn on the cross-sell that you generate in the retail propositions that you have. That is the efficient digital retail bank strategy that we have. Now looking to the mortgage market, maybe first starting with the portfolio that we have. The current portfolio is at an LTV ratio of about 54%, which is very low. We also made an analysis of our client portfolio, and we looked at how many clients still have a fixed interest rate for, let's say, 6 years. And more than 90% of the clients in the existing book have a fixed year interest that they fixed, of course, in a very low interest rate environment for more than 6 years, which means that even if prices move up and down on mortgages, these clients just continue paying the bill that they locked in at the time that they had their mortgage. So Bernhard also mentioned the historically low risk cost that come with mortgages. So underlying, of course, house prices increased massively in 2021. But when you're at an LTV of 54%, even if that comes down a bit, and housing supply is very short in the Netherlands. So -- and most estimates are that there could be a milder decline, but at an LTV of 54%, we think that the mortgage book has a very strong profile. Now the dynamics have, of course, shifted. So in 2021, we had long tenors, a lot of prepayment, a lot of new business and a lot of wholesale appetite from long-term investors, both externally but also internally. And that has now shifted over the recent sort of 6 months into an increase in the interest rates. We've seen less also appetite, less prepayments compared to 2021. So we see a shift, and this is the advantage that the bank has that in a time where the interest rates are low, you earn the income in a balance between fee and interest income. And when it fully shifts, you see that fee income comes down a bit. But you can compensate that over time with the interest margins that we see now on growing the bank moderately with mortgages and savings accounts. And that -- we already see in the current figures. So there is a bit of a dip in this year, which you've also seen in the first half figures, where OCG is lower because we're also growing the balance sheet of the bank. So then OCG is impacted because you grow the RWA in the second half. We will also try to grow more into NHG mortgages. And then over time, you earn the interest income from the bank. And therefore, we also believe that we can offset the slight decrease in fee income with the growth of net interest income and increased the target to EUR 80 million. Now that is also the story that is reflected here on the slide, but then more in numbers. So we've corrected the 2021 numbers for the sharp increase in house prices. And if you would take that as a starting point, you see that towards 2025, growing the net interest income with the reduction of fee income compared to 2021, where there were a lot of prepayment penalties and high fee income from wholesale investors, and then we can grow the target to EUR 80 million. The ROE stays above 12%, which is very healthy. And the CI ratio, we continue to have the target to be below 55% where in the coming year, we continue to invest in digitalisation. So that will still stay at a higher level than the 55%. But the target for 2025 is to below -- to be below the 55% cost/income ratio. So let me try to summarize. So I talked a bit about cycling, about the exciting race that we have ahead. And I hope that with the story that you've heard here, you also see that we are fit and prepared for that race. We have a strong track record. We have a leading position in the Netherlands. We can further benefit from our skill, and that's why we've increased our targets for Non-life to a best-in-class combined ratio of 93% to 95%, the OCG to EUR 325 million and for the bank, an increase to EUR 80 million in 2025. I hope you enjoyed the story. I now hand the floor to my other favorite colleague in the Netherlands, we're only with the 2 of us, I know. But Leon will have an even more exciting story to bring for you than myself, and I look forward to receive your questions and answers later. Leon, take it away.

Thank you for the introduction, Tjeerd, and thank you for raising the bar. Good morning, everyone. Last time when I presented the Capital Markets Day targets for 2020 and I presented the Life strategy, I was just appointed in my new role. And today, 2 years later, I'm really proud to present the results we have achieved so far. And during my presentation, I will explain how Netherlands Life will generate sustainable operating capital generation from the in-force book and from growth in defined contribution pensions. So let me start with my key messages. We have delivered on our operating capital generation target of EUR 900 million from the last Capital Markets Day and raised our operating capital generation target to EUR 1.15 billion for 2025. We have taken action to actively manage our balance sheet to secure our solid track record of free cash flow generation. We are a leading investor with a strong focus on ESG. And on top of the already growing DC market, the Dutch pension reform provides attractive opportunities for buyouts and to further grow our strong position in the defined contribution market. Now let me start with our position in the Dutch market. NN is the market leader in the Dutch life and pension market with a consistent 40% market share. With more than 3 million customers, we have the largest in-force customer base and the broadest distribution capacity in the Netherlands. And this is an important asset and scale is very important in the life and pension market and will drive future profitability. And with my team of more than 2,000 motivated life and pension experts, we target to generate EUR 1.15 billion of operating capital generation in 2025. Now let me first look back at the strong delivery on the targets that we set at the 2020 Capital Markets Day. Like I said in my introduction, I'm very proud to present the results we've achieved so far. We are on schedule to achieve the EUR 900 million operating capital generation target for 2023. The optimization of our asset portfolio has significantly contributed to this, supported by positive market developments. On expense reduction, we are focused to continue to reduce the structural run rate of our costs and we have clear plans in place to do so. We have made good progress to achieve the EUR 32 billion target for the assets under management in DC that we set for 2025. Now with a consistent net annual inflow of EUR 2 billion per year, I'm confident that we are able to achieve the target we have set for 2025. And last but not least, we have increased our footprint with the acquisition of the portfolio of ABN Amro Life. Now let's move on to the targets for 2025. We've increased our OCG target from EUR 900 million to EUR 1.15 billion for 2025, and this is based on the second quarter market environment. In the past year, we have significantly reduced our government bonds allocation and optimize the investment portfolio. This has led to a strong increase of our OCG. Going forward, we will be more focused on refinement of our portfolio. Opportunities that we see are in investing in private loans and in corporate bonds at attractive spreads. And we will invest in green bonds. We are committed to achieve the net zero targets for the general account in 2050, in line with the Paris Agreement. As part of our strategy, we will further grow scale in defined contribution and buyouts which will support overall business volumes and future profitability. And finally, we will continue to reduce our expenses in line with the runoff of our portfolio. Now let's move on to the next topic, our balance sheet management. Over the past years, Netherlands Life has a very strong track record of cash flow generation whilst the balance sheet stayed resilient. Due to the exceptional volatility in the financial markets and especially the treatment of mortgages, our Solvency ratio stood at 187% in the first half of this year. The adverse impact to our solvency versus previous levels are noneconomic in nature and the reduced solvency is compensated by higher OCG. Despite this volatility, we have remitted our quarterly dividends, both in the second and in third quarter of this year. A resilient balance sheet is an important priority. Therefore, we are actively on top of managing our balance sheet via our risk management and investment approach, as Bernhard explained this morning. This is even more so important in current highly turbulent markets. We've been paying stable dividends over the last years. And going forward, we expect to maintain a stable and sustainable remittance pattern. Moving on to the topic of expense reduction. We have made good progress in reducing expenses. Since 2016, we have reduced the insurance expenses with 32%. We see good opportunities for further expense reduction, especially to the further simplification of our IT infrastructure and our products, as our ops and IT expenses account for 60% of our total administrative expense base. We will deliver on our ambitious decommissioning targets of more than 20 large systems for this year and next year. We also have plans in place for further reduction of the number of IT systems in 2024 and onwards. This is not an easy task to achieve. We need to reduce expenses, whilst at the same time, we have to absorb increasing costs related to inflation, investments in IT, investments in security, technology, but also investments in new regulation, like IFRS 17, SFDR, and the recently announced new regulation for the Dutch pension market. Based on our personal experience, substantial potential is present to absorb this expense pressure. As mentioned earlier, the cost reduction may not be linear as we need to invest to generate fewer cost reductions. Our target, therefore, remains to reduce expenses in line with the runoff of our portfolio. Now let's move on to the growth opportunities and start with the explanation of the Dutch pension system. The Dutch pension system consists of 3 pillars. Pillar 1 includes the state retirement pension, which offers a minimum pension income for all Dutch citizens. Pillar 3 contains the voluntary individual savings, which is a relatively modest market in the Netherlands. And Pillar 2 consists of the employer pension plans. This is a large market with over EUR 2 trillion assets under management. In short 3 different types of parties are active in the second pension pillar. Industry-wide pension funds with mandatory participation for employers in certain industries. Secondly, corporate pension funds without the mandatory participation and thirdly, the insurers. The corporate pension funds and the insurers, both holds roughly 15% of the market, and the remaining 70% of the market is serviced by the industry-wide pension funds. Pension funds are under pressure to increase scale and to reduce expenses. Over the past 20 years, the number of pension funds has reduced in the Netherlands for more than 1,000 to currently around 200, and we expect this trend to continue. The new pension legislation that we expect to come into force in the course of next year could accelerate this trend. Now let's move on to the opportunities we see in the pension markets. The pension market is changing to several dynamics. Firstly, there's the ongoing trend to shift from defined benefit to defined contribution. And there was also the recent consolidation of the PPI market. Secondly, the market for corporate pension funds and insurers will move closer because all pension plans will become defined contribution base. For pension funds, DC is a new market where they have -- sorry, for pension funds, DC is a new market where we have 15 years of extensive experience. So this will provide opportunities for us during the 5-year transition period to the new pension system. This also means that the additional benefits from the pension reform will mostly come in after 2025. And then thirdly, smaller pension funds will be in search for a solution for the accrued pension rights. The assets under management related to this is expected to be around EUR 75 billion, and a number of these pension funds might decide to reinsure the existing liabilities via pension buyouts. We are active in the market for pension buyouts and have a solid track record. Of course, we remain disciplined when it comes to pricing for buyouts and capital allocation. NN is on pole position to capture all these opportunities I explained before. NN is the only company that offers the full spectrum of pension solutions in the Netherlands. The ability to offer all these solutions is an important assets. In conversations with employers and brokers, I noticed how much they appreciate that we can offer integrated solutions to their pension plans and for their pension plans. We are also increasing satisfaction scores, both from brokers as well as from customers. And I'm particularly proud that in this year, we achieved year-to-date the highest satisfaction score from brokers in the pension markets. It's very rewarding that all the efforts that my team and I have put into this are bearing fruit. For customers, we also see high satisfaction scores resulting from our improving customer service and our investments in digitalisation. And finally, we expect to further increase satisfaction scores by offering additional services to our customers. Let me explain this further on the next slide. Our strategy is to offer specialized services to increase the satisfaction scores for employers, participants and advisers. We offer a range of various services, all currently available via the NN platform. Based on industry data, industry pension data, advisers can benchmark employer pension contracts, and we provide them with clear insights, which helps them as an adviser to increase their relevance to their customers. Another example is that we offer employers active tools to support them in being a caring employer. For example, via active monitoring of their workforce and via employee well-being services. And participants can get clear insights in the current and the future pension accumulation. This [indiscernible] communication facilitates participants in choosing their investment profile, additional pension accrual, early or later retirement and many other topics they need to decide upon. Finally, for NN, this also creates additional value. Our customer satisfaction scores increase and this also increases the retention rates. And digital servicing also helps us to serve customers at a lower cost. And finally, these services also become a new source of fee-based revenues. This brings me to how we increase the profitability of defined contribution pensions. Defined contribution is a true scale game. Our strong position in the Dutch pension market is built upon 2 different propositions. One proposition for the NN label and one being our PPI. And both propositions have comparable features, but they target different market segments. Our strong position is built upon our high retention scores of more than 90%. The unique combination of products and additional services I mentioned before, and our solid investment performance of our DC life cycle funds. Also, ESG is an integral part of our fund rate offering. Most of our defined contribution investment funds are light green. In addition, BeFrank offers a dark green life cycle with impact investment funds. And I expect that the new partnership with GSAM will broaden the range of high-quality fund offering to participants. With the increasing scale, we expect to achieve our targeted operating margin of 15 to 20 basis points over the assets under management in 2025, which is targeted at EUR 32 billion. And the growth of the assets under management in DC will continue also after 2025 to a comparable level as our current defined benefit portfolio. Before wrapping up, I want to share one more topic with you. Earlier this year, we acquired the life insurance portfolio from ABN Amro Insurance. The rationale of this transaction was clear: The transaction adds additional volume, resulting in economies of scale. We have the ability to realize capital and expense synergies, and we can increase the return of their existing asset portfolio by migrating them to the NN strategic asset allocation. Combined, this will result in attractive double-digit IRR. And from the experience that NN have gained from doing similar transactions, such as the integration of Delta Lloyd and Vivat Non-life, I'm confident that we will complete this integration swiftly and successfully within 1.5 years. Now to wrap up my presentation. Today, I've explained how I expected NN Life will continue to generate sustainable operating capital generation in the long term. We have increased our operating capital generation target for 2025 to EUR 1.15 billion. With our risk management and investment capabilities, we actively manage the balance sheet to secure our solid track record of free cash flow generation. NN Life is a leading investor with strong focus on ESG, and we are well placed to capture the opportunities in the pension market. With that, I would like to conclude my presentation. Thank you for your attention. And I now hand over to Ruben for the next Q&A round, I think.

Yes. Correct, Leon. Thank you very much. Also thank you Fabian and Tjeerd on these insights on your businesses and the opportunities you see going forward. So indeed, now it's time to move over to the second Q&A. So I see already a lot of questions intended to be answer, that's very good. Maybe we can start with where we almost left the first Q&A. So maybe, Jason, you could start this round. Please wait for the microphone. And if you can also please limit your questions to 2, that will be much appreciated. And then take it away.

Okay. Jason Kalamboussis, ING. The first one is on Insurance Europe. The growth is 9%. But if you look at it, if you take out MetLife, it's a bit of more of a pedestrian if you want, 5%. So do you think that this is a reflection of the growth that potentially this you have in Insurance Europe? And how much cautiousness do you put in there for the current macro situation? So if you go a little bit beyond, you find that this 5% is a bit cautious, and that could be expanded. The second thing is on Japan. I was just looking -- what is the number for that you have morbidity effects, et cetera, on the OCG as nonrecurring? And that's a generic question also for Non-life and Bank. Can we have the numbers, the adjustment numbers on '21 so that we know at least from which basis we are starting from?

Okay. Thank you for your question. So Insurance Europe, we guided to a mid- to high single-digit growth. So when you speak about the 5%, which is actually 6%, but that is at the lower range of what we would expect in the medium to long term. That's how we see it. There is -- of course, we reflect the current recession in our plan that is reflected. I think it's -- nevertheless, it's the best estimate of how we look forward. And then on the Japanese normalization of 2021. I think if you start with the base of around 103, 105, that's a good base to start with.

Yes. Yes, sorry, maybe we can go off to Benoit.

Benoit Petrarque from Kepler Cheuvreux. So -- well, actually, 3 questions. But on Europe, so yes, how much cash upstream do you expect in percentage of OCG, yes, over 2022, 2025 on average? That would be question number one. Number 2 is on M&A, what do you see -- where do you see M&A opportunities potentially in Europe? And the third one is actually on the bank. Yes, a couple of questions here. I mean, how do you see the pricing of deposits going forward in the Netherlands, the pass-through rate? Do you expect discipline or maybe a bit of competition on that side. How much loan growth do you expect going forward? And I was wondering why the fee is down. I was expecting the originate to distribute model to be kind of sticky, kind of management fees sticky and not dropping over years. So just wondering there.

Maybe, Tjeerd, you can start with the answers on the bank and, Fabian you can take the question on Europe cash conversion and M&A.

Yes. So we indeed target to grow the savings base. Yes, so what we've seen over the past months is that we've seen slight increases by the larger banks and then followed by the others, again. I would expect that to be sort of disciplined. There will always be a few players, typically smaller players who, yes, go out with more aggressive savings rate. But for the overall market, the top 3 banks in the Dutch market are very disciplined players, I would think. So for the total market, I would expect this to be an increase, of course, in the savings rates, but to be more of a disciplined character. So on the loan growth, so we target moderate growth for the bank. So also in 2022, as some of the mortgage origination that didn't go to wholesale investors, we've put on the bank balance sheet. So that's why you also saw the slight decrease in the OCG figures for the first half of this year. And towards 2025, we project to continue that moderate growth, where the charge you saw in the interest income is indeed compensating for the fee income, which brings me to my last question. So the effort also investors. So for instance, there was a fund for previously NN IP that's now with Goldman Sachs, where we originate for their appetite. And in those types of funds are typically more long-term investors. And you get that fee income as a one-off within the year that you distribute, right? So it's not spread over a year. So for that front, you take sort of a one, onetime fee for that what you distribute. So that's why that is a bit more depressed. So we do expect also when the volatility in the rate is a bit more stabilized, that wholesale investors and long-term investors may come back to the market. And yes, we'll just take benefit of every opportunity we see to distribute for investors and for wholesale and are also on the lookout for those. So it's kind of hard to project when they do come in, how the macro environment will play out. With a hybrid model, we think we're well positioned if the fee income growth is there again to participate in it and to compensate at least the loss of fee income that we see now through the interest income that we have on the bank. Maybe a long answer, but sorry.

Okay. Yes, on cash upstream and remittances in Europe, Annemiek explained before already, so there is a difference between our OCG and remittances. We expect over time a similar growth of OCG and remittances. And just as a reminder, the comes from the fact that we're mostly -- our remittance capacity is determined by local GAAP in most markets and local GAAP does not reflect the value of new business, and that's where that difference comes from. And that difference is just if you have a business unit like Europe where we are strongly growing, of course, this new business impact is particularly strong. That is where it comes from. And then on M&A, in our projection, in our OCG target for 2025, what is reflected is organic growth, and that's our base case. And beyond that, we're always -- we always are open to look at opportunities that might come. And then as David said, we have quite strict financial and strategic guidelines, which determine what we do. And I think a good example is how we approached MetLife. It made strategically a lot of sense. It brought us in Greece to the #1 as health insurer, which is a very, very important position to have. And in Poland, it allowed us to defend our third position. And at the same time, it has a double-digit IRR in terms of return, and that's an example of how we look at M&A transactions.

All right. Thank you, Fabian. Maybe we can move over to Nasib.

Nasib Ahmed from UBS. So first question on Insurance International and Non-life. You talked about investment in digital, investment in distribution as well. Is there anything that's funded from the group or the holding company? And the reason why I ask is because if I add up all the OCG targets for the business units and compared to the EUR 1.8 billion t, it seems like your holding cost is actually increasing versus where you're running at the moment. Second question on Life. The buyout market, how competitive is it? With higher rates, you'd expect more volumes, but expect more entrants to come in or a reentry of previous players that have stopped writing this business.

Yes. Maybe I can start with the comment on the investment. So in the segment order, we have reflected the minus EUR 300 million as part of the EUR 1.8 billion target. That is slightly higher than currently, the EUR 250 million, and that's basically because we expect some higher debt costs. And then maybe, Tjeerd, you can elaborate on the investments? And then Leon, you take the question on the buyers.

Yes. Now it would be great if the group would fund my investments, but unfortunately, I'm held accountable to, of course, invest through the expense line into digitization and have also the benefits in the operating result and the combined ratio. So it's included within my own business. And there's no projected M&A in the target of the insurance business. So we don't project that as part of the plan, it's an organic base case.

Same for me. No preferential treatment here.

Yes. And Nasib your question on the buyout market, by nature, very price competitive. So it's indeed a competitive market. Main competitor currently is Athora, [indiscernible] assets related. And what we expect that -- so the consolidation trend, I explained currently at EUR 200 million pension funds in the Netherlands, a general expectation that it will be lower than EUR 100 million, somewhere between EUR 50 million and EUR 100 million pension funds remaining. So there is concentration going on. We expect also in the next few years, with the development of higher interest rates that buyout will become and already has become more attractive, but it's also depending on inflation rates because with high inflation rates, they also expect indexation. So there might be a window of opportunity in a couple of years when interest rates are still at current levels and inflation rates come down. That might be a very promising opportunity for -- promising window for buyouts, which may go coincidence with and go along with the planning for the new pension legislation. So therefore, very interested in the buyout market.

Thanks, Leon. Then move off to Cor.

Cor Kluis, ABN Amro. Although -- two questions. First of all, about the Non-life, especially the disability insurance markets. We've seen some competitors, one competitor already announcing that they will be charged in the second half of this year due to the minimum wage, which has been increased by 10% on the 1st of January. Could you give some indication might be a negative charge for Non-life, for disability, or how do you look at it? Second question is on the pension buyouts. Of course, a big market, big opportunity going forward. You have a 100% -- or you had 187%. So obviously, it's improved now above 200%, of course, at the Life business in Q3. Are there any restrictions for the solvency ratio in accepting pension buyouts and that also in relation to the sustainable or the flattish dividend upstreaming that you want, what to bring to the holding going forward?

All right. Thank you, Cor. Maybe, Tjeerd, you can take the D&A question and then afterwards, Leon on buyouts.

Yes. So we took in the first half the normal wage inflation, so that was already reflected in the first half. In Q3, we indeed take the announcement of the Dutch government, where the increase in minimum wage with 10%, which is quite a significant upstep in the -- that the Dutch government took into the assumptions for our book. So you will see that in the final result of this year, so we don't disclose today the exact number, but we believe still the overall impact is manageable. And important to note that these types of model and assumption changes are not reflected in OCG but you will see it in the combined ratio and the operating results. But you'll see that all in the year-end figures.

Yes. Cor, on the buyouts, it's a price-sensitive market. We focus on disciplined pricing. We target for an IRR of high single digits for the buyouts. And yes, basically, at our current solvency levels, no constraint for buyouts. And also if you compare it to the buyouts with our current balance sheet size, it is good to absorb if there are opportunities.

All right. Maybe Michael? Could we maybe please hand over the microphone to Michael.

Two brief questions. So the implication was the Life new business in Japan dips. So I was hoping that you'll say, we'll get a lot more cash. And then on disability, I think ASR is structurally more profitable than you, and I still don't understand why. I think you have more kind of medical profession and that seems to have been a drag. And I just wondered, when will that drag disappear as it were. And maybe on Japan, if you can indicate you -- you say the IRR, but just remind us the payback period.

All right. Maybe, Tjeerd, you can start on the D&A and then Fabian take a question on Japan.

Yes. Yes, so we announced a combined ratio of 93% to 95%, which is best-in-class. So with that, we expect the direct to disappear over the coming years. I guess the main difference between ASR and us is on individual disability, where indeed we have the [indiscernible] portfolio of medical professionals, where we've taken structural interventions, launched a new product, increased prices with 10%. So there, that takes a bit of time to wear off in the D&A business. And the rest of the D&A business is a lot more comparable.

Okay, on Japan. So pay back 7 years. IRR, we discussed. And in terms of remittances, we gave you an OCG guidance towards EUR 125 million. And OCG and remittances go always very, very close now because it's -- OCG there is basically a reflection of local GAAP. And you know that this figure can vary if there is volatility in sales, so a good example is when you look at 2020, where sales dropped and then OCG in 2021 was higher. So that is what we showed in the past.

All right. Maybe I'll move over to Farooq.

Just going back to Japan, you segmented the product slightly differently from what I recall. So obviously, you have the COLI product. So is COLI basically segmented into protection and then Financial Solutions. Could you give us an example of what a financial solution as well as protection in that context? And why short-term protection, therefore, is going to -- so a short-term institution is going to be falling as a per share? And then secondly, going back to the Netherlands. So obviously, this pension reform comes into fall in -- for the January '27, I think. So can you give us some numbers around the size of opportunity. So obviously, you're saying 15% of the market is corporate pension schemes. Some of that will come through the DC space to you. You've got 40% market share and in the buyout as well. I mean, a lot of those guys will think, well, why do I need to hold this now? So can you give us a sense of what portion of those numbers can come to you in those 2 forms?

Yes. Thanks, Farooq. Maybe Fabian, you can start with the Japan product examples and then Leon take the question on the pension.

Yes. So the only reason why we changed the name is because we found COLI is a very technical name, and at the end, SME life insurance better reflects it. So that's all what's behind that. So protection products is an example of any type of classical products or it can be a mortality product or it can be a mobility product which where we think that there is more room forward. And then short term versus long term, there were, in the past, very strong tax incentives for the short-term products that have been taken back, and more and more versus on the long-term side, nothing really has changed. And then we think that the driver for that is as well that we see that the younger generation is more interested into long term than in the short term. That's where we see the drive happening. And then we find it attractive and we didn't find it that attractive in the past because there's more room for variable products, which is more I think we do than traditional profit sharing products, which are done by metals, and that is not our space. So that's the answer a little bit to Japan.

Yes. And then Farooq, on your question on the bench reform. I think good that I can clarify some topics here. So first of all, we're talking about a trend which is already going on for many years. So there is a trend for consolidation and a trend towards DC. So you already see for many years, small and midsized corporate pension funds liquidating, moving over to insurance companies and then the existing liabilities they, in some cases, bring off to buyouts. And in other cases, they merge or they hand it over to a general pension fund. So the trend is already there for many years, and we think that the new pension legislation, which is currently being discussed in the Dutch Parliament, it's planned to become into practice during the course of next year. It will be implemented in a 5-year period. It's a huge transition connected to the new legislation. So companies and pension funds need some time to -- once the legislation is final to decide upon the future direction. So that will not all happen immediately. It will be somewhere in the middle or maybe somewhat more in the back end of the 5-year transition period. And yes, there, the opportunities will arise. If you take the buyouts, general expectation is that the limit of pension funds, which are too small to continue themselves is around EUR 4 billion assets under management. If you take all the pension funds, which are below that EUR 4 billion, we have roughly EUR 75 billion which will probably come to the markets on average 20%, 30% will choose for buyouts. So that's a rough indication, but it's all depending on, of course, interest rates at the moment and also the inflation expectation. But this is, I think, an indication to give for the buyout for the DC market, yes, the trend is already there, and it might be accelerated with the new pension legislation.

All right. Thanks, Leon. Another question from Hadley.

Hadley Cohen, Deutsche Bank. A couple of questions on Non-life, please. I mean you talked about best-in-class combined ratios in the sort of 93% to 95% range. Just in light of rising bond yields, improving investment returns. And Tjeerd can you talk about how comfortable you are running at the higher end of that range at the moment to be a bit more competitive on pricing so as to get overall higher volumes, higher investment returns to overall bottom line higher earnings picture in that context? And then secondly, can you talk about the scale of the opportunity for further bolt-ons? And what have you similar to the Heinenoord transaction? Are there many potential deals out there in that sort of very low triple-digit million sort of range? Or is that pretty much right now?

Thanks, Hadley. Tjeerd Both for you. Yes.

I don't think Leon will talk about Non-life today. No. So yes, we target selective growth. So growing market share in Non-life is, of course, very easy. And it's always to track how you properly price the right risk, the right client and ensure that in the areas where you want to grow, you're very disciplined looking at margin, but still be so competitive that the brokers will advise your SME proposition over others which also has to do with, of course, broker and customer satisfaction. So there's a lot of things that come into play. We have a strong distribution position. We have a very high broker satisfaction. So yes, I'm comfortable to target more at the range of 95% or 94% or 93% to target selective growth. I don't think we typically look at that in that way. We really do it per product per distribution channel, and we want to optimize the growth, so we do want to moderately grow, but to stay within that range. So it's not aggressive growth to really outpace the competition and then, let's say, go way over your margins. It's trying to do both at the same time, so margin growing whilst staying within the target range.

Just to come back on that, so when you're looking at the pricing, you're only looking at it from an underwriting income perspective, you're not thinking about the overall operating income that you can earn from the premiums coming in?

Yes. So of course, we also as -- so in OCG, there is also the SAA and investment return and the optimization we can take there. So there is a few opportunities that we see there. But similar to what was shared before, those are more smaller items in the SAA that we move there than, let's say, the rerisking that we've done over the past 2 years.

That was the...

And then on any bolt-on is the second question. Yes. So the second question on Heinenoord, so there -- that we -- when we announced the transaction, we did announce that we also want to target further growth. Those would typically be smaller acquisitions only at the right price and the right case to further grow the distribution proposition that we have with Heinenoord yet. So the 11 transactions that we announced was a total price of below EUR 25 million to give you an indication of what is a smaller transaction. So it's more immaterial to the group.

Yes, maybe with an eye on time, maybe last question from Andrew?

Andrew Baker, Citi. So I guess one is a follow up to Hadley's question on the Non-life side. So by keeping the combined ratio where it is, you're implicitly saying that you're going to keep all the benefit of the higher investment yield. Do you think competitors will take the same view? Or do you think the market will be willing to give away more in the underwriting margin side because of the high yields? And then secondly, on Insurance Europe, can you just remind me the VNB mix between tied agents, bancassurance and broker? And then if the products sold are different within those channels and essentially, what the VNB margin is by channel and if there's any material differences.

Thanks, Andrew. Maybe Tjeerd, you can start and Fabian on the VNB, please.

Yes. So I'm not responsible, of course, for the competitors, so difficult to answer. I would -- from what I've seen in market practice, how we price, how we compete, especially with the large players, we tend to take quite similar views on how we're pricing the investment yield, the combined ratio, how we look at disciplinedly at portfolio. So the market is hard. So we still see price increases in line with inflation, properly pricing the risk and, of course, taking the benefit. But it's also a mature market, where it's not coming from a huge increase from under penetration in insurance, but it's really competing for the same clients, the same business. So in that context, I would say those disciplined pricing approaches and how you look to the yield that you get are quite similar across the large players. And in Non-life, there are always smaller players that take a different approach. So there, I could see some aggressive players as we have seen in recent years, but those would be more the exception.

Yes. On the distribution mix, so what's for us really favorable is the fact that it's very balanced. So if you take a normalized year, I would say it's probably 1/3, 1/3, 1/3. But that's the diversification. So that means that, for example, in 2021, banks were a little bit stronger. Going forward, we expect them this decreasing mortgage sales to be a little bit less strong. So in that sense, the good thing is the diversification and we're really diversified with 1/3, 1/3, 1/3 overall. In terms of product, so we are in some markets where we have only brokers. So there is no -- there's just one probably in the few markets where we actually broker and agent relationships. Typically, we tend to have the same products.

All right. Thank you, Fabian, Leon, Tjeerd, and also thank you for all your questions. So with that, we can move on to the last section of the day, which is on IFRS 17. So for that purpose, I would like to invite on the stage Annemiek, our CFO; as well as Harm van de Meerendonk. He is our Head of Financial Accounting. So the floor is yours.

Thanks, everyone. Welcome, again. We were thinking a bit on how to structure the session, and our guess was that given that we started at 8:30, and you already had some tutorials, you may not want a 3-hour full tutorial on IFRS 17. If you do, let us know, we have the expert here. But for now, we try and keep it a bit condensed and focus on what is really affecting us and what are the main choices that we have taken. I will give briefly the key messages where we stand now. And I will hand over after that to Harm, who is the Head of our Accounting and Reporting team and who has been very active in the CFO forum also related to the IFRS 17 topics and many others. And key takeaways is that we do not expect any impact on strategy. We expect a limited financial impact, and we're on track for the implementation. If you look at it from a strategic point of view on the next slide, so far, we don't really see any impact there on. I think we're now on Slide G3. We don't see any impact there on the strategy. It will not impact the OCG target. It will also not impact solvency nor our capital returns. The financial impact, overall, we would expect equity to become more stable, more aligned with Solvency II and also with our current adjusted equity, which is adjusted for revaluations. The actual impact on equity will -- is very dependent on interest rates. But if you would look at it from a June 30 level, we don't expect that to be significant. We expect operating results and leverage ratio to improve slightly. And lastly, we are on track for the implementation and for disclosing the transitional impact and the comparative figures, both before we present the '23 half year results. And with that, I leave you in the capable hands of Harm.

Thank you, Annemiek, and good afternoon by now to all of you. As Annemiek said, I want to take you through mainly our approach to the key choices and methodologies in IFRS 17. So our choices on that, and the highlights of the impact it has on our financials at the transition. So if we look at this OCI slide, it summarizes the key accounting options. As you probably know, both IFRS 9 and IFRS 17 are quite principal-based regulations that require us to take decisions on various options and assumptions. In taking these decisions, we have mainly focused on underlying economics, stability of earnings and also alignment with Solvency II as much as possible. So firstly, as you can see on the left of this slide, in IFRS 9 and 17 allow changes in financial assumptions, so that's mainly market interest rates and spreads to be either reflected directly in the profit and loss account or to be deferred in equity, also referred to as other comprehensive income or OCI, which is comparable to what we call the current revaluation reserves. We will be applying the OCI option for most of our assets and liabilities in the general account. That means that the net impact of interest rate and spread movements will be reflected in equity. This provides a maximum alignment between the accounting for assets and liabilities under IFRS 9 and 17, and it ensures that the net volatility is absorbed in OCI, where possible, resulting in more stable earnings under IFRS. Secondly, there are 3 different accounting models in IFRS 17. We will be using each of the 3 where that best fits to the underlying portfolios. The default model is the General Measurement Model, which we will use for the more traditional life portfolios. The Variable Fee approach is designed for participating business and investment type of contracts, and we will use that for most of the unit-linked type of products. Then finally, there is the simplified premium allocation approach, which is designed for the more simple short-term contracts, and we will use that for mostly the P&C business in the Non-life segment. Then finally, on this slide, let me spend a few words on the 3 transition approaches that exist in IFRS 17. First, there is the fully retrospective transitioning approach, which requires a full -- a full recalculation of the contractual service margin, the CSM at the transition date as if IFRS 17 would always have been applied. We will use that approach, but will be limited to mostly some portfolios in the international segment. Then secondly, there is a modified rate of -- retrospective approach, which is still a retrospective transition, but it allows for some simplifications in estimating the cash flows historically and the discount curves. Again, we will use that approach where it's possible, but it will be limited mostly again in the international businesses. Then finally, there is a fair value approach, which is not a retrospective approach, but allows for a simplification at transition date when historical data to do retrospective implementation is limited. We will use the fair value approach for a large part of the Life businesses in the Netherlands, which reflects the relatively older in-force portfolios there and the limited historical data. So if we move to the next slide, then in addition to some of the key accounting model choices, there are also various assumptions where we need to set our own methodology and parameters under IFRS 17. Our approach on setting this is to align with Solvency II as much as possible in the methodologies. But for certain specific parameters, we deviate from Solvency II, for example, because we have either taken a more economic approach or we have aligned to other practices that exist already within the group, or sometimes IFRS 17 simply requires us to set the parameters differently. The key relevant assumptions are summarized on this slide. So first, if we look at the best estimate of expected cash flows, actually, under IFRS 17, those are very similar to Solvency II. We only deviate in a number of areas where that's required by IFRS 17, which mainly relates to requirements on contract boundaries and some of the expense allocations. Secondly, on discounting for determining the discount curve under IFRS 17, we use the same principle as we do in Solvency II. That means that we apply a risk-free curve with a last liquid point, an ultimate forward rate and on top of that, an illiquidity premium. However, here, we have set some of the parameters differently from Solvency II. The difference is mainly related to the last liquid point, where we use 30 years for IFRS 17 compared to the 20 years last liquid point in the Solvency II curve. And another important difference is the illiquidity premium, which in IFRS 17, we based on our own asset portfolios, whereas in Solvency II, we have the volatility adjuster, which is based on a reference portfolio and not on our own actual assets. Then thirdly, on the risk adjustment. Also here, we apply a methodology, which is very similar to Solvency II based on the cost of capital method. Again, there are some important differences in the actual parameters. First, under IFRS 17, we used a 4% cost of capital rate compared to the 6% that is mandatory in Solvency II because we think that better reflects the economics under the risk adjustment. And then on top of that, the risk adjustment in IFRS 17 will have higher diversification benefits in it. For example, because we reflect also diversification between entities in the group, the so-called group diversification, which is not allowed in Solvency II. As you can see on the right-hand side of this slide in the graph, the impact of these differences and also some other further differences between the risk adjustment in IFRS 17 and the risk margin on Solvency II, that means that the resulting IFRS 17 risk adjustment will be significantly lower than the risk margin in the Solvency II balance sheet. If you take the IFRS 17 risk adjustment and the CSM together, then we expect that to be somewhat higher than what we certainly have as risk margin in Solvency II. So if we look at the next slide, there we have summarized some of the key impacts of the transition to IFRS 9 and 17 on our equity. As you may know, the transition date in IFRS to IFRS 9 and 17 is January 1, '22 because when we report the '23 results, we will be restating the '22 comparatives. So that's, on the left-hand side, you see the impact summarized on January 1, '22. Because on that date, the market interest rates were well below the historical rates on our assets and liabilities, you can see in this waterfall that, first, we have a positive impact on equity for the asset side, where under IFRS 9, we will be changing the accounting for the -- for loans, so mainly our mortgage loan portfolio from currently amortized cost to fair value under IFRS 9. So in that low interest rate at the transition date, you see a positive revaluation on the asset side. You also see that then for the insurance liabilities, there is a negative impact on equity which is the consequence of remeasuring the insurance liabilities to current assumptions, which includes a current market discount rate. Then furthermore, here, you see that under IFRS 17, there are no assets for deferred acquisition costs, the DAC and for Voba. And then we do have explicit liabilities for the risk adjustment and the CSM. So overall, you see that, that adds to a negative impact on equity at the January 1 '22 transition date. There are 2 important items to note in this context, which we have illustrated in the middle section of this slide. First of all, our current IFRS equity reflects the revaluation on the asset side of the balance sheet, but not for liabilities. And that AC metric accounting approach no longer exists under IFRS 9 and 17. So actually, the lower equity under IFRS 9 and 17 is more economical, and it's more in line with the adjusted equity, excluding the revaluations that we use today, and it's more in line with Solvency II. But it also means that the equity under IFRS 9 and 17 will be much more stable because it reflects the revaluations on both sides of the balance sheet. And secondly, the impact from IFRS 9 and 17 is very dependent on the level of the market interest rates at the date that we are looking at the impact. As you've seen in our first half year disclosures for '22, the revaluations in equity on the asset side have decreased quite significantly given the increasing market interest rates. So if you compare that lower equity under the current IFRS at June 30, '22, the difference with IFRS 9 and 17 is much less significant because we already have that lower current equity starting point. You can see those comparisons at the dates and a bit the order of magnitude in the graph on the middle of the slide. And then finally, on this slide, on the right-hand side, we show you the impact on the leverage ratio. You can see that the leverage ratio under IFRS 9 and 17 would have been slightly better than the current leverage ratio on, again, the 1st of January transition date. This mainly reflects the higher equity base where we include the net revaluations on assets and liabilities in equity, where currently the revaluations are excluded. And also, we include the after-tax amount of the CSM into the equity base for the leverage ratio. If I then move to the final slide. Here, we have summarized some insights in the way we will determine and present the operating results under IFRS 9 and 17. You see the revised format of the margin analysis and the operating results in the table on the left side of this slide. It includes what we will call a profit margin, which is mainly the release of the CSM in the P&L, a technical result, which is mainly the release of the risk adjustment, and the result from the P&C business in the premium allocation approach. These 3, we aggregate together in the insurance results in the table on the left. In addition, we will show there the investment result, which is then the difference between the investment income and the unwind of the discounting in the liabilities. And then the other components of the margin analysis, also including the nonoperating items, they will be quite similar to the presentation as we currently have it. And then for the level of the operating result, we can indicate that we expect it to be marginally higher than the current operating result, which is mainly reflecting an expected higher investment margin for the Dutch Life segment, where because of the transitioning some of the liabilities will unwind at the lower market rates at the transition date compared to the higher historical rates in the locked-in liabilities. Final comment on this slide. Good to note that also after the implementation of IFRS 9 and 17, there will still be significant differences between operating results under IFRS and OCG where the amount of the OCG and the disclosures around that will not change because of the implementation of IFRS 9 and 17. So to conclude on this session, let me just repeat the key takeaways that Annemiek set out in the beginning. There will be no impact from IFRS 9 and 17 on the strategy and the targets that we discussed today. We expect the financial impact in the current macro environment to be relatively limited, and we are well on track for the implementation in '23 and the disclosure of the impact and the comparatives in advance of our '23 year results. So with that, let me pass it back, Ruben, for Q&A.

Yes. Thank you, Harm and Annemiek. So indeed, let's move over to the final Q&A session of the day. And then yes, on IFRS 17. So all the questions you would like to ask, the opportunity is now. So maybe start with Nasib on the right.

So firstly, on Dutch tax implications, are there any from move to IFRS 17? And then secondly, with the Solvency II review, you said that IFRS is moving closer to Solvency II. Does it move even closer to Solvency II post just because looking at the assumptions you made on the risk discount right?

On tax, we don't expect it to have any implications and maybe on alignment with the outcome of Solvency II review.

Yes. So that's, of course, largely dependent on the actual outcome of the solvency review, which is still ongoing, but especially on the area after risk adjustment where, as I said, we have taken already a lower cost of capital rate for IFRS 17. If the outcome of the Solvency II review is moving in the same direction, then yes, IFRS 17 and Solvency II will be even more closer together.

Next question maybe from Farooq.

I've got a question and a request, please. The request is -- and I'm sure you probably going to do this anyway, but if we could have a really detailed reconciliation between the own funds movement in OCG and this profit that would just make a first time in 20 years, we suddenly have a model that aligns between capital and well, hopefully, a little bit aligned between capital and earnings, that would be like superb for us all. And I think will help the market to accept OCG. I don't think it does currently, obviously doesn't. Second question, can you just describe the philosophy behind your illiquidity premium? So you say it's based on your current assets. So clearly, it's going to be bigger than the VA, how much bigger and what's the principles behind that?

Yes. So Farooq, on the detailed reconciliation, noted. So we'll take that definitely on board. And maybe on the [ CRE ] behind the illiquidity premium, maybe Harm, you can elaborate on that a bit further.

Yes. So in short, how we set the illiquidity premium is that we take the actual asset portfolio which is back in the insurance liabilities. And then we take the overall market yield from that portfolio, and then we adjust that for the credit element. So we take expected losses and an adjustment for unexpected credit loss. And then the adjusted spread that is left after those adjustments that we use as the spread in the discount rate for the liabilities as well, where, of course, the level of that is dependent on the point in time in the market and the level of the spreads. But it does mean that we have more stability in the revaluation of the assets and liabilities because we have the maximum alignment between the 2.

So if I just do a rough calculate -- I mean, I don't know the numbers, but that sounds like 4 to 5x bigger than the current VA of 3 to 4x.

It is going to be higher than the VA. I think, again, the exact how much higher is very dependent on the point in time. But it is a higher illiquidity premium than we have in Solvency II.

All right. Thank you, Farooq. Michael?

Two questions. One is insights and the other one is theoretical. There's something in onerous contracts, you probably don't have them or maybe you do. I don't know. What insights did you gain from doing all this quite expensive work, I think, IFRS 17? And then the other 1 is the theoretical question. If I look at Slide G6, it's not -- doesn't really apply to you now, but it would have done in December. So if I take the December figure for IFRS is EUR 33 billion, and you show a kind of figure for IFRS 17, call it, a bit above EUR 20 billion, so there's a big difference, EUR 10 billion. Now if I put my longer accounting hat on, that would mean that the profits that the retained earnings that could be in -- in the old balance sheet would effectively now be in CSM, and they'd be recycled. Now I'm expressing in an aggressive way, and it doesn't apply because really, if you use your June figures they're very similar. But is my thinking correct that if the equity from old IFRS to new IFRS drops and it reappears somewhere in CSM. It means that we're recycling old earnings or we recognize old earnings too quickly or something, I don't know.

Now maybe first on the onerous contracts. I think the comment you made is correct that if you look at the transition date, that is not really relevant. There will be some, but in the overall context, the level of onerous contract is insignificant. Of course, going forward, depending on -- there can be 2 areas where onerous contracts could emerge. One, of course, is on the existing in-force business where the CSM absorbs the assumption changes, sort of the level of transition, I think, is quite comfortable that it can absorb that. But if the impact -- the negative impact of assumption changes would, at some point, be higher than the existing CSM, you could get into the situation of onerous contracts. And then similarly for new business, the expectation is that the new business is such that also under IFRS 17, that leads to a positive CSM. But again, that's where in theory onerous contract could emerge. If you look at the situation today, it's not significant. And then, yes, on equity, I mean, maybe as I tried to explain earlier, the key elements you need to keep in mind if you compare the current equity at January 1 to IFRS 9 and 17, is that in the current equity at that date, there was a very significant revaluation amount on the assets, which still exists under IFRS 9 and 17, but is then largely compensated by revaluation on the liability. So you basically see that AC metric positive revaluation at that date being removed. And that also explains why in June -- at June 30, the impact is much smaller because a similarly didn't exist on that date because of the different interest rate environment.

There may be a question from Andrew.

I guess just a quick question on your -- the parameters for the discounting. When you come up with those, is that done completely internally? Or is there, I guess, consultation with peers or the CFO Forum? So how much deviation do you think there will be from yours versus peers just in how you come up with those? I'm not obviously expecting you to speak for peers there.

Yes. I think indeed difficult to comment on peers, but I think sort of high level, what you will see is that the -- I think the approach on setting the rate will be quite similar, so in the buildup of the components. But I would also expect that in setting the parameters there will be differences partly depending on different businesses or different portfolios or other reasons. But I would say methodologies are quite aligned with parameters. There will be differences.

I guess just a follow-up. If It's still on. If let's say, it's not the case, but your assumptions or parameters are way off where the market comes out, will there be an opportunity to rebase everything, let's say, in a year's time? Or once it's locked in, it's locked in?

Yes. In principle, these methodologies are locked in because that's our starting basis for IFRS 17. I would expect with sort of the magnitude of this change that some of the market practices may emerge in the years to follow. And depending on what is seen there, there might be some movements in the market.

And maybe some conversion but I think it also really depends on the business you have and all discussions. You also have your auditor and so the choices that you've made if they really reflect your business. And there's such a wide variety also within live on how long contracts last, and that will be taken on board as well.

All right. Thanks, Andrew. Then maybe we're right on time. Any last questions? One more for you.

All your peers given unwind rate on the CSM. So they say it unwinds at 8% or 10%. What would be your figure?

Yes. So the unwind of CSM will, in the end, be quite visible in the actual disclosures because there, we will be showing sort of a runoff pattern of the CSM. I would say sort of big picture, you need to keep in mind that, relatively speaking, a big part of the CSM come from the businesses in international. So as sort of a high-level direction if you take the sort of the average life in those portfolios that is mainly driving the release of the CSM.

All right. And that concludes our final Q&A on IFRS 17. Thank you very much, Harm and Annemiek. I'm sure it won't be the last occasion that we will be discussing IFRS 17 with each other and we'll be probably continuing for -- well, I guess, definitely next year and probably the year after as well, but it has been a good start. Then before we have lunch, I would like to invite David to stage to wrap-up the day. Thanks, David.

Yes. Thanks, Ruben. Yes. So in very short term, I think a very intense morning, and so we commit to an attractive and growing dividend, in line with the guidance that we have given of free cash flow of mid-single digit. And as the CEO has explained, this free cash flow is also based on really underlying business developments. And on top of that, a recurring share buyback as a commitment to our shareholders. Yes. And with that, we are at the end of this morning. So I'd like to thank very much everybody on the webcast who made it all the way to the end. So thank you very much for attending. And obviously, everybody here in the room, thank you very much for the engagement, for the questions, the discussion that we had. We'll be around, of course, today, but also in the coming period to interact with you and deal with all of your questions today, but also in the coming period. And given also all the sharpness of the questions that you asked, we also conclude that all of you have earned your lunch. And therefore, we will be serving that outside here, and I look forward to speaking, to seeing you this afternoon and later on in the rest of the period. Thank you very much.