ASR Nederland N.V.

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.