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

Good morning, ladies and gentlemen, this is the operator speaking. Welcome to the NN Group's Analyst Conference Call on its first half year 2024 results. [Operator Instructions] Before handing the 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 of the statements not involving a historical fact. Any forward-looking statements speak only as of the date they are made, and NN Group assume 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 solicitation or an offer to buy any securities. Reference is 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 thank you for joining our conference call regarding NN Group's performance for the first half of 2024. With me today are Annemiek van Melick, our Chief Financial Officer; and Bernhard Kaufmann, our Chief Risk Officer. I'll begin with an overview of the key messages and then talk about some of the business achievements in the past half year. Next Annemiek will give a detailed analysis of our capital position, financial results for the first half of 2024, and ongoing financial performance. Proceeding with the key points for today. To begin, our business results have been robust, with OCG reaching EUR 959 million for the first half of 2024. There's a minor decline compared to the same period last year, which saw lower claims in Netherlands Non-Life segment and within our reinsurance business. With these results, we are well on track to meet our OCG target of EUR 1.9 billion for the year 2025. The second element I would like to emphasize is our robust balance sheet, with a Group solvency ratio of 192%, which sits at the upper end of our comfort range of 150% to 200%. I am also pleased with the commercial momentum. The value new business rose by 23% driven by higher volumes in Central and Eastern Europe as well as the Netherlands. The defined contribution pension business saw EUR 1.2 billion net inflow during the first half of 2024, which helped to further increase our total DC related AUM to EUR 36 billion, already well ahead of our EUR 32 billion target for 2025. And Netherlands Non-Life kept its strong profitability with a combined ratio at 92.2%, around the midpoint of our 91% to 93% guidance range. Today, we also announced a capital market today set for 27th of May in 2025, and I'm eager to see many of you there and talk about the updates of our strategy and targets. Our performance in returning capital since our IPO in 2014 is a testimony to our commitments, having given back over EUR 10 billion to our shareholders. The increase of the interim dividend announced today further demonstrates our dedication to our shareholder interests. Going forward, we expect the total dividend amount to increase in line with our ambition for a mid-single digit long-term free cash flow growth. Our policy of a minimum annual share buyback of EUR 300 million works as an additive feature to the DPS trajectory. At our current valuation, combined, this should result in a dividend per share growth of around 7% to 8% per annum. And despite the recent turmoil in financial markets, we remain comfortable in our ability to deliver on this capital return policy. In January 2024, we announced that we reached the final settlement with all unit-linked related interest groups, ensuring clarity for involved customers. All legal proceedings will be discontinued and no new legal proceedings may be initiated by the interest groups and affiliated partners. Additionally, customers have to consent to the settlement terms to receive any compensation. We already fully provisioned for the settlement in 2023. We're advancing well with carrying out the terms of the settlement and anticipate completion by the middle of 2025. In summary, we're glad with this settlement. We can finally offer an outcome to all affected customers, and close the unit-linked file. Once again, we have made significant progress in achieving our strategic KPIs, which are fundamentally linked to enhancing our financial results and delivering value for all our stakeholders. Our ambition is to be an industry leader known for customer engagement, talented people, and a positive contribution to society, including our efforts to tackle climate change. Allow me to outline some of these advancements. Our international markets have shown a further improvement in customer satisfaction, reflected through an increasing trend in our relational net promoter score. Further improving the customer experience remains our focus in all of our markets, with successful implementation of artificial intelligence tools within NN to advance support for both agents and employees. In our ongoing commitment to a more sustainable economy and society, we have taken steps through our business initiatives and financial commitments. In February, we committed EUR 350 million towards a collaboration with Macquarie Asset Management designated for financing a portfolio of assets dedicated to focus on climate change mitigation and adaption and the broader energy transition. During the first 6 months of 2024, our investments in climate solutions reached EUR 11.5 billion. And in reaction to climate change, our Non-Life has enhanced its home insurance offerings with sustainable options. For example, if there is damage, we help policyholders in upgrading their homes with improved insulating glass and repair sustainable methods. We are confident in achieving our 2025 goals, thanks to the consistent performance in our home markets. Netherlands Life continues to deliver stable remittances. Our dominant market position creates economy of scale, which may in turn draw in new customers. For the first half of 2024, net inflow into defined contribution amounted EUR to 1.2 billion, and I'm proud that we're once again top ranked by pension advisors. Our digital offerings, account management, and products are highly regarded by intermediaries. As I've noted previously, a high satisfaction score from pension advisors is crucial for our defined contribution offering. The pension reform is likely to increase the overall DC market, especially for insurance companies, and we iterate to expect a total of EUR 25 billion of AUM to come to the insurance markets via buyouts by 2028. As pension funds hand in their transition plans by year end '24, we should get better visibility on the size of this opportunity next year. We will maintain a disciplined approach with a double-digit IRR hurdle. We expect the Non-Life segment to deliver growth over time and sustain its improved cash conversion at a level that is similar to the Group. Despite relatively high fires in the first quarter of 2024, the H1 '24 combined ratio was 92.2% which is close to the middle of the 91% to 93% guidance range. We expect business performance to remain strong as it benefits from a mature and consolidated market, where we are overweight to fire [ MD&A ] and underweight to [indiscernible] P&C, which tends to be more sensitive to competitive actions. Bank continued its strong performance, enabled it to distribute dividends to the Group, despite the step up of the countercyclical buffer in '23 and '24. At our '23 full year results, we raised our OCG Group target for '25 to -- from EUR 1.8 billion to EUR 1.9 billion. This was based on the expectation that both Non-Life and Bank would exceed their original 2025 OCG target. In addition, we see room for further upside coming from the segment Other and Insurance Europe, on which I will spend some time on the next slide, that can offset a potential shortfall of Netherlands Life. I am particularly pleased with the sales momentum in Insurance Europe. Our strong positions in Central and Eastern Europe and Greece have helped deliver APE and VNB growth of 15% and 21% respectively year-over-year in the first half of 2024. This will further bolster our OCG trajectory over time, which already shows a strong historic track record. We expect to reach the EUR 450 million target ahead of schedule by a year, even with pressure on investment results from reduced rates in the Non-Euro countries. For Japan, we are still working our way through the improvement order that was effectuated in the first quarter of 2023. As such our VNB came down further and we do not expect to improve this before the beginning of 2025. OCG and remittances held up reasonably despite significant further depreciation of the Japanese yen versus the euro. We expect that performance to remain robust. The recent financial instability in the global financial markets, especially in Japan, has had a minimal effect. Our equity exposure in Japan is very limited, and the yen's recent increase against the U.S. Dollar and euro has been beneficial for our Japanese business. We are delivering on our investor proposition that we enhanced with the full year '23 results. Our capital remains robust at 192%. I'm sure you will recall that last year, we took significant steps to optimize and reduce the risk in our balance sheet, including 2 beneficial longevity reinsurance deals in December 2023 and resolving uncertainties around the unit-linked portfolio with the settlement this year. Together with a lower UFR benefit on the back of higher rates, this has significantly increased the quality of our capital. Our delivery in the first half of 2024 shows that our 2025 targets are realistic and feasible, and today, we continue to deliver on our focus on shareholder returns by announcing an interim dividend of EUR 1.28 per share, 40% higher than last year and equal to 40% of last year's total dividend. And with this, I would like to hand over to Annemiek, who will give further detail into our performance during the first half of 2024.

Thank you, David, good morning, all. Let's have a look at the performance versus our financial targets. Our business performed well and generated an OCG of EUR 959 million in the first half, marking a small drop from last year, which benefited from favorable claims environment in the Netherlands Non-Life and our reinsurance business. With this result, we're on track to deliver on our EUR 1.9 billion OCG target in '25. We're also progressing towards a '25 free cash flow target of EUR 1.6 billion with our H1 free cash flow growing by 8% to just shy of EUR 900 million. Based on this free cash flow, our cash capital position increased to EUR 1.4 billion, at the upper end of our EUR 0.5 billion to EUR 1.5 billion range. Our balance sheet remains strong with a Group solvency ratio at 192%, as David said. Since Q4 last year, we took significant step to optimize and reduce the risk in our balance sheet. And together with a lower UFR benefit on the back of higher rates, this has significantly increased the quality of our capital. In this context, I'm also pleased to note that our real estate portfolio showed a slight positive reevaluation in H1 '24, ahead of expectations, largely driven by our Dutch residential portfolio. The continued strong commercial and operating capital performance of the business, reinforce our commitment to a capital return policy that includes a progressive dividend per share and a yearly buyback of EUR 300 million. The raise of the interim dividend by 14% is a further sign of execution of this capital return promise and benefits from the additional dividend raise we communicated with the full year '23 results. Now let me give you some more insights into our OCG. As mentioned before, OCG decreased by 4% compared to the same period last year, a period which saw particularly low claims. OCG for Netherlands Life grew, predominantly driven by higher mortgage spreads that led to a higher investment return. Netherlands Non-Life OCG decreased versus H1 '23. Last year, Non-Life benefited from benign weather conditions in P&C and positive claims environment experience in Group income, whereas H1 '24 saw an increase in P&C claims, partly related to some large fire claims in the first quarter. Despite this, we're confident that Non-Life can deliver on its run rate indicated at the full year '23 results. OCG from Insurance Europe continues to grow and came in at EUR 229 million, primarily due to strong new business contribution, especially in Poland and Greece, and strong pension performance. In Japan, OCG remained broadly stable. Increased investment returns and decreased new business strain were offset by negative currency fluctuations. Bank's OCG continued to grow. This was largely driven by reduced capital consumption due to lower portfolio growth and increasing property values, partially offset by a lower interest margin, which nonetheless stayed at an elevated level. Bank's OCG of the first half of '24 should not be seen as a run rate, as we would expect mortgage growth to be concentrated to H2 '24 and further NIM normalization fading in. OCG in the segment Other remained strong, with our reinsurance business continuing to benefit from favorable claims, albeit not at the level seen in the first half of '23. Now at our full year results, we increased our '25 OCG target from EUR 1.8 billion to EUR 1.9 billion, driven by expected outperformance of Non-Life and Bank versus our original targets. Based on the first half of '24, we can confirm this view. We would also like to flag the outperformance of Insurance Europe and the segment Other. As David said, Insurance Europe continues to grow and could reach its OCG target ahead of plan by 1 year. And segment audited better than its targeted run rate of EUR 300 million in both '23 and in the first half of '24. And we believe this trend will be partially sustainable towards '25 based on better than foreseen pricing of the RT1 we issued in the first half, and better-than-expected return on holding company cash. So overall, our business continues to perform well and offer sufficient diversification to keep us on track to meet our OCG target of EUR 1.9 billion in 2025. A few words on IFRS on Slide 13. Our operating result decreased slightly versus the first half of '23 as strong business performance of Insurance Europe was more than offset by a lower investment result at Netherlands Life, a less favorable claims environment -- experience at Non-Life and lower interest result at Banking. In Netherlands Life, the decrease was largely driven by a lower investment result, which mainly related to reporting refinements. The operating result for Netherlands Non-Life fell versus the first half of the year, which benefited from favorable claims. The combined ratio was 92.2% for the first half, aligning well within the guidance range of between 91% and 93%. Insurance Europe increased driven by business growth and strong pension performance. Segment Other improved by an increased operating result of the reinsurance business, whereas NN Bank saw a small decline in its operational results due to a lower interest result versus H1 '23. Now back to solvency metrics, and let's go over to our capital work. Over the first 6 months, we saw an increase of 11 percentage points in our solvency, primarily due to strong operating capital generation. This more than covered the 7 percentage points impact of capital flows, which reflect the regular EUR 300 million share buyback program announced with the full year results, plus the interim dividend. The impact from markets was slightly positive overall with tighter mortgage spreads and higher interest rates, offsetting the effect of wider sovereign spreads. Other was predominantly related to regulatory changes we already flagged at the full year results, such as the reduction of the ultimate forward rate, the countercyclical buffer at the Bank, and an update to the volatility adjustment reference portfolio. It also contains smaller items, including some model and assumption changes and a capital strain from a pension buyout. Despite the impact of the aforementioned regulatory changes, NN Group solvency remained at the upper end of our comfort range with 192%. Netherlands Life reported a solvency ratio of 190%. I'd like to say a bit about our real estate portfolio as well. As you know, we've a well-diversified high-quality real estate portfolio of approximately EUR 12 billion. Our portfolio consists of 42% of residential exposure largely in the Netherlands, 26% of industrial's exposure, mainly within logistics. These are the key pillars of our real estate portfolio. Though initially anticipating a small negative reevaluation into the first half of '24, an unexpected recovery in the Netherlands residential market, largely driven by the rapid increase in house prices, as you can also see on Slide 15, positively impacted our EUR 3 billion exposure in that market. The outcome of the pending legal issue regarding rent increase indexation in the Netherlands remains uncertain, but it did not negatively affect the value of our portfolio in H1 '24. Due to this earlier than anticipated recovery of residential real estate, our total real estate portfolio has started to recover in H1 already. And based on current markets, we would expect this trend to continue in the second half of '24 and into '25. Now on cash. With our '23 full year results, we introduced an explicit free cash flow target of EUR 1.6 billion, which is effectively EUR 100 million higher than the implicit target we had before. In the first half, we made good progress to deliver on this target with free cash flow close to EUR 900 million and much more diversified with stronger contribution from Netherlands Non-Life from Bank and from NN Re. Free cash flow is particularly strong as Belgium did not remit in relation to the renewal of the bancassurance agreement with ING. This in contrast to last year where it remitted a [ EUR 120 million ] on top of the regular dividend following a closed book transaction. This free cash flow growth contributed to an increase in cash capital to close to EUR 1.4 billion at half year, at the upper end of our target range between EUR 0.5 billion to EUR 1.5 billion. Please keep in mind though that remittances from the international units are typically skewed towards H1, whereas capital return outflows are higher in the second half of the year. With 17.8% leverage ratio, our leverage position continues to remain low with comfortable tiering capacity. All-in-all, we're well on track to achieve the financial targets for both OCG and free cash flow that we upgraded earlier this year. I'd now like to pass the floor back to David to wrap up our session.

Yes. Thanks, Annemiek. So to conclude today's presentation, our financial performance was strong with OCG achieving EUR 959 million by the first half of 2024. And we're on course to reach our OCG goal of EUR 1.9 billion by 2025. Our capital position is robust with a Group solvency ratio at the high end of our target range of 150% to 200%. Commercial momentum and business performance continues to propel us forward. And finally, we plan to share updates on our strategy and objectives during the Capital Markets Day set for May 27 in 2025. But let me also take some time for the following. As you might have seen this morning, we announced that our Chief Risk Officer, Bernhard Kaufmann, will leave NN Group as of September 30th to join the Swiss insurance group Helvetia. He will be succeeded by Wilbert Ouburg, currently our Chief Risk Officer of Nationale-Nederlanden Life & Pensions. With Wilbert, we are pleased to have found a strong internal successor, thanks to his extensive knowledge of the insurance industry, which will be valuable in taking our risk management culture and capabilities forward. At the same time, we're very happy, of course, for Bernhard, and this is a great opportunity for him. Bernhard has done a great job of further strengthening NN risk framework, which contributed to the strong financial position during a period characterized by many macroeconomic and geopolitical uncertainties. So thank you, Bernhard, for everything, and congratulations. And with that, operator, we would like to open up for Q&A.

[Operator Instructions] And your first question comes from the line of Cor Kluis from ABN AMRO ODDO BHF.

I've got a couple of questions. Maybe first on the OCG. You keep the EUR 1.5 billion OCG target for next year unchanged, but the composition seems to be a little bit adjusted in Life, a little bit lower in Europe and Other better. If we focus on Life, could you elaborate a little bit more why the Life OCG is little bit lower? We heard things like re-risking speed, maybe some of your hard drag, maybe something else. So could you elaborate a little bit more on exact figures for that adjustment? And related to that, also the re-risking plan NN Group has less asset risk than I think quite some peers. So it's logical that you will re-risk a little bit and increase OCG going forward. Could you give some comments on the re-risking speed? What's the plan? Why don't you re-risk faster? Are you waiting for a certain stress moment in the market or like with a share away or something else? And my last question is pension buyouts. At this moment, in the EUR 1.9 billion, of course, you don't have any benefits for all the pension buyout, which is [indiscernible] due the coming -- in the coming years. Will you give the update then in May and also include also the pension buyouts in the OCG? And can you give a little bit more the sensitivities and what could be the impact on OCG or Solvency II or -- that is my question on the pension buyout because it's a big opportunity, of course, for you and you have already included it and gave some extra benefits, which could be quite material? That's it from my side.

Let's take the question in this order. So Annemiek on the OCG target of EUR 1.9 billion, and then Bernhard can cover the re-risking and I will talk about the pension buyout market.

You mentioned the EUR 1.5 billion OCG target, but I'm happy to confirm that that's…

EUR 1.9 billion.

It's still EUR 1.9 billion and we're still working on that EUR 1.9 billion. If we look at Life, we did EUR 1.25 billion in '23, and we're on track to increase that in '24 and also into '25. The base that we have in -- that we reported in H1 is a relatively clean base to look forward to work from. If you look towards the target of Life, it's obviously also a bit market-dependent, right? What would happen to spreads in '25, and it's a bit dependent on the selective re-risking that we're doing. But we're confident that the OCG of Life will continue to grow, where we will actually get to write the target, we have to see that in '25, but we remain very confident on that. And then on re-risking, I'm looking at Bernhard, who's pressing the button.

Yes. On your question on re-risking. So if we look at our current asset portfolio, strategic asset allocation, we are mainly continuing to optimize our investment portfolio. And also comparing us to peers, we see we are at a very good state also from a risk profile perspective. So we are mainly looking into refinements of the portfolios in the area of private loans, green bonds, investments, which take some time. And therefore, it's a gradual shift that we are looking at, but there are no larger steps envisaged.

Yes. On -- yes, on the pension buyout market, I think -- I mean, there's a couple of impacts. There's obviously the DC inflow and then there's the potential of buyouts. We've always said that we feel that the pension reform will be more back-end loaded. And that is because pension funds have a lot of governance and complex decisions that they will have to go through. They have to go through the regulator as well. Currently, there's around 170 pension funds that are left. A rough expectation has been that 40 to 50 of these could liquidate themselves since they are below, let's say, EUR 4 billion to EUR 5 billion AUM. So that means that another 120 need to then in that scenario would need to go through a transition, and that is theoretically spread out over 4 years. Now quite a few pension funds you might have seen announced that they were planning on going through this transition, but also announced that they're running into delays. So it confirms our point that we've always felt that the buyout market is more back-end loaded, so more in '26 and then in '27. Pension funds will have to deliver their transition plans at the end of this year and then a full implementation plan in the summer of next year. So I think next year, we will get more insight into which fund is exactly going to do what. So that will give us a better assessment of where we are. So today, we just stick to the assessment that we've always had, which was said that we would estimate that the market in total would be around EUR 25 billion. We have a market share of 40%. So if we would do in that range, that would mean for us around EUR 10 billion. Your question on OCG, that would be then, given that we want to make at least a double-digit return on it, the EUR 10 billion would give roughly EUR 100 million of OCG. From the buyout, today, we have EUR 1.2 billion of inflow in defined contribution. You could expect that if these pension funds liquidate and do a buyout, the new accruals will go into the DC market. So it should also mean a further step-up of DC net inflows. And yes, we will be talking about that also at the Capital Markets Day that comes up in May 27.

Your next question comes from the line of David Barma, Bank of America.

Firstly, on solvency, could you give us some indication of the market effects on the ratio of the Group and Dutch Life so far in Q3, please? And linked to that between the regulatory changes to come and the strain from the buyouts you're talking about, the solvency position of the Dutch Life unit could be under pressure in the next few periods. What level do you think is adequate for the Dutch Life net to run at? Secondly, a question on Japan. Could you please talk about the implication from lower interest rates and lower equities on the recovery of your Japanese business? And then just a small third question on the OCG from the Other -- the segment Other. What was the contribution from reinsurance within that, please?

These questions are all for Annemiek.

And there are 4 questions. I hope I remember them all, David. The year-to-date impact on solvency from what we've seen happening in the market, we would expect solvency to be relatively stable since June, from a market perspective. If you would exclude the impact of mortgage spread, we've seen small negative from interest rates being offset by positive impacts on our mid-cap equity portfolio. We have a concentrated mid-cap equity portfolio. It's on the right track, on the right financials. So we've benefited from that in the last couple of weeks. So that our mortgages roughly stable solvency ratio. On June 30, mortgage spreads were actually below average. Since then, they've widened to beyond what we would consider a normalized level due to repricing dynamics, swap rates were down and banks over the summer holiday period they did just not reprice that. Now it depends a bit on the day on what the impact is. But if you would factor in kind of a widening to normalized level of mortgage spreads from the 30th of June, you'd probably have to take down roughly 3% or something of the Group Solvency ratio. And the dynamics, obviously, for Life are similar, but a bit more pronounced, given that the market impacts are there more pronounced. You asked about the Life potential to fund the buyouts. Life has a solvency ratio of 190%. We think it's a solid base. especially if you look at the reduction of balance sheet risk that we've done following the longevity transaction and the unit-linked settlement, buyouts are expected to be back-end loaded. So there is no need to deploy capital today and in addition, decumulating benefits, which are more suitable for longevity reinsurance transactions built up quickly over time. As such, we could also free up capital as we go and move along in this buyout strategy to fund part of that if needed. So we're not concerned from that point of view. Impact of the recent market turmoil on Japan, we've seen an appreciation of the yen, which is beneficial for our Japanese business unit. And we've obviously also seen equity being hit, but we don't have equity in Japan, so we didn't really have an impact there. So net-net for our Japanese business, this has not been unfavorable and an appreciation of the yen will just help there. And then you had a question on what's in the bucket Other in terms of reinsurance. We still had EUR 41 million of NN Re in the bucket Other, and you would have to compare that versus a normal annual run rate of around EUR 50 million per year.

[Operator Instructions] And the next question comes from the line of Farooq Hanif from JPMorgan.

I'll try and be good and do 2 questions. I'd like to come back on kind of Life OCG because your statement in the presentation was a little bit uncertain, say, so you're saying -- you're not saying you won't get the time, you're saying it's challenging. So could you just give a little bit more detail as Cor also asked us about what are the parameters we should think about, obviously mortgage spreads wide, for example, to positive. So what are the parameters in terms of maybe interest rates or things we need to think about in terms of deciding whether challenging means you get there or you miss it? And my second question is in the IFRS results. Obviously, you had some really good beats versus very good growth basically. And one of the themes that I've noticed is that you have really good technical result. So that sounds like a growth in the release of the risk adjustment. Can you talk about sustainability of some of that? For example, in Insurance Europe, so in Japan, can you give a bit more sort of commentary on the operating profit sustainability? That would be helpful.

Annemiek?

Yes. On your first question related to OCG of Life, it's really market-related. As I said, we did EUR 1.25 billion of OCG last year. We would expect that OCG to continue to increase in both '24 and also in '25. There's nothing underlying going on there. If we get to the EUR 1.5 billion target in '25 is obviously also a bit dependent on market movements and spreads in '25. But underlying, nothing wrong, and we can still actually get to that target. And we would still expect Life to just continue its strong remittance pattern as we've seen it. Now on your questions on the technical results, bits and pieces everywhere, it's a very strong technical result we had this year related to general business volatility. We had some windfalls in Japan. I wouldn't necessarily keep that run rate for the remainder going forward.

Your next question comes from the line of Farquhar Murray from Autonomous.

Obviously best wishes to you, Bernhard, on your new appointment. Just 2 questions from me. I apologize, I'm going to just come back to the NN Life OCG guidance. I think what would help me there is really just understanding which market circumstances you might be referring to there in terms of, as challenging? And then just in terms of scale, obviously, if you're going to beat last year, that frames it probably below 100. But if you could give us a sense of maybe the scale of what we're talking about? And then on the other side of that, on the positives, presumably from Europe and Other, I appreciate we're looking at a full offset in aggregate for the Group level. And then my second question really would be on Non-Life. Gross premiums were up about 2% year-on-year, which feels a little bit subdued. So I just wondered if you could split that between tariff and volume changes? And more generally, could you outline how tariff increases compared to claims inflation at present and the level of market discipline you're seeing?

Let me start with the Non-Life premium development. And then Annemiek talk about the NN Life OCG, which, to be honest, I don't think we have much more to add, but we'll try. Non-Life. Yes. So the Non-Life growth written premium in the first half year was 3% up. I think a couple of elements play a role. First of all, we've always said we prioritize margin over volume. So we have been in certain areas doing quite significant premium increases, both for fire, but especially for motor and we'll continue to be very resilient on that. If you look at the 3% growth that we've seen in the first half year, so there is a volume piece around 1.2% and price increases was around 1.8%. So the indexation part was a bit more than the volume part. It also means that going forward, we continue to expect some premium growth. We've always said we expect a bit GDP-plus. So GDP growth in the Netherlands, plus probably a little bit more. And that is on the back of not necessarily of market growth, but just of premium growth that we expect -- we expect for house and certainly also for motor that premium increases will continue to be needed also because there's some wage inflation and claim inflation that is coming through. Now all of that, we do not just to get the premium up but to make sure that we maintain within the 91% to 93% range, and we were comfortable that with what we're doing, that we'll be able to deliver on that commitment as well. Annemiek?

Yes, I don't think there is more to add on the OCG question, right, that we've just said, we're confident that OCG will continue to rise for Life. We do flag that in '25, we would also have to look at our mortgage rates and some of the other sensitivities are, it mainly relates to mortgage spreads. But we're confident that it will increase. We're confident on the remittances. We're confident to get at or close to target. And we've just flagged that we've seen other really good results in Europe and also in the segment Other.

Okay. Just a follow-up on that then. So when you talk about market circumstances, you are largely referring to mortgage spreads, volatility?

If you look at what are the biggest sensitivities that we have in OCG, then obviously, mortgage is one of them.

Your next question comes from the line of Nasib Ahmed from UBS.

First question on solvency reform benefit. What kind of solvency benefit do you expect and what OCG impact do you expect from that? I know one of your peers has actually disclosed the benefit on that front. And then secondly, any update on M&A? There is a deal that is out there. I think previously, there wasn't a process. Are you in the process for that one? Anything you can say on that. And I don't think your capacity for debt has changed, Annemiek, but if you can just confirm that as well, that would be great.

Yes. Let me start with the M&A question and then Bernhard can take the question on the Solvency II reform benefits. Yes. So I think for M&A, to be honest, I don't really have an update. All the targets that we have shown and that we're giving are based on organic growth, so that continues to be our base case. If there's some opportunities out there, then we will take a look at it. I feel we have a very strong track record in M&A. I mean, all the M&A we have done, we've overachieved the targets that we announced. But it also means we set a very high hurdle, both strategically and financially in order to keep that strong track record. So we'll see if anything comes along. But like I said, all the targets and all the plans that we're talking about are based on organic growth. Your question on capacity of M&A, yes, we do have financial flexibility. Our leverage ratio of 17.8% is relatively low. So we do have financial flexibility. But yes, again, the point is not so much around financial flexibility. It's more about, is there something to do that both meets our strict financial and strategic criteria, which has been the -- those have been the main criteria to decide on M&A. Bernhard, on the Solvency II.

Yes, Nasib, we expect that the long-term impact of the Solvency II 2020 review for NN Group will be broadly neutral, including also mention management actions. The impact on OCG, so best guess is also neutral. And good to be aware that the impact will not be in force -- before end of 2026. And there are still some moving parts. So some details are still outstanding, which also can have an impact. But that's the current assessment that we have.

Your next question comes from the line of Anthony Yang from Goldman Sachs.

My first question is on Slide 13, in the IFRS metric. I think you mentioned some lower technical margin in Netherlands Life. Maybe could you elaborate more on that? And if this is wealth or something structural? And then the second question is on the Netherlands Non-Life. Could you quantify the impact of the fire claim in 1H? And how should we think about the OCG in 2H '24 as a normal run rate?

Yes. So let me start with the Non-Life question. Indeed, we've seen a bit higher claims in Q1. But to be honest, this is part of regular business. I mean we've analyzed these claims, and we don't see a pattern. It was also -- in Q2, we didn't see any elevated large fires -- that in our portfolio. So that's why overall, I would say, it was a good half year for the Non-Life. I think the outlier was more last year as we also flagged that particularly in terms of claims and also the weather was especially favorable last year. So that's why you see the difference between last year and this year. I would argue that this is in terms of results are relatively a normal result for us. There's always volatility in Non-Life. Typically, on OCG outlook, there is a bit of a seasonal pattern where normally, the OCG of the Non-Life businesses in the second half is a bit higher than in the first half. Then on IFRS, Annemiek?

Yes. I was still thinking a bit also on the Non-Life question, where indeed, good to reiterate that we guided towards a run rate of EUR 370 million plus GDP growth at the full year results. And if we look at the current results and take that seasonality that David referred to, which is largely driven by the Group Income business, if you take that into account, then we're confident that we would be at that run rate. Now on our IFRS result. Yes, the operating result decreased from H1 '24 versus H3 -- H1 '23 because of strong business performance in Europe -- in Insurance Europe didn't -- was more than offset by the lower investment results at Netherlands Life, favorable, less favorable claims experience of Non-Life and also the lower interest result at Banking. Now if you would look at where was the largest decrease, then that's within the Life operating result, and that was largely driven by lower operating investment result, and that was mainly driven by 2 reporting refinements. They were basically related to 2 elements. One was related to a change between H1 '23 and H2 '23, which de facto led to an overstatement of H1 '23 and the Other one was a real change in '24, and IR can give you the more technical background on it, but also largely related to a refinement of what we call the operating investment result. Good to say here that the current IFRS operating investment results for Life is a better representation of the run rate here.

And can I follow-up on the lower technical margin points in the Netherlands Life? What is causing that? And if that's something well for --- something underlying?

It's a mix, including a small negative claim variance for maturity and mortality. I wouldn't qualify that as an underlying sustainable item.

Your next question comes from the line of Benoit Petrarque from Kepler Cheuvreux.

A couple of questions on my side. I just wanted to come back on this balance between OCG in Dutch Life versus, obviously, OCG in Europe going up. How do you think that will translate into in terms of growth remittances? Are you confident that this higher OCG coming from Insurance Europe will also translate into higher remittances? So that's the question #1. Question #2 is on the OCG in Europe. So obviously, very strong level. Yes, you have a very strong contribution from your business. And I was wondering in terms of -- or does that evolve potentially in a low interest rate enrolment? Is that sensitive to level of interest rates? Or will you expect a pickup of mortgage rated insurance productions to offset potentially the drag there? And then the third question was just on the real estate. What do you expect actually in H2 based on what you see on the market and your current discussions with the specialists on the valuation side? And just maybe there's a final -- but it's more of a remark, but you don't take the new business strain from pension buyout in your OCG. Now I mean, technically, that could translate into -- on the cash conversion, we have a pretty high level of cash conversion of OCG in the Dutch Life. But obviously, if you generate pension buyouts, it still means that your Solvency II could come down over time. So will you advise us to maybe lower bit the cash conversion on Dutch Life OCG as the -- basically the pension buyouts are kicking in?

Let me start on our outlook for Europe, and then the other questions Annemiek will talk about. Yes. So you're right. I mean Europe has been doing well, as Annemiek was saying, I think we -- it's possible that we already achieved the target of Europe a year ahead of plan. So essentially, this year and the EUR 450 million. The new business growth or new business contribution has been the big driver also for this. We continue to see very good opportunities in protection and the under penetration that we've talked about, you need to be able as a company to tap into that, and that requires very strong distribution channels. We have strong tight agent channels and then the AI tooling that we have been using to guide our agents has been certainly being successful, and I'm sure we'll talk more about it at the Capital Markets Day. We've actually seen banks selling less because, yes, I think you mentioned it also, less mortgage sales. So a second leg could be that once banks start selling more, which we don't expect in the short-term, but if they start selling more mortgages and loans, that will also mean more protection sales. There's pension sales that is doing well. Clearly, in a lot of the Central and Eastern European markets, governments are restricted in how much pay-as-you-go pensions they're willing to pay. Employers often prefer to just to put money in salary and not in secondary benefits, also employers don't always offer a very generous pension scheme. So that means there is a good market also for us to offer individual -- individual pension products. So yes, if rates would come down, that would have some impact on, let's say, on the new business, but we see also more than enough opportunities that we continue to be positive on the upside that can come out of Europe, and that upside is then driven by new business growth and the continued sales. Also first half year end, the value new business was up a bit more than 20%, which I think is a very good number. Then for the questions on the balance on OCG in Life, real estate, and the new business strain from buyouts, Annemiek?

Yes. On your question related to OCG growth and then also higher remittances from growth. We obviously set a very explicit free cash flow target of EUR 1.6 billion at the start of this year. We already captured in there that we would expect an increase of the European free cash flows. Also a bit more diversification within that. As I said, Belgium did not submit any dividend this year due to the contract with ING, whereas last year, the free cash flow out of Europe had a one-off dividend still in there from Belgium. We already factored those items into this EUR 1.6 billion target that we have. Conceptually, over time, if OCG continues to grow for Europe, then free cash flow will also continue to grow. And it's probably one of the key engines for that growth going forward as well. Your question on new business strain out of buyouts into the OCG and whether you should also adjust solvency ratio than coming down for that. Probably good to repeat what we said. We would expect the whole buyouts coming out of the pension reform to be rather backend loaded. As we continue over time, we also build our -- our benefit book, and we also have more room to do longevity transactions. If we would do such a transaction, that would obviously positively impact the solvency ratio, and that would have a slight negative impact on the OCG of Life once we do such as transactions a bit later on. So for now, we just not factored in into the OCG nor would I factor it in on the long-term on the solvency. For the short-term, if we would do some smaller buyouts later on this year, that may have a small impact on the solvency ratio. On real estate, your question on what to expect for the second half of this year? Well, as we said, first half, we just turned the corner. We saw a positive reval, which was largely driven by the rapid increase of house prices in the Netherlands, which led to our Dutch residential book doing particularly well. We would expect that trend to continue into the next half of -- into the next -- into the second half of this year. And I wouldn't overdo it in terms of expectations, but somewhere around the 1 percentage point would feel a good proxy for us, 1% to 1.5% for the remainder of this year. And then we would see still further upside to come in '25. And the upside will largely come from residential and still from logistics because we've seen very strong fundamentals there still.

And your next question comes from the line of Steven Haywood from HSBC.

Two questions then from me. On the pension buyouts, kind of following on from the previous question, you did a EUR 600 million, I believe, earlier this year and you guided towards a 1 percentage point impact on the sort of capital strain on the solvency ratio. Is this -- is that sort of the expected capital strain going forwards? And if you obviously do that sort of EUR 10 billion amount of buyouts that would have potentially up to 20 percentage points impact on the Solvency II ratio. Is that a sort of area and level of strain that we should expect? And I obviously took in consideration no longevity transactions and how that could impact your solvency ratio later on in the medium-term? And then the second question is on sort of the Solvency II changes, regulatory ones coming up. Can you give us an updated guidance on what we should be expecting in the second half and in 2025, any sort of known regulatory and other impacts coming through the Solvency II ratio?

Yes, so if you look at the, let's say, the capital strain. I think earlier, we said that for, let's say, for EUR 1 billion buyout, the capital strain would be around EUR 100 million to EUR 110 million. So we've been also publicly saying we want a double-digit return. That has been -- initially, we were also pricing a bit lower. So we have been increasing also our hurdle rate. So yes, so EUR 1 billion AUM would be roughly EUR 100 million or EUR 110 million of capital. So yes, cumulative, that would add up. But again, we expect this to be spread out over a longer period than all obviously coming in 1 year.

Yes, and probably also good to realize that, that EUR 600 million was a rather large deal. You shouldn't take the specifics of one deal for an overall book. And as David said, if we would get our 40% market share, we would roughly be talking about EUR 10 billion of technical provisions, post reinsurance transaction on that, we'll probably be talking about an SCR of around EUR 1 billion, that we would have to absorb, which will then likely come rather backend loaded.

Any regulatory other changes coming up, Bernhard?

Yes, Steven, on Solvency II 2020 review changes, potential changes. That is not before 2026, as I said. So in 2024, but also 2025, we do not see other regulatory changes impacting our solvency or any net impact on solvency for model changes. So that's the outlook.

Your next question comes from the line of Iain Pearce from Exane BNP Paribas.

The first one, obviously, there's been quite a few questions around the growth strain of the buyouts and NN Life solvency. Can you just confirm sort of what level of solvency you'd be comfortable running at in NN Life? And at what level of solvency you would have no concerns around that sort of upwards remittance profile from that division? And the second one was just on the new business growth and the APE growth in the European market. It looks like you're taking share based on that level of growth. So I just wanted to understand sort of if you are taking share, what's the main drivers of that? Or has it been the case that H1 has seen a bit of a stronger rebound across those markets? And just trying to really get towards the sort of underlying sort of APE, VNB growth for that division at the moment?

So let me take the question on growth in Europe and then the strain of -- potential strain buyouts for Annemiek. Well, market share is not always the most helpful metric because typically, countries report market share for full life insurance, and that includes a lot of unit-linked, a lot of single premiums, a lot of even traditional or products that have large ticket size. So a lot of premium, but typically very low margin. We operate mostly in the protection space that has smaller ticket size, better margin, but also a much lower capital strain. So that's why market share is not always helpful to look at. But you're right. Our sense is that certainly in the protection space, we have been gaining some market share. We focused on it since 2014. It takes quite some time to gear your distribution channels to sell to protection because they're often just used to selling unit-linked or guaranteed products. So I think we've been doing well in that space. And due to all those investments that we've done in the distribution channels, we also believe that we can continue to do that. So we continue to expect a positive development of value new business or -- and even more importantly, a new business contribution and OCG, therefore, in Europe. Annemiek?

Yes. On your question on Life, we obviously, for Group, we have a comfort range of between 150% to 200%, and Life is a large unit within that. We don't have an explicit latter, but that gives you an indication of where we're comfortable.

Your next question comes from the line of Jason Kalamboussis from ING.

Yes. I just wanted to ask you on Japan. If you could give us a bit of an update on the threshold. And is it right that you expect it to end somewhere in the beginning of 2025? And I would like to put that in perspective with the OCG of EUR 125 million that you expect by the end of 2025. Also if you could -- it will be helpful from the OCG, you can tell us what the impact was in the first half '24? So essentially, if you can bridge the EUR 68 million last year to the EUR 65 million this year with the FX strain, et cetera? And a very small question on Non-Life. Is the understanding correct that essentially, fire cost you probably about 1 percentage point in the first half, [indiscernible] you didn't have any. So essentially, it was a neutral effect in the first half on the combined ratio?

Ye/. Let me start with the H1 result of Non-Life. Yes, as I was saying, I mean, let's not overdo these fires. They're small fires, bigger fires. We see that, obviously, in the retail space. I think what was noticeable in the first quarter that there was a couple of larger fires. But like I said, we didn't see that in Q2. We've done a good analysis and we don't think that, that is a -- this is not something that the worries as it's part of our regular business. I think it sticks out a bit more because last year was particularly favorable and that's why Non-Life maybe screens a little bit lower versus last year. But I would still argue, with the fires that we've seen, 92.2% means that we're well on track and good in the range that we have indicated. I think on Japan, very difficult to talk about. The business improvement order, we don't expect it to be lifted this year, but it's up to the regulator to decide when it will be lifted. It's clear that it's impacting our new business contribution. So our new business has been at a lower level. And so therefore, we also expect that this year, that will continue to be the case. Also, once this is -- this business improvement order is lifted, it will take some time to ramp sales back up. I mean if we judge the market and the market opportunity, we do think we can get back to very good levels. But that will take time, and we first need to deal with this business improvement order with the regulator. In terms of OCG, we set a target of EUR 125 million. The retention of the book is holding up well. The vast majority is driven by -- of the OCG is driven by this in-force book. So that's why our expectation for 2025 is still at EUR 125 million target that we have set. Annemiek, on the Japan result?

Yes, on the Japan result, was it a question on the OCG?

Yes, it was on the OCG, the FX and the bridge from the EUR 68 million last year to the EUR 65 million, a couple of core elements.

Yes. I think the core elements there, typically, you would expect on OCG that, given that there is no new business, that there's no new business strain and that OCG would be a bit higher, which if you would have looked at that like-for-like on a like-for-like currency basis, it would have been the case, but that was negatively impacted by in which we still saw H1 a devaluation of the yen. And so, if we would not have had that devaluation, then it would have been a bit of a higher result there, on Japan. One additional point, not related to Japan, but some very good listeners caught up on that. On the buyout strain, we talked about roughly EUR 10 billion of asset management potentially coming in, and that would be a EUR 1 billion capital consumption and rather than a EUR 1 billion higher SCR obviously.

We will now take our final question for today. And your final question comes from the line of Michael Huttner from Berenberg.

The -- actually, I mean really sorry, but then really short. One is on the rental, the legal case. Can you give us -- and I know you said there's something to update, but can you remind us what the potential risk is in terms of financials? I think you were better than most, but I heard a figure. I just wanted to see if it's right, something like EUR 60 million -- EUR 60-odd million potential impairment. The second is on Japan. Is there a risk to the value you put on the business because of this improvement order? So ultimately, low sales means your network is not doing a lot. So potentially, the goodwill value comes down and does that have an impact anywhere in capital solvency, anything? And then the last one is on cash. I just wondered if you could walk us through to the year-end '24 cash. I know it's a little bit tricky, but the numbers I have kind of based on what you've been saying is EUR 600 million still cash to come in the second half. So that's EUR 1.4 million assumption for the year, EUR 350 million is the interim dividend. I think about EUR 130 million of the buyback left. The number I'm missing is obviously the scrip dividend for the full year, for the final dividend and any other, is just to get a feel for how much is your war chest, your cash pile, whether you -- we hit a bit EUR 1.5 billion or something?

Let me start on the value of the business in Japan and then Annemiek will take the other 2 questions. Yes, obviously, I mean, if you have a business improvement order ongoing, that's not helpful. And clearly, it has an impact on sales, but we don't have a concern around that -- the risk of the value now is coming down. I think it is quite a common phenomenon in the Japanese market, these business improvement orders unfortunately, and so, all the energy for us is just to make sure that we get this behind us in a proper way. And then over time, sales will go back up. Annemiek?

Yes, on the question regarding the rental cases and the legal debate that's taking place there. There is -- it's in a sense, a legal debate on whether you are allowed to use clauses in the contracts of Dutch residential real estate, which says that you can increase rent with CPI plus? And how much that plus is? That's a bit the debate that's going on. In a court case against another company, the lower court has asked some questions to the Dutch Supreme Court to get clarity on this. Now we have EUR 3 billion of exposure to Dutch residential, which is a relatively small market share in the total market, probably just 1% or something. And the external partner we used to manage this for us, has historically been quite conservative when implying rate increases above CPI. So that was typically less than 1%. And now in terms of status of the legal procedures, the Attorney General has advised the Supreme Court that surplus increases of up to 3% are not generally unfair, but that's an advice. And we obviously would have to see what the Supreme Court will ultimately decide. But our historic increases have been well below that level. So from that perspective, we don't see a huge financial risk in this. If we then look at the -- your question on cash flow and also on where we would expect the cash capital position to end up, probably fair to say that we would expect a slight negative buildup in the second half of the year, and that has 2 main reasons. One, we always see a bit of a skew of remittances towards the first half of the year, that's largely driven by the international units. Once they have the statutory GAAP results out, they remit the cash. And it's also related to the interim dividend, which is a cash outflow, plus the ongoing buybacks, both for the regular EUR 300 million buyback that we announced, but also the buyback to neutralize last year's full year dividend, the scrip dividend that we had there. So we would expect a slight negative buildup in the second half of the year.

Thank you. I will now hand the call back to Mr. David Knibbe for closing remarks.

Yes. Well, thank you very much all for your questions. We had a lot of questions from your end. I think it's important for us to -- that to repeat. It was a strong half year. We're well on track to deliver the EUR 1.9 billion, and we see a very good commercial momentum in our businesses, and that will continue to support also the longer-term growth of the company. And obviously, we'll share more strategic updates and objectives at our Capital Markets Day in May. So thank you for your time, and for the rest, have a good summer.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.