ASR Nederland N.V.

Good morning, ladies and gentlemen. Thank you for joining us today. Welcome to the Azar conference call on our full year results 2022. Now on the call today with me are Jos Baat, our CEO, and Ewald Woldegien, our CFO. And Jos will kick it off with highlights of the financial results. He will also give a brief update on where we stand with the ACON transaction and discuss the business performance. Then Ewout will talk about the developments of our capital and solvency position. And after that, we'll open up for Q&A. Now, as usual, please do review the disclaimer that we have in the back of the presentation on any forward-looking statements. And having said that, Jos, the floor is yours.

Thanks, Michel. And good morning, everyone. Hope everyone is doing well. I'm sure you all agree that 2022 was a very special year for ASR. Not in the least because it's another year in which we have been able to demonstrate strong financial and operational performance, but also a special year because of the acceleration of our strategy with the announcement of the business combination with Aegon Netherlands. It's truly a unique opportunity to create a leading insurance company in the Netherlands. So let's turn to slide two for the financial highlights of 2022. and I'm sure you have been able to review the presentation this morning already, so let me just briefly discuss the key achievements. Operating results improved with 3% to 1 billion 39 million, a new record for ASR, and it was driven by strong business performance across the organization. Our organic capital creation is up by 10% to 653 million. Quite happy with this growth, in business capital generation as this increase underscores the strong business performance. Higher interest rates led to a significant decline in the U of R drag. At the same time, we also experienced lower net capital release, partially reflecting the higher new business strain and higher rates. The combined ratio of P&C and disability together amounted 91.7, well ahead of our target of 93 to 95. This is including the impact of the normalization of claims due to more increased traffic and travel intensity in P&C post-COVID lockdown measures, the impact of February storms, and also improved underwriting levels in individual disability and sickness leave. Our continued strong commercial momentum in the second half of the year, resulting in an organic growth of 9.1% for P&C and disability for the full year and 21% premium growth in our pension DC product, Werknemerspension, and in addition, 400 million of net inflow in assets under management from our DC product, Doonpension. Our operating return on equity at 12.8 is somewhat lower due to the 0.6 billion share issues for the financing of the Aegon Netherlands transaction, and still in our target range. Excluding the share issue, the operating return on equity would have been 13.5. Our solvency stood at 222 percent after interim dividend and including the issues of new shares. Ewout will elaborate further on currency and the OCC later on. In October, we already announced the step up of almost 12 percent in dividends to 270 per share, reflecting our strong business performance and confidence in the Agon NL transaction. So let's go to slide three and have a look how we are progressing against the medium-term targets. So 2022 was the first year for us to deliver against the medium-term targets up to 2024, and I think we did well, both on the core group targets and on the various business targets. The targets are set such that we aim to run the company on the basis of a robust balance sheet with capital available to invest in profitable growth that yields good returns and allows us to offer shareholders attractive returns. On all counts, we have ticked the boxes in 2022. Notwithstanding the acquisition with Aegon Netherlands, which obviously will require a lot of our attention, Our business continue to focus on servicing our customers and intermediaries to add profitable business to our books, and I believe we are well on track to deliver on these targets going forward. The transaction with Aegon means that we will have to reset the various targets. We already guided that we think that the transaction will deliver an OCC of 1.3 billion in three years after completion of the transaction, and reflecting our confidence in merits of the transaction, we have upped our dividend ambition to mid to high single digit growth till 2025. After closing, we will aim for a smooth integration and I would expect us to be able to present new medium term targets for the combined entity after the publication of the full year results in Q1 2024. So let's have a quick look on how we are progressing on achieving our other objectives and our credentials in looking after the interests of all of our stakeholders, and that's on slide four. I'm very pleased with the progress we've realized last year in delivering sustainable value for all of our stakeholders. As an asset manager, we take our role as a sustainable investor seriously. We have ambitious goals in lowering our CO2 footprint a 65% reduction by 2030, a target we actually did achieve already in 2022, but this is partially driven by lower economic activity and lower CO2 exhausts from the companies we invest in due to the COVID-19 lockdowns and other restrictions. We believe this is partially a temporary impact. are also making good progress with our impact investments up to 2.8 billion by the end of 2022, where new investments amounting to 700 million in, for example, wind and solar farms, have been partially offset by lower valuations driven by higher interest rates. I'm very pleased to see our workforce engage with our mission and strategy, which is essential in delivering value to our customers. We are working towards improving the appreciation from our customers and aim to be above market average in 2024. In 2022, however, we moved in line with the overall market and experienced a slight deterioration in the NPSR. All in all, confident we will be able to achieve these targets. And as we show in the bottom half of this slide, we continue to receive very positive external recognition for our ESG profile from international indices and benchmarks, and I'm pleased to see that we rank among the best in sustainable value creation. Let's now move to slide five, a brief update on the progress we are making in relation to the Agon NL transaction. Since the announcement, we've been working closely with Aegon to fulfill the conditions for the completion of this transaction. Our shareholders, just as Aegon's, have voted almost unanimously in favor of the transaction at the EGMs in January. The financing of the cash consideration is largely in place. On top of the 500 million from our balance sheet, we raised already 0.6 billion through a share issue and one billion via a tier two issue. We are well on track for expected closing at the first of July this year. The request for declaration of no objection from D&B is progressing as planned and the request with the authority for consumers and markets has been filed in the meantime. In the meantime, we've already started with meetings with senior management of Aegon Netherlands on the preparation of the integration process and we have work streams in place for each different element of the integration. In addition, in line with our initial plan, the work on the implementation of the PIM has already started. Through the close collaboration, we have been able to validate our assumptions of the investment case and therefore confirming our cost synergy target of minimal 185 million. we are clearly committing to keeping you up to date on the progress we are making. Assuming the closing in July, we intend to provide an update on the integration of the business towards the end of this year. Probably we'll organize an investor update early December. With respect to the medium-term targets for the combined businesses, this will require a bit more time, and for now I would expect an update on that end of Q1, early Q2 in 2024. Let's turn to slide 6 to look at the business performance in our non-life segment. I'm pleased to see that our non-life operating result held up that well and went up by 3 million, driven by strong organic growth in P&C and disability and favorable claims experience in disability, which more than offset the decline in health, also absorbing higher claims due to the triple storm in Feb compared to last year. The impact of the storm is 39 million after reinsurance, roughly in line with our annual storm budget. Combined ratio for P&C and disability stood firm on 91.7 and is still ahead of the medium-term target of 93.95. In disability, favorable claim experience mainly in individual disability and sickness leave resulted in an improved combined ratio of 89.3. In P&C, the combined ratio increased with two percentage points to 93.9. This reflects the triple storm in February, increased number of large-sized claims and further normalization of claims. For instance, with increased traffic intensity, the underlying bulk claims ratio, however, really representing the bread and butter business of our company remained strong. Although this does not yet show a heavy impact from inflation, we are planning to increase prices during the year for P&C products to reflect the inventory environment. In health, the combined ratio increased due to adverse claims development and lower cost coverage. In addition, higher commercial expenses to support the growth in the health portfolio for 2023 are included in the 2022 combined ratio. If we would deduct that, that would bring the combined ratio slightly below 100. Organic growth of more than 9% in P&C and disability exceeding the target of 3 to 5 growth per annum and is driven by higher sales volumes and tariff adjustments. In addition, we landed a large collective disability contract through Loyalis, which is a nice proof point for our product proposition. So let's now go to slide seven and talk about the live business. Operating result of live segment increased 14 million to 768 million. The increased operating results reflects a higher technical result, partially offset by lower results on cost and investment margin. The higher technical result is mainly driven by higher mortality results. Non-recurring disability results related to including recovery assumptions in pension was offset by strengthening of unit link provisions as a result of lower equity markets and higher interest rates. The lower investment margin was impacted by additional provisioning in funeral to reflect CPI indexation within required interest that amounted to 25 million. And lower amortized realized gains due to higher interest rates, partially offset by higher indirect investment income, which increased due to the asset optimization and higher contribution from renewables. GWP increased by 3.1%, mainly due to the commercial success of our pension DC products, where premiums increased with 21%. The total assets under management of Pension DC also included our IORP increase with 0.3 billion to 5.4 billion. The net inflow was 1.3 billion, partially offset by negative market effects. And finally, our operating expenses expressed in amount of basis points of our life provision are up with three bips to 48 towards the upper end of our target range. This reflects higher operating expenses to support the ongoing transition in our pension business and a lower basic life provision. Let's now turn to slide eight for the other segments. Operating results of our fee business remain stable at 64 million. Operating result consists of two fee-generating segments, asset management and distribution and services. In asset management, the result increased with 8% to 39 million as a result of growth in assets under management in real estate and the acquisition of the consulting firm Sveco in March 2022. Total assets under management for third parties remained stable at 27.9%. as a result of a higher inflow in mortgage funds, real estate funds, and also the expansion of our IO business. This offsets the negative revaluation due to market impacts. Operating results for the DNS segment is 2 million lower, mainly due to an increase of operating expenses due to the further investments in the DNS holding strategy as we already mentioned at the investor update in 2021. Holding and other operating results improved with 11 million to minus 119, mainly due to the release of an employee-related provision. So this concludes the financial highlights and business overview, and I will now happy hand over to Ewout, who will discuss, amongst others, our solvency and capital generation.

Yes, thank you, Jos, and good morning to everyone on the call. Jos already mentioned that 2022 was a rather eventful year with large financial market developments, the announcement of the business combination with Aegel, but for the financials also the preparation for IFRS 17. Happy that I didn't knew this all before I said yes to this job by the end of 2021, because conversations would have been more difficult with my wife. So even more proud that despite all these developments, we report a record operating result, a record OCC, and strong solstice numbers. The introduction of IFRS 17 for the year 2023 made today also a special day. Our finest colleagues made the last IFRS 4 booking by end of January, and today we bring IFRS 4 to its last resting place. The focus on solstice and capital generation will be even stronger going forward than it is today. So let us go to slide 10 and start with the movements within our solstice. Of course, I'm happy to see that our balance sheets remain robust in these volatile markets, where our Sol C2 ratio increased to 222%, and yes, we are still on the standard formula. And just to be sure that we are all on the same page, this number includes a positive impact from the ABB we did in October for financing the Aegon NL transaction. However, the 1 billion Tier 2 we issued in November is excluded in this number, because recognizing it as capital is contingent on the closing of the transaction. Excluding the ABB impact, we are at 204%, which proves the resilience of our balance sheet, and it's a strong position to start the year with. The ratio benefited from very strong OCC, adding over 70 solstice points to the ratio. I will talk about OCC in more detail on the next slide. Market and operational development at 6% points positive impact on the ratio. It reflects positive impact from higher VA, higher interest rates, positive real estate valuations, and lower equity markets, which together more than offset the lowering of the UFR, higher inflation, market spread widening, and some adjustments to non-economic assumptions, most meaningful being the update of mortality tables, 10% increase of minimum wage in the Netherlands, and the higher cost related insurance liabilities. These non-economic Assumptions, the sole position of HR to offer disability contracts for the elder care sector, and the sum of OCC minus capital distribution were also the main drivers behind the decrease in H2. The capital distribution over 2022 amounts to $460 million in total, $130 million interim dividend, $75 million for the share buyback, which we executed in the first half of this year, and $254 million for the proposed final dividend. Very happy to see that we increased dividend while remaining a very strong Solci level at the end of the year. Let us now have a closer look at our OCC presented on slide 11. The OCC came in very strong at 653 million, an increase of almost 60 million compared to last year. The increase was driven by 50 million higher business capital generation, 100 million lower UFADREG, partly offset by the 90 million lower capital release. The increase in business capital generation reflects the strong business performance in disability and life and improved access returns. Business performance in P&C was not at the same level as last year due to the decline in COVID benefits, but performance remained very strong. We did face a decrease in the contribution for health, which had adverse claim development this year, lower cost coverage due to shrinking of the portfolio, and like Jos explained, 9 million pre-tax high acquisition expenses given growth in 2023, where these expenses are already recognized in the 2022 results. The improved excess return was due to portfolio optimization by a higher contribution from mortgages and credits. The lower net release of capital of 91 million is mainly related to two items. One third has to do with business growth and mainly health and disability, leading to a higher new business strain as in our OCC, the business strain materialized before the manifestation of earnings. So OCC is lower as we have the opportunity to invest capital in organic growth and future profitability. Secondly, the sharp increase in interest rate this year leads to a lower SAR and therefore also a lower release of SAR. The high interest rates, of course, also have a positive impact on UFR unwind, which is 100 million lower compared to last year. At H1, we expected to reach an OCC of approximately 660 million for the full year. We almost delivered this number, but there are some developments I should highlight. Higher rates contributed additional 5 million by lower drag, and in H1, we already recognized 20 million impact from 2.5% additional minimum wage increase, which we reversed in the second half of this year, as this item has been classified as non-operational, given the incidental and extraordinary character. So adjusting for these elements, OCC expectations would go up to 685 million. However, due to strong organic growth, new business strength was 30 million higher than expected in the non-life segment, equally divided between health and disability. and we had a bit lower capital release than expected due to higher rates and a higher ratio. Looking ahead, there are some developments to take note of. Firstly, if interest remains flat in 2023 compared to end of December rates, the outlook offers upside potential. Based on our methodology of averaging the UFR, we would also expect positive UFR echo drag into 2023 of around 70 million. We expect capital release to be in the same area as 2022 given higher interest rates on environment with lowered SCR and as we maintain our growth ambition in P&C and disability. However, the growth in health and the extra strain that we had in 2022 is not what we foresee for 2023. In addition, we expect excess return to be slightly lower, somewhere in the range of 50 to 20 million due to lower equity exposure and real estate valuations. That brings us in an OCC area on the standard loan basis of around 720 million, fully in line with business plan. Please note that this is before the 1 billion T2 issuance, which carries a coupon of 7%. So annual cost through OCC of roughly 50 million coming from this, but of course, we will get OCC in return after the deal is closed. Let's go to slide 12 to talk about the investment portfolio. The investment portfolio remains robust and well diversified with a strong skew to quality and over 75% invested in fixed income assets, which includes mortgages. We want to highlight mortgages and real estate as we noticed increased shareholder attention over the last half year. So mortgages to start with. The mortgage portfolio represent 25% of our assets. It's a high quality, which is underlined by a low average loan to market value of only 62% and of which 23% is government guaranteed. In addition, the payment arrears over 90 days is below 0.03 basis points and credit losses are at 0.1 basis points. We don't see increases in the level of arrears or credit losses underpinning the quality of the Dutch mortgage market. The fixed rate periods are skewed to longer periods. Over 76% of the portfolio has a fixed rate period of over 10 years, resulting in a stable and predictable monthly mortgage payments for our customers and limited refinancing risks. On the slide, we also show the net mortgage spread development over time. This shows the relative stability over time with some short-term volatility Therefore, it can lead to a spike in valuation on a given reporting date, not reflecting the actual risk on potential credit losses. I believe that one should look at this on a through-the-cycle basis, where on OCC spread methodology, I would see around 80 to 100 base points as a realistic number. Another S-class that received increased interest is real estate. So let's go to slide 13 and look at our portfolio in a bit more detail. On this slide, you can see the diversification of our 5.1 billion real estate portfolio. We have a strategy in real estate of diversification and quality with contracts linked to inflation. Our real estate is, with the exception of renewables where the interest position is hedged, fully equity financed and therefore not directly sensitive for interest movements. Almost 40% of the portfolio is invested in rural land. where we are the second largest landowner in the Netherlands after the Dutch state. The contracts are long-term and inflation index. Valuation is driven by rates, inflations and land prices. As good farmland is scarce, we have seen and expect to see land prices go up over time. The average total return per year over the last 15 years was above 7.5%. The other categories, residential, retail and offices, are skewed to quality with strict investment criteria in the specific ASA real estate funds, as mentioned on this slide. For all of the asset class, we see that quality results in low vacancies and level of arrears. There is some increase in vacancies in offices, which is related to part of our own building, which we rented to a third party, for which the lease ended and we are now in discussion with a new potential tenant. All contracts as said are inflation linked and we see direct investment return going up in 2022 and we will see further growth in 2023. Only for residential, the index is stopped at average wage increase to safeguard affordable housing. Looking to valuation, we see that retail remains stable because most revaluation already took place during COVID crisis. For offices and residentials, we see in H2 pressure on valuation, not as a result of yield drop as explained, but due to some pressure on transaction prices. I think it is fair to assume the same direction of revaluation in 2023 as we have seen in H2 2022. Anyway, I can talk for ages on this subject, but most important to flag that quality together with index-linked contracts safeguards direct yields, where diversification helps to be more stable on value developments. Having said that, and for time's sake, let's continue to slide 14. The balance sheet of ASR remains strong. Unrestricted Tier 1 capital represents 55% of owned funds and 167% of the SCR, and we continue to have ample headroom available within the Sol C2 framework. As mentioned earlier and shown here on the slide, the owned funds include the share issue of 600 million, but excludes the 1 billion Tier 2 issuance given its non-eligibility under Sol C2 due to the contingency on deal closings. The Tier 2 issue does, however, impact some of our headline ratios, like financial leverage and the interest coverage ratio. The ratios on this sheet are excluding the impact of 600 million share issue and the 1 billion Tier 2 issue to give a better representation of the underlying standalone situation. Financial leverage in that case amounts to 28.7%, and the increase compared to 2021 is mainly the result of a decrease in IFRS equity. When we included transaction financing, leverage would go up just below 35%. On a solstice basis, we are around 28% leverage. Our S&P single A rating was confirmed by S&P after the AGLNL announcement in October, and this has a stable outlook. Our debt maturity profile, as you can see, is nicely staggered, and the first call date is 2024. And again, we have ample financial flexibility and room to add leverage to our balance sheet. The holding liquidity at the end of December stood at a record level of $2.1 billion. Excluding the equity raise and Tier 2 proceeds, holding liquidity stood at $568 million, in line with ASR's policy of maintaining capital at the operating companies and upstream cash to cover dividends, coupon, and holding expenses for the current GM. Cash upstream of $720 million consists of $490 million from the live entity and $176 million from non-live. Solstice position of legal entities remain robust, with the life ratio at 186 and non-life at 162. And together with the strong capitalized legal entities, this provides ample cash flexibility, also with the aim to finance part of the AGON-NL transaction at moment of closing. And this concludes my part, and now back to you, Jos, for the wrap-up.