Asr Nederland Nv Uns/Adr

Good day and welcome to the ASR Netherlands investor call interim results 2021. This call is being recorded. At this time, I would like to turn the conference over to Michel Holters. Please go ahead, sir.

Thank you, operator. Good morning, ladies and gentlemen. Thank you for joining us today. Welcome to the ASR conference call on the first half 2021 results. On the call with me are Jos Baalte, our CEO, and Annemiek van Meylik, our CFO. Jos, as a customer, will kick off with some of the highlights of our financial results. And he will also discuss the business performance, of course. Annemiek will then talk about the developments in our capital position and solvency. And after that, we'll open up for Q&A. We've got scheduled for a full hour for this call, including the presentation and the Q&A. And as usual, please do review the disclaimer that we have in the back of the presentation slide for any forward-looking statements. So having said that, Jos, the floor is yours.

Thanks, Michel. And also from my side, a good morning to everybody. And thanks for joining us on this call. I've understood some of you are calling in from their holiday addresses, so that has become in the meantime the importance of this call for you. I hope you're doing well. I noticed that we are the only insurance company today with results, so I guess this must be a pretty relaxing day for analysts covering the insurance sector. I'm sure you will understand that we are very pleased to present this strong set of results for the first half of this year. Momentum in our operations has remained strong, driven by happy and loyal customers. Our financial performance exceeds last year's record results with a considerable margin. And we continue to operate our business with a very strong balance sheet with a robust solvency. I want to thank our employees who are the driving force behind this performance. I'm proud of the fact that our employees have continued to keep moral high in this challenging period. In a recent survey executed by F-Factory, ASR is chosen as the best employer in the Netherlands. Now, without further ado, let's turn to slide two and take a closer look at our financial results. I presume you all have seen the data we released this morning, so I only will highlight the most important developments. As this dashboard shows, our performance in the first half of 2021 has been really strong. The substantial increase of 20% in the operating results to 536 million is driven by higher results in all of our segments. Combined ratios to that 90.2, well ahead of our targets of between 94 and 96, excluding COVID, by the way, the combined ratio improved to 94.1 from 94.5. H1 last year, so at the lower end of our target range. Our solvency 2 ratio continues to be robust at 197, still at the standard formula after interim dividend and share buyback, and absorbing the impact from the lowering of the UFR. Of course, Annemiek will provide further detail on this. The OCC improved by 74 million to 372, which means we are well on track of achieving our mid-term target of 500 million of OCC by the end of this year. The increase is a result of strong business performance and slightly increased investment returns. Operating return of 17.8 remains high and very well above the target of 12 to 14%. The increase in IFRS net result reflects the higher operating results and the absence of large negative incidentals and one-offs, which we have seen in the first half of 2020. We are happy to offer an interim dividend of 82 euro cents per share, which is an increase of almost 8% and represents 40% of last year's dividends. Let's now move to our non-financial targets on slide number three. As I'm sure you are aware, we are committed to deliver sustainable value to all of our stakeholders, specifically our customers, investors, employees, and the society at large. Our ongoing focus on customer satisfaction has led to a solid net promoter score of 48 and already well above the medium term target of 44. We are well on track to achieve the objective of measuring the CO2 footprint of 95% of our investment portfolio, and our impact investments are already ahead of this year's objective. Due to the lockdown restrictions and social distancing rules, our employees have not been able to do many of the activities we typically do for society. As soon as the social distancing measures are relieved, we will scale up again. As we focus on sustainable long-term value creation for all stakeholders, we are very pleased with the recognition in ESG benchmarks. Sustainalytics assigned ASR 10 points in its ESG risk rating, which makes us today the worldwide leader in our industry. In addition to being included in the Dow Jones Sustainability World Index, is a welcoming recognition. Let me now highlight some key developments and achievements in executing our business strategy on slide number four. Some business developments I would like to highlight. The non-live business is performing very well with strong organic growth, positive developments in our reintegration company and a successful conversion to a new IT platform within our commercial P&C business. In the life department, we delivered on creating synergies by reducing the number of applications and converting the systems to a software as a service platform. In April this year, we have decided on centralizing and modernizing our main pension IT system to Keylane's software-as-a-service platform Plexus, which, by the way, is the same provider as where our individual life business already is. With this, ASR takes an important step in the preparation for the national pension reforms, which will be fully effective from the 1st of Jan, 2026. Furthermore, we achieved good revenue growth in the Werknemerspension, which was up 31% in the first half and transferred the pension scheme of our own employees from a DB to a DC scheme. Our fee-based businesses are also doing very well. Third-party assets under management have increased by 1.5 billion to 25.8 billion, mainly driven by growth in the mortgage fund and the pension DC funds. Our mortgage origination amounted 2.6 billion in the first half of 2021 on track to exceed last year's production of 4.6 billion. And lastly, we now have fully finished the divestments we set out at our CMD of 2018 and therefore have no current divestments. Now let's move to slide five to elaborate a little bit on our non-life result. A record first half in non-life with our operating result increasing to 179 million, driven by an improvement of claims in disability and strong organic growth in all product lines. In disability, we have seen considerable improvement also in sickness leave despite some reserve strengthening driven by the adverse trend in absenteeism from stress and burnouts. We have started a new campaign to make people more aware of these risks. Also, we have invested in our reintegration service, which aims to help both in prevention and reintegration. And as you can see in the numbers, that worked out quite well over the first half. P&C saw a favorable claims experience partially offset by a one-off reserve strengthening related to motor vehicle liability, including a lowering of the actuarial interest rate related to a recent court ruling. Weather-related calamities were on a low level in the first six months of this year. We currently estimate the impact from the floods in the beginning of Q3 in Limburg, somewhere between 20 and 30 million, and this will be included in the results for the second half of this year. Combined ratio improved by 2.6 points to 90.2 for P&C and disability combined. beating the target of 94 to 96, excluding COVID-19 related effects, the combined ratio as said is 94.1 compared to the 94.5 in H1 last year, and therefore at the lower end of our target range. Organic growth in GWP in disability and PNC amounted to 5.2 above our target of 3 to 5 per annum. And finally, the increase in health gross written premium of 43% reflects the commercial success of the benefit in current insurance product, which we launched at the end of 2019, and a non-recurring premium that was received from the Health Insurance Act. So let's talk about our life business at slide number six. Some highlights to mention on our life segment here. Operating results of the life segment increased by 18 million to 379. with a less negative impact of COVID-19 amounting to a negative of $13 million compared to a negative of $25 million last year. The increase in operating result is mostly driven by a higher investment margin reflecting the recovery of the financial markets with higher dividend income, re-risking benefits on a lower required interest due to the runoff of higher guarantees in the life book. Gross written premium of our live business fell by 8% to 928. This is due to different impacts within our pension scheme, a non-recurring single premium paid in the first half of 2020, as well as timing differences in premium income related to the transition from DB to DC, which will show a catch up in the second half of the year. At the same time, we achieved good growth in our pension DC product, which saw an increase in premiums of 31% to 342 million over the first half. Furthermore, our cost efficiency improved to 42 bps as share of the basic nominal provision, which is below our target range for 2021. This is driven by lower costs through efficiency from earlier conversions and lower operating expenses in addition to a higher nominal provision due to the strong inflow in DC. Let's now turn to slide seven for the other segments. The operating result on the two fee generating segments, asset management and distribution and services combined amounts 34 million up from 28 million in the first half of last year. So a growth of 21%. This confirms that we are running comfortably ahead of the medium-term target for 2021 of 5% growth per annum. Asset management results improved by 3 million, which was driven by continued growth in the mortgage fund and to a lesser extent to the growth in the DC pension product. Operating results of the distribution and services segment increased 3 million euro, mainly driven by small acquisitions and organic growth due to the expansion of services provided. Operating result of the holding amounted to a minus 56 million as already announced at full year 2020. This is mainly due to the fact that as of the beginning of this year, our pension plan for ASR employees moved to a DC product resulting in lower costs. So now let's turn to slide number eight about our capital management. I'm always keen to show this slide as it displays our strong discipline and track record in offering attractive returns to our shareholders. This half year, we announced an interim dividend per share of 82 euro cents and an increase of almost 8% compared to the interim dividend of 76 at the half year 2020. and equals 40% of the regular dividend over 2020 in line with our dividend policy. Since our IPO in 2016, we have been committed to offering shareholders attractive returns in dividends and supplemented by share buybacks. During this period, ASR showed growth in DPS of over 12% per year and returned around 1.7 billion euros of capital to our shareholders. This roughly equals 38% of our market cap at June 30. We continue to allocate our capital in a rational manner, as we have shown in the past, with a strong balance sheet and robust solvency position. Having said that, I will wrap up after, and Annemiek has told you through all the solvency numbers and the OCC numbers, so I'm happy to hand over to you, Annemiek.

Thanks, Jos. Let's turn to slide 10 then for stock solvency. As you can see, our solvency ratio remained very robust at 197%, which, as you all know, is based on a standard model. This figure includes the interim dividend of $111 million, as well as the buyback we executed earlier this year. It also absorbs the further U of R decline of 4 percentage points. Unrestricted PO1 capital represents 74% of our own funds, and hence we continue to have ample headroom available within the Solvency II Framework. We have around a billion of restricted tier 1 and over 500 million in tier 2 and 3 headroom, as you can see. SCR decreased by around 28 million, primarily driven by the decrease in insurance risk for life and health due to higher interest rates. Let's turn to flow on page 11. Obviously, we started the year at 199%. and lost around 1 percentage points from the impact of acquisitions, mainly related to the brand new day IORP acquisition. OCC came in very strong with 372 million or 9% points in solvency, driven by strong business capital generation in all segments and nonetheless specifically. And I'll talk about the OCC in more detail on the next slide later on. The minus 5% for market and operational developments includes the impact of the lowering of the U of R with around 4% points, and the other market and operational developments are roughly offsetting each other with some positive impact from interest rates and spread movements, as well as real estate valuations being offset by negative impacts from a lower VA, some NIA adjustments, and the impact of rising equity markets due to the equity dampener. Before capital distribution, our solvency stood at 202%, and after deducting the interim dividend and share buyback we executed in H1, we get 297%. Now onto slide 12 for some detail on the OCC. As said, the OCC came in at 372, which is an increase of 25%, or 74 million compared to the first half of last year. which is mainly driven by a strong increase in business capital generation, which added 58 million versus H1 last year. The increase in business capital generation was primarily driven by improved performance in the non-life segment and higher access returns. Within non-life, we saw a larger positive contribution from COVID than last year. However, this was largely offset by additional reserve strengthening you already mentioned. Underlying, we really saw a better performance of both P&C and disability, for disability specifically in sickness, better operating performance, as well as the impact of repricing and disability. The higher access returns were driven by re-risking, mainly by increased exposure in mortgages and partly in other illiquid credits, and an increase in equity in real estate valuations. The increase in capital release was mainly driven by SCR release due to interest rate movements. Now please bear in mind that in the second half of the year, we always absorb an additional new business strain from renewals in our disability business and to a lesser extent in our health business. H2 last year, this led to hardly any capital release, for instance. Interest rates in the first half of the year went up, which almost fully absorbed the negative U of R echo from last year, hence a flat technical movement as you can see on the slide. Given the result in H1, we're obviously very comfortable in achieving our target of 500 million OCC at the end of this year. As mentioned before, you can't just take H1 OCC and multiply that by two for the full year. Given the new business range seasonality, we typically have an H2, and given the strong non-life result in H1. It would probably be more appropriate to take H2 of 2020 as a base, and the 200 million we had in the second half of last year, and adjust that for current circumstances like lower rates and the impact from the July flooding. And then obviously it depends a bit on what will happen with COVID for the remainder of the year, et cetera, and obviously where interest rates would go. All in all, very strong OCC, improved underlying performance in non-life, higher investment returns, as well as a benefit from COVID, and us being quite comfortable obviously on the full year guidance for OCC. Now let's go to slide 13 for a few words on balance sheet. Balance sheet remains very strong. As said, we have ample financial flexibility. Financial leverage decreased by 2% points to 26.3 due to an increase in equity. Interest coverage increased as well, mostly due to the improved IRS results, and RSMP rating was confirmed in June. On liquidity, on slide 14, holding liquidity ended at 456 million, which is in line with our policy of maintaining capital at the operating companies, and upstream cash to cover dividends, coupons, and holding expenses for the current year. Last year, due to the COVID uncertainties, we didn't remit from the non-live entity, and this year we've remitted 73 million from the non-live entity. and 251 million from live, with the remaining 32 million coming from other segments. Our debt maturity profile, as you can see, is very robust with the next maturity date in 2024. Solvency group we already discussed, robust at 197%. Ratios for non-live and live entities are 166 and 188, respectively, after remittance, and both are well above our targets of 150 and 160%, respectively. And with that, I'd like to hand it back to Jos.

Thank you, Annemiek. And to conclude, ASR remains in a very strong position and has delivered a very strong performance in the first half of 2021, which we're generally proud of. Looking ahead, we are positive about the commercial and operational outlook for ASR in the second half of 2021 and delivering on our 2021 targets. Now I guess you'll be looking how to arrive at a sensible full year estimate. In doing so, I should caution you to not multiply the outstanding performance of the first half by two. I guess a reasonable starting point for your analysis would be to look at the operating result of the second half of last year being 40. having said this, kindly invite you to our investor update, which is scheduled for the 7th of December, where we will elaborate on our new medium term strategy, including an update on our financial and non-financial targets. Ladies and gentlemen, this concludes the presentation of Annemiek and myself, and we are very happy to take your questions now.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. Please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. Again, to ask a question, please signal by pressing star 1. We'll now take our first question from Corey Cluse. Please go ahead.

Hello, good morning.

Congratulations with the results, obviously. I've got a couple of questions. First of all, on disability insurance, where you had a better combined ratio than expected of 92.1% in age one. Could you help us a little bit to give an idea of the trend, how that went through the first half of the year? Probably in the beginning it was somewhat higher combined ratios and then gradually it probably came down, improved to a lower level. How is that trend, and is that continuing in July and August after, in the post-COVID period? So that's on disability combined ratio improvement. Second question is also about non-life. We see that health premiums went up, I think, by 44%, quite still. I think in the past you always mentioned cross-selling is important. Combined ratios are now great, actually, in this business line. How do you feel about the profitability going forward, and in which product lines are you growing? Because that deviates a little bit from the growth trend that we have seen in the past. And then a question about the OCC, especially the U of R drag going forward. I did some back-of-the-envelope calculations, but maybe you can help us a little bit through it. But I think in H1, the U of R drag was minus... 2 million, I would say, for H2, including the adjustment for H1. I think it's minus 120. And for next year, I would say, if rates would not change, minus 220. But maybe you can help us through that a little bit. And the last question is about M&A. Of course, you cannot comment too much about it, but during COVID, it was somewhat more difficult probably to enter in such kind of talks. Any comments on that would be appreciated because since the IPO, ASR always have been quite good in doing acquisitions, but is it easier now? Those kinds of questions. Those are my questions. Thank you.

Okay. Thank you, Cor. I think the question on disability and on life, I will take like M&A and OCC will be covered by Annemiek. On disability, where does the increase in results come from and what is the trend? Well, a couple of things. First of all, we significantly increased premiums in sickness leave for the first of again recently, and also we've seen a premium increase in individual disability for new customers, so that was helpful. Secondly, in the first half last year we weren't able to do the things necessary to help people to return to work and already in the second half that we were able to pick up again and that continued in the first half even despite the lockdowns we had to deal with. without already projecting the full year result, but the positive vibe in the disability business, which we have seen in the first half, seems to continue. So the negative result on sickness leave, which we had last year, probably will not be the case in the full year this year, as far as we can judge today. The positive trend started in the last half of last year, seems to continue going forward. On non-life, on health, the growth in health, we are happy with that. We're steering this business on very strict targets in terms of combined ratio. And as far as we are able to judge now, this business line will be able to deliver on the combined ratio targets. And health for us has become more important because of the connection with disability. And as you may have noticed, we've seen significant growth in disability over the first half, but also last year. And that's partially related to the fact that we offer combined products between health and disability. And part of your question was where do you see the growth going forward? I think we aim at continuing the growth as we have seen in the first half, so in Pension DC, P&C, and disability. So the main growth drivers should come from those business lines. And maybe Annemiek, you can elaborate a little bit on OCC, and I will come back on M&A.

Yeah. Cor, the calculation that you made on high-level U of R drag, that seems about right to us. And probably, you know, to give a bit of a sensitivity figure, I think we also provided that last year. You know, if interest rates, compared to the June 30 figures that we presented, if interest rates go down by around 50 bps, we would lose around 55 million in OCC, which is basically driven by a plus 70 in U of R and partly mitigated by a bit higher capital release. Now, with interest rates not having gone down 50, but around 30 bps, your U of R drag estimate is about right. Thank you.

And Cor, on M&A, you rightfully said that we've done lots of M&A transactions, actually 15 over the last couple of years. It is still part of our strategy. 2020 ended up being difficult to start conversations with potential targets. And as we all know, there are more possibilities to meet people again. So it remains an important part of our strategy, and we are aiming at possibilities, but it's always difficult to give any comment whether we are having conversations right now or we are looking forward to have a conversation. But you can be assured it is an important part of our strategy also going forward.

Thank you very much. Very clear.

Andrew Baker, please go ahead. Your line is open.

Great. Thanks for taking my questions. So three from me, please. The first one is just on the non-life business. Let's see, there was a net COVID benefit in the first half, about 68 million. Just curious how you are thinking about that developing in the second half. And then just secondly, again, back to M&A, I guess, how rational are you seeing the pricing of deals right now, especially as we recently saw one of your peers, I guess, accept a lower return on a distribution business, which presumably was a business that you were also looking at? And then finally, just in terms of sort of capital deployment, obviously your solvency is in excess of your threshold for additional capital distribution. Your capital generation has been strong. So just curious how you're thinking right now about your, I guess, preference and likelihood of M&A versus buyback in the near term for that excess capital.

Thank you. Well, on your non-life question, it's To be honest, it's difficult to predict. It is our feeling that, and if we look at, for example, traffic in the Netherlands, I think it has roughly returned to quite normal. So one could argue that the benefit from a lower traffic level will disappear in the second half. On the other hand, more people keep on working from home. For example, ASR now has decided that our employees have to come to the office at least two days per week. So that would mean that they are allowed to work from home for the other two or three days. So there is also an argument that traffic will remain a bit lower. than it has been in the past. We don't know yet whether we can put a number on that, but I think there are arguments to expect that the pressure on Dutch traffic will be lower going forward, and whether that will result in significant numbers in the results, because on the other hand, we do see more pressure on bodily injury claims, and whether that will level out or at the end of the day will be a positive. is to be seen, but we're following on that, of course. It's also important for the 7th of December where we have to set new targets on our combined ratio, for example, and those kind of questions are taken into account in all the discussions we're having on the new targets going forward. On your question, how rational we remain in terms of M&A, especially in the distribution area, of course, we have seen the decision of one of our beloved competitors. You can imagine that we have looked at the same opportunity. And from our perspective, it was difficult to meet our hurdles. And that is probably the reason that we then didn't end up being the buyer. On the other hand, we can imagine the decision of the management of our competitor. We already started a couple of years ago to build a strong distribution franchise. They, however, hadn't any significant distribution franchise, so probably they looked at our strategy and are happy to copy this part of our strategy, and then you have to make a significant investment to pick up. So from a rational point, from an investment point of view, I think it's a tough decision, but from a competitive point of view, I can imagine.

And then your question on excess capital, let me kind of break it down and first focus on this year. As you know, we have a dividend policy that also includes a payout ratio of at the minimum 45%. As you can judge by our stories today, we're quite bullish on the full year operating result. And hence, I wouldn't rule out a very healthy dividend to come out of that based on that 45% payout ratio. In addition, we also said that provided that solvency ratio will be above 180%, We will also continue with the buyback program, which is still scheduled for one year ahead. And I won that solvency. Obviously, rates have come down since June, since we reported 197. VA has come down a bit as well. So, you know, there will be some pressure just from market movements on solvency. We'll obviously dividend out quite a healthy chunk. But all in all, we remain comfortable that we can also perform the buyback as set. So for this year, I think we're looking at a healthy capital return from our perspective. Now, going forward and on what level we'll base a capital return on how to deal with the quality of the underlying earnings. As this year, we obviously have the COVID benefit in there, et cetera. What will happen with the buyback program? That's all a topic that's scheduled to be discussed on the 7th of December. But for this year, I think we're quite confident with the capital returns.

Great. Thank you very much, both of you.

Michel Hüttner, please go ahead. Your line is open. Michael Hüttner, please go ahead. Your line is open. Fantastic. Can you hear me?

Yes? Yes. Hello. Fantastic. Thank you so much. Congratulations. Fantastic numbers. I had three questions. The first one is you mentioned some reserving on merchant liability and I just wondered if you could maybe explain a little bit if there's any concerns or what the trends are here. I know you mentioned it a little bit. The second is you focus a lot on the capital strength. I think it's normal because I follow other companies and I get confused, but you seem to have one and a half billion of headroom if you wish to do a deal. Here my question is with one and a half billion of headroom, how much business can that buy? How big a portfolio can you buy? I don't know if you can answer that in any way because I suppose the question is a bit vague. And then your mark of 10 on ESC sounds like an amazing gold medal kind of Olympic score. What does it actually mean in terms of, you know, I mean, it's wonderful to be green and everything, but what does it mean in terms of benefit to you in terms of how investors perceive you or your customers or your employees. Is it a real topic of conversation? Does it bring stuff or is it kind of just a nice thing to have which people just take? Thank you.

Thanks for all your questions. Let me start with the additional reserving that we did on the P&C side. It's It's really driven, it's really related to the motor and vehicle liability. There was one ruling where basically the actuarial interest rate is set to also possibly become negative. So in our reserving, we have to take care of that negative actuarial interest rate, which led to some additions. And also in terms of bodily injury, we see lots of You know, people jumping into that market, the claims tend to drag along a bit longer. And it's an area that the Dutch industry for the last couple of years really had to take some additional reserve strengthening to deal with that part. I think we're fully there now on the old years, et cetera. And quite frankly, this year also provided a very good reputational opportunity to definitely look at that reserve strengthening. In terms of headroom, one and a half billion, it's not cumulative. If you do one tiering, you add a bit, then you have less room on the other tiering. So it's not necessarily cumulative. And what you can buy for it obviously depends on the price. Multiples on the distribution side of business tends to be a bit higher than obviously multiples on, for instance, a lifebook. On the other end, a lifebook requires a lot more capital. So it really depends on the opportunity that you're looking at. I think in general it's fair to say that if we see a very attractive opportunity, we would have ample room to transact on it either by our current solvency or by actually using a bit of the headroom that we have there. And in addition to that, there are some other ways that we could create some more headroom in our capital structure, for instance, by longevity transactions, et cetera. So we're in a comfortable position to have that headroom to support either inorganic or organic growth.

And on your last question on – oh, sorry. Go ahead, Michael.

No, no, no. You're so kind. You're so interrupting. But is it big enough that you can buy out the agon business?

It depends on the price Lart is going to ask for it.

If we could buy it out with this headroom, we would definitely like to have a conversation with Lart.

Okay.

And I think our shareholders would welcome that as well.

On your last question on the 10 points on the ESG at Sustainalytics, The way Sustainalytics looks at those kind of ratings is they try to give a weight on the risk that companies run from a climate change perspective. They take into account the governance of a company, the portfolio of a company, the assets that are owned by the company, etc. And the lower the number, the higher the score. So we were quite proud and happy with the outcome that we ended up at this moment in time being the number one of all insurance companies worldwide. And how important is it to us? When we IPO'd ASR, we already said we want to become the most sustainable insurance company in the Netherlands. And I think by now, different ratings prove that we are the most sustainable company from our own, the way we run our buildings, et cetera, but also from a portfolio and business perspective. In the first couple of years after the IPO, nobody discussed it. It wasn't important. It wasn't important for investors. But over time, and also given the recent new reportings on climate, it is becoming increasingly important. On the other hand, already a couple of years even before the IPO, employees and customers do care about the profile of a company. Actually, it is for us in a difficult labor market increasingly simple to find people, not on every people need we do have, but because of the profile we have in the Netherlands as a sustainable company, especially young people, love to work for sustainable companies. And also our customers, for example, in the pension DC business, we see increasingly companies saying, well, we only want that the premium we pay will be invested on a sustainable way. And then it is very helpful that there is independent proof from outside ASR that ASR is this sustainable company. We're not only proud, but it is helping us in the business growth. And as you have seen, 31% growth in Pension DC over the first half. That is also driven by our profile as being the most sustainable company. Same happened in health. We've done a couple of surveys why young people have chosen to take health insurance at ASR. And the main answer is because you are a sustainable company. So it's helping the business also.

Yeah, and to add to that, it helps on the DC side, but also on the asset management business side, as you said, because as you know, we have around 26 billion that we manage there for third parties. And that's really, we manage it for smaller Dutch pension funds, for Dutch insurance companies, and a lot of semi-government. And the niche that we're active there in is really ESG, asides Dutch mortgages and Dutch real estate. And there, the ESG profile needs to be sincere, and it's definitely a selling item. Also with the increasing number of more American-oriented investment companies in the Netherlands.

That helps a lot. Fantastic. Thank you.

Benoit, please go ahead. Your line is open.

The first one is on the very strong non-life 94% combined ratio ex-COVID. And it's probably around the 91, 92% adjusting for the reserve strengthening you have done. So it's kind of 91, 92% a clean figure for you in H1. And, you know, How did you kind of determine the COVID benefit you've guided for? Because it could be even potentially a bit more benefit actually in H1 from COVID looking at the 91, 92% level. And how do you think about kind of reconciling the 91, 92 to the 94, 96% targeted? I think there's a pretty large gap there. Then looking at the asset management strategy, we have seen a big disposal from NN, How do you look at your strategy? I know you are more of a niche player, but scale is also important and you have 25 billion third-party assets. How do you think about asset management going forward? Could Axiom, for example, be a target for you? Or how do you think about M&A around asset management? And then the final one is on the excess investment return looking into H2. We have seen further spread tightening, a bit of widening on mortgages. But how do you see your investment returns moving in the second part of the year? Can you maintain the H1 level or do you see a bit of pressure? And linked to that, where are you on the re-risking as well? Thank you.

Thanks, Benoit. Annemiek will talk you through the second and the third question. On your first question, If I listen carefully, it's also asking how will going forward the combined ratio target look like. As you know, on the 7th of December, we will talk about strategy and targets going forward. For the moment, we are comfortable with the 94 and 96. target, and if we take out all the so-called benefits from COVID, we're now at the lower end of the target as we have currently. When we introduced this target, we always have said in a year we don't see hardly any weather-related claims, etc. We aim at 94 in years where we do see average weather-related claims, et cetera, we might be more closely to 96. You should take into account that in the first half, there were no weather-related claims. And in the second half, as you may know, we will have weather-related claims, the roughly 20 to 30 million. But in our projections, we always do assume a certain amount of weather-related claims. So we think we can be comfortable that we also, for this year, if nothing strange is going to happen for the remainder of the year, that we are able to meet, excluding COVID, the lower end of the 94 of the combined ratio. And how that will translate into targets for the future. That will be discussed on the 7th of December, if you are okay with that.

To get to your point on asset management, obviously we've also seen the news of NNIP. And if we look at our own asset management business, a couple of things to note there. I think for us, given the size that we have, to actually have the knowledge that's on the that's really combining the knowledge of asset management and how to deal with solvency is very beneficial for us. And it's a knowledge that we would like to keep in-house. Obviously, we will only keep that in-house if we can deliver that on an efficient basis. And each year, we review the efficiency of our asset management business. We take on board some studies. Last year, we did it with BCG. We compare it with other captive affiliates And I have to say, we score very well in terms of efficiency. So the actual cost benefit of outsourcing our asset management business is going to be very limited, we expect. In addition to that, it's a sustainable kind of low capital consuming fee business, obviously, that we have with the 26 billion of external party assets under management. And it's really niche focused. Out of the $26 billion, the majority is really for Dutch mortgages, Dutch real estate, which is also a business that we would like to have for our own investment portfolio. So keeping that fee business, keeping the relatively so far sustainable level of growth that we see in there, keeping the knowledge inside and being able to do that in a cost-efficient way for us now is a reason to keep the asset management business within ASR. Could there be opportunities on the M&A side, potentially, but I think it would be more related to, you know, getting some people or some fund managers or some group of people stepping over to us, like we've also done last year from another asset manager to increase our experience a bit in the liquid credits. So I would expect it to be more on that side rather than for us to go and acquire other smaller size asset management businesses. In terms of the investment return, if you look at the OCC, first half year the investment return increased. It was a combination of effects that we saw on there. Obviously, there was a negative impact from the decreasing spreads, but that was kind of offset by the VA, which also decreases, which has a positive impact on the OCC excess returns. So if you adjust for that, then the real increase comes from the equity increase. The value just increased, and over that value, you just take the, obviously, 6.6% return, as well as the additions that we did to our mortgage book. Net, we added close to 800 million of mortgages in terms of re-risking. and that 800 million addition kind of more than covered for the decrease in spreads that we've seen on the mortgage business. We also added a bit of structured finance and private loans, and we expect to continue that re-risking and add, I think, a full year. We said that we aim to add around 1.3 billion net of mortgages. We're still on track to deliver that, and we're looking to add around 2 billion in total for this year, being part commitment and part actual invested into private loans and structured finance. Now, whether that ultimately will yield additional access returns also obviously depends a bit on where spreads are going, where equity prices are going, and where interest rate is going.

Great. Thank you very much for that.

Robin van den Broek, please go ahead. Your line is open.

Yes, good morning, everybody. Thank you for taking my questions. I guess more follow-up on questions already asked. I mean, the first one on access spread, just directionally thinking, I guess we should see a positive net impact on the back of today's visibility other than the UFO drag. Is that correct? Do I summarize that correctly from your answer just now? And secondly, maybe Joost, more for you, and I appreciate you probably want to keep most of this reserved for the 7th of December, but just directionally on the combined operating ratio targets, it feels that the consolidation in the market, mostly done by your big competitor in the Netherlands, it does feel like the pricing dynamics have become more disciplined, so directionally speaking, we could be expecting better command-opening ratios for the entire industry, maybe on the back of that. And second to that, it also seems that the narrative on travel could be a bit more positive compared to the targets you've set out in this management plan. So maybe just directionally thinking whether that's right. And lastly, just a small question. I noticed that the gross premium in life is down quite considerably year on year. I think in the presentation you flagged the timing issues, but can you just confirm that when you look at 2021 versus 2020, you're not expecting a big drop there? Thank you.

I think the first one was for Annemiek.

Yeah, there was a follow-up on the excess spread. I mean, Robin, it's hard to guess what will happen, obviously, in H2, other than the U of R drag, which, you know, based on current interest rates, that's relatively easy to deduct if rates wouldn't move. So far, it's looking good, but it's really dependent on what equity prices will do, because that will drive the kind of value of equity on which we put the excess return, as well as the development on mortgage spreads. If they would continue to come down a bit further and we generate additional mortgages, then maybe we can net it out. If spreads improve a bit on mortgages, then potentially there could be a bit of more excess return coming out of there.

Okay, then on your second question, you actually already gave the answer in your question that I... Would love to answer this on the 7th of December. But in general, what we do see in the market, yes, there is more pricing discipline. And over the last five years, I think ASR has been significantly ahead of competition in terms of managing the non-live business. And as you can imagine, also going forward, we want to be the leading provider of non-live business and we would have difficulties to give up our leading position, and that will be taken into account in the discussion on what will be the combined ratio targets going forward. So we will definitely take into account that we have been the leading party over the last couple of years, that there is more discipline in the area of non-life than ever before, And the difficult part will be projecting what will happen with traffic in the Netherlands now more companies allow their employees to work from home. So all those factors will be taken into account and the winning number will be presented on the 7th of December. On your last question, the GWP in life, I already mentioned it in the introduction. The main reason that it looks like a big drop is the one-off we had last year in the first half on our own pension contract. Timing differences, if you want to predict it for the full year, I would take a look at page 35 in the presentation where we show the runoff of the live book And our best guess for this year is that the winning number at the end of the year will be roughly in line with the general runoff of the Livebook, which is 2.7% per annum.

That's very clear. Thank you very much.

Pauline Liang, please go ahead. Your line is open.

Hello, thank you. Given the time, I'm just getting two questions. The first one is the re-risking. So you are re-risking your assets to get the higher spread. I just wonder actually how much of the first half kind of OCC is from your re-risking and how much we should expect? going forward because it just said that you're going to continue and doing the re-risking. So that's one thing. And then secondly, is the talking about M&A headrooms. You just mentioned about longevity hedge to increase your headrooms. I'm just wondering, I guess, two questions. The first one, what are the other kind of possibilities? For example, would you consider, like, selling your asset management business to raise funds, and would you consider actually raising funds from the shareholders or from the markets to execute that? And also, how quickly, actually, if you want to do, like, longevity hedge, you want to raise funds, how quickly, actually, you can ramp up the headrooms for large M&As? Thank you.

Thanks, Fanon. In terms of re-risking, as I said, what we've done last year is around, close to the last half year, around 800 million of mortgages we added. We also shifted a bit within credits where we reduced certain credits at the expense of adding close to 500 million into illiquids, and we reduced a bit our sovereign portfolio. Now, I think the total re-risking probably added around 7 million of our OCC in H1. It goes gradually and obviously also specifically on the mortgage side kind of depends on the spread development, how much we would make out of that in the second half of the year. But let's say that in a total you could just multiply that and we're still as we said at full year expect to generate versus last year in total around 15 million more, 1.5 million more OCC this year based on the re-risking that we're doing. Now in terms of headroom, as I just said in response to the question raised earlier on asset management, we don't anticipate selling the asset management. That's definitely not on the table now. We wouldn't expect any proceeds from there. The headroom in Tier 1, Tier 2, 3, that's relatively easily and readily available. We're ready to go there. Longevity is something that we always look at, and given the fact that we're still awaiting the final language on the AOPA review, specifically surrounding the DVA, because that actual language on DVA and how that's incorporated, it kind of triggers the attractiveness of either moving to a PIM or not. We really want to have that in place, but if we were to do a longevity transaction, longevity reinsurance rate, we would like to have a pickup clause in there, just in case we would move to a PIM in the future, we would kind of not have given away part of the benefit already and paid for that. So including a breakup clause, it would be kind of mid-single digits. the positive impact of a longevity transaction, which would probably take us around a year or something to execute. So headroom, easily available, longevity would take around half a year, a year to execute such a transaction. Obviously, if we were thinking about moving to a PIM that has a longer lead time, that would take from the point when you take the decision, it would take around three years to get that done. And that's not only to build the model, but that's really related to the supervisory project that you would have to go through and the use test that you would have to demonstrate, et cetera.

Thank you. Sorry, just a follow-up on the headroom of raising capital. Would it be possible if you want to raise equities more than debt?

I think it would also be possible, but it would always be possible, but it kind of depends on the story that you raise the equity for, right? It depends on the compellingness of the nature we can then offer to our shareholders of the reason why we're going to raise that equity. And in the absence of any significant large M&A trades, as we currently see there, there would definitely be no need to raise equities. Thank you.

Steven Heywood, please go ahead. Your line is open.

Good morning. Thank you very much. On your OCC, you've obviously given some very helpful guidance, and the first half beat was very notable. And it looks like you're heading towards a 550 million OCC for 2021 if you take the second half of 2020 and deduct the flood losses. Is there anything additional? that I should be thinking about when looking at that 550 million starting point for the full year on OCC and where should we be thinking about going forwards for 2022 and beyond. Obviously, loan UFR likely helps raise the OCC and the non-life business is growing, but how much of the life business runoff offsets this growth in OCC Secondly, from me, I was on the operating result for 2021, and obviously you said it's a significant increase, and again, you can do the math to get through to a sort of 950 million pre-tax operating result for the first half. But is there, you know, this encompasses the first half result and the second half of 2020 to get to 950 for 2021, after the the floods again. Is there anything else? Obviously, similar question to the first question on the OCC, but is there anything else that we should be thinking about the progression in 2021? And related to this, you've highlighted that it should be a healthy dividend for the year. My question is more about thoughts behind the dividend policy, and have you thought potentially about moving to a progressive DPS policy rather than a payout ratio Thank you very much.

All right. To start off with your last point, obviously, I can understand the question of including a very positive year, including COVID benefits to then prop the payout and move to progressive nature of the dividend. But that's a topic we definitely have on the agenda on the 7th of December. So that's too early to allude to that now. And for now, we just focus on this year's outlook. In terms of OCC, the 550 target is your target that you just mentioned. I think what we've said on the OCC is for H2, indeed, look at last year's H2, which was around 200 million, deduct the U of R impact, I would say roughly is around 15 million as of today. And then also look at some of the COVID impacts that we have in there as well. and especially look at the flooding that's still expected to come. So if you deduct for the U of R of around 15, if you deduct for the floods, let's take the midpoint, do that post-tax, you deduct another 20, you end at around 165, and then it's obviously a question how much positive cohort benefit will still be in there and will probably have some additional benefit of risking, as I just said. So that's a bit the outset that we, the layout that we have for this year on COVID. If you then, and then on the 7th of December, we'll talk a bit more about what the underlying nature and what the predictions on OCC is going forward is going to be. Similar goes a bit to to the operating result outset, where we've also said just take last year, you know, last year H2, could be some positive impact from COVID coming. We obviously have some underlying business improvements, but as far as we can judge now, there will be 20 to 30 million of the floods. You know, adjust for that, you may end up net around the same number of last year, depending on the COVID situation in the second half of the year. you get too close to a billion. That's kind of the math that we're doing, and I guess you're doing here as well. And with that, I think if you compare it to last year, we would consider that a favorable improvement.

Okay, great.

Thank you.

As a reminder, to ask a question at this time, please signal by pressing star 1.

Okay, I understand there are no questions. So I think this is a record in terms of how long our calls take normally. I think Annemiek and myself have reduced the introduction a little bit, so it was very helpful to end up this call within an hour. Thanks for joining us. As said, we are proud on the results we delivered, not only in financial perspective, but on other points we have talked about today. Thank you for joining. We had hoped to start traveling as from tonight. That will not be the case. So hopefully the full year numbers will allow us to travel or even the update of the 7th of December. Michel, Annemiek and myself are looking forward to meet you in person again. and to talk about ASR and results. And having said that, for those who are still on holidays, we do wish a pleasant continuation of the holidays, and for those who started working again, have fun.

Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.