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

Good morning, ladies and gentlemen. This is the operator speaking. Welcome to NN Group's analyst conference call on its second half year 2022 results. [Operator Instructions]. Before handing this conference call over to Mr. David Knibbe, Chief Executive Officer of NN Group, let me first give the following statement on behalf of the company. Today's comments are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those projected in any forward-looking statements. Such forward-looking statements may include future developments in NN Group's business, expectations for the future financial performance and any other statements not involving a historical fact. Any forward-looking statements speak only as of the date they are made, and NN Group assumes no obligation to publicly update or revise any forward-looking statements whether as a result of new information or for any other reason. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation or an offer to buy any securities. References made to the legal information on the last page of the presentation. Good morning, Mr. Knibbe. Over to you.

Yes. Thank you, and good morning, everyone, and welcome to our call to discuss NN Group's results for the second half of 2022. I'm joined today by our CFO, Annemiek van Melick; and our CRO, Bernhard Kaufmann. I will start off this presentation by talking about the strategic and financial highlights of the year. Annemiek will then take you through operating capital generation, the capital position and the financial results in more detail. After wrapping up the presentation, we will open up the call for the Q&A session. So let's get started on Slide 3. At our investor update in November, we announced updated strategic targets to reflect our ambition to be an industry leader known for customer engagement, talented people and contribution to society. This also includes actions to tackle climate change. Although it is still early days, we are making good progress on achieving these ambitious targets. Let me give you some examples of what we are doing. We measure customer satisfaction based on Net Promoter Scores, or NPS, and aim for the Netherlands units and the international units, both to be significantly above the market average by 2025. Based on the latest course already 8 out of 11 business units scored at or above market average NPS. No doubt the positive momentum supports both retention of customers and new business during the current cycle. We will continue to focus on the best customer experience in order to further improve these scores. Despite a significant transformation of NN in 2022, I am proud that the employee engagement has increased. This was confirmed in the most recent survey that we carried out in the second half of last year, which showed employee engagement increased from 7.7% to 7.9%. Given the current tight labor markets, it is even more important that we attract and retain the right talent to continue innovating and driving our business forward. All 10 of our international business units were certified as top employer for the fifth time in January this year, recognizing our leading people, policies and practices. To play our role in tackling the impact of climate change, we aim to invest Net Zero greenhouse gas emissions across our business by 2050. So in our investment portfolio as well as in our underwriting portfolio and our own operations. We can make the biggest impact through investments, and we are on track to meet those targets. We have been making new investments in climate solutions, including green bonds for a total amount of around EUR 3 billion in 2022. In conclusion, we are well on track to deliver on our strategic KPIs, which ultimately drive our financial results. Also financially, we have shown our resilience with positive new business in OCG development versus 2021. We achieved a strong operating capital generation or OCG of more than EUR 1.7 billion, up 8% on 2021. If we exclude asset management business that we sold in April, then OCG on a like-for-like basis went up 16%, driven by strong business performance and higher rates. And thanks to our multi-distribution platforms and solid reputation, our commercial performance held up well with value of new business slightly up on previous year. One of our strategic pillars is to maintain a resilient balance sheet. The NN Group solvency ratio was at 197% at the end of 2022, despite the negative impact of market movements. Annemiek will talk in more detail about the drivers of the solvency ratio and the holding cash capital balance of EUR 2.1 billion later in the presentation. The strong performance and robust balance sheet allows us to continue to deliver attractive capital returns to shareholders. We are today announcing a proposed 2022 final dividend of EUR 1.79 bringing the total 2022 dividend to EUR 2.79. This represents an increase of 12% on 2021. In addition, we have announced a new share buyback program of EUR 250 million, in line with our capital return policy. Now let's look at the commercial performance of the business units on Slide 5. Value of new business or VNB of the insurance units in the Netherlands, Europe and Japan was broadly stable at EUR 431 million in 2022. VNB in Netherlands Life was up on last year. driven by a higher volume of pension contracts as well as favorable impacts from an increase of interest rates. At Insurance Europe, the VNB was negatively impacted because we have discounted higher rates, given the interest rate rises in the region. However, this was partly offset by the contribution of the MetLife businesses that we acquired in Poland and Greece that are included for the first time in 2022. Excluding currency effects, VNB at Japan Life was stable as continued growth in protection driven by an improved margin was offset by lower sales of cash value insurance products. Assets under management in the defined contribution pension business amounted to EUR 27.8 billion at the end of 2022 reflecting strong net inflows of EUR 2 billion during the year, offset by a negative market performance. We see a gradual slowdown of the Dutch mortgage market as a result of rising customer rates. NN Bank originated EUR 8.7 billion of mortgages last year, of which EUR 1.2 billion was originated by our sustainable mortgage label Woonnu. So let's now look at some other developments at the individual business units on Slide 6. All business units delivered a solid underlying performance in 2022. As I mentioned on the previous slide, we reported a higher new business at Netherlands Life, which is thanks to the strong customer retention and new sales as well as NN's leading satisfaction scores among pension advisers. Efficiency remains a top priority across the business. The acquisition of the ABN AMRO Life business will bring additional economies of scale and support our aim to reduce expenses in line with the portfolio runoff. The Non-Life business reported a solid combined ratio of 95.8% for the full year 2022 despite some exceptional events such as a large storm in February. The current high inflation is also impacting this business. However, we expect to be able to absorb this through premium increases and by leveraging on investments that we have made in the past years in our data and underwriting capabilities. Additionally, we have provisioned for higher inflation expectations within P&C and for the higher minimum wages within D&A. We are on track to meeting our combined ratio guidance between 93% and 95%. We invest for growth in our European businesses, both inorganically to strengthen our market positions and customer propositions, such as the acquisition of the MetLife business in Poland and Greece and the Finportal in Slovakia. But also organically, for example, to enhance digitalization, including lead generation and digital processes and tools. Digital lead generation resulted in double-digit sales growth in 2022 in the countries where this approach is used. In Japan, too, we are investing in product innovation and customer engagement through platforms. Our focus is on the protection market where we see growth opportunities, combined with high margin building on our leading position and strong reputation in the SME market in that country. For 2023, we expect some pressure on VNB as we move away from short-term savings products to protection and long-term products. At NN Bank, an increase in market interest rates has led to a higher customer mortgage rate and improved margins also on savings. We expect these developments to support the net interest margin going forward. At the same time, we continue to invest in the digital capabilities of the bank, for example, the new system that makes mortgage application process more efficient and easier for mortgage advisers. Moving to Slide 7. As you know, we are disciplined when it comes to delivering on our capital return policy of a progressive dividend per share and an annual share buyback of at least EUR 250 million. We have a strong track record of growing dividends and distributing excess capital in the form of share buybacks, as you can see in the graph on this slide. Given the strong financial performance in 2022, and our robust capital position and balance sheet, we are today announcing a proposed final dividend per share of EUR 1.79, which will be tabled at the AGM on June 2 for shareholders to approve. That brings the total dividend per share for 2022 to EUR 2.79, which represents an increase of 12% in 2021. We are also announcing a new share buyback program of EUR 250 million, in line with our capital return policy that is expected to commence on the first of March. I will now hand you over to Annemiek to take you through the capitalization and the financial results.

Thank you, David, and good morning, everyone. Let's start with the solvency position of NN Group on Slide 9. Our solvency ratio increased to 197% in December '22, up 1 percentage point since June. Strong operating capital generation of more than EUR 800 million added 9% to the ratio. And together with positive items in the bucket, Other, more than offset the impact of continued volatile markets and capital flows to shareholders. The impact from markets lowered the ratio by 10 percentage points, mainly reflecting changes from credit spreads and negative real estate valuations. This was partly offset by a positive impact from interest rates, driven by the flattening of the longer end of the curve. In the second half of last year, we used an opportunity to optimize our economic hedging while supporting our solvency ratio at the same time. The bucket, Other, includes the positive impact from these ALM transactions and, to a lesser extent, some equity sales. Capital flows to shareholders reflect our final dividend of EUR 504 million and reduced the ratio by 6 percentage points. In the same period, NN Life solvency ratio increased from 187% to 191%, with similar underlying drivers as for the group movements. And as such, both ratios showed resilience in continued volatile markets. Now looking on the next slide at the full year solvency development. you can see that strong operating capital generation of over EUR 1.7 billion added 18 percentage points. This essentially covered the EUR 1.8 billion capital flows to shareholders, which included the full year dividend of EUR 790 million, the regular EUR 250 million share buyback and the additional EUR 750 million share buyback related to the net M&A proceeds. The decrease in the ratio from 213% to 197% was mainly due to the impact from markets, which was only partly offset by some positive items in Other. The impact from markets on a full year basis lowered the ratio by 22 percentage points mainly reflecting a negative impact from credit spread changes mostly driven by government bond and corporates and only to a lesser extent by mortgage spreads as well as lower equity markets. These items were partly offset by a positive impact from flattening at the longer end of the curve. The bucket Other includes the net positive impact from M&A following the sale of NN IP in April, which was partly offset by the acquisition of MetLife Poland and Greece and several other items such as the reduction of the UFR to 3.45%. With a solvency ratio of 197%, a leverage ratio of 22.9% and ample tiering headroom, NN Group continues to have a robust balance sheet, supported by strong yearly operating capital generation. Now let's move to that operating capital generation on Slide 11. In '22, OCG increased by 8% to over $1.7 billion or up 16% if you would exclude the impact of the sale of Asset Management. The positive impact of higher rates in Netherlands Life, strong underlying business performance at Non-Life and strong business performance in Europe more than offset the loss of fee income at NN Bank and the impact of higher SCR at Non-Life due to hardening of the reinsurance market. Zooming in on the developments in the second half of '22, you can see OCG increased to EUR 812 million, up 1% versus H2 last year. The OCG of Netherlands Life increased by EUR 111 million to EUR 561 million mainly driven by the lower net negative impact of the UFR drag and the risk margin release due to higher interest rates. We also saw higher Life new business contribution for both Netherlands Life and Europe. Europe's OCG increased to EUR 190 million, mainly reflecting the positive contribution from the MetLife businesses whose integration is on track and a higher investment return. This was partly offset by lower pension fees. Japan Life posted a lower OCG mainly due to a reinsurance transaction, partly offset by lower new business drain as a result of somewhat lower volume of sales. Non-Life OCG decreased to EUR 136 million from last year's EUR 163 million. That benefited from a positive impact from COVID on P&C, which was only partly offset by the floods of last year. The underlying performance of Non-Life was strong. However, results were impacted negatively by an increase in SCR following hardening of the reinsurance market and, to a lesser extent, some additional provisioning for the potential impact of higher inflation and for bodily injury. This was partly offset by higher new business contribution, favorable claims experience in fire and the higher investment return. The lower OCG at banking was largely driven by the lower statutory results reflecting lower commission income, partly offset by a lower increase on risk-weighted assets. For '23, we expect a strong underlying business performance within Non-Life and Europe to continue, and we expect NN Bank to improve its OCG contribution. If markets remain at year-end '22 levels, this is expected to be offset by a lower contribution from Netherlands Life, reflecting market impact on investment return. As you can see on the next slide, the OCG generated in our businesses translated to a strong level of remittances totaling EUR 1.75 billion. This is only fractionally lower than last year's EUR 1.84 billion that still contained EUR 110 million from asset management and elevated remittances from Japan banking and NN Re. Full year '22 reflects a one-off dividend following the ABN AMRO Life transaction. In the second half of '22, NN Life redeemed EUR 500 million of former Delta Lloyd legacy subordinated debt, which was replaced by an intercompany loan from group to NN Life. NN Group in turn, issued $500 million of subordinated debt on August 22. The intercompany loan is included in the bucket, Capital Injections. Adjusted for this debt replacement, the full year '22 free cash flow to holding, reflecting remittances less capital injection and holding costs, amounts to EUR 1.4 billion. The EUR 500 million subordinated debt issued by NN Group is reflected in the change in Debt and Loans bucket, which also includes the repayment of EUR 600 million of senior notes in March, hence, the minus EUR 106 million. Other cash movements during the year are the proceeds received from the sale of Asset Management business as well as cash paid for the acquisitions of the MetLife businesses. And the main cash outflow during the year was the amount paid to shareholders in cash dividends and share buybacks. These movements resulted in a holding company cash capital of almost EUR 2.1 billion at the end of '22, broadly stable versus '21. On the next slide, I'll spend a few words on the IFRS results. Excluding the sale of Asset Management, our full year operating result came in at EUR 1.7 billion, down roughly EUR 150 million from the EUR 1.85 billion in '21, which included EUR 75 million of nonrecurring benefits, largely related to the special dividends received within NN Life. Looking at the second half of '22. The operating result, excluding asset management, came in at EUR 760 million versus EUR 826 million in the same period last year. Netherlands Life reported a somewhat lower operating result of EUR 447 million, largely driven by the inclusion of EUR 54 million of special dividends last year. The operating result of the Non-Life business increased slightly to EUR 127 million, reflecting an increased operating result of D&A, partly offset by a lower operating result of P&C. Looking through the various exceptional impacts such as provisioning for the potential impact of higher inflation and bodily injury claims at P&C, the large increase of minimum wages, but also the positive impact of assumption changes at D&A, we do see a positive underlying trend in the Non-Life business with an underlying run rate combined ratio in the middle of our guidance range of between 93 and 95 percentage points. The operating result of Insurance Europe decreased to EUR 134 million as higher technical and investment margin and the acquisition of MetLife were more than offset by lower life and pension fees across the region. Japan Life reported an operating result of EUR 88 million, down almost 11%, excluding currency benefits, mainly due to lower fees and premium-based revenues. Banking came in slightly lower at EUR 49 million mainly due to higher expenses, largely related to compliance and investments in digitalization and the absence of a release in provisioning that occurred in the second half of '21. Going forward, we expect the bank to benefit from higher interest income. All in all, the operating result in the second half of '22 held up well versus a very strong '21 that included nonrecurring items. A few words on the net results on Slide 14. Although the operating profit only declined roughly EUR 150 million to EUR 760 million versus the second half of last year, the actual decline in net result was larger and led to a net loss of EUR 444 million. In the middle of the chart, you see that the nonoperating items are the main reason for this reported net loss. In the second half of '22, these nonoperating items had a negative impact of EUR 1.3 billion versus a positive impact of EUR 1.3 billion in the second half of '21. They include EUR 479 million of impairment, mainly related to impairments on equity securities. In contrast, the same period last year included capital gains on the sale of public equities and government bonds. They also include negative revaluations totaling EUR 804 million mainly reflecting negative revaluations on real estate and derivatives used for hedging purposes. Again, in contrast, the same period last year included positive revaluations on real estate. The full year net result remained positive and came in at over EUR 1.5 billion, down from EUR 3.2 billion last year, driven by similar movements in nonoperating items, which were for the full year, partly compensated by the gain on the sale of NN IP. And with that, I hand over back to David.

Thank you, Annemiek. Our strategy is aimed at creating value for all stakeholders, so customers, employees, shareholders and society at large. We have set new ambitious strategic targets for 2025 with a focus on customer engagement, attracting talent and working towards our net-zero pledge. And we are making good progress, and we'll continue to focus on them because ultimately, these targets also drive our long-term growth. We are today reporting strong operating capital generation for 2022, which is up 16% on '21 on a like-for-like basis, excluding asset management on the back of a solid business performance. Commercial performance was also resilient with value new business remaining broadly stable despite pressure from higher discounting rates and lower sales volumes. We have maintained a robust balance sheet in line with our first strategic priority, the NN Group solvency ratio at 197% at the end of the year. This allows us to continue delivering on our promise of attractive returns to shareholders with a preposed 2022 dividend per share, up 12% on 2021. And we have announced a new EUR 250 million share buyback that is expected to commence in March. For the coming years, we will continue to focus on delivering not only the EUR 1.8 billion of OCG, but also the mid-single-digit growth of OCG and free cash flow towards 2030. And with that, I will ask the operator to open the call for Q&A.

[Operator Instructions] And we'll now take our first question. First question is from the line of Andrew Baker from Citi.

So the first is on solvency. Are you able just to give a year-to-date mark-to-market ratio of both the Group and the Netherlands Life. And then are there any other management actions underway to improve the stock of solvency going forward? I'm thinking about obviously the ALM actions that you did in the second half. And then where are you just -- can you just give an update on where you are in reducing the volatility to mortgage spreads? And then secondly, on OCG for 2023. Annemiek, were you saying that the -- based on the markets at full year '22, you're expecting 2023 OCG to be broadly flat? And if so, can you just walk through those moving pieces for me?

Thank you, Andrew. So let me get the questions on the solvency and management actions and the market outlook '23 to Annemiek. And then Bernhard will answer the question on the -- an update on the volatility of the mortgage spreads.

Morning, Andrew. First on your question regarding solvency ratio year-to-date. And we've seen a small negative related to mortgage spread widening since the year-end. We've also seen a bit of steepening, but that was largely offset by higher equities. So net-net market impact, we expect the solvency ratio to be broadly stable for Group and then that also goes for Life. In terms of management actions that we've been taking, the ALM actions that we were -- have been taking in the fourth quarter of last year, were really related to market volatility actually that we saw in the first half of the year and the model changes that we made in the first half of the year, and that resulted in a suboptimal H1 position also from an economic interest rate perspective. That is what we have been adjusting also in Q4, and that had a positive impact on solvency. We don't foresee any of such actions now going forward. Related to your question on OCG and on forecast of the OCG. Obviously, we've seen pretty good underlying strength in the OCG of Non-Life of Europe. And we would also -- and we expect that to continue, we would also expect the bank to actually start improving its OCG with net interest income coming up. We would expect that those improvements would broadly offset the negative impact that we would see of December markets having on the life business. So that extent, we would roughly expect a flat or potentially slightly positive OCG for '23 based on December markets that we see.

Great. Can I just follow up on the mark-to-market? Have you seen anything from real estate revaluations in the first half of 2023?

Well, only very limited actually so far and the valuations updates that we see on the real estate they don't come through on a monthly basis that quick now. So, so far, we haven't really seen anything there. But it is our expectation that in '23, most likely a bit related to the first half of '23, we would envisage to see a decrease that's roughly similar to what we've seen in the second half of last year.

Andrew, on your question related to mortgage spread volatility, we are increasingly positive that we can mitigate part of the mortgage spread volatility impact on our Solvency II ratio. And we want to achieve this by including a dampening mechanism in the internal model to allow for more adequate representation of the impact of the volatility adjustment in the solvency ratio. As this is a model change and because of regulatory approval timelines, we expect that this can be implemented in the second half of the year. And the indication on impact is that this mechanism should reduce mortgage spread volatility roughly by half.

We'll now take our next question. This is from the line of Cor Kluis from ABN AMRO.

Cor Kluis, ABN AMRO. Two questions. Maybe first question on the solvency ratio, the category Other in H2 you showed that positive 9 percentage points for the solvency ratio. You mentioned the liability action on interest rates that's included in it. Could you give a little bit more granularity what was that asset liability action? How much was that positive? I think there was the ABN AMRO deal in it and yes, a few other comps. So could you give a few percentages that we have a little bit more grip on the plus 9%? That's my first question. My second question is on the Dutch Non-Life market. We've seen, of course, everywhere in the world that the reinsurance premiums went up quite a lot the beginning of the year. You mentioned it quite a few times in the press release as well. Could you mention -- have you reduced your reinsurance somewhat? Or are you just paying the higher premiums in the market? And what would be the effect on your own prices and profitability for the coming year because that seems to have went quite fast. And maybe one last final question is on this mortgage sensitivity. We saw that in one quarter, the sensitivity declined there for 50 basis points, it went from minus 12% to minus 10%. It seems that you have not yet after the model change in the D&B, but why did that change in the last quarter?

Thank you, Cor. So Annemiek, if you can cover the solvency ratio, and then I'll take it on the Non-Life and reinsurance with Bernhard.

Yes, Cor. The bucket Other indeed, plus 9 percentage points on the solvency ratio. I think the most large elements there to focus on in dividing that 9% would be roughly 2/3 related to asset management -- asset and liability management transactions that we did and around 1/3 to some equity sales that we did. And the reason why we sold some equity is really to ensure that we remain within SAA limits, post the market value adjustments that we've seen on fixed income, et cetera. Those are the main drivers.

Yes. Then maybe a couple of broader comments on nonlife first, Cor. The underlying trend of the Non-Life business is positive. We -- there's obviously always questions around the impact of inflation. So far, the impact remains low. We have assumed also a provision for a potential impact of higher inflation in the P&C business. On the D&A side, we've also seen obviously an unexpected increase by the government of the minimum wage of 10%. So also there, we have adjusted our assumptions for that. but we're also able to reprice quite a bit, including that we see that the impact of higher pricing of the reinsurance. So far, we've been able to also take that into account into our pricing and our repricing to offset some of these pressures that we see. So overall, I think for the underlying business is healthy, and we're on track for our guidance of 93% to 95%. And let me give it to Bernhard to maybe he can give a perspective on the outlook for reinsurance market going forward and also on the mortgage sensitivity.

And David, on the reinsurance, did you increase your own risk or have you kept the reinsurance levels at the same level?

Yes. Bernhard will cover that.

Cor, on this point, First, like David pointed out, the hardening of the market included price increases, mainly driven by higher inflation loss experience where we also see that we can adjust our pricing. So this is an impact that will -- is not sustainable or will be also mitigated over time. The adjustment of our program, so having higher retention levels also adjusting aggregate covers. This is something we can do in addition to also react on higher reinsurance prices. And the impact that we saw in 2022 was more related to the hardening of the market terms and conditions, mainly that reinstatement premiums have to be paid upfront and that was included in our capital requirements. And therefore, we have this negative one-off that should be a one-off. And on your question on sensitivities, the mortgage spread sensitivity decreased from minus 12% to minus 10% over the year, but that is mainly reflecting updates on assumptions related to prepayments that we saw over the year related to a higher interest rate environment and the assumptions to make there and also the change in diversification in our internal model that led to this increase. The positioning itself has not changed.

We'll now take our next question. This is from the line of Farooq Hanif from JPMorgan.

Just going back to the planned major model change on mortgage -- on modeling mortgage spreads. Can you comment given that you seem to have some view on this now, but can you comment whether this might have a negative impact on your Solvency II ratio as it has done for others? And how it would impact the steady state level of your OCG? And my second question is, I saw a headline about the Japanese FSA issuing an improvement order. Is this significant for you for NN Life? What does it mean? And does it kind of play to your comment on lower or change in business mix hitting earnings in -- or hitting VNB in 2023.

Yes, thank you, Farooq. Bernhard, please take the question on the mortgage spread change and the potential impact on the ratio, and I'll cover the Japanese question.

Farooq, the impact on OCG, so there should be none. So that's the easy part to answer. The impact on solvency ratio is very much dependent on the time of implementation. So if spreads are more wide or tight compared to historical average. So that will mainly then also drive the impact on the date of implementation.

So presumably, if they are wide, that has a positive impact? Or if you could just explain that.

So the -- if it's positive or if the mortgage spreads are widened then there's a positive impact on solvency. So that's how it's designed. So that the -- currently, we have no compensation volatility adjustment for higher spreads or widening of spreads due to market volatility. And this is then more or less the impact that is mimicked in the modeling on the Solvency II ratio.

And may I ask, I'm really sorry to keep asking additional questions. But what would you view as a long-term mortgage spread? Are you willing to share that?

Or maybe that's best then really to take up individually with the IR colleagues in more detail because that's a longer story to discuss.

Yes. Thanks, Farooq. And then on the FSA order, well, I mean, please note that there's an Insurance Business Act in Japan that forbids insurance -- any insurance company to disclose information on, let's say, the interactions that we have with the regulators. What I can say is that our strategy for Japan is unchanged. We have been focusing on our corporate life products in the SME market, which is, as you know, a very large market. We focus on the protection part. Historically, we've also sold quite a bit of more short-term savings products that are a hybrid product of savings and protection. We expect that market to become smaller and smaller. And we are replacing that with more protection sales and more long-term savings products combined with protection. Now for the short term, that will put some pressure, probably during the transition on the VNB over time, Japan remains a very attractive market. We set a target of EUR 125 million of OCG in 2025. And so these targets haven't changed. But for the short term during that transition, we might see a bit of lower VNB due to the short-term products over time being replaced with long-term savings products and other protection business.

This is from the line of David Barma from Bank of America.

Two small questions for me, please. The first one is on cash -- on holding cash. How does the amount of cash at year-end compare with the -- your 1 in 20-year shock events? That's question number one. And question number two, can you talk a little bit about new business for Europe in '23, please? And how we should see market movements impacting that?

Yes, David. So let me start with the question on new business in Europe and Annemiek can answer the question on cash versus the 1 in 20 event. Yes. So in Europe, there's obviously a couple trends. There is underlying -- we still see a very positive trend on the demand for life protection products. I mean the -- we've always spoken about the underpenetration of the market, but it's clear that COVID when people spend a lot more time at home and also became more aware of the vulnerabilities if people get sick or even pass away, what will happen to my house, what will happen to my family. So this under penetration has been there, but we see that there is a higher awareness now. We have a very strong multi-distribution platform, and so we're able also to reach out to these customers. So that is one factor that is driving the underlying growth. Now short term, obviously, a lot of the markets have more than double-digit inflation so that the purchasing power is lower, wages haven't fully kept up. So that makes it a bit more challenging. What we also see is that banks credit insurance comes down because banks simply sell less loans and therefore, also the credit insurance tracks the debt as it comes down. Now so far, we've been very successful also in offsetting that. And that is mostly done because we invest also in the further digitalization of our agent channel. So our leads driven sales has more than doubled. And therefore, we're optimistic that also for '23, we can continue the growth path for Europe in sales because of the, let's say, the underlying need for customers, but also the distribution channels that we have in place to service all these customers. On cash, Annemiek?

Yes. On the cash capital we have, that is sufficient to cover the 1 in 20 event, the shock of all our underlying entities. The cash capital requirement actually fluctuates over time because it's also dependent on the underlying solvency levels. And with the solvency level of Life being at 191%, that's a good start of position. So we're still comfortable with the EUR 2 billion, and it is sufficient to cover the 1 in 20 event.

This is from the line of Nasib Ahmed from UBS.

So first question on the solvency ladder that you said at the Capital Markets Day. At what point between the 150% to 200% do you think that you would look to retain more capital and look to do a lower share buyback than the $250 million. And then second question is on -- so you talked about sale of equity assets and you're kind of in line with your SAA with interest rates being higher than 2 years ago. Would you reassess your SAA and move more into fixed income because you could allocate more into fixed income and get the same return that you were getting previously now with potentially a lower capital stream. And then related to that, how often do you reassess your SAA.

Thank you, Nasib. Annemiek, please cover the question on the solvency letter and Bernhard can speak about the SAA.

Yes. I think on solvency letter, our focus is really on sustainable and predictable capital returns. And if we are within the 150% to 200%, we really focus on a progressive dividend yield per share and the EUR 250 million buyback. It's not mechanical. So there is not a specific turning point. Having said that, we've continuously delivered on the EUR 250 million since 2019 and even on market circumstances led to a drop to lower ratios actually also lower than the EUR 196 million for Group and 187 million for Life that we've seen in July and August. We've always just continued on the regular quarterly remittances out of life and also the regular dividend and a buyback at the Group. So we're comfortable with the current capital and solvency position that we have there, and we're also confident with the current capital return policy that we have.

Nasib, to your question on strategic asset allocation. First, on the process. So we, on an annual basis, reassess the strategic asset allocation for our key business units. 2022 was special. Therefore, also, we reassessed our positioning, like Annemiek pointed out, on ALM on interest rate positioning, but also with respect to risky assets that resulted in this also sale of equity. But in the end, it's a refinement. It's an optimization. And the outlook, we want to continue with our slow and continuous shift from liquid to illiquid assets. And there, we are targeting mainly investments in loans, but also to contribute to our Climate Solution investments in green bonds. So that is more the long-term strategic outlook coming out of the assessments.

Just to follow up on the shift from liquid to illiquid. What OCG uplift do you expect? So previously, you had a target that maybe it's not material? Or do you have a target on OCG uplift?

No. As it's really an optimization and also the current economic environment, we see not really a potential for additional OCG uplift coming from the SAA.

We'll now take our next question. And this is from Michael Huttner from Berenberg.

I got 2 questions. One is on debt and the other one is on the ROE. So on debt, I see from the slides you repaid EUR 500 million of cash. I wish I could do that, it's beyond me, I think, but -- which is lovely. But you do have the EUR 1.8 billion kind of -- not a cliffhanger, it's in 2024, it's a sub debt. And I just wondered how much of a focus is that at the moment and how you're kind of looking at it. And the other thing is on the ROE, my number is probably wrong, but EUR 1.7 billion divided by owned funds, excluding sub debt of, call it, EUR 13.7 billion is around 12%. Now I know you pay a lot out in cash, but you do retain a bit. So I would assume the normal issued pay out at 75% and you keep a quarter. So your normal progression of owned funds of capital would be around 4%, 5%. And so you'd break the bank, you'd get to more than EUR 1.8 billion by 2025 to get from -- to EUR 1.8 billion from the current level, you only need 2% of annual growth. And here, I'm kind of thinking actually the numbers suggest you're at 5%. Can you talk a little bit about this ROE which is extraordinary. I didn't know NN is such a high ROE company.

Thank you, Michael. Let's start with the question on the repayment of debt. And then I think we're trying to follow your reasoning on ROE, but -- so Annemiek will cover both.

Michael, yes, on the debt, at full year, we had a leverage of around EUR 5.7 billion. We're actually confident with the leverage position that we have there. We did mature -- we had a maturing EUR 500 million senior in January, which we funded by cash capital at the holding. I obviously am aware that we have around EUR 1 billion of Tier 2 and EUR 750 million of Tier 1 actually coming up in 2024 as well. We will consider refinancing these notes, including the EUR 500 million senior in the context of optimizing our capital and leverage structure, and we'll be looking at that, obviously. Now on the ROE. We don't have an ROE target out there, given that we really focus on operating capital generation. We also focus on kind of the mid-single-digit growth guidance for the free cash flow. Those are really the main metrics that we also steer on. And to be honest, I couldn't really follow everything of your calculations on the ROE. So it suggests we'd probably take that offline with IR and then take you through some of the calculations that you've been making and what we see there.

Well, let me rephrase the question because I feel a bit sad that only one of my questions have been answered. You had EUR 1.7 billion of OCG in 2022. So whether on an adjusted or real basis, it's the same figure, more or less, you're targeting EUR 1.8 billion in 2025. That's 2% implicit annual growth. That seems very, very low. And so can you explain why you're so why you don't think you can do more?

Okay. So that is more related then to the operating capital generation rather than to the growth in there. What we see in terms of OCG and why we're still confident that we can have a long-term mid-single-digit growth there is we do still see growth in the European insurance business. We still see growth in the Non-Life business, and we also see some uplift in the banking business going forward. On the Life business, there, the growth is obviously related to a large extent to market impact, and we also have a declining book there that's running off over time. So if we look at the OCG and also if we look at the OCG towards '23, as we've alluded to a little bit earlier on the call. And we would expect that growth in Non-Life Europe and then also the bank from these levels would actually be able to compensate a little bit the market impact as we would have seen in -- at December levels and lead to a roughly flat OCG in '23. Thereafter as we continue to grow and specifically Europe, that would ultimately lead to a continued growth of OCG with the EUR 1.8 billion target that we have out there for '25.

I'm really going to -- I'm going to insist here if you say mid-single digit growth and whether you start -- if you start from EUR 1.7 billion, you'll get to EUR 1.8 billion within a year, not 3 years or not even 2 years, if we assume that EUR 1.7 billion is a '23 number. This is a thing I can't quite reconcile. I'm saying it's a positive. I don't doubt it, but I sense that you're not -- it's not squaring, mid-single-digit doesn't square EUR 1.8 billion is what I'm saying.

Well, the mid-single-digit growth target long term that we indicated at the investor update was related to the EUR 1.6 billion OCG that we had in '21. And at that investor update, we also gave an OCG target of EUR 1.8 billion for '25. That was based on a couple of reasons. For Non-Life, we've seen some exceptionally strong '21 levels where there were large COVID benefits in there, et cetera. We had to adjust for those, and we still see some growth in Non-Life, but that is going to be more muted than we've expected before. For Europe, we do see growth. We take a bit the current economic environment into account, but we still do see growth going on there. On the bank. We, obviously, in 2022 and did see the impact coming through of lower commission impact. So that actually had a lower growth in the '22 year. And on the life business, we're a bit dependent on markets, and we also know that, that's a runoff business. Now all those movements together led us to the investor update, where we, based on full year '21 OCG, said long term we would have a mid-single-digit growth outlook. And towards '25, we would have an OCG target of EUR 1.8 billion.

We'll now take our next question. This is from the line of Farquhar Murray from Autonomous.

Just 2 questions, if I may. Firstly, just on Non-Life. You've taken a provision for inflation, but at the same time, you seem quite confident you can price for inflation. So just wondering if you could square those for me, in particular, was the provision you took really just claims inflation in the second half of the year of '22. Was it just the minimum wage and the bodily injury issues or was it broader than that? And if so, why take it? And then secondly, just coming back to the asset liability management transaction in Other. Is there a cost in terms of OCG from that transaction at all?

Annemiek?

Farquhar, on the Non-Life bit, the -- there was a distinction between P&C and between D&A. On P&C, we did indeed take an additional provision for inflation. And to be quite honest, we don't see it yet coming through in the claims or hardly anything. And we've also been able to reprice on P&C. And given the more sticky level of inflation expected also going into the next year, out of prudency, we took a provision there for inflation. We have to see how that goes in the coming year and whether we need to uphold that provision or whether we would be able to price everything through there. So that was really related to P&C. If you look at the D&A business, there was a kind of indirect link to inflation because they are due to the inflation. The Dutch government increased minimum wages with 10%, which obviously is something that we immediately had to take on board in our assumptions. That was actually, to a large extent, also offset by some of the other assumptions that we took there that were not related to inflation. So that on the 2 different inflation assumptions going into the Non-Life business. On the ALM transactions that we did, they actually do not have an OCG -- don't really have an OCG impact. And as I said earlier, it was really related to the model adjustments that we've seen in the first half of the year and the end of '21. Those combined with the market volatility really led to an economic interest position at H1, which was suboptimal. And throughout H2, we've been addressing that also in Q4. And by addressing that economic interest rate position, that also led to some increased Solvency II duration which actually, from a market risk perspective, was helpful. That in itself does not have an impact on the OCG.

Just a follow-up question. Was most of that transaction done after the Investor Day?

Yes, yes.

We'll now take the next question. This is from the line of Ashik Musaddi from Morgan Stanley.

I just have a couple of questions. So First of all, Annemiek, you mentioned that the next year, OCG -- 2023 OCG will be flat because on one hand, Non-Life and Europe and bank will grow, but that will be offset by market -- December market impact on life business. I mean if I'm not wrong, in December, interest rates went up. At the same time, equity markets went higher. So that should be positive for OCG for Life business. Why would it be negative? So can we get some color as to what is offsetting factor in the Life business for the OCG. And second thing is you mentioned that just a point of clarification. How do we think about dividend going forward? Because if your OCG is growing by 2% for next 3 years and then, let's say, your share count will reduce by 2%. So are we talking about DPS growth of 2% plus 2%, 4%? Or are we still sticking with the guidance of mid-single-digit growth in normal dividend plus lower share count, so say, 7% DPS growth. The reason why I'm asking this is clearly, on one hand, you have the long-term growth guidance of 5%, but at the same time, for the next 3 years, you have a growth guidance of just 2%. So just trying to square that up. And just related to that, just a point of clarification. Is holding company cash of EUR 2.1 billion, you reckon appropriate. Is that the number you need to hold? Or is it just because of the bottleneck of the sustainably above 200% solvency ratio. This is the reason why you're holding $2.1 billion? Or would you say, no, actually $2 billion is the cash we need to hold at the holding company?

Ashik, let me say a couple of things on the dividend. Annemiek can cover the question on OCG and holdco cash. Now our dividend guidance hasn't changed. What we said is that we expect up to 2030 OCG to grow mid-single digit. Of course, we have a target of EUR 1.8 billion. Our free cash flow we said also for the coming years, we expect a mid-single-digit growth and in fact, it actually did a bit more than mid-single digit. And then indeed, on top of that, you have the lower share count. So our guidance there hasn't changed. Annemiek, on the OCG outlook for 2023 and the holdco cash.

Yes. On the outlook for '23, yes, I said, we do believe that the underlying strength in Non-life and European bank should be able to compensate the impact of markets on Life? And if you look at the markets on Life, you also have to take into account that we did sell some equities, as I said, which was also part of the Other bucket in the second half of solvency. So we sold around EUR 400 million of equity. So that also has an impact on the OCG going forward. We've seen some spread tightening in December markets. And we've obviously also seen the impact on real estate valuations coming down. So those impacts would lead to, if markets wouldn't change to a negative for Life, but we expect that, that would be compensated by Non-Life Europe and the bank. So we would have a flat OCG with still some upside to have a higher OCG there coming out of those other 3 units. In terms of the cash capital buffer that we have, we don't hold that cash capital buffer related to the 200% solvency, if that's what your question is. We do hold it because in all the models that we run and in all the analysis that we do, we just need to have in various scenarios, a cash capital buffer to cover the 1 in 20 shocks at the entities. I know some insurance companies hold that within the entities. We hold that at the group. So we always run those analysis of the 1 in 20 for the various entities, and that then leads to a cash capital requirement that fluctuates during the year. And historically, over the last 2 years, EUR 2 billion was the right number to also be within that requirement. So that's the reasoning for the cash capital position.

So just to be clear on this cash capital. So if, let's say, cash capital goes to EUR 1.7 billion, what does that mean? Does that mean that you have shortage of capital?

Yes. If you look at the composition of the cash capital to a large extent, if that would go down, that would also impact the solvency position because it is capital

Okay. Well, it's not necessarily because you might actually -- it might be the case that subsidiaries has more capital and holding company has less cash. So your solvency will not change, but your holding company will have less cash. So does that still mean that you have less capital if holding company cash is EUR 1.7 billion. I guess what I'm trying to understand is what is the relevance. So I mean do you need to hold $2 billion at the holding company? Or is it just 1 in a 20-year event on an entire group basis is what is more important rather than just looking at one number of holding company cash?

I think it is looking at a 1 in 20 event shock for all underlying business units that should be able to be covered from holdco perspective. And if the solvency levels of the business units, which tend to fluctuate as we've seen, if they are at very high levels, then you would need less holding -- less cash capital at the holding. If they are at subdued levels, you need more cash capital at the holding. So that fluctuates throughout the year. So we typically look at a range there, what we need and what is sufficient to cover that.

We will now take our next question. This is from the line of Benoit Petrarque from Kepler Cheuvreux.

So a couple of questions on my side. First one will be just a follow-up on the mortgage spread modeling. So based on the current market spreads, what will be kind of the day 1 impact from model changes on the ratio. The second one is on the DPS growth of 12% this year, which is kind of pretty high also -- well, it's progressive, but it's quite high. Also in the context of a lower capital ratio, so you have 197% end of the year. I think you could agree you have a pro forma, including real estate down further, the buyback and maybe some technical items around the 186%. So do you reconcile in a year where your capital is down, the strong DPS growth. Is that to reflect the strong OCG? Or do you expect maybe something positive we don't see for 2023? And then the last question will be on remittance outlook for 2023. So you have a mid-single-digit free cash flow growth. Can we expect 5% for 2023? And what is the remittance outlook for Europe. I think for the rest of the businesses or Life, Non-life it's quite clear, but what is the outlook for Europe?

Yes. Benoit, good morning. Bernhard will cover the question on the mortgage spread modeling. And Annemiek will cover the other questions on DPS growth and remittance outlook.

Yes, Benoit. To start with the impact -- day 1 impact. Again, it's very much depending on the level. If it's about the volatility and the levels that we saw over the last half year, it's a few percentage points solvency up and down. End of the year, for example, it would have been slightly negative. If I look at July, where mortgage spreads widened a lot, it was a few percentage points, then positive impact on solvency. So that is, I think, the order of magnitude that is a good indication for the impact.

Yes. Then referring to the dividend per share and -- which you kind of linked to the -- Benoit, you kind of link it to the -- to more or less a forecast of solvency also for this year. If we would look at the kind of year-to-date solvency based on the strong underlying OCG result that we previously discussed in our expectations for that in '23, which is flat, potentially with some upside, that should be broadly sufficient to cover the capital outflows of our regular return policy, and it should also be able to cover further pressure on real estate that we would expect. And then there are some of the smaller items such as growing into the countercyclical buffer at the bank and some typically 1% non-available own funds at the European business. So all based on December markets other than having some additional pressure on real estate. As far as we know, that outlook would be broadly flat on solvency. So with that in mind, if we looked at the dividend, we have a progressive dividend per share policy. But I think we also indicated in the past that [indiscernible] EUR 750 million extraordinary buyback that we've been doing this year that would not be taken into the equation of the DPS. Hence, we put out our dividend. And this year, that actually leads to a higher dividend per share growth of 12% because of the buyback that was included in there. So that, I think, in terms of linking the dividend per share to actually the solvency outlook that we have. Talking about the remittance, the remittances outlook that we have. The full year '22 remittance of EUR 1.4 billion, it's a strong remittance. It is a bit elevated, mainly reflecting the one-off dividend of EUR 124 million that we see in there from the ABN AMRO Life transaction. Now that's then again, partly offset a little bit to a bit lower dividend than we would have usually seen out of NN Re. And also for the European business, we would just be expecting a healthy remittance coming out of it. But net-net full year '22 seems a bit elevated still, largely because of the special dividends coming out of AAL. But we are on track to deliver here on our mid-single-digit free cash flow growth from the adjusted basis that we had in '21, the EUR 1.2 billion as that contained all the COVID catch-up dividends, et cetera, towards '25, just as we explained on the investor update.

So EUR 1.3 billion free cash flow in 2023 will be a reasonable starting point.

That's for your calculations.

We will now take our next question. This is from the line of Anthony Yang from Goldman Sachs.

Two quick questions from me. The first one is on insurance Europe. Because I think could you give us an update on that experience from in-force business, please? Because I think that's important for your OCG sustainability. And then the second question is just on the pension reform in the sector, in Netherlands, also give us some update on that, please, if that's still expected to happen from midyear from this year?

Yes. Thank you, Anthony. Yes, on Insurance Europe, the retention of the portfolios, and as I was saying, that is holding up well. So the -- I think all the efforts we've been putting in customer -- in good customer experience, good customer service and active reach out with distribution channels is also paying off. So therefore, we're positive on the development of Europe because you're right, the existing portfolios drive to a large extent, the OCG. But combined with an increase of interest rates, and also some new business, positive new business development, the overall outlook for Europe is positive. We also set a target of EUR 450 million OCG for 2025 and then -- yes, so Europe is well on track there. On the pension reform, Yes. So the pension reform passed through the second chamber, it's now in the Dutch Senate. We will have elections in March. But so far, the expectation is that unless we get a very adverse outcome that also in the new let's say, after the elections, there would be a majority for this pension reform. So it's still much more likely that this will happen than not. Questionable whether they will make the summer. There's also a good chance that it will actually start January 1, 2024. We are, in any case, well prepared. So we're preparing products. So whether it will start in the summer or in January 1, we are preparing, let's say, the products that fit the new pension reform. And overall, this is still a positive development for us.

Can I just quickly follow up on that. I think it's just more medium or longer term because I think you guided mid-single-digit growth in OCG and cash in the future, does that bake in some of the pipelines if the pension reform happens or it doesn't include that?

Well, the -- for the short term, it was not included because we always assumed that this would be a reform that would take a while. And -- but most important, there is a grace period of 5 years for pension funds actually to decide on what to do. And the general expectation is that quite a few pension funds will need some time to make up their mind and then decide on where they're going to bring their new business and whether they will do a buyout or not. So short term, we didn't expect a lot of impact, maybe a bit more new business. If you projected a few years out, we do expect an increase in -- if all of this happens in a number of buyouts and also a further increase of DC new business. The longer-term outlook that has been taken into account in the mid-single-digit guidance that we have given. But depending on how it goes, there could be some upside in there.

We'll now take our next question. This is from the line of Steven Haywood from HSBC.

For Non-Life business. Obviously, there are a couple of items you mentioned here. Can you give us a description of what the assumption changes in the D&A book were? And can you give us an indication of what are the price increases -- the level of price increases that you're putting through on your motor on the P&C side is currently you're seeing consumers willing to accept these price increases? And then definitely, just for my clarification on the dividend, can we link the nominal cost of the dividend to the sort of mid-single-digit growth expectations for free cash flow and OCG. Can we sort of link those 2 together?

Thank you, Steven. Let me say a couple of words on pricing for Non-life and Annemiek can talk about the -- some of the assumption changes and dividend related to mid-single-digit growth of cash flow. I think in general, so far, we've been able to price adjust pricing and the market has been accepting that. It hasn't led to a loss of market share. Motor combined ratios are a bit up in the market. So on average, we have seen more price increases, let's say, on the motor side than on fire. It's a bit complex to give an actual number because we are getting more and more sophisticated in underwriting and data analytics. So there's not a uniform premium increase, but you probably need to think about mid-single digits, sometimes high single-digit type of increase for motor to offset some of the increased claim costs that we see. Fire, which is also an important book is a bit more muted in terms of premium increases, but that's also because the -- let's say, the performance of that book is going very well. Overall, we still see from a product view, but also from a distribution view, whether it's mandated agents or broker business or a bank business, we see a healthy development of the non-life, including the ability to reprice to offset some of the upward pressure on expenses. Annemiek, on the D&A assumption changes in dividend.

Yes. On the D&A assumption changes, that's really a mixed bag of a whole lot of parameters that got updated related to the runoff results, also related to some expense handling assumptions, et cetera. So it's a mixed bag there. And on dividend, can you maybe repeat your question there, Steven, because I think we failed to pick it up here.

Sorry. I was just trying to sort of link the nominal dividend cost to the mid-single-digit growth target? And whether that's the best way to think about your dividend progression going forward.

Well, we've given a free cash flow mid-single-digit growth target. And in terms of the dividend per share, we've also said that, that would be progressive, I think, historically, it has been, including the $250 million buybacks that we've done, I think it has been more around the mid-single-digit range there in terms of a DPS per share as well.

Yes. Maybe sorry, Steve, maybe to add. So we always said mid-single-digit growth of progressive dividend and then a share buyback would come on top of that. So that's for -- if you would do a dividend -- or DPS, if you would look at it per share. But I think in general, when you're thinking about linking the nominal dividend cost to the growth target, I think, is a good way to think about it.

We'll now take our next question. This is from the line of Dominic O'Mahony from BNP Paribas.

I just have 2 really very specific ones actually. The first is just looking at Slide 22 and the EUR 500 million senior note that was repaid in January. Annemiek, I think I heard you saying that you would consider refinancing that. Is there anything to stop you refinancing that with capital or do you have a strong view that, that should be refinanced with senior. And the second question is very, very specific. What was the real estate decline that you processed in your mark-to-market in H2?

Thank you, Dominic. Annemiek?

On the refinancing, as said, we're confident with the leverage position that we had at full year. We did repay that EUR 500 million senior. We'll look at refinancing the senior plus the maturing -- the maturities coming up for the Tier 1 and the Tier 2 next year. We'll look at that whole package and then consider what the best way is in terms of optimizing our capital and leverage structure. In terms of the real estate decrease, we saw around -- in the second half of the year, we saw around 6% in terms of revaluations on real estate.

We'll now take our next question. This is from the line of Jason Kalamboussis from ING.

More follow-up questions on the Non-bank side, you have a combined ratio that would make 5.4%. How much in there is for the different elements so that we have the underlying one, the underlying one? So be it for inflation. And if you could give us the numbers, that would be great. If the underlying is around 94%, which is my understanding, this is a great combined ratio. So do you find there that, for example, compared to the comments earlier on that the 2001 (sic) [ 2021 ] basis was very good due to COVID. But then you know your 94% underlying is great. So I don't see exactly why you're saying that your targets have to take into account that the starting basis in 2021 was very high. Whereas we are doing great on an underlying basis on the Non-life because you specifically mentioned the Non-life. The second question is around Japan. I mean I appreciate you cannot comment a lot, but you have had already a certain weight 2 accidents in 4 years. Do you find that if you get a third accident, it would be probably a good time to call it a day and properly reconsider an exit of Japan. And the third question is just to understand the comments that Annemiek made on the cash. You had -- you said that historically, you have always been looking over the last 2 years at a EUR 2 billion cash balance as being covering for the 1 in 20 shocks, et cetera. But 2 years ago, it was more like EUR 1.5 billion. So I'm just curious to understand, is it something that you brought in and you said, okay, no, actually, we need to be higher. Was there any difference in how it was viewed or maybe I misunderstood something in there?

Yes. Thank you, Jason. So Annemiek will take the question on cash and the -- say, the underlying of nonlife. Let me respond to Japan and first briefly on Non-life. I mean you're right, the underlying trend is very healthy. Please keep in mind, we think that our OCG is around -- would be now around -- on a more normalized basis, around EUR 300 million, but we also still have to grow further to EUR 325 million. So we do see more upside also in the non-life on the back of the attractive combined ratio that we see, but also some business growth and some other elements that give us a positive outlook for Non-life, but still in line with our guidance of 93% to 95%, which is an improved guidance versus the 94% to 96% that we had. On Japan, I'm not really sure what you mean with 2 accidents or 3 accidents. I think we -- if you look at our history in Japan, I think we've been there for 37 years. So we've been there for a very long time. it's a very attractive business for us because it gives us the opportunity to deploy, let's say, at least EUR 100 million of capital and we've been making an IRR of 14% and on the protection products at times even higher, payback period of 6 years. So deploying a significant amount of capital against these returns is not something we can easily do in other markets. Also, we have a #1, #2 position in the corporate life space. which is also quite unique because it takes a lot of time and knowledge to build up distribution capabilities that enable security houses, banks and brokers to actually sell corporate life products. So therefore, that's why I think we've also been so successful over a long period because it's not a model easy to copy. So overall, despite, let's say, the FSA announcement, we're still on track to deliver the EUR 125 million of OCG and Japan remains an attractive business for us by itself but also from a diversification perspective between Japan and some of the other businesses that we have in the group. And let me give it over to Annemiek.

Yes. On your question on the cash capital position, I think it has been around EUR 2 billion for quite a while now. I think historically, we've guided around a EUR 1.5 billion more or less requirement for 1 in 20 shock. That was obviously based at a slightly higher underlying solvency ratios also for the main entity of Life. Plus the 1 in 20 shocks that we currently run, they just require a bit more capital. So to that extent, I don't think the actual end position has changed a lot with the EUR 2 billion versus last year and also during last year or '21, and we feel comfortable with that.

And on the non-life, if you could give us the elements that are the exceptional in the second half in the combined ratio and in euros [indiscernible]. It's correct that the underlying is 94%, so that we have 1.4 percentage points in there for the two.

Yes. We don't -- we have not fully disclosed that. And we don't give out all the separate elements there. I think what we've said on the non-life is that there are several one-offs in there that relate to both the inflation top-up as well as hardening of the reinsurance market. And then on the D&A side, we've also seen some minimum wage impact, and we've also seen the positive impact of some changes in modeling and assumptions. If we then look at the combined ratio, as you said, it's 95.4%, that was a reported combined ratio. We now give the guidance that we feel that underlying -- that would be around 94%.

And we'll now take our final question. And the last question is from Michele Ballatore from KBW.

Yes. So the first question is on real estate. Was your model -- it's based on market benchmark? Or is it related to your own book of portfolio or real estate assets? The second question is on the contribution of the business in fees, or the one you acquired from MetLife and what are the developments, the key developments there?

Yes. Thank you, Michele. Let me start with the contribution of MetLife and Annemiek can give more background on the valuation of real estate. Yes, we're very pleased with the progress of the MetLife acquisition. We're beyond day 2. So day 1 obviously being the start of the integration and the onboarding of people and distribution channels. We've done the legal merger, both in Poland and in Greece. It really strengthened our position in Poland #3, in Greece, #1, which is very helpful to strengthen your purchasing power when you're dealing with a lot of hospitals and medical providers. The sales forces of MetLife are already selling an end product. We earlier, we disclosed as a target that we said EUR 50 million uplift of OCG in 2024 and another EUR 10 million additional expense synergies pretax come through in the Solvency II balance sheet. It's very clear that we're delivering on that. So the deal is immediately accretive and we're very confident that we will make also these targets that we set on the integration of MetLife because the integration is just -- is running well. Then on real estate, Annemiek.

Yes. On real estate, the expectations that we gave, they're actually based on our own portfolio rather than on a benchmark. And I think it's fair to say that in our own portfolio, it's a European portfolio, but we're underweight to U.K., we're overweight to Dutch residential and we're underweight offices as well as our portfolio has a relatively low leverage. So that's kind of that composition geographically and also in terms of content where we have quite a large chunk of industrial, predominantly logistics, we have a bit of residential and as I said, lower offices than regular, that's the basis of that forecast.

I would now like to hand the conference back to Mr. David Knibbe for closing remarks.

Yes. Thank you, operator. So I think for us, in summary, we've shown a very solid underlying performance of our business units driving strong OCG growth. We've seen very resilient commercial performance, we maintained a strong balance sheet. We saw an opportunity to optimize also our hedging and support our ratio. This has translated in a DPS growth of 12% and the announcement also of a new buyback. We also continue to expect that over time, our OCG will grow and that will support also our Solvency II ratio for the coming years, which is, of course, positive for the potential of capital returns. And with that, let me close off and thank you very much for all your questions and the discussion, and have a good day.

Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect.