Asr Nederland Nv Uns/Adr

Good day and welcome to the ASR Netherlands half-year results 2020 conference call. This call is being recorded. At this time, I would like to turn the conference over to Michel Hulters. Please go ahead, sir.

Thank you, operator. Good morning, ladies and gentlemen. Welcome to the ASR conference call on the half-year 2020 results. On the call with me today are Jos Baate, our CEO, and Annemiek van Meelink, our CFO. Jos will in a minute kick off as customary with the highlights of our financial results, and we'll discuss also the business performance. And then Annemiek will delve into the development of our capital and solvency position after that, and then we'll open up for Q&A. We have got scheduled till 12 o'clock, sharply, but that leaves us ample time for any questions that you may have. And as usual, please do have a look at the disclaimer that we have in the back of the presentation for any forward-looking statements. So having said that, Jos, the floor is yours.

Thank you, Michel, and good morning, everyone. Thank you for joining us in this call, and I hope you and your beloved ones are all in good health in those challenging times. Let me start to say that I'm really proud of the way our company and our employees have continued serving our clients during the challenging COVID-19 times. As from day one of the lockdown, we were able to work from home without any disruption. It proves ASR's digital ability. The well-being of our employees and customer service has been top priority during the COVID-19 period, and it still is today. Despite these extraordinary and challenging times, ASR is consistently delivering against ambitious targets. Today, we present strong results. Over the first six months of the year, our diversified business portfolio has shown to be able to absorb the COVID-19 effects as it is reflected in our operating results and our robust solvency. We are executing our strategy diligently and the acquisition of the BNP IORP fits well in this, and as we announced earlier, we are resuming dividend payments and the share buyback program offering an attractive capital return to our shareholders. Without further ado, let's turn to the financial highlight on slide number two. As this dashboard shows, our performance in 2020 has been really strong. Operating result of €446 million is only €18 million lower, than the record first half year of 2019, and this includes a negative impact of 3 million from COVID-19. Our Solvency II ratio, still based on the standard formula, further increased with 5 percentage points to a solid 199 after the 2020 interim dividend and the share buyback of 75 million. Before subtracting these capital returns, our ratio stood at 203. As it was our full intention to make up for the postponed 2019 final dividend, we never added the amount back in our solvency. So the 199 is really after everything. Organic capital creation amounted to 98. Despite higher UFR drag due to lower interest rates, the strong performance of our business delivered a stable outcome compared to last year. Operating return at 14.8 is well above our target of between 12 and 14. This number is somewhat depressed by the postponement of the final dividend. If we wouldn't have postponed in the first half year, the number would have been 15.1. The combined ratio improved further to 92.9, ahead of our target of 94 to 96. This includes a positive effect of corona impact of roughly two percentage points. The operating expenses increased by 34 million, and this was mainly driven by acquisitions, holding costs, and growth of our fee-based business. Based on the strong performance and in line with our existing policy, we have set our regular interim dividends to 76 euro cents per share. So in sum, we have shown a strong result over the first half of 2020. As mentioned, we resume our share buyback and dividend payments. Since our IPO in 2016, we have built a strong record of returning capital to shareholders, driven by higher operating results and supported by a robust balance sheet. During this period, ASR has returned over €1.4 billion of capital to our shareholders via dividends and share buybacks. This roughly equals 35% of our market cap as per half year. As the graph shows, our solvency ratio has remained robust and safely above the return thresholds in any of the past years. Our dividend threshold at 140% solvency too, and if above 180, then there is room for additional capital returns. Also, our dividend payout ratio has been on the lower end of the range of 45 to 55, of the net operating result attributable to shareholders. This provides some cushion to absorb potential volatility in results. We will continue to allocate our capital rationally. If sufficient capital remains from the targeted OCC of 500 million in 2021, after investing in organic growth, inorganic growth and market risk, and as long as we are above the thresholds, we will decide on capital returns to shareholders. As you might remember, we have the clear intention to buy back 75 million of our shares for the book years 2019, 2020 and 2021. This way we can grow our business profitably and meanwhile offer an attractive capital return to our shareholders. Now let's turn to the next slide for our non-financial achievements. Our strategy will continue to focus on sustainable long-term value creation. We take our role as a sustainable company and society very seriously. Our ongoing focus on customer service has led to an increase in the Net Promoter Score from 44 to 47 positive, already well above the medium-term target of 44. One of the drivers behind the increase was the more personal contact with customers during the COVID-19 outbreak. Due to the lockdown, our employees worked from home and reached out to customers who were also working or staying at home. Being in the same situation really helped creating a positive experience between employees and customers. Moreover, our CO2 footprint has been measured for already 91% of our investment portfolio, and with over 1.2 billion investing in impact investments, we have already met the target for 2021. Due to the lockdown restrictions and social distancing rules, our employees have not been able to do any of the activities we typically do for society. As such, the employee contribution to local society has decreased with roughly 60% and is not expected to meet the target for 2020 this year. So having said that, let's continue with the impact COVID-19 has on our employees, our customers, and our business. In periods like this, our first and foremost attention goes to the health and well-being of our employees and customers. Starting with our customers, we continue to offer suitable solutions for customers who have been impacted by the COVID-19 crisis. For instance, we have received requests for temporary pause on premium payments, mortgage payments, or rents. So far, these numbers are relatively small. Think about in total less than 1,000 requests on the total customer base of approximately 1.5 million customers. And we were the first insurance company to have face-to-face contact again with intermediary, which was highly appreciated. This helped to continue to deliver on our organic growth targets. In March, we instantaneously moved to fully working from home. This went very smooth. We are using a mood monitor to track the employee morale and we were very happy and proud with the outcomes. Our approach since 2012 to build one culture based on time and place independent working proved to be a very strong foundation for managing the current crisis. In the meantime, our offices have been adjusted to the social distancing measures and make our office a safe working space for just a limited number of employees today. On the financial side, we have observed a negative impact as set in the introduction of 3 million on our operating result so far. This consists of a negative effect in our disability business of roughly 50 million due to unfavorable claims experience, limited possibility of visiting of our vocational experts, and delay in the reintegration processes. In our P&C business, we have observed tailwinds up to roughly 70 million due to less traffic and less burglaries towards the end of the first half year, this trend, by the way, has been normalizing. In our live business, market conditions have lowered dividend and rental income and increased UL provision, leading to a roughly negative effect on our operating result of $25 million. And finally, our IFRS net result is significantly lower, primarily due to the decrease in indirect investment income and a goodwill impairment in life, both due to financial markets impact of COVID-19. Please note that the decline in the net IFRS result which we report today is not fully driven by COVID-19. In last year's number, we also reported a purchase gain of 88 million on the acquisition of Loyalis, which is of course a non-recurring item. Let's move to slide number six. and talk a bit about the business strategy and how we're doing. Some business developments I would like to highlight there. Earlier this year, we announced the intention to bring the reintegration activities of CarePint to ASR, of which we already owned 50%. This expands our expertise in the field of reintegration and sustainable employability and creates additional value for our customers. In the life department, We delivered on creating synergies by reducing the number of applications. Also, we have successfully migrated part of the Loyalis portfolio. The remaining part will be migrated in the third quarter of 2020. Also, advantage of scale is created by the acquisition of VVAA Life, which will be integrated before the end of the year. Our fee-based business are doing very well. Third-party assets under management have increased 0.5 billion dollars to $21.2 billion and was mainly driven by growth in the mortgage fund. With a strong mortgage pipeline, mortgage origination is expected to exceed the target of $5 million for 2020. Today, we also announced the acquisition of the brand new day IORP. This acquisition contributes to the growth in the DC pension market and gives ASR a number two position in the institutional occupational retirement provisioning. I'm only going to say that once during this presentation market, including the rent new day IRDC assets under management increase over time to 2.5 billion. And lastly, we have transferred the remaining accounts of the divested ASR bank to Van Lanschot Kempen. This means the recently announced obligation of including banks in the Solvency II ratio of an insurer will not affect ASR at all. Now let's move to slide 7 and elaborate a little bit on the acquisition of the Brand New Days IOP. We are very pleased with this acquisition because it fits in our strategy nicely. The acquisition of the remaining 50% stake in Brand New Day raises our TC market share to 15%, adding almost 6,000 employers as a customer. The Brand New Day IORP is originated in 2011 and has already 145,000 active participants and employs 52 employees. Roughly 1 billion of DC assets under management are added to our portfolio in 2022. The transaction fulfills the strict requirements ASR has on acquisitions and delivers over 12% return on investment after integration. This is calculated over the total investment of 55 million, which represents the cash outlay of 52 million and the estimated 3 million of integration costs. the transaction will have no meaningful impact on our solvency tool ratio. We expect migration to take place from 2021 to 2023, and we are planning to transfer the asset management activities in 2022. The expected net operating results after cross-examination and OCC equal 8 million as from 2024, with more potential in the years thereafter. This acquisition confirms our strategy to grow in DC pensions and increase the third party assets under management. Closing is expected in the beginning of 2021. So let's now turn to slide eight and talk about the group operating result. For the last couple of years, our strategy has been focused on managing our live books as efficient and stable as possible. whilst pursuing organic and inorganic growth in our non-life and asset management and distribution businesses with a goal to both mitigate the runoff in life and further diversify ASR. By doing so, we increase the operating result of our non-life business from 62 million in half year 2016 to 124 this year and that of our asset management and distribution business, i.e. our fee business, from 12 million in 2016 to 28 million in the first half of this year. This further diversification helped us mitigating the aggregate impact of COVID-19 in H1 to a negative of only 3 million so far. Within the various business lines, we see different impacts of COVID-19, the already mentioned 25 negative in life, and an aggregate positive effect of 23 in non-life existing of a minus of 50 in disability and a positive effect of roughly 70 in P&C. Excluding the COVID-19 impact, our operating results decreased by 15 million, largely related to the increased holding cost for higher current net service costs for our own patient scheme and additional interest expenses related to the 500 million Tier 2 placed in April last year. We obviously also benefited from an additional 20 million contribution from Loyalis, which was only included for two months in H1 2019. This 20 million was offset by Chiara and Dennis storms for roughly 11 million and some reserve strengthening for P&C related to an industry-wide lowering of the actuarial interest for the bodily injuries due to court rulings which amounted roughly to 8 million. Underlying our business showed strong operating performance with improved efficiency levels in both live and non-live. Let's talk a bit more about non-life. A solid performance in non-life, including COVID-19 impacts, with operating results remaining stable at 124 million. Overall, in the first six months of this year, COVID-19 had a positive impact on non-life, aggregate of 23 million. This includes the already mentioned headwinds in our disability business and tailwinds in our BNC business. In our disability business, vocational experts could not visit clients due to the lockdown restrictions and reintegration processes were delayed. However, the negative effect observed in disability does not only include COVID-19 effects. In our sickness leave portfolio, we also observe an unfavorable claims experience like the whole market does. As said, this seems to be a market phenomenon. We expect further price increase later this year. Also, the application of lower interest rates and strengthening of provisions had a negative impact on the performance of disability business. Within P&C, we observed a positive effect compared to last year's H1, mainly due to COVID-19 impacts, less claims motor and fire due to fewer accidents and burglaries. And this is absorbing the claims from Chiara, and the impact of lowering the actuarial interest rate for personal injury. This leads to a combined ratio of 92.9% for both P&C and disability together, beating the target of 94 to 96. If we would adjust for the COVID-19 effects, the combined ratio would move towards the middle of the range, of the 92 to 94. The cost ratio, by the way, decreased, which is driven by a higher gross return premium, whilst realizing at the same time cost synergies from the Generali Netherlands IT migration. So all in all, we became more efficient. Organic growth in gross return premium for disability and P&C amounted to 6.9%, exceeding our target of 3 to 5% per annum. We would expect to normalize this a little bit in the second half of the year. The acquisition of Loyalis and Veyorex have increased our disability cross-written premium with over 160 million. At last, the increase in health gross return premium reflects the strong interest of customers in the new benefit-in-kind insurance products. Let's move to slide 10 and talk a little bit about life. Some highlights to mention here. Operating result of life segment decreased by only 9 million to 361, despite the 25 million negative impact from COVID-19. If you relate this To the total operating result, we believe this is a benign impact. The 6 million higher investment margin despite 20 million hit in direct income due to COVID-19 and the 5 million positive results on cost were more than offset by the 5 million increase in UL provisions compared to last year due to the COVID-19. Various other small non-recurring incidental and high mortality results in UL the first half year of 2019. This explains the 20 million increase you see on the slide under technical and other. We did not see a significant effect of COVID-19 on mortality results, whereby we observed excess mortality at the beginning of the outbreak, which was offset by lower mortality than normal towards the end of the second quarter. At this moment in time, mortality in our portfolio seems to be roughly equal to 2018, where we had a bit more of flu in the beginning of the year. The higher investment margin was driven by higher direct investment income from acquired portfolios and income from the derivatives portfolio. This was partially offset by lower dividends on equities, and this was all COVID-19 related. The amortized realized gains are lower due a swap recouponing program in H2 2019, and this is offset within direct investment income. The required interest showed a decrease of 8 million due to the slightly runoff of the individual life portfolio. Crosswritten premiums grow with 18.8%. The additional contribution from Loyalis with 59 million and the pension DC portfolio growth of 42% exceeded the decrease of the existing DB pension portfolio. At the same time, we continue to focus on our cost levels. Life operating expenses expressed in basis points of the basic life provision improved to 47 basis points. Last year, we ended with 53 basis points, and this is in line with our target of 45 to 55 basis points targeted to be reached latest in 2021. Let's now turn to the other segments of ASR, which are also gaining traction, and this is on slide number 11. Operating results of the two fee-generating segments, asset management and distribution and services, combined amounts to $28 million, up from $23 million in our record first half year of 2019. This confirms that we are running ahead of the medium term target. Asset management showed a strong increase to 15 million euro driven by higher fees from continued strong inflows and positive revaluations. Also external mandates contributed mainly driven by our recently announced mortgage fund. The operating result of the distribution and the services segment increased to 13 million euro mainly due to small acquisitions and combined with organic growth. And to finalize before I hand over to Annemiek, operating result of the holding amount in minus of 67 million. The decrease is mainly driven by higher net service costs for our pension plan due to lower interest rates and the increase in interest expenses of 6 million from the 500 million tier 2 subordinated liability as placed in 2020. in April 2019. And with that, Annemiek, I hand over to you.

Thanks, Jos. Well, quite a few things happened since our last analyst call in February, but I'll try to be brief and take you through the highlights of those developments within our balance sheet solvency figures and spend some time on the composition of our investment portfolio. If we start with slide 13, which is the stock slide on solvency, it's good to point out that our solvency remained resilient. Despite the impact of COVID-19, we ended up at 199, up 5% versus where we ended a year and 19. All of that is based on standard model, obviously. Now, within the 199%, we absorbed a further U of R decline of 3.75%. towards 3.75%, reflecting 3.5 solvency points. And we also observed, obviously, the restarted capital returns of 4.5% points. In addition, there was some minor impact of the VVAA and Verirex acquisitions, which we closed in January, representing 1% solvency points. Our eligible loan funds grew $365 million to close to $8.2 billion, including an increase of 347 million of unrestricted tier 1. If you would exclude the 121 million of U of R reduction and the 180 million of capital return, we would have added over 650 million of own funds, which was really mainly driven by business capital generation and market developments. Our unrestricted K01 capital represents 149% of the SCR and 75% of total loan funds. We didn't issue any hybrids in H1. In terms of the required capital developments, our SCR rose by 83 million, which was mainly driven by the increase in insurance risk, largely for life, mainly due obviously to the effect of lower interest rates on life. some premium growth with the non-life and obviously the acquisitions of VRX and VVAA. Market risk remained stable as the increased SCR for interest rate risk due to lower interest rates was mitigated by lower SCR for equities driven by share price developments and lower SCR for real estate driven by some de-risking there. Now we did optimize our portfolio including some re-risking and less liquid assets Think about 1.5 billion of which we did around 500 million in credits and around a billion in additional mortgages and some minor component into equities. However, that optimization or re-risking didn't really lead to an increase in market risk or in counterparty risk as far as the mortgages are concerned. We also monitor our solvency on a more economic scenario, which uses the U of R of 2.4%, and our solvency ratio based on that U of R of 2.4% actually remained solid and increased further from 153% at year-end to 159% now. It's good to point out that we still have ample room, ample headroom within our Solvency II framework. It's actually growing. where we could still add 1 billion of unrestricted Tier 1 and over 500 million of Tier 2 slash Tier 3 headroom. All in all, our solvency level of 199% POSEN, if you use a pre-dividend and share buyback figure, 203% based on standard model with ample tiering headroom represents a strong figure to go out with. Now, if we turn to the next slide and talk a bit about the flow that we've seen, You can see that starting at the 194 level at full year, the acquisition of VVAA and Verarex, as I said, had a negative impact of 1% point. We added over 7% points in solvency due to the OCC generation, and we also had a positive contribution of 3% for market developments and other effects. We are about to subtract the 180 points million capital obviously related to the regular interim dividend and the buyback and that 180 million capital is absorbed in our solvency ratio it's around four and a half solvency points now if you really look at the OCC to get a feel of Azar's own capital generation it's good to point out that it's relatively flat versus last year it's 298 million now versus 299 million last year whilst actually absorbing an increased U of R drag of 38 million. And that's basically absorbed by an increased business capital generation and to a lesser extent some increased release of capital. Within the business capital generation, i.e. the capital ASR has really generated itself by running the business or underwriting results, investment results and fee income, that increased by 32 million to 283 million. There are kind of three main reasons for that. It's largely driven by a higher technical result and non-economic variance. It's also driven by higher investment returns, and there is also additional fee income of our business compared to last year. The release of net capital also increased as lower interest rates led to a higher SCR release and risk margin. In terms of technical movements, those are almost fully driven by the U of R drag, which decreased ROCC by 96 million. The U of R drag actually increased by 38 million year-on-year, which includes an echo from last year of 18 million and 20 million additional U of R declines. drag due to rates movement since December 19. All in all, it's a solid OCC where we were able to cover the increased U of R drag. We also benefited from a positive contribution of 3% from markets and other developments, despite a 3.5 percentage point negative impact of the further U of R reduction. a 3% increase more than compensated, actually was driven by an increase in DVA, which more than compensated the negative impact from the further UFR reduction. If you look at the 290A that we generated in OCC for the first half year, it's good to bear in mind that that OCC shows some seasonality, specifically within the net capital release bucket. due to the typical Q4 sales season for part of our disability business. And to bring back in memory of the 501 million OCC we generated last year, 299 million was generated in the first half of that year. Let's turn to the investment portfolio on the next slide. Given all the direct and indirect impact of the COVID on various asset classes, we thought it would be good to give you a brief overview of our entire investment portfolio. Of the $52 billion that we have invested, close to $70 billion is actually fixed income. Now, of that $35 billion fixed income portfolio, within that we run a sovereign book, which has an average credit rating of AAAA, we run a corporate and financials book, which has an average credit rating of A. And if you look at the exposures that we have within our corporate book, we have very limited exposure to sectors that are currently under pressure, such as oil and gas, transportation, or if you think about COVID, leisure, and the latter are actually non-existent in terms of investments. It's fair to say that we haven't seen any defaults yet in H1, and only a very negligible amount of downgrades were observed. To give you an indication of a rating migration risk, if 20% of the entire corporate and financial credit portfolio would experience a full letter downgrade, i.e. three notches, this would result in approximately 4% point impacts on a solvency two ratio. Now moving from the fixed income part of our portfolio to the real estate part, Our real estate portfolio constitutes 4.2 billion, which is around 8% of our total investment portfolio. Now, of that 4.2 billion, 1.6% is actually invested in rural real estate, representing 3.2% of our total investment portfolio. We have around 800 million, or 1.6% of our total investment portfolio, invested in retail. Now, that retail exposure is kind of two-folded. Slightly over 600 million is indirect exposure via our ASR Dutch Prime Retail Fund, in which we currently have a stake of 43%. And the remainder of that 800 minus the 625 exposure is actually some direct exposure that we still have ourselves. Our Dutch Prime Retail Fund invests for roughly one-third of food-related district shopping centers, i.e. supermarket-related centers. and for two-thirds in high-quality retail shops in the streets in the largest cities. Now, obviously, that supermarket part is less sensitive to the COVID-19 situation, while we do obviously see some impact on the high street retail part. Having said that, the 800 million total retail portfolio is only 1.6% of the total investment portfolio that we have. We also have a mortgage book, which currently equals around $9.7 billion, or 19% of the total portfolio. And that mortgage book is 38% NHG coverage and has an average LTV of 74%. In general, we've not seen any significant increase in arrears due to COVID so far. Arrears maintained at 5 bps, which is the level equal to where it was at full year 2019. nor have we seen actual rise in credit losses. Dutch mortgage market in general has shown quite some resilience during the last financial crisis. Credit losses remained the lowest within Europe, and whilst house prices came down over 30%, and so far we're relatively comfortable with the mortgage position as we currently are, and we may actually extend that a bit further into H2. Our total market risk is about 43% of our total risk pre-diversification, a level which we're comfortable with, and also below our threshold of 50% pre-diversification benefits. Risky assets, that's function of unrestricted Tier 1, decreased to 94% as both equities and real estate value declined, so our unrestricted Tier 1 grew, as I indicated before. Our asset portfolio is, as far as we're concerned, robust against the financial uncertainty, and it also offers some further room for asset optimization. As said, we did some re-risking into credits and mortgages, and for H2, we're contemplating a bit of further optimization of the portfolio and potential some further re-risking into mortgages as well. A couple of words then on the balance sheet. You are familiar with it. Not a lot has happened here, so I'll be short there. We continue to have ample tiering flexibility. Headroom actually increased further, 1 billion tier 1, 500 million tier 2, tier 3. Our financial leverage decreased further to 28.4%. It's well below our maximum of 35%. And if you would actually adjust there for some shadow accounting, and capital gain resource, which is more in line with what the industry does, you can subtract another 5% there. Double average decreased to close to 99%, and our interest ratio dropped. Our interest ratio is based on our IVRS net result, and it actually took a COVID crisis to get that within our targeted range between 8 and 4. Obviously, we're still happy with that figure. Solvency ratio for the group remained strong. Ratios for non-life and live entities are 158 and 186, which is well above the respective targets that we have there of 150 and 160, respectively. Quick word on our liquidity position before I hand back to Jos. holding liquidity at the end of the period is $608 million, which is up from last year, mainly due to the postponement of the $160 million final dividend and the $24 million of buyback. The position is aligned with our policy, which basically is to keep the cash at work in the operating companies and only upstream the cash to the holding expenses, coupons and dividends, i.e. we don't remit more than we actually need at the holding. We have an unused RCF of 350 million still at our availability. We did upstream cash from LIFE and from other entities. LIFE was around 290 million, other entities around 8 million. There was no need to upstream more. As I said, it is in line with our policy. That maturity profile, as you can see, is very robust, and the next maturity date isn't until 2024. And with that, I'd like to hand it back to Jos for a final wrap-up.

Thank you, Annemiek. Well done. Let me summarize briefly. and conclude that ASR is a very strong position and we delivered again a very solid performance. During the COVID-19 pandemic, the well-being of our employees and the quality of our customer service has been top priority. As a result of this focus, all of our businesses are running very well. Looking ahead, we are positive about the commercial and operational outlook for ASR. We're very pleased to continue dividend payments with 9% DPS growth, and we also showed solid progress in executing our strategy and demonstrating financial discipline. Today we announce the acquisition of Brand New Day IORP and remain interested in growth through small and medium-sized acquisitions. Our strong capital position provides sufficient scope for this. Looking forward, acknowledging that our performance in 2020 H1 was only slightly lower than in our record first half year of 2019, we expect our 2020 results to be slightly north of the mid-range of 2019-2020 results. So we have become somewhat more positive on the full year than we were after the Q1 update. Having said that, I hand over to the host and we're willing to take any questions you might have.

Thank you. If you would like to ask a question on today's call, please signal now by pressing star 1 on your telephone keypad. That's star 1 to ask a question. We will pause for one moment to allow everyone to signal. Again, that's star 1. We can now take our first question from Kors Kloos. Please go ahead.

Good morning, Kors Kloos, ABN MRO. I've got a couple of questions. First of all, on the GOOT OCG figures. could you split out what the positive experience variance was? You said some positive non-economic variance and of course that's the non-life especially interested in the life positive experience. We saw the NN group in their presentation but could you comment on that? You said on IFRS there was not much impact of COVID-19 in life but maybe the OCG it might be. So that's one. Second question is on the The UFR strain on slide 14, you mentioned of course that the technical movement is 96 million euros negative in the first half. If the rates would remain as they are as of today, what would be this figure or the technical movements of the UFR strain in the second half of this year? This figure would be a little bit higher. And third question is about what do you see currently in the Dutch market in disability and P&C claim development? There's a little bit more people on the road now, so maybe on the P&C that has some adverse effect. And in disability, when or do you already see some improvements on the claims there or what is required for getting that improvement? And last question, that was just a semantic question. On solvency 2 ratio, you said in your introduction, our solvency 2 ratio is still based on the standard formula. Is there an intention to call it still based or are you looking to an internal model or not? Those are my questions.

Well, let me start with the claims development, and Annemiek will talk about the other questions. What we currently see, and I at least try to mention it, in the first half we have seen less claims in burglary, in car, and in the second half, it actually turned back to normal with maybe a bit different split in bodily injuries. In normal years bodily injuries are mostly caused by accidents between cars and we have seen an increased number of bodily injuries due to accidents where bikes are involved. Obviously Dutch people were already a lot on bikes, but that increased further during the crisis. So we see an increase of bodily injury due to bike accidents. Not yet up to the level where it used to be in normal years, but actually we're close to normal now. Same for burglary claims. So actually in PNC we expect the second half a more or less normal year In disability, we have observed increased claims over the first months. The number of new incoming claims have normalized as well in the individual disability business as in the group business, in sickness leave business. However, we are still not yet at the level of dealing with the already filed claims in the first part of the COVID-19 crisis. It just takes more time to reach out to people, to have discussions with people. So we expect that the second half of 2020 in disability will be a bit better than the first half. but we definitely will not be back at the levels we're used to. So I think that would answer your third question, and Annemiek is happy to take the other two and a half questions.

Thank you. Your question related to the non-economic variance and technical result, let me help out there a little bit. If you look at the increase in business capital generation, which is the... which actually was an increase of 32 million versus last year, it's fair to say that the majority of that is through our additional excess returns. That's around 18. We've also added some more fee income from net other operating entities, which already gets you to over 20 of that 32. Now, the remaining part is either within technical reserves or non-economic variance. Within that non-economic variance, we don't have any life impact. It's mostly related to non-life or actually only related to non-life. And I recognize the comment you made that some other insurers have maybe referred to, but we have not seen, we don't have within our OCC any non-economic variance on life. related to longevity or whatsoever. In terms of the UFR drag, the drag that we currently show here of 96, it's fair to, if interest rates would remain at the levels where they currently are, you could actually double that in terms of drag for the next half year. And then the comment that Jos made on the our solvency still being based on a standard model. It's more related to point out, and I guess we don't need to do that for you guys because you're well aware that we're at a standard model, that we are at a standard model. Having said that, capital optimization is something we will always be looking at. There are various things we could do. ranging from longevity trades to for the stuff in hybrids or actually moving towards an internal model. At this point in time, there is no specific need to do so, but be assured it's always on our mind to review.

Okay, very clear. Thank you very much.

We can now take our next question from Albert Plo. Please go ahead.

Yes, good morning. But a question also on the seasonality effect from the disability book and also when looking at your full year presentation, the 501 OCC at the time, there was a new business strain of around 120 million. Now this strain, at least on the disability part, is skewed towards Q4 with the renewals. Is this still your working thesis that it will be around that level or you have indications it could be materially different than the 120? And just for completeness sake, what was the absolute level of new business training in the first half? And the second question is on the disability also on the self-employed side. Maybe you can remind us again how big that part is of the total premiums. And what kind of behaviour do you see at some of the clients? Are they potentially lapsing policies? For most it is potentially an expensive policy, so some savings. But what kind of behaviour do you see, let's say, on the client side and maybe also on the group disability as well?

Thank you.

Let me first go into the second question. Before we acquired Loyalis, it was roughly 50-50, the gross written premium in individual business and in more group-oriented business. Since we acquired Loyalis, that number shifted a little bit and today roughly 40% is in the individual business and 60% is in more group-oriented business. The behavior of customers in individual looks a bit like what we have seen in the group portfolio in sickness leave, that at the beginning of the crisis, we had more claims filed also from individuals. We've dealt with that since we were able to visit clients again. Today, the inflow of new claims from the individual portfolio is at a normal level, but we're still dealing with the inflow of claims that we had during the first half year. So as from today, we don't expect any adverse additional claims in the individual portfolio. assuming that there will not be any further lockdowns, etc., which hopefully will not happen. So I think that's the answer to your question, Albert. The first question on OCC will be taken care of by Annemiek.

Yeah, Albert, in terms of new business train, You kind of have to see that on an aggregate level. Obviously, it's the release of capital, new business strain, you kind of communicate it, right? You add new business, the new business strain has a negative impact on SCR and kind of flows out through the rest of the year. What we saw last year was actually a net capital release of around 100 million NH1. and that actually reverts to a flattish in H2, total net capital release, i.e. corresponding with the current 111 that we've disclosed now. We haven't seen any deviating patterns among the new business writing capability of our disability business line so far, so the GWP generation hasn't really been affected yet by COVID-19. there could be some impact on it in H2. By and large, we have no reason to currently estimate a completely different impact of business trains and impact, therefore, on net capital release for H2.

Thank you very much.

We can now go to our next question from Robin van den Berk. Please go ahead.

Yes, good morning, everybody. Thank you for taking my question. Sorry to come back to OCC, but I was just looking to get an answer on H2 versus H1. I think you're indicating that the seasonality in DNA is probably around 100 million negative H2 versus H1. Compared to last year, H1 versus H1 was roughly flat, just slightly down. I was just wondering how you're looking at this for H2. Do you think you can also get close to that 200 or will there be some negatives coming in? I guess your excess spread will be lower in H2 and maybe the net from non-life where PNC normalizes a little bit quicker than DNA might also be a net negative. So your thoughts there would be very helpful. Secondly, on capital return, it's good to see that Dutch Central Bank made a U-turn there. I was just wondering if you can comment on how they look at capital return. I think, to give an example, I think from your IPO, you've always seemed to indicate that your level of capital generation is sort of the maximum you can do. Is that still the best way of looking at it, or are there other thresholds to take into account going forward? And lastly, I just want to ask you on your M&A pipeline, good to see a more substantial deal come through today. Just wondering if you see more opportunities at the moment. Thank you.

Well, let me start with the question on how we think D&B looks at capital returns. I think from a D&B perspective, it is very important that every company has its own way of looking at capital and at capital hurdles, et cetera. So we have set our capital return hurdle for dividend, for example, at a 140. For additional capital returns, the 180 in share buybacks. And what is important from a D&B perspective is that you stick to your own to your own criteria. And further on, they expect you to take into account not only a view on the regulatory solvency, but also a view on what is underlying economically really happening. That's why we've been always clear that if you would more look at an economic basis on our solvency, that we don't calculate with the UFR, but that we have lowered that towards what we expect to be the normal long-term returns on our investment portfolio. And currently we assume that that will be 2.4. So that's why we also look at economic solvency. And as long as you are within your own policy combined with an economic view, D&B is willing to take any discussion on capital returns. But from their perspective, the most important is that you stick to your own way of looking at capital and your own policies. And that's why we, of course, had discussions with D&B on the recent capital return. But those discussions were not different from discussions we had in 2019, 2018, 2017, 2016, etc. So I think there is acknowledgement for the strong balance sheet of ASR and the way we run the company and capital.

To your third question. So from that perspective you don't see any risk basically to continue to deliver on your capital return promises you made earlier in the year?

Well, we've always said if and when our capital remains strong and above 180 and we will judge that in February next year when we present our full year numbers 2020. We still have the intention to come up with a second buyback of again 75 million like we announced at full year numbers last year. So from that perspective you never can predict whether you're going to face any issues, but based on everything we know today and our view of today, the answer to the question is no, we don't expect any severe issues in that, and there will be always discussions, and I think that's good. On your second question, M&A, like you, we were happy to announce this transaction and to use a part of the OCC generated for inorganic growth. We never comment on what might be next, but we're still hopeful that over the next couple of years, we now and then will be able to do smaller M&A or medium-sized M&A. We still see opportunities. There might be some opportunities still in life, hopefully over time also in non-life business. So we're optimistic. And at the same time, our focus remains on delivering on organic growth because that is what we can steer directly today. So the first question was again on OCC and I hand over to Annemiek for that.

Hi, Robin. I guess you're basically asking whether we will make the 500 again next year or this year in total. And listen, there are a couple of uncertainties there. I mean, first off here, in line with last year, we see where we absorbed the additional U of R drag. Looking forward to the second half, unsure ultimately what the U of R drag will be because interest rates can still move. It will be largely driven by the way our access returns will continue to develop. We did some re-risking and will reap some of the benefits of that. But obviously it's very depending on how spreads will move within the buckets, the market observable spreads that we use there. And in addition on the disability and on the new business train there or in total in the net capital release, it's really up to what the disability business, the impact of COVID there will be on the second half of the year. And that's whether it's for operating result or whether it's for the implications for net capital results on OCC. That's among the hardest thing to actually assess at this point in time. Will companies maintain the same level of employees that they currently have? Will they actually seek for collective disability? How will the individuals continue to look for disability products? So they're both in terms of volume. but also in terms of value, because we did do some repricing there. The jury is still out to see how that will develop in the second half year. So we're not pessimistic there at this point in time, but it really depends on where interest rates will move, how market observable spreads will go, and what will actually happen with both volume and pricing of the disability business in the second half of the year.

But based on the market standings for Q2 or today, you wouldn't dismiss the feasibility of that $500 million, basically. Is that a short summary of the question? I get it's difficult to be precise with all the moving parts with it. Okay, thank you.

If O says we're not pessimistic, you should draw your own conclusions.

Yeah, but it just remains a very lumpy thing to predict, specifically due to the disability business. That's why we're a bit mindful here.

Thank you again.

We can now take our next question from Beno Petra. Please go ahead.

Yes, good morning. It's Benoit Petrac from Kepler Chevreux. Yeah, a few questions on my side. Just maybe to come back on the UFR drag, could you repeat the kind of drag into H2 at current rates? I read the doubling of the effect, but I think it was 96 million, which kind of doubling will make it a bit too negative. Could you help us to quantify that one? Could you also maybe comment a bit more on the market observable spread at the end of H1? What do you see currently to just to help us to model the OCC again for the rest of the year? The third one was on, maybe on a business we don't talk about much, but the health business, which contributed really on the growth return premium on non-life, which were, I think, 9% organic, mainly due to the health segment. Kind of this new business, which was quite impressive in H1. Well, how much combined ratio do you expect to generate on this new business? Just to get an idea on whether that will be a profitable business or not. And then, sorry to come back on these abilities. Maybe thinking more about 2021 and not just H2 where, I mean, you do see a bit of normalization there, I understand, but not just talking about an environment where macro will be more difficult. Well, some corporates might go bankrupt as well at some point in the cycle. How do you see the disability combined ratio moving on an underlying basis more in 2021? Thank you very much.

The questions on the OCC and the market observable spreads within that will be taken by Annemiek. On health, yes, we have seen growth there. The targeted combined ratio in health since the IPO has been 99%. And the business we've currently written will, as far as we can judge it today, deliver within that target. We had significant growth in the health portfolio. Overall, the quality of that growth seems to be good enough or even be better than what we had in our portfolio to deliver on that target. So yes, it is profitable. On your disability question, actually the answer is maybe not as clear as you would hope for. It's all going to depend on how many companies will be bankrupt in the remaining part of the year and the current year. We're a bit more positive than we were at the end of Q1 and also CPB has been a bit more positive. We have up until now used the two scenarios of CPB that are most forceful, CPB 3 and 4. Recently, they have said that they expect to come more close to the light scenario, to CPB 2. If that's going to happen, then there is reason for some optimism next year. But to be honest, it's going to depend on how economically the Netherlands will do going further. Up until now, I think there's reason for more optimism, but it's going to depend on how we as citizens behave and whether the government or cities think it's going to be necessary to have further closed downs going forward. And for the first two questions, Annemieke, I hand over to you.

Yeah, your question on the UFR drag, we didn't mean double in a way that it would be 119 in H2, but I think you can just extrapolate the 96, so add another 96 for H2 if rates are to stay at the current level. Right. In terms of spread and spread movements, what we've seen there, At the end of the quarter, obviously for our excess return, we used the fixed spreads for shares and for real estate. What we've seen there for corporates would be anything around 130, 140 bps. Sovereign non-core, around 20 bps. That's probably the figure to work with there.

And on mortgages?

On mortgages, we're currently at around 150. 50? 150.

150, yeah, okay, cool, thanks. Thank you very much. I know there's a bit of margin pressure, but thank you.

Not that much, thank God.

We can now take our next question from Fulun Liang. Please go ahead.

Hi, hi, thanks and good morning everyone. That's a very good result. I have a couple of questions. So the first one is that on the page 32 of the slide, I noticed that the credit loss of your H1 is actually just one dip, which is substantially lower than just a normal average here. So I wonder, could you actually give some color on that? And is that, if we expect, say, for example, even we're going to experience just normal average year credit loss, Would that actually drag your second half OCG? So that's question one. And then second one is in your asset portfolio, you disclose the components, but the large part of them is actually derivative. Could you give some more color on the risk exposure of this derivative component asset was exposed to high interest rate lower interest rate higher credit spread or lower credit spread so some column that would be great and that's it thank you yeah the one basis point credit loss is indeed extremely low but we just really have not seen any foreclosures

in the first half year. Now, could that increase in the second half? Yes, it could. We currently have signs within our mortgage portfolio that arrears are really ramping up and that clients have contacted us and that we feel we have to go to a foreclosure on certain situations or have a pipeline of foreclosures ready there. Not as of yet. So that continues to be quite well and it also continues to show a trend of declining arrears over the last three years and also declining credit losses. Obviously, hard to predict now what unemployment will do and whether there will be a significant impact in H2 or whether it will be more of an impact in 21 coming. But as of yet, we don't expect any massive impact there in the second half. In terms of derivatives, that's really... The entire derivatives portfolio is mainly the portfolio we use for interest rate hedging. More or less all very common swaps and swaptions in there.

Okay, thank you very much. Sorry, just a follow-up question on the spread. If I understand correctly, so your OCG would reflect the actual... credit loss on the mortgage, right? If the credit loss goes up, it will be reflected on OCG right away.

The spreads that we use for mortgages are market observable, so to the extent that that will then be reflected into the market observable spreads, it will go directly into the excess return.

Okay. Thank you. As a reminder, if you would like to ask a question, please press star 1. We can now take our next question from Ashik Masadi. Please go ahead.

Yeah, hi. Good morning, everyone. Just a couple of questions I have is, first of all, on solvency. Now, if I look at the group solvency, it has gone up versus full year. But if I look at the LIFE and PNC, both of those divisions' solvency ratio has gone down. And my focus, especially on PNC, I mean, you haven't taken out the dividend and yet the solvency ratio has declined in PNC. So can you give us some color on that? And do you expect like capital upstreaming in second half from PNC? And are you comfortable with that, basically? So that's the first one. And secondly, if I look at your dividend of 9% growth, I mean, it looks like you have just used 40% of last year's dividend, but how should we think about the dividend given that the capital is still strong, capital generation is still pretty robust, the cash remittances are still good. I mean, so should we be thinking more about a mid-range payout as well rather than sticking with the low end of the payout ratio? Thank you.

All right. Let me start with your first question, actually, Ashik. In terms of solvency movements, I'm trying to get the page actually that you refer to where we have those figures. The group level solvency is higher obviously than we have at both live and non-live also due to the diversification benefits that we actually see at that level. And also if you look at the non-life figure. It's a small decrease. It's 162 to 158%, which is also largely driven by the new business that we've been doing there. In terms of upstreaming, we now upstreamed the 290 million out of life. And we actually would expect for the second half of the year to continue upstreaming out of the life business. And and out of the other non-operating businesses and probably not from non-life. If you look at the upstreaming that we did last year, the 501 million, the majority there also came from life. That was around 360 from live and there was around 65 from other and only 80 from non-life. And I think it's fair to say if we look at upstreaming for the second half of the year, would probably look more towards the live than some of the other operating entities not being known live.

And Ashik, on your second question on the dividend, yes, we are now for the interim at 40% because that is the number that we use within our normal policy. We've been always clear, everything being equal and no strange thing happens that we would love to show a slightly growing dividend over time. And in the introduction, the message was we do still have room between the 45 and 55 to move up if and when operational results would be lower than the year before. So we do have room to stick up to our promise, and it's too early to comment on whether we would move to the midpoint or to the higher end or stick to the lower end. We do have a cushion, and if necessary, and it's good for the company for the long term, we are willing to use that cushion.

Okay, that's very clear. Thank you.

We can now take our next question. From Farquhar from Moray, please go ahead.

Morning all. Just two questions, if I may. Firstly, on non-life, the organic premium growth in disability and P&C is put at about 6.9% year on year. Could you possibly split that between volumes and tariff trends? And just more generally, are you seeing any competitive pressures or regulatory pressures to hand back the frequency benefits we've seen at all? And then secondly, on the real estate portfolio, you mentioned reductions in rent, and I just wondered if you could explain what's happening there, because I'd have thought the contracts are probably relatively long-term, so I'm a bit surprised to see something material coming from rent reductions. And equally, on the COVID side, are there any material magnitudes for rent deferral or rent forgiveness in terms of ASR as a landlord? Thanks.

Well, on your volume question in P&C and disability, roughly one-third of the increase comes from increased premiums. Last year we increased the sickness leave premiums. That has been helpful. And also in car and fire we had some slight increases last year, so that has been helpful. But most of the growth is real. organic growth and new customers in that business. On your second question regarding pressure from the regulatory or the political side on giving back premiums to customers, well, I think one should realize that in some countries there has been a complete lockdown. In the Netherlands, we never had a full lockdown. People were allowed to travel, etc. So everybody realizes that the potential pluses in car insurance and in fire insurance are very temporary and that this is not a structural trend. And I think the industry has been clear that if and when this would be a structural trend and a long-lasting development, then you have to adopt a lower risk profile into your premiums. But given the fact that traffic in the Netherlands is close to normal compared to the last few years because people don't want to travel with buses and trains, et cetera, but take their own cars and bikes, there is no pressure at all to give back premiums. Sometimes there are news articles popping up. But I think everybody realizes that this is not a structural trend. And like a big storm, if we had a big storm, we don't start increasing premiums the day thereafter. We wait before the full year is over and then make a fair judgment whether this is a structural development and you need to increase premiums. But that's not the case yet.

And then your question related to real estate and rents there. We did indeed see specifically at the start of the lockdown and then through the lockdown period, which in the Netherlands lasted for a couple of weeks starting from March, we did see some rent deferrals there within the retail space. We've mostly engaged with those clients and have made arrangements whereby the rent is being postponed and whereby, if necessary, during that lockdown phase, our clients would get, depending a little bit on what type of client it is, if it's a large company, if it's a smaller company, we've tailor-made that a little bit. But on balance, we've given some of the retailers the opportunity to postpone the interest, the rent that they had to pay. What we're currently seeing is a catching up there. And out of the around $5 million or something that we missed in terms of rental payments, the postponement on a cumulative basis, of which we've actually provisioned for more than half of it, we still expect to see most of that actually coming back. And we now see people actually starting to repay again. And we've mostly changed the contracts or made some special arrangements so that the missed payments, they will have to repay them as additional payments over the next couple of months. Now, obviously, whether they will be able to actually, we will be able to recoup that and to get the missed payments back in full really depends also on whether there will be a second wave and whether there will be a true lockdown again. It's not the case in the Netherlands as of yet. If that will happen, there will be an impact. within retail. And mind you, the retail fund that we have also contains one-third of supermarket-related distribution and regional shopping centers, and those really weren't affected by COVID. So yes, we've seen deferrals. We haven't yet seen any full-stop cancellations. We do see people starting to repay, but obviously it's really up to the second half to see if they will manage to repay that. In terms of vacancy, we started the year with around 3.5% vacancies in the retail space, and we're now at 3.7%.

Okay. Just to clarify then, when you talk to rent reductions, is that the provision you were making for kind of postponement?

No, I think that the total postponement that we've granted was around $5 million, and the provision we made for that was close to $3 million So we've provisioned for more than half of the postponements and still expect to get quite a chunk back of that.

Yeah, but then is that the reduction in rents that you're talking about in the P&L that we're seeing?

Correct, yes.

Okay, all right. Thanks, Raj.

We can now take our next question from Stephen Hayward. Please go ahead.

Thank you very much. You've obviously spoken about guidance for the full year 2020 operating profit between the midpoint of full year 18 and full year 19, and now you're saying slightly north of this. Are you specifically talking north of 800 million? If you can be more clear, that would be very helpful for me. Secondly, on the goodwill impairment you saw in your last business, can you tell me what this was specifically for and whether you think there's going to be any further impairments in the second half. And then finally, on the 3% to 5% gross return premium target that you're exceeding in P&C and disability, is there any specific source of customers here, any specific source of distribution, or is there any specific competitor which is losing business to you? Thank you.

Shall I start with the impairment question? We did actually see some impairments coming through. I think we've even disclosed in our press release that that was on top a difference versus last year of 32 million. And those impairments predominantly relate to the equity portfolio. where we obviously have to follow the IFRS rules, and if it's a large drop, you have to take it immediately. If it's a prolonged, lower drop in share prices, you will have to take it over time. So I guess the immediate impairment that you have to take if there is a large drop that we've had in Q2 obviously depends on what will happen in the remainder of the year, but if we will not see such huge decreases in share prices as we've seen in Q2, there will be much of that. Having said that, there is also an IRS rule that would provide smaller share price movements, and there we may see some additional impairments on equities come through.

Thank you, Annemiek. Well, Stephen, as you might know, I have a legal background, and I assume you've been better in math than I was at school, so I think the guidance on the On the full year, it's pretty clear if you would take the number which we ended on in 2018 and you would add it up in 2019 divided by two and then pick a number just north of that, then I think you will be pretty close. I'm sorry, but more clearer than that we can't be. On your second question, where do we gain market share? Overall, we are gaining market share in almost every area of business, in the pension DC business, in the business of P&C, but also in the disability business. I think the main driver behind that is still in the intermediary business. We see that intermediary is gaining traction and they're still a large part of the business in the Netherlands. And I think, where are we taking market share? I think in general, the pie didn't grow that fast, but the number of competitors in the market has decreased. For example, Deltaloid disappeared. Vivat Non-Life is gonna be integrated in the NN business. So the number of competitors intermediary addicted insurance companies has decreased and therefore I think we're gaining especially more business from the companies that over time are disappearing but mainly through the distribution of intermediaries and I think to Michel this was also the last question and we're We're nearing 12 o'clock, so thanks for joining us. I think we don't need to repeat the key messages. Having said that, we as a board of ASR are quite happy with how our people delivered during those challenging times, how they remained serving our customers, how intermediary remained loyal to ASR and we were able to grow the business organically but also inorganically with the recent announced acquisition of the IORP of Brand New Day. So I wish you all the best. Normally Annemiek and I would now go to the airport, take a plane and meet you all in person. So we regret that that is not able this year, but hopefully some smart person in the world will find a solution for COVID-19 and hopefully, having presented the full year results, we are able to meet again in person. I wish you all the best and stay healthy.

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