Nn Group Nv Unsp/Adr

Good morning, ladies and gentlemen. This is the operator speaking. Welcome to NN Group's analyst conference call on its half-year results. The telephone lines will be in listen-only mode during the company's presentation. The lines will then be open for a question and answer session. Before handing this conference call over to Mr. David Gnibe, Chief Executive Officer of NN Group, Let me first give the following statement on behalf of the company. Today's comments are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those projected in any forward-looking statement. Such forward-looking statements may include future developments in any group's business, expectations for the future financial performance, and any other statements not involving a historical fact. Any forward-looking statements speak only as of the date they are made and any group assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation for an offer to buy any securities. References made to the legal information on the last page of the presentation. Good morning, Mr. Kniebe. Over to you.

Yes, thank you very much. And good morning, everyone. And welcome to our call to discuss NN Group's results for the first half of 2023. I am joined today by our CFO, Annemiek van Meelik, and our CRO, Bernard Kaufmann. To kick things off, I will provide an overview of our strategic and financial highlights from the past half year. Following that, Annemiek will take you through our investment portfolio, financial performance and progress versus our 2025 target and capital position in more detail. We have made good progress towards achieving our strategic targets since announcing them in our investor update in November of last year. Our ambition is to be an industry leader known for customer engagement, talented people and positive contribution to society, including our efforts to tackle climate change. One of our key performance indicators is our Net Promoter Score, which measures customer satisfaction. By 2025, we aim for both our Netherlands and international units to be significantly above the market average. I am pleased to report that 8 out of our 11 business units are either above average or on par, with several European business units showing an upward trend. We are committed to providing the best possible customer experience to further improve these scores. I'm also proud of the high levels of engagement amongst our employees, which is reflected in our engagement score of 7.9. We continue to focus on creating an attractive and inclusive workspace. While we recognize that there is room for improvement in areas such as process efficiency and collaboration between departments. As part of our commitment to tackle the impact of climate change, we are working towards achieving net zero greenhouse gas emissions across our businesses by 2050, including in our investment and underwriting portfolios, as well as our own operations. In July, we updated our climate action plan with new targets to reduce carbon emissions, non-live P&C commercial lines by 26%, and in our Dutch residential mortgage portfolio by 34% by 2030. We believe that the biggest impact we can make in tackling climate change is through our investments. We have made significant investments in climate solutions, including green bonds, for a total of 9 billion. In summary, we are making good progress towards achieving our strategic KPIs, which will ultimately drive our financial results and create value for all our stakeholders. Innovation and digitalization play an important role in achieving our targets. So let me give you an example. At NN Group, we are committed to enhancing our digital capabilities to provide our customers with the best possible experience. As part of this commitment, we have become one of the first companies to work with JetGPT in our own secure environment at scale. This is part of a journey we have been on for more than two years. Let me give you a practical example of how we have implemented this tooling. Previously, our call center agents would manually enter notes in our systems regarding key topics discussed with customers after the call was completed. With JetGPT, a short summary of the call is automatically proposed, which the agent then reviews before entering into our systems. First of all, it improves the consistency of how we lock calls, which makes customer analysis more effective. Secondly, it has resulted in a significant increase in efficiency, saving an average of 3.5 minutes per call on approximately 2 million calls per year. This is particularly welcome in times of continuing labour market shortages, and the use of artificial intelligence has allowed our agents to focus more time to helping customers. In turn, this has contributed to an even greater improvement in customer satisfaction. We are proud to be at the forefront of digital innovation and remain committed to using technology to enhance our customer experience. Our efforts in the past period have also resulted in a strong financial performance. Anamika will give more color on our financial progress, but I am pleased to say that this has been strong too, with a solvency-to ratio of 201% and strong operating capital generation of almost 1 billion euros, up 15% from the first half of 2022, based on OCG excluding the asset management business. We believe our OCG delivery is of strong quality, reflecting growth in underwriting results and fee business, which we as a management team can influence. partly offset by a lower contribution from Netherlands life due to adverse financial markets. In the current inflationary environment, expenses remain a key focus point for us. We remain disciplined when it comes to managing our cost levels and we continue to track well on the expense guidance that we have given for life, non-life and banking. Our VNB decreased mainly due to lower sales in Japan, following the business improvement order imposed by the local regulator at the beginning of this year. Additionally, our growth in Europe is driven by the shift to protection products with attractive margins, currently 4 percentage points higher than the total new business margin. For non-light, we reflect the positive effect largely coming from discounting under IFRS 17 into our combined ratio guidance. Together with a smaller positive effect from expected strong continued business performer, we lower our combined ratio guidance to 91 to 93%. Our strong performance and robust balance sheet allows us to continue to deliver attractive capital returns to our shareholders. and I am pleased to announce a proposed 2023 interim dividend of €1.12, representing a 12% increase from the first half of 2022. Within non-life, the market has been consolidated. We took a step towards this in 2017 with our acquisition of Deltaloid, followed by the acquisition of the VIVAT non-life business, which was announced in 2019, while several other players in the market also made acquisitions. In 2015, the top three players held a combined market share of less than 50%, which, mostly driven by our consolidating efforts, has since increased substantially. Today, the top three players hold more than two-thirds of the total market. This consolidation has led to improved pricing discipline in the non-life market, resulting in improved combined ratios and higher operating results. Additionally, we strengthened our business with improved underwriting, data analytics, and significant expense synergies. In the past year, our non-live business experienced overhang in its remittances, driven by, for example, integration activities. As a result, the conversion of operating capital generation into remittances has been relatively low. However, with most of these impacts now behind us, we expect future remittances to be more in line with OCG and at higher levels than observed in the past. The stronger remittance pattern from non-life was embedded in our investor day guidance of free cash flow to grow at a mid-single-digit pace. We are excited by the strong performance of non-life today and the potential to exceed guidance. But for now, we keep our $325 million intact. Within Europe, our shift to protection products is helping us to deliver better share of the value in Europe. We operate in nine countries, mostly in Central and Southern Europe, where insurance markets tend to be under-penetrated. Our Insurance Europe segment has shown significant growth, mainly driven by the shift towards protection products with attractive new business margins. You can see the protection new business margin versus the total in the lower chart on the left. Recently, protection margins have come down as a result of higher interest rates. From an overall margin perspective, this was offset by our pension business which faces the opposite dynamic. It is important to note that the recent slowdown of the banks selling less mortgages has had an impact on our protection sales. Our tight agents have been able to offset this trend to a large extent. We see evidence that the mortgage cycle is turning in our European footprint, which should accelerate protection sales and our European business margin. The combination of both margin and volume effects has resulted in double-digit VNB growth, which is recognized in OCG over time. For the second half of 2023, some slowdown of OCG versus the first half of 2023 is expected. As a result, we are comfortable in our ability to achieve mid to high single-digit OCG growth from 2021 levels, the basis behind our OCG target of 450 million in 2025, and thereby almost doubling the OCG level versus 2018. In our home market, the Dutch pension system is undergoing several changes, including the continuing shift from defined benefit to defined contribution, consolidation of the DC market, and new pension agreements that will result in closer alignment between pension funds and insurers. NN is the undisputed market leader in the defined contribution market and is well positioned to capitalize on these opportunities during the five-year transition period to the new pension system. We are also active in the market for pension buyouts and have a solid track record. We remain committed to maintaining pricing discipline when it comes to buyouts and ensuring efficient capital allocation. NN is in a strong position to seize the opportunities presented by the changing Dutch pension market thanks to our unique ability to offer a full range of pension solutions in the Netherlands. Our integrated approach to pension planning has been highly valued by employers and brokers who appreciate the convenience and the efficiency of having all their pension needs met by a single provider. We have a leading broker satisfaction score in the Netherlands. Our unique combination of products and additional service, coupled with our solid investment performance in DC lifecycle funds, has helped us to achieve high retention scores of more than 90% and continued strong net inflow of assets in DC. In the first half of 2023, we realized 1.3 billion euros of net inflows, and we target to achieve 32 billion of assets under management in DC in 2025. We combine our strong business performance with a clear capital return policy. Thanks to the strong long-term growth profile of OCG and free cash flow, we are able to consistently provide our shareholders with an attractive and sustainable capital return. As evidenced by the chart, we have a proven track record on delivering on this commitment. Since the IPO, until the end of last year, we paid out nearly 8 billion euros to our shareholders through dividends and share buybacks. And today we are pleased to announce an interim dividend of 1 euro and 12 cents per share. We expect to continue to deliver on our capital return policy with a progressive dividend and a share buyback of at least 250 million euros per annum. And now I will hand you over to Annemiek to give you more detail on the robustness of our balance sheet and our financial performance.

Thank you, David, and good morning, everyone. Happy to be here to present NN Group's strong set of results. Let's start with the investment portfolio on slide 11. After the banking turmoil in March, we received many questions regarding our asset quality, particularly on our liquid assets, such as real estate and mortgages. To address these, we've improved our asset disclosures, which we typically do by presenting you even more slides, which you can find in the appendix of this presentation. Now, let me take you through some key highlights here. On real estate, our exposure is diversified across various segments with a core profile and we're underweight offices. We maintain strong occupancy rates, averaging more than 95%, and we have the ability to price inflation through rental income for the majority of our portfolio. After many years of positive revaluations, we've seen roughly equal corrections in both the second half of last year and the first half of this year, as we've also guided on. Our real estate partners expect the pace of these negative revaluations for NN's portfolio to slow down in the second half of 2023. During the lower for longer interest rate environment, we've strategically invested in Dutch mortgages, now representing more than a quarter of our total investment portfolio, as you know. Now let me explain why we see very negligible real loss potential on this asset class. Holland has very strict bankruptcy laws. If you're unable to repay your mortgage, you do remain liable, even after selling your house. Around 25% of our mortgages is guaranteed, mostly by the Dutch state. We hold long maturity mortgages with fixed rates, limiting the refinancing risk for our customers. 76% has a fixed rate period of more than 10 years in our book. As of 2013, tax incentives are only in place for fully redeeming mortgages, which help to structurally bring LTVs down. The average LTV is low at 55%, with losses close to zero. Even during the financial crisis, when the average LTV was over 90%, losses peaked at only 10 basis points. So overall, we're confident in the high quality of our investment portfolio, including our liquid assets, and remain committed to a strong and resilient balance sheet, as demonstrated on the next slide. Now, despite the aforementioned continued negative real estate revaluations, as well as interest rates steepening, our solvency ratio demonstrated robustness and increased by 5 percentage points since year-end to 201%. Strong operating capital generation of almost a billion added more than 11 percentage points to the ratio, which more than offset the impact from capital flows to shareholders. The overall impact from markets on the ratio was neutral. Negative impact from revaluations and interest rates, mostly steepening, was offset by the positive impact from credit spreads. During the first half of this year, we took management action to reduce the sensitivity to interest rate steepening, which actually helped us to preserve capital. During the same period, the solvency ratio of Netherlands Life was also robust and ended at 190% versus 191% at the end of 2022. Contrary to last year, during 2023, mortgage margins have been stable at a somewhat contracted level versus the long-term average. We base our capital planning on our view of normalized mortgage margins rather than point-in-time distortions. As one, we see negligible real loss potential on this asset class, as I've just explained, and two, mortgage margins dynamics affect both stock and flow and do cancel out over time. we remain in favor of reducing our solvency ratio sensitivities and are continuing to work to calibrate the mortgage margin dampener, whilst at the same time, as with all management actions, we do carefully weigh the benefits versus the cost. Now let's take a look at our OCG performance on the next slide. It obviously came in strong in the first half of the year and increased by 15% to nearly a billion compared with the same period last year. excluding the asset management business. This growth was driven by strong business performance and a benign weather environment at non-life, continued solid growth in insurance Europe and a higher contribution of NNBank driven by higher interest results. It also included positive variances at our internal reinsurance business. These effects more than offset the lower OCG contribution from life, mainly due to lower positive experience variances and market impacts, as well as a somewhat lower OCG from Japan. Now, looking ahead for 2023 and based on current markets, we would expect NN Life to stay close to its H1 run rate. For non-life, the 90.1% combined ratio in the first half versus our revised lower target of 91% to 93% already indicates that we would expect some normalization while we also saw Storm Poly arrive early in the second half of the year. We would expect the bank's current high deposit margins starting to normalize as well as a normalization of the positive experience variances at our reinsurance business. But still, even if adjusted for these normalizations, we could hit our 2025 target of 1.1 billion OCG two years ahead of plan. And equally important, it includes a more diversified contribution mix consisting of a relatively higher contribution from non-life, Insurance Europe and banks. Now let's move from OCG to the operating result, the first time we base it on IFRS 17 and IFRS 9. As indicated before, the change towards IFRS 17 has no impact on our main targets and capital return policy. For your convenience, we've included several slides in the appendix to explain the main drivers of the transition, including our view on our ability to deliver structural CSM growth. Overall, we see strong business momentum visible in the operating capital generation of non-life banking and insurance Europe come through in the operating IRS result as well. The same holds for the favorable claims experience in our internal reinsurance business and other. As said by David, we have taken our combined ratio guidance down from 93% to 95% to 91% to 93%, largely due to discounting benefits under IFRS 17, but also to reflect our confidence in the continued strong performance of our non-life business. Our net result is down compared to the first half of 2022, which benefited from the 1.1 billion gain on the sale of NNIP. Excluding that gain, the net result is broadly stable. The current period mainly reflects a higher operating result, offset by lower gains, losses and impairments. Now, before I hand over back to David, let me say a few words on our free cash flow generation and balance sheet. with a free cash flow of 832 million in H1, we're well on track to deliver on our 2025 target to achieve mid-single-digit free cash flow growth compared with the adjusted 21 level. This includes the expected improvement of the non-life remittance pattern, as David already mentioned, the continued growth in international, and a stable pattern from life. And, contrary to earlier indications, we already expect that a small dividend from the bank this year is feasible, despite the required counter-cyclical buffer build-up. Now, going towards 2025, we hence expect our free cash flow to become more diversified, and we also expect our OCG free cash flow conversion to gradually improve from the current level of 80%. Despite the repayment of 500 million of senior notes in January, our cash capital position remains strong at 1.9 billion. We actively reduced our 24 refinancing risk by executing a 1 billion liability management transaction in May. Our leverage ratio reduced to 17.8% and we have ample tiering headroom. Now, with a solvency ratio of 201% after absorbing 12 months of negative real estate revaluation. Having actively reduced steepening risk, strong free cash flow generation, and a leveraged position that gives us ample flexibility, we're very comfortable with our balance sheet. And with that, I hand over to you, David.