Asr Nederland Nv Uns/Adr

Good morning, ladies and gentlemen. Thank you for joining us today for this call. It's the ASR conference call on the full year 2023 results. On the call with me today are Jos Baten, the CEO, and Ewald Hollegien, our CFO. And Jos will kick it off as customary with the highlights of our financial results. He'll give a brief update on the Aegon transaction and discuss the business performance. After that, Ewa will talk about the developments of our capital and solvency position and our investment portfolio. After that, we'll open up a Q&A. We have ample time planned for this call, but we will stop sharply at 10.30 for you all to have time to tune in to the call of NM. And then finally, as usual, actually, I should say, we have a disclaimer at the back of the presentation. And I would appreciate it if you could take a look at it after this presentation. So having said that, Jos, the floor is yours.

Thanks, Michel, and good morning, everybody. As you may understand, 2023 was a special year for us. We closed the transaction with Ego Netherlands in July, and today it's the first time we present the figures of the combined organization. And as we will discuss in a minute, the business has performed quite successfully and we've been able to deliver a very strong set of results, and at the same time maintain a robust balance sheet. Investing in growth pays off. I guess that the transition to IFRS 17, and now including only half a year of Aegon Netherlands, without a 2022 comparable set of numbers, is not making it easier for you to see all the developments. In many cases, the inclusion of the Aegon Netherlands figures explains the majority of the movements. But happy to provide some additional insight into the numbers that we reported. And then reporting on the same day as we had planned already is certainly not making it easier for all of you. So let's go to slide two, where I will briefly discuss the key achievements. I assume you have read our presentation in detail this morning. since we are the first one to have an analyst call today. But maybe you're still recovering from the news about ideas yesterday. Let's talk about the operating results. We improved the operating results by almost 40%. On top of the addition of Ego Netherlands, we have seen favorable developments across all business segments. Our organic capital creation of 938 million is in line with our full year expectations. We are happy with the growth in the capital creation of the new combination and the strong underlying business performance. Our solvency ratio stands at 176. There is a lot running through that number. AWOUT is going to provide full detail on this. But the main item is, of course, the impact of the AGO Netherlands transaction. This is now fully absorbed, and we expect the balance sheet to gain further strength as we execute the integration plan and, of course, generate capital. The ratio also includes the impact of the unit link settlement and the additional provision we took for unaffiliated customers. And in addition, the impact from market movements, including the uneconomic spread widening of mortgages, is in there as well. Following a review of the strategic plans for the bank and carefully analysis of the offers we received from other parties, we announced on the 1st of February the agreement to sell our bank to BAWAG. The transaction will likely close in the second half of this year, and is expected to deliver approximately 13 solvency points to our ratio. So using today's ratio on a performer basis, we would now be at close to 190%. Operating return on equity amounted to 12.4%. Also under IFRS 17 stands on an attractive level. We propose a full year dividend of €2.89 per share, which is a 7% uplift from last year and consistent with our ambition of mid to high single-digit growth until 2025. Premiums received increased more than 35%, of course helped by the addition of EGON The Netherlands and a strong organic growth in P&C, disability, and pensions. In health, the growth was somewhat inflated. I will talk about that in a moment. Let's move to slide three. We are very pleased with the progress we have made this year in delivering sustainable value to all of our stakeholders. In the last year, we made progress on all five non-financial KPIs. Our reputation as a sustainable insurance company continues to rise, and I'm particularly pleased to see that appreciation of our positioning amongst younger people in the Netherlands, which is important for our future growth. We aim to become the best financial service provider in the Netherlands and are therefore happy to see a growing appreciation by our customers. This is reflected in our relational MPS improving from minus 11 to minus seven. And we are of course working on further improvements. We're also pleased with the engagement of our workforce, which has continued to perform well and above our target level. For this year, We anticipate some pressure on this metric, which is to be expected in a time of integration, and especially with regard to people whose office location will close over time and their travel distance will increase materially. The objective of 65% reduction of the CO2 footprint we have already exceeded this year ahead of the targeted date, and the reduction stood at 70% by the end of 2023. We're making good progress with our impact investments with an increase of 1.1 billion through a combination of new investments and positive revaluations. On slide four, I like to talk about the progress of the integration. And let me give a quick update on that. We are pleased with the progress that we are making. And you all have seen the 30 million uplift in our cost synergies targets to 250 million that we announced on our investor update in November last year. We're well on track with the submissions of requests for advice to the Works Council and approvals of the Works Council that we have received so far, which is an important condition towards the integration of functions and departments. With respect to the TSAs, the so-called transaction service agreements, we are ahead of plan, having phased out already around 20%, reflecting less dependence on original processes and systems of Aegon Netherlands. We migrated the group disability book and finished the rationalization of our individual live and remaining non-live books, fulfilling important condition for the migration. The conversion of DC pension products is to the targeted system of Plexus, which, by the way, is pension reform proof, is well on its way with a successful conversion of 300,000 participants in the beginning of this year. In the meantime, we keep on working on the implementation of the partial internal model to extend the AGON model to ASR live. in line with accelerated timelines as discussed at the investor update. We expect to have the live PIM implemented at our results over full year 2025. So let's now turn to the business performance on the next slide, slide number five. I'm pleased to see that in non-live, the premiums received went up more than 25%, driven by organic growth in P&C, disability, and health, and of course, from the contribution of EGLE Netherlands. For P&C, it's the first time in our history that on an organic basis, we achieved a triple-digit growth, so more than 100 million, and with that, I mean the absolute increase in the Euro amount. The operating result of the non-life segment increased by 122 million, mainly due to a higher operating insurance service results from improved underwriting results in disability and health, in addition to the contribution of EGLE Netherlands and a higher investment margin. In P&C, the combined ratio increased slightly to 93.6. On top of the intensified traffic and higher claim frequency, we are back to pre-COVID levels. We've also seen claims inflation picking up. And as you may know already, we've raised our pricing in personal lines in June last year by 5% and in commercial lines last December by 10%. For Q2 in this year, we plan further price increases regarding personal lines of an average of roughly 10%. This with the intention to being ahead of further eventual claims inflation, and this should also cover the higher reinsurance costs. Price increases kick in at policy anniversary date, as you know, and in personal lines, these occur evenly throughout the year. So it will take a full year before the portfolio is on an improved level. Operating results also reflect the benign impact from weather-related calamities in 2023. The profitability of our disability book is improving as a result of pricing improvements in group disability, which we implemented already in 2022. This is partially offset by some deterioration in the sickness leave portfolio as we experience some increase of people reporting ill for a longer period due to psychological factors. For 2024, we increased premiums already with 8% in sickness leave to reflect these developments. Growth in health in last year's season positively contributed to the result due to improved cost coverage from a growing portfolio and lower CPA expenses resulting in a decrease of the combined ratio to 98.9. In 2024, we will see a decline in our health portfolio due to disciplined pricing. On average, Over the two-year period, 2023 and 2024, the number of policyholder has increased with approximately 60,000 people. So let's now move to the live segment on slide number six. Premiums received and DC inflow increased by 48% to 3.5 billion, primarily driven by the inclusion of AGON Netherlands, adding roughly 1.2 billion, and the organic growth of Pension DC, which was driven by an increase of recurring premiums of our Werknemerspension and customer funds deposited in our Doonpension. Growth in funeral was mainly driven by inflation-related indexation. The increase is partly offset by the natural decrease in the pension defined benefit and individual life portfolio. Asset center management in the DC proposition increased to 22.6 billion, mainly driven by the addition of Aegon Netherlands, that added just over 12 billion, net inflow of ASR's DC products, as well as positive market revaluations. The operating result increased by 98 million to 688 million euro in total. The increase primarily relates to the addition of Aegon Netherlands. Operating insurance service results benefited also from the addition of Aegel Netherlands, reflecting a higher release of CSM and risk adjustment, which was partially offset by a lower benefit from experience variance, which reflects the fact that actuals are now more in line with what we expected. Operating investment and finance results increased by 34 million due to the addition of Aegon Netherlands and a positive impact from lower U of R drag due to higher interest rates. The increase is partially offset by higher investment expenses and a decrease of the investment margin due to lower asset valuation and negative impact from accrual of the balance sheet. Moving on to our fee-based business on the next slide. Operating result of fee-based business consists of two fee-generating segments. On one hand, asset management consisting of our mortgages, real estate and asset management business, and on the other hand, the distribution and service businesses. Operating result of the asset management more than doubled to 78 million as a result of the inclusion of Aegon Mortgage Business in the second half of the year. Mortgage origination increased by 800 million to 6.1 billion. The increase is mainly driven by the addition of Aegon Netherlands for an amount of 3 billion. There was less demand for mortgages as a result of higher mortgage rates. We ended the year with a stable market share of around 11% for the combined mortgage businesses. Total assets under management for third parties increased by 800 million to almost 30 billion. mainly by the addition of assets under management coming from Aegon Netherlands Pension DC business. This was partially offset by the third party assets under management that is part of the transaction with Aegon NV, which is yet to be transferred, and that's about 12 billion. The real estate portfolio, which is managed for third parties increased by 200 million, meaning more than 8% growth. Inflows in the real estate fund were partially offset by lower real estate valuations. Operating result of the distribution and services increased by 5 million to 30 million. Fee income increased as a result of organic growth, and the addition of the DNS entities of AECOM Netherlands, being Robides, TKP, and Nidasco. Let's move to slide eight before I hand over to Ewout. On this slide, we see the result of holding and the banking segment, reflecting the activities of KNAP for the second half year. The operating result of 139 million reflects the somewhat extraordinary interest margins driven by the higher interest rate levels. As a result of the announcement to sell KNAP, the bank will be labeled as held for sale and therefore no longer contribute to the operating result and OCC of ASR. And Ewout will come back to that in a moment. The decrease of the result of segment holding and other with 91 million was mainly due to the interest charges related to the 1 billion tier two capital instruments that we issued late 2022 to pre-finance the transaction of Aegon Netherlands, as well as the higher holding costs related to, for example, centralization of activities and brand rationalization of DITSO and ADANTA to the ASR brands. So with that, I will hand over to Ewout for his view on our solvency capital generation, the investment portfolio, and, of course, the strong balance sheet.

Yes, thank you, Jos, and good morning to everyone on the call. Today is a remarkable day. It is the first time we report full year numbers under the new IFRS regime, and at the same time, it is also the first time we report SOLSI numbers and IFRS numbers, including AECOM NL. And I'm very grateful to all the employees in the financial department that made this happen. At the same time, I appreciate that it is hard to see that all those developments. So let us together have a look at those numbers, starting with slide 10 for the movements in our solstice ratio. Our solstice ratio is composed of the impartial internal model for Aegon Life and a standard formula for the remainder. Our full-year 2023 Solstice II ratio amounts to 176%, which is after the full-year dividend. At H1, we mentioned a pro forma Solstice ratio somewhere above 185%. So we are a bit over 10 Solstice points down from that number. And if we look to the H2 developments, we see that the level of capital generation in H2 was in fact deployed in the full-year dividend. And in addition, we have seen the impact of the unit link settlements, adverse real estate revaluation and spread widening of mortgages. In addition, we have seen some final model changes as a result of the IFRS 17 implementation and harmonization of assumptions between Aegon and ASR. KNAP, our bank, is still part of the 176%. The announced sale of KNAP, which is expected to close in the second half of 2024, will add approximately 13 solstice points to the ratio. And this will further strengthen the balance sheet in 2024, together with a strong level of capital generation and capitalized synergies. As you all know, the impact from mortgage spread widening is not economic. I will talk about this in a bit more detail later on, but the time lag between interest rate movements and mortgage tariffs provide some volatility in mortgage spreads. You will see that mortgage spreads through the cycle will be between 80 to 100 base points. Looking at the year-to-date mortgage spreads tightening, I would assume that a large part of the negative impact of H2 has been reversed again and our ratio is positively impacted with roughly four points by this. 610 million capital distribution relates to a proposed full-year dividend and is 65% of the OCC. Let's now take a look at our OCC development in more detail on the next slide. The OCC came in strong around 940 million this year, also including the contribution of Aegon the Netherlands in the second half of the year. Within business capital generation, next to the Aegon Netherlands contribution, we see improved results in disability and health. Jos mentioned it earlier. And compared to 2022, the excess returns are low because of low contribution from real estate and expertise, and the higher average VA accrual. In addition, the holding and hybrid expenses increased related to the AGON and L-transaction. The release of capital increased with the addition of AGON, partly offset by negative impact from a lower average solstice ratio, which is used to get from an SCR to an OCC figure. The technical movements representing the UFRDRAC showed an improvement related to the higher interest rate environment, partly offset by the addition of AGON Nederland in H2. The interest rate of the sensitivity of the OCC has been updated for the inclusion of EGON NL and is still very manageable. Looking ahead for 2024, there are a couple of items you should account for. Of course, there are many moving elements by combining two businesses, but the main items are the exclusion of the contribution of the bank and also the mortgage servicing fees as part of the announced sale of KNAP to BAWAG, together around the 50 million. And in addition, you should take into account the negative U of R drag echo of around 25 million due to lower rates at the end of last year. For education purposes, the U of R drag methodology is presented on slide 13. Underlying, nothing changed. Business continues to perform well, and we keep commercial momentum despite large integrations, and we are executing our integration plan as planned. And we will, of course, provide you with more insights on the OCC at the CMD end of June. Moving to slide 12. As a result of the combination with Aegelden Airlines, the general account asset portfolio doubled to 82 billion. The investment portfolio remains a high quality asset portfolio with over 85% of fixed income when including the exposure to mortgages. Around half of the fixed income portfolio relates to government bonds that are for more than 95% AA or AAA rated. The exposure to mortgage cases increased to 31%, where it was around 25% at the year end of 2022. And the increase reflects the more heavyweight mortgages are having in the AGON and EL portfolio. The quality of the mortgage portfolio is underpinned by the low average value of the book of only 63%, and 24% of the total portfolio having a government guarantee. Also for the combined portfolio with Aegon, the payment arrears are very low at 0.07 base points and credit losses amounts to 0.04 base points. In the graph on the bottom right hand side, you can see the OCC mortgage spread development over time. As mentioned earlier, mortgage spread can be volatile because of the timing lag between interest rate movements and demortgage tariffs. This is just a timing thing and does not reflect the underlying credit risk of this asset category, which is and remains extremely low. The graphs show relative stability over a longer period of time with short-term volatility, which can lead to a spike up or down in the valuation on a given reported date. Looking through this cycle, an OCC mortgage spread of around 80 to 100 base points still look like a realistic number. A year-to-date movement shows an expected tightening of mortgage spreads of around 40 bps, as mentioned earlier, bringing the OCC mortgage spread in line with that range. Overall, I'm happy with the quality of the investment portfolio. And as mentioned earlier, we do see room for optimization of the combined balance sheet and will update the markets on our plans at our capital markets day in June. You might have noticed that I did not talk about real estate on this slide, which I will do in a bit more detail on the next slide. The real estate portfolio increased with $4 billion as a result of the transaction, which mainly consists of high-quality assets in residential real estate with only frictional vacancy and thus stable cash flows. This makes that roughly half of our real estate portfolio relates to residential real estate in the Netherlands. Following steep price increases in quite a number of years, we have experienced negative revaluations since interest rates and mortgage rates have started to rise in 2022. Also in H1 of 2023, house prices declined in the Netherlands. However, since that moment, we have already seen a cautious improvement in this market segment in the second half of 2023. And this has not yet been reflected in the value of rented houses. And we see in a historical context a large gap between fair value of houses and the fair value of rented houses. Having said that, we are also aware of the recent discussions on rental agreements and CPI indexation, which is in a very early stage and not something that's keeping us awake at night. But of course, we are closely monitoring that situation. Fundamentally, we see a very significant shortage of housing in the Netherlands, nowadays up to 300,000, which is actually growing. Our rural land portfolio represents 22%, which is a very stable category with long-dated inflation-linked contracts, which also in 2023 shows a positive revaluation of 2% compared to 2022. About 5% of our portfolio is invested in Dutch offices, and we believe we are relatively shielded from some of the international developments in the office space because our portfolio is very focused on offices that are located on prime locations near mobility hubs in the larger cities in the Netherlands and on university campuses. We believe this portfolio will continue to do relatively well through the cycle, and the fake-seer rates remain low and even improved over the last six months. At the end of 2022 and the beginning of 2023, we have seen negative revaluations coming through in our real estate portfolio, mainly related to the higher interest rate environments. In the second half of 2023, we still see, on average, an active revalidation, but this seems to ease off, and we are neutral for the coming year. Let's move to slide 14. This slide shows that our strong balance sheet with ample financial flexibility. The unrestricted T1 capital represents over 70% of the total owned funds, and we continue to have ample headroom available within the Sol C2 framework. The financial leverage decreased as a result of the increase in equity and CSM related to the ACOM transaction and also includes the green senior bond of 600 million we issued in December. The financial leverage is well below our limit of 35%. The interest coverage decreased as a result of the increased interest expenses, but still well above our minimum target level. And SAP recently reaffirmed our single A rating with a stable algorithm. Our debt maturity profile, as you can see, is nicely stacked, and the first goal date is in the second half of this year. Let's go to the next slide. This slide gives an overview of our holding liquidity and the solvency ratio of the main underlying entities. The holding liquidity at the end of 2023 stood at 700 million. It decreased to 1.5 billion, driven by the cash payments to Aegon Group. The remittance reflects a 500 million one-off upstream from ASIR live and non-live entities to fund part of the transaction. The bucket order shows the 2.2 billion cash payment to Aegon Group and the redemption of the British loan, partly offset by 600 million green bonds issued. The sole CO2 ratio of the ASIR entity shows a decrease to finance the Aegon NL transaction and unfavorable market and operational movements, mainly in life before instance mortgage spread widening and the unit length settlement related provision. This letter is also reflected within the Agon-Life-Solci ratio. And this brings me to the end of my presentation, and let's bring it back to you, Jos, for the wrap-up.

Thank you, Eva. So to wrap up today's presentation, I think we've seen a solid performance in 2023 and the inclusion of Aegon in the Netherlands for the first time. So combining the two entities and at the same time growing the business and delivering strong results, we are very happy with that. We are also very happy with the strong performance that is delivered and continues to be delivered in sales, especially in P&C, disability, and our pension business. Our Solvency II ratio is strong, and when including the sale of KNAP, we get to around a performer level of 190%, and we see further levers to strengthen the balance sheet with organic capital creation and the realization of the capitalized cost synergies. We're on track to deliver on our upgraded integration plan from last November and would very much welcome you to join our Capital Markets Day event on the 27th of June at our head office in Utrecht. That being said, I'm sure you still have a few questions for us. So let's hand over to Michel.

Yeah, we're going to open it up for Q&A. So we'll wait for the first. question to come.

Dear participants, as a reminder, if you wish to ask a question, please press star 1-1 on your telephone keypad and wait for a name to be announced. If you wish to withdraw a question, please press star 1-1 again. And now we're going to take our first question. Just give us a moment. And the first question comes from the line of Cole Clice. from ABN, AMRO, or the BHF. Your line is open, please ask a question.

Hello, good morning, indeed, corporates of ABN, AMRO, or the BHF. A few questions, maybe first on the OCG. I think you have an OCG target for this year of 1.2 billion and for 2026 of 1.3 billion. Are we correct that you basically now say the bank has been sold? So the excess capital goes out of the OCG, 50 million, and the UFR, 25 million. So is the 1.2 now 1.1, and the 1.3 is now 1.2? Could you update us on that or other things we have to focus on, at least if we have the new OCG guidance? Second question is on residential development. and the net loss of 52% of your portfolio. This house prices have been rising very nicely since the summer of last year and also the outlooks are quite positive for this year. You talk about rents, that's some restraint. Could you elaborate on that and could you help us a little bit to have an understanding on what we might expect on the market for real estate residential houses for this year or where is it dependent on? My last question is about non-life. The claims were, we saw the same at NN. The claims were somewhat higher in the second half of last year. You've been increasing premiums quite actively. Is there something specific or this is just back to post-COVID or is there something else? That's it from my side.

Let me start with the last question, Cor, and then I'll hand over to Ewout for the first two questions. In non-life, we have seen a number of developments, especially in motor. First of all, the frequency seems to be back at the same level as it was pre-COVID. I think that's one. Secondly, we do see that the average price for repair has gone up due to inflation. And within that, we see a third development, and it is that due to still shortage of materials, but also the fact that a lot of repair shops don't have enough people to do the repairs, that the time for repair has increased from on average 40 days to 80 days. And during that period, most of the people get a rental car, and that kicks also in the developments of the P&C. That all in all made us, we already increased upfront inflation increase. Last year with 5%, that we already now have decided that when the cycle of the 5% has ended, that we will increase premiums with another 10%. from the middle of this year going forward. So we want to be ahead of those developments, and that's why we already now have decided to increase premiums there. For the first two questions, I hand over to Ewa.

yeah so to start with the uh on the on the oc course so in detail what else i also mentioned so we we started when we start with the 1.2 billion uh offer that we expected for for the round number 1.2 that we expected for 2024 um if we exclude the the the bank if we exclude also the the the mortgage business that was on the balance sheet of bank that that we earned fees on And we take into account the UFR, Ecodrag, it moves into the number that you mentioned, so around the 1.1 billion. So that's correct. On your question on house prices. What we see in the Netherlands is that there's a very significant shortage on houses in the Netherlands, so 300,000 today, and it is increasing quite rapidly, the shortage. So fundamentally, this is a very good category to invest in. What we based because of that also have seen and now actually the markets have digested the higher mortgage tariffs that house prices in the Netherlands are going up again. So actually since H2 house prices are going up and I think the expectations on house price increases in for 2024. is actually increasing every month further. So fundamentally you do see that the view on the value of houses is positive. What we till today have not seen is that the rent value increased as well. So there's quite a gap between the rent value and the fair value of houses. And historically, we now already see that that is actually bigger than in a historical context. So all in all, in the longer term, that makes us positive also on the valuation of the residential portfolio that we have on the balance sheet to be seen when that kicks in.

Okay, thank you very much.

Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes in the line of David Barmer from Bank of America. Your line is open. Please ask your question.

Good morning. Thank you for taking my questions. The first one is on the solvency position and two little questions there. So first on the capitalized cost synergies. Can you remind us how much you booked during 2023 and what your plans are for recognizing those during 2024? And then secondly on this, given the current market conditions, what are your expectations for assets optimization during 2024 and re-risking? The second question is on capital return. So your solvency position will improve quite rapidly from the year to date, and capital generation is strong. So at what stage do you expect to be able to move back from the payout, which is around 50% today, to the 70% to 75% you previously targeted? And then lastly, one question on the life market and the pension buyout. So can you give us an update on that? how your discussions are going and if you've if if in the last eight months you're already seeing a change of behavior in the discussions you thought you're having with your your clients or potential clients thank you hey what you will take the the first ones definitely um yeah so what we have uh uh

So what we have mentioned during the investor update by end of November is that we expect that the capitalized synergies in life will add, by end of the day, roughly 12 saucy points to our ratio. um what we also have said is that we are on the path of harmonizing the balance sheet and the assumptions on the balance sheet of of agon and asa so what we have done is on one hand we have increased the technical provisions on the balance sheet of of agon life by uh by uh by uh yeah increasing actually the the the technical provisions on the on cost and at the same time we took that out by also recognizing part of the uh of the capitalized life synergies which is around three solstice points in the full year numbers. That makes that eight to nine solstice points we still expect, and we gradually will release that in the solstice position. It can be done in two steps, it can also be done in three steps. That is something that we did not take a decision on yet. That is more or less the path that we are seeing. then on the asset optimization so what we are now doing if we see good opportunities so what more or less the s optimization opportunities that we see is that we optimize the on one end the the credit portfolio for example moving from from triple a coffees to to double a coffees or even single egg coffees that's a way of optimizing it we can also see in the credit portfolio see some optimization and we see room to also move a bit more toward the equity space in the on the egg on life when she's stepping away from from mortgages um what we see on two days that well, a first small step we can take, especially on optimizing the portfolio on the government bond side. And we expect when we see opportunities, we will not be hesitating in also taking actions on the other side. But what we mentioned also earlier, it will take a couple of years to do the full exercise and get the full potential that we are actually seeing in optimizing the asset portfolio.

And then on your other two questions, first of all, capital return, you mentioned a payout ratio of 50%. I think for this year, over 2023, it's 65%. Just to clarify that, going forward towards 2026, we gradually want to grow back to the 70% to 75%. From our perspective, it is important to execute the plan we have. Part of that plan we've already executed, for example, by the transaction we've done with BAWAG and growing back into the balance sheet. And as you said, David, that will be fairly quickly. And from that, we do see opportunities to allocate capital in growing the business. I'll talk in a minute about the pension buyout market. and also to stack some capital to be ready if and when Aegon might decide to sell down their position. And if that is going to take a long time, and we've been always clear on that, we're not going to stack up capital which we can't use for the business. So if and when we have a very strong and large capital position and we don't see any opportunities to further develop the business or to do buybacks towards AGON, then we definitely will come up with a further capital return plan. As said earlier, we will give more clarity on our medium-term plans also on capital return during the investor update on the 27th of June. Having mentioned pension buyouts, We do see, actually, over the last couple of weeks, the first incoming requests for offerings for the pension buyouts. In the SME area, we already did close to 200 new contracts for employers under the new pension law, so also that is starting to kick in. And in the buyout space, we are making offerings. As you know, we want to be very disciplined and meet the 12% return hurdle. From our perspective, we don't mind if we would miss one or two in the first round because we expect that none of the three larger players in the Dutch market can adopt the whole market. And we expect that. the more profitable business could be done later this year or even maybe next year. So we're taking part of the offerings yet, but we want to be disciplined and we are patient to do the right contracts at the right returns. But we're very confident that over the remainder of this year and next year that we can be very active in that market.

Thank you. And just to check, what kind of strain do you expect from this on solvency?

Well, we've said earlier that every one billion of assets under management in this space will require roughly one and a half percentage point of solvency, depending on whether you buy reinsurance for the longevity part. So for spreadsheet reasons, I would for this moment in time calculate with one and a half percent. Thank you. Point.

Thank you. Now we're going to take our next question. And the next question comes from Farouk Hanif from JP Morgan. Your line is open. Please ask a question.

Hi, everybody. Thank you very much. Good morning. I just want to clarify what you just said on the buybacks because I think it's important. So are you saying that the priority is not to do any buybacks until you've made a stack and then you want to know what Aegon does? Or are you saying that there could be a mixture of both, building a stack and maybe doing some buybacks? I appreciate that you will tell us more in June, but I think it's really important to get this clear now. And my second question is, when you talk about pricing, it sounds like that you're still putting through price, particularly in P&C and disability. I mean, what does that mean for top-line growth in non-life? And then finally, when I look at the life operating result, clearly we only have about half a year worth of So does that mean when we look at CSM release and we look at net financial result, we need to kind of, you know, double the second half? If you could explain and help that on IFRS, I think it would also help. Thank you very much.

The last question will be done by Ewout. On your first question, the story actually hasn't changed, Farouk. We prefer to invest in business growth and long-term profitability. That's one. And investing in buyouts is one of that. At the same time, we want to grow into the balance sheet. And actually, the answer to your question is going to depend on the behavior of Aegon in that way that we want to be ready even when they start to sell down. And if it would take a longer term and we can't spend the capital in another way, then we're not going to wait for Agon. So actually, it could be either one of the two or a combination of the both of two, depending on the moment in time where they start to sell down. But for example, if they, and I think they're very happy with their investment in ASR currently, if they would stay in a bit longer and we can't spend the capital for other things, we're not going to wait for them to take a decision on potential buybacks if we can't invest in the business. So that to your first question. On your premium increase question, we delivered this year a growth in P&C and disability excluding the addition of Agon of over 6%. roughly two-thirds of that was due to premium increases. But as I said in my presentation, we also organically grew 100 million in the P&C business. So going forward, we expect that at least two-thirds of the growth will be due to premium increase in P&C, and that we, on top of that, also organically will be able to grow the P&C business.

Yes, and through your question on IFRS results, so I think it's fair to double the contribution of Aegon Life to come up with a full year number. Having said that, it's also good to be aware that there are a lot of moving parts in the IFRS results because of the PPA, because of the harmonization. and that's why we also have said is that we uh that we that we will come back also on the ambition for the uh for the ifrs result for the combination at the cnd in in june because then we have also clear visibility on what it means for a full year number uh but if you want to to to put a number in the model for now it is the best way indeed to to double the the contribution of egg on life uh with uh for the for the sec of the over that was in the second half of the year and double that

Okay, thank you. Just on the buyback, if I may return, just to be absolutely clear, what you're saying is if Agon decides it wants to stay because it wants to benefit from its shareholding in you, you will, I guess, look annually at your capital and decide on that basis whether to do a buyback rather than saying now up front what that will be, if you see what I mean.

Yes, for this moment in time, I think that's the right approach, and we will clarify that further in June in the update. We're going to do that.

Okay. Thank you very much. Thank you.

Thank you.

Now we're going to take our next question. Just give us a moment.

And the next question comes from Andrew Baker from Citi. Your line is open. Please ask your question.

Hi, guys, and thanks for taking my questions. First, just on the – obviously on the group solvency ratio, we have a pretty clear sort of framework for thinking about capital return, and we can all see the mechanical tailwinds coming through. The local entities are, as you've highlighted, lower at the end of year 23 than they have been just curious if you see at any point that these could be a constraint to capital return at the group level and then secondly are you able to give an update on where you are in the unit link settlement specifically related to the 90 threshold and just a reminder when is that expected to be achieved and then also Have you seen any claims come through from the sort of non-policy holder protection group customers that you provisioned for separately? Thank you.

Thanks, Andrew. So, indeed, I think also when the group solstice ratio, there's a clear development how it comes from the H1 to the H2 number. I think you all, also based on the sensitivity, could follow that. When we look to the legal entity levels, actually, we have seen the same developments in the legal entities as well. For example, the mortgage spread sensitivity was also part of the AGON life and the ASR life entities. The unit link settlement is also included in the AGON life and the ASR life entities. So with that, actually, we can also clearly follow the trajectory that we have seen from H1 to H2 for the legal entities. And the promising path that we have in front of us is also the promising path that we have in front of us for the legal entities. So for us, we don't see this as a strength in any way for the future.

And on your second question regarding the 90%, maybe to clarify the process towards getting the 90%. We agreed with the five parties involved that they would give us all the names of their customers and the policy information of their customers in the beginning of January. They have delivered on that. So they lived up to what we agreed. The next step that we agreed with them is that we would match their information with our policy systems of ASR and AGON. In the meantime, that's done. So we have now referred to them, well, from the 145,000 policies that you said that would be involved in this arrangement. We have matched that portfolio with ours. And as you can imagine, the match is not directly 100%, but we're already at a very high percentage. So we've now asked to them, well, could you help us out with the remaining a group of policyholders where we couldn't match the information. That will lead to a final group of people that we could match. These people will get a proposal based on the agreement we have from the different foundations. They are aiming to start out sending those proposals as from the 1st of April next. And the group that get a proposal from this group, 90% should agree with the proposal. And we expect that that will be somewhere around midsummer. So from the 1st of April, they will start to send out the proposals. And hopefully somewhere around midsummer, we have reached the 90%. We are in very good collaboration with the five foundations. Up until now, they lived up to all the promises they have made, and we were able to do the same. So there is, by them and by us, no doubt that we will get the 90% over time. And to your second question, whether we have seen new claims coming in under the second part of the agreement, We have had, of course, customers that gave us their details because they think they are not part of the agreement and they think they have the right to receive a compensation. That has become a stable group up until now. There is not much growth anymore. The agreement we have is that we first focused on executing the agreement with the foundations. And as soon as we've done most of the work for that, we will start to match the people that gave us their details for the second part. The first thing we will do is check whether those people aren't the same people that are already at the different claims foundations. We can't exclude that fully. that for certain reasons some people say, well, I'll drop my name, even if I'm part of the arrangement, just to be sure. And then we will start to develop proposals for those people. And up until now, we don't have any doubt that everything that we have to do will be within the provision we have taken for that. So within the 250, we are, and that's the maximum provision we will be able to finalize everything with the foundations. And within the additional provision we have, we will certainly be able to finalize all the other incoming individual claims.

That's really helpful. Thank you.

Thank you. Now we're going to take our next question.

And the next question comes from the line of Michael Hartner from Birnberg. Your line is open. Please ask your question.

Hi there. I'm calling from a hotel. You can hear me. So, A, really well done. We've got so many moving tasks at the moment. It's brilliant. I only have really three questions. The first one is, it's a little bit personal. So, as I understand it, Ms. Sebastian, you're due to... your mandate arrives at the end of April or May 2026, but the planned delivery is at the end of 2026. Now, knowing you, or I think, or kind of assuming here rather, doesn't mean you'll try and push your guys to kind of deliver by the 1st of April or something, so you can announce it's done the day you decide to step down, if you so decide. The second is on slide 13, And you probably talked about it, but I missed it. The office vacancy rate seems to have dropped sharply. I was just curious, really. And then the third one, you talked about the pension business, you know, three participants. But as I understand it from the press, it might only be two participants. What does that do? Thank you.

Thank you, Michael, for those questions. questions, including the personal one. We have always said that we will deliver the plan in three years from closing. And the closing was at the 4th of July. And you will see that there is a kind of a perfect match between the mid-year 2026 and the remaining period of my contract, and whether I will stay on by then, it's up to the supervisory board, and we will see that. I've committed myself to deliver the integration, and I don't need to push my colleagues. They are doing it by themselves, because as a team, we're committed to deliver on that. So there is really no connection with my potential stepping down, which is not sure yet, because we have to see that in 2026. We're going to deliver together on that. So that's to your first question, Michael. Then the office vacancy rate is a question for Ewout.

Yes? Oh, sorry. But you first was moving to his first question. No, on the second question, the office vacancy rate. So that came indeed down, Michael, with minus 2.2 percentage points from 4.7% to 2.5%. We also disclosed that on the slide. And that was mainly driven by, well, a large office that was not filled and is now filled. So actually, what I also mentioned, given the fact that our offices are are only there on focus locations. And focus locations for us means near railway station of the largest five cities in the Netherlands and some offices on the university campuses. That actually makes that focus strategy really helping us in having a good level of rentals in the offices. And with that, we are also more positive on the outlook on our office portfolio compared to what we see across the world. So that is actually what we are seeing today.

And on your last question, are there two or three participants? We expect that in Dutch market, we will have to deal with the three of us. being NN, ASR, and Athora. And there may be some smaller participants, but the larger buyouts, from our perspective, could end at one of those three, where NN and ASR are vested Dutch insurance companies known by most of the pension funds. with a strategy to combine a good service with having a solid position in the Dutch market. And Athora is more the one who's doing the asset play, and it's up to the pension funds and, of course, to the regulator what they like most. But we expect that this will be the main competitive environment.

Brilliant. Thank you very much.

Thank you. Now we're going to take our next question.

And the next question comes from the line of Nasib Ahmed from UBS. Your line is open. Please ask your question.

All right. Thanks for taking my questions. Firstly, you don't give an OTC split by division. I was wondering if you could kind of give some indication of Let's say the 2024 OCC of 1.1, how the split between life, non-life, fee business and holding. Second question on reinsurance renewals at 1.1, 24, how has it gone relative to last year? What are the terms and conditions? How's the retention looking? And then finally, on the debt, you've got the maturity coming in 2024. Is the expectation to refinance that? You've, of course, done the 600 million seniors. I think the expectation is that 600 million remains. That's not for refinancing the 500 that's coming this year. Thank you.

Okay. On the reinsurance, the premium went up with roughly 4 million to 41 million conditions due to the growth of the portfolio. We increased the retainer a little bit from 40 to 50 million. But for the rest, it remains roughly the same. Any other questions?

Yeah, so to start with the split, Nasib. So indeed, we do not provide split. We have chosen to make a distinction between the different components of the level of capital generation. More specific, when you look to the DNS segment, for example, or to the holding expenses, it's fair to assume that that is one-on-one also the way that is reflected in the OCC. For now, we are not envisaging in changing the way we are disclosing the OCC information. Then on the debt side, your assumption is right. The 600 million is not there to refinance, potentially refinance the tier two instruments that has a call date in September. That was actually there to refinance the bridge loan, to provide a loan to KNAP, and that was actually the main driver behind the 600 million. So if we decide to refinance the Tier 2 instrument, we will do that in a different way.

Thank you. Thank you. Now we're going to take our next question. Just give us a moment.

And the next question comes to the line of Ian Pearce from Exam BNP Paribas. Your line is open. Please ask your question.

Hi, good morning, everyone. Thanks for taking the questions. Just two quick ones. First one was just a clarification on the subsidiary solvency levels. Should we think about subsidiary solvency level targets in the same way we think about the group solvency level targets and obviously those moving in a positive direction with all the things that you're doing and getting to above a 175 level in hopefully the fairly near term, just thinking about how that will drive remittances going forward. And then the second one, I don't know if I misheard, but I think you said something about the health book declining in 2024 or taking some remedial action in the health book. Just trying to understand why, what the expectations are there, and if you expect premiums to be down or customer numbers to be down offset by rate, sort of what you're expecting on the health business for 2024. Thank you.

Let me start with the last question. To answer the question, I need to elaborate a little bit on the dynamics of the health market. In every business line, we can do business through the year in health. There is only one moment per year that people can decide whether they want to stay with their current health insurance company or whether they want to move to another health insurance company. So in the last couple of weeks of any year, there is always a very strong competition for health customers. Last year, so end of 2022, for the year 2023, we had a growth of 240,000 new customers. That was mainly due to our pricing position in additional health coverage. This year, we again priced very responsible Not only in the basic health insurance, but also in the additional health insurance. And it was one health insurance player that actually priced very aggressive. So that was a part of the ACMIA group. So they gained a lot of new customers. So that's why we already know now for the year 2024, the number of customers has decreased. At the same time, we have increased premiums in health business. So from a top-line perspective, that will not be fully visible because of the growth of the premium of the remaining customers. And that's why I mentioned the number over the last two years. Over the last two years, we have seen growth of roughly 60,000 customers. So net-net. We have been growing the business and that's actually a growth according to plan. We've always said, well, if we can grow the business around 40,000 customers per year, then we are happy. So with this number, we're still happy. From a solvency perspective, the decrease of the number of customers means a positive impact on solvency. And also from a combined ratio perspective, we think that given the fact that we have price in a healthy way, that will also impact our portfolio in a positive way. And the first question, I'll hand over to Ewout.

Yes, so Ian, on your question with respect to the target solvency level of the legal entities, Actually, it differs a bit from what we have at group level. So for the non-life entities, we aim to have a solstice ratio above the 130%. For the life entities, it is actually the same. But on top of that, we also have said, given the fact that the unit-linked risk was there. We want to maintain 10 solvency points additional on top of the 130. And that's something that we also need to rethink whether that additional 10% is still necessary and at what moment in time we can drop that. But we haven't yet made a decision on that. So these are the target levels for the legal entities. Perfect.

That's great. Thank you.

Thank you.

Now we're going to take our next question. Just give us a moment.

And the next question comes from the line of Stephen Highwood from HSBC. Your line is open. Please ask your question.

Good morning. Thank you very much. A few questions, please. Just on your real estate portfolio, now that you've obviously enlarged it with the Agon acquisition, can you give an update on how your own real estate portfolio performance, the vacancy rates, and also the rate increases on rent that compare to the sort of Dutch market average? I think that you've obviously been doing better than the average, but it would be helpful if you have any colour on this. And, you know, are you comfortable with the current exposures and some of the sensitivity here? Next question, just a clarification. I'm not sure if you've mention anything about the reinsurance retention levels on the P&C side. I'm sure I heard something, but if you could give us an update on what retention cover you have now and if there's been any change since last year. And then finally, I think I know the answer to this question, but I'm asking anyway. Are you interested in ACMA as life and pension business that is up for sale? Thank you.

Let me then take the first two, and then Joschka will probably like to answer the third question. On the real estate portfolio, so yes, we are happy actually with the portfolio that we are having. What we said, the outlook actually of houses in the Netherlands is promising. So the 50%, and the cash flows are very stable because there are no frictional costs in this category. And so the frictional, there are only frictional vacancy, there are no other vacancy, the frictional vacancy in this real estate category. And that makes that we are happy with the 50% that we have in residential. We are also very happy with the 22% in rural, because land is something that no one can make. Yeah, the Netherlands did that back in the 60s, but we haven't planned that as the citizens going forward. and that it makes that actually the price increases of land is already there for many years, even despite higher rates. And that also makes that the remaining 25%, well, helps actually to diversify the real estate portfolio. So all in all, happy with the portfolio that we are having. How that exactly is related to other portfolios in the Netherlands, I don't know for sure. What I do know is how we are focusing our portfolio, what I said, for offices only in the bigger cities. Sorry, near railway stations in the five largest cities in the Netherlands and on the leading university areas for retail. We are only in the main streets and in large shopping centres. so we are having a very focused strategy and that makes that we are also comfortable and happy with the portfolio that we are that we are having but again how that is how that exactly relates to other dutch real estate i i just the heart for me to to comment on then on the pnc retention levels so that is 50 million the pc retention levels that we are having Over time, we already have seen that the premium that we have to pay to reinsurers is increasing despite the fact that actually reinsurers are making money on reinsurance business in the netherlands also we based probably because of the climate change that are impacting reinsurers they also we as a cash cow are facing increased increased premium increases by the reinsurance and the retention levels is increasing a bit compared to last year and that's actually related also to the growth of the portfolio that we are that we are having And then I think yours for the third.

Yeah, on your third question, I think the shortest answer I could give is yes. If and when it is indeed the case that they are considering to sell the portfolio, we would love to have a serious look on that. Having said that, Of course, it needs to fit in the timing of our integration, but normally such a transaction would require a bit more time in terms of decision making on the seller side. So, we can't think of a reason that we couldn't match that somewhere in time. And if I was the seller, I would at least invite the strategic players in the Netherlands on such a portfolio. But up until now, the only thing we have seen is rumors in the press. So let's wait and see what's going to happen.

Thank you very much.

And you asked for the retention number. I already mentioned it. it was 50 million in the BNC. Great. Thank you.

Thank you.

Now we're going to take our next question.

Just a moment. And the next question comes from the line of Jason Kalimbosis from ING. Your line is open. Please ask your question.

Yes, hi. Probably a point and two questions. The first one is coming back to what Nassib was asking. Just wanted to check that, you know, are you considering at some stage still to move to a segmental OCG? Since that would be extremely helpful for us in an area where we don't have always the best tools, if you want, and rely too much on companies on that front to do our focus still. So that's the one. The second thing is, could you give us, and maybe I've missed it because my line dropped, did you give a solvency update or how it has evolved on the market perspective over the last two months? I would have thought that, you know, with the recovery of mortgage, you should be by around up 5%, but could you please comment on that? And the third thing is, again, coming back on the recurring share buybacks and Aegon's willingness to reduce the stake. Do you have in your mind, I mean, we can wait for June to know the quantum of the timing, but do you have in your mind that there is any chance that you don't come back necessarily with the recurring share buyback at the CND in June? Because the only way I can think about it is just if Aegon places the whole stake then you use the PNAP receipt effectively for that, and then effectively the recurring share buyback could be for later because you will always also need to keep capital for the buyouts you would like to do. So if you could help us a bit more in that direction, that would be great. Thank you.

Yes, so Jason, thanks for your questions. To start with the first, so hopefully you're not getting bored, but I'll probably answer it in the same way as I've done with the question of Naseeb. So it's not something that we envisage today to make a split in the way as you proposed. At the same time, we also carefully listen to the feedback that we are receiving also from you as an analyst. So, well, we take into account and let's see how that falls. On the year-to-date solstice ratio, I think two main items to mention there, of let's say maybe three is better. Mortgage spread tied indeed with roughly 40 bps, and that will add around five solstice points. As you know, the UFR lowered with 50 bps, so coming down from the 3.45% UFR to 3.3% UFR. That will roughly take out three Solstice points. And we have sold the bank, of course, which will also bring in 30 Solstice points. So all in all, pro forma, I think the best assumption to make is around the 190 mark.

And on your last question, Jason, you're right. We will come up with further guidance in June next. So it's difficult to walk ahead on that communication already. We are fully aware of what the market expects. We are fully aware of the fact that everybody sees that we will hopefully quite rapidly grow back into our balance sheet. Our view on running an insurance company is that it should be about the long term, and the long term is always about growing the business. And even when we have a lot of capital which we can't use for growing the business, we will find a way to give it back to investors. Our balance sheet is strong enough to carry the pension buyouts going forward. So the fact that we are investing in buyouts doesn't need directly to influence on our decision on that as long as we've indeed grown into the balance sheet. And what we try to clarify is there is, at the end of the day, there is no real dependency on the decision that Aegon is going to take. Even when we have a lot of capital which we can't use, and AGON decides to remain for a longer term, a strategic shareholder, we're not going to wait for their decision. At the same time, on an annual basis, we have to carefully look into a potential moment that they might decide to sell down. And given the size of their 29.99, And given our experience when the government was a large shareholder, we have learned that it is helpful to adopt a part of a potential sell-down. So even when we do have the feeling that there is a chance that there will be a sell-down, we always will try to be able to adopt a part of that sell-down. So hopefully that clarifies a little bit.

Thank you.

Thank you.

And now we're going to take our next question.

And the next question comes to the line of Anthony Young from Goldman Sachs. Your line is open. Please ask your question.

Hi, good morning, and thank you for taking my questions. The first one is a follow-up on the capital and capitalized cost synergy of the 8 to 9 percentage points remaining to be released. Can I clarify, should we expect that to be once every year over the next two years, or like once every half year? Thank you.

Thanks, Anthony. No, I think it's more logical when we look to how the process works that that will be seen by year and not by half year.

Thanks. Can I just follow up on the SOMC2 sensitivity as well? It's just on slide 28. I see a minus 10 percentage point reduction in real estate, reduced SOMC2 ratio by minus 8. Shall we expect that to be lower once the partial internal model is integrated? Thanks.

No, so that's a good question. I think that will increase because what you see today is that still half of the real estate portfolio is on a standard formula. The standard formula has higher required capital. And when you move to an internal model, we expect that the required capital on the ASR balance sheet will also be against lower charges. And when you then have a reduction of the value, then the reduction of the required capital is less, so the sensitivity of real estate will increase.

Cool, thank you.

In both ways. Sure, thanks. Thank you. And now we are going to take our last question for today. Just a moment. And the last question comes from Marcus Rivaldi from Jefferies. Your line is open. Please ask a question.

Good morning, everybody. There's been plenty of questions on financial flexibility this morning. I just want to ask on slide 14, your debt leverage is clearly running significantly below target interest coverage ratios, particularly above what you set yourself. So you've obviously got debt coming up to call this year. Is your view to sort of build debt or increase the gross amount of debt outstanding over the course of this year and to grow into that leverage ratio and go closer towards that target ratio over the course of this year? Thank you.

Thanks, Marcus. So, actually, the clear answer or the shortest answer is that we are not investing in increasing the amount of debt outstanding. keeping it at the same level as we have today, that would be our base case situation. Thank you very much.

Thank you. Dear speakers, there are no further questions for today. I would now like to hand the conference over to Michelle Holtis for any closing remarks.

Okay, thank you. Thank you, Michel, and thank you for all the questions, and most of you we will meet later on today for a live meeting, and we can elaborate further on today's presentation. Thanks for joining us. As said, we are quite happy with the set of numbers that we delivered today, because most people might forget it, but we delivered them in a period that we also are integrating two of the larger insurance companies in the Netherlands and combining an integration, growing the business, remaining a strong balance sheet, and also investing in further future growth. We think it's quite a challenge. We aim to look at the long term, and I think for the long term, this company has set a very, very strong base. to grow further and to remain being one of the most important insurance companies in the Netherlands. So thanks for joining us, and hopefully we will meet in short term live. And enjoy the next call at NN, so you have a couple of minutes to take a break and then listen to Annemiek and David. Enjoy that.