Good morning, ladies and gentlemen. On behalf of the entire management board, welcome to the a.s.r. Capital Markets Day 2024. We are really delighted to see so many familiar faces here with us today in Utrecht, but I should also say very warm welcome to everybody who's watching us via the webcast. I'm Michel Hülters, Head of Investor Relations, and I have the pleasure to be your host and the moderator for this event. So, today, a.s.r. is going to present its new strategic plans, and Jos Baeten, our CEO, will kick it off with a presentation on how we will continue to pursue profitable growth, create sustainable value, and become the leading insurance company in the Netherlands. And of course, he will also discuss the new ambitious medium-term targets that we have published this morning.
After that, Ewout Hollegien, our CFO, he will discuss the developments that we see in our capital base and how rational deployment of that capital will, in its turn, create new capital and the foundation for capital returns. These two presentations will be followed by a Q&A session, and we have ample time for Q&A until 11 o'clock, and that concludes the first part of the program. Now, the second part of the program consists out of three consecutive breakout sessions, which will be hosted by various members of the management board and the responsible business managers, directors that we have. But I should also say that in the room available today, it's not only the presenters, but basically the entire senior management of a.s.r., and they are here for you for any questions that you would have on their areas of expertise.
So please feel free to reach out to them. They're here for you today. In the booklet, for your reference, we've put their names and their areas of responsibility, and so during the coffee break, lunch, or closing drinks, reach out to them. I'm pretty proud of the fact that they're here with us today. Before we get started, I would like to make you aware of a cautionary note regarding any forward-looking statements which is presented here. It's also in the back of the presentation. Probably something to read on your way back home. But that is my introduction. I would like to get started, so without further ado, Jos, may I invite you to the podium?
Thank you, Michel. Welcome, everybody. With so many friendly faces in the room, I dare to share a dream I had a couple of weeks ago while preparing this, this Capital Markets Day, and actually, it is a pretty realistic dream. It was a pretty realistic dream. It was about a roadshow organized by Michel, and the day started with a very early breakfast with the analyst community, and after that, he had organized eight meetings of an hour with investors. That's roughly the normal day if Michel organizes a roadshow for us. And we started with the breakfast, and analysts started to ask questions and to challenge us, and during that breakfast, a number of analysts said to us, "Well, you should present a.s.r. more as a capital return story.
You're generating so much capital, and you have to return that." And I thought, well, that could be true, but is that the best story? And then we ended the breakfast. We went to the bus, moved to the first investor, a very loyal investor to the company, and we discussed the strategy and everything we've been doing, and that investor said to us, "Well, be aware of the fact I am an investor. I'm not a trader, so please don't return the capital, but invest it in the business." And then we moved on to the second and the third and the fourth one.
Some investors also pointed out in my dream, "Well, you should return more capital," but most investors said to us, "Please invest it in the business." And with that, I was turning in my bed, and my wife woke me up and said, "What's going on? You, you feel so, so restless." I said, "Well, I had a, I had a dream, and I have to think about it." So I went down, took my regular five cups of espresso. That's how I start the day, and I started to think, well, what is the message in this dream? And actually, the message is the theme of this Capital Markets Day for us. a.s.r. is not either a growth story or a capital return story. I think we are both. And with that, I, I wanna look back a little bit to what we've recently done.
I think we've shown that we are able to execute our strategy in a very disciplined way. The way we've allocated capital over time has always been rational and based on economics, and that, for all of you, delivered, at least that's what I think, very good and attractive returns. Currently, of course, we are focusing on integrating the Aegon business into a.s.r., and with that, we think we will create further opportunities for capital generation and also for further growth, and that will, and already it was already mentioned by Michel, that will bring us to the foundation of one of the leading insurance companies, hopefully the leading insurance company in the Netherlands. And we do that on a daily basis with rounded 8,000 very dedicated employees, and today, we are serving over 4,500 customers in the Netherlands.
Our general goal in the Netherlands is that we wanna be value creative for all of our stakeholders. For our customers, we want to be the best financial service provider. For our employees, we want to be the preferred employer in the Netherlands. For the society as a whole, we want to deliver impact through our products, but also through our investment portfolio. And finally, for the investment community, we want to be an attractive long-term investment. And managing such an ambitious plan is very important, and we manage the company with those six colleagues, including myself. And with the six of us, we have 170 years of experience in the financial industry, and within that 170 years, 109 years of experience within this company, combined with Aegon, the Netherlands.
All of us have extensive experiences in M&A, in running the business, in integrating the business, so that creates a tremendous platform for further growth going forward. Talking about growth, in my dream, I also had a moment thinking back on our IPO and what we've done since the IPO. If you take a look at the consecutive periods of target setting, I dare to state that in every period when we set targets, we were able to realize them, but we were also, in a lot of cases, able to exceed them. Of course, last year, we had to state, due to the introduction of IFRS 17 and the fact that we were integrating Aegon, that the targets from then were not viable anymore.
But if I look at the realization in 2023, I dare to state we also there delivered on our promises. And not only in terms of the financial targets, also, if I look at the non-financial targets, if I look where we were in 2018 and where we are today, we're considered by Sustainalytics as the best performing company in the world, in the insurance world. We, in the meantime, have been included in the Dow Jones Sustainability Index and also in the Dutch list, we are the top performer, and we are very proud with that. And we're keen to remain one of the industry leaders also going forward. And across the board, our performance has led to very attractive returns for you as shareholders, and let's have a look at them. In 2016, we were IPO'd.
Our valuation by then was EUR 2.9 billion. In the last 8 years, we have returned EUR 3 billion of capital through our dividends and through share buybacks. So an investor that is with us since 2016 had already a return of 265%, and we're outperforming almost every index over time, and I'm very proud of that. But with that, let's start looking ahead. I already mentioned the integration of, of Aegon, and with the combination, with the business combination between a.s.r. and Aegon, we have created a platform with the potential to be the leading insurance company in the Netherlands. Currently, we are the number two in the Netherlands, but if I look to our position in pensions, we're also the number two, and that will create, and I'll talk about it a bit later, opportunities for further growth.
In the disability area, we are the clear number 1 with the combination of the Aegon and a.s.r. portfolio. In P&C, we've added significant scale, and we're there currently the number 3, with potential for growth. Also important in the area of mortgages, we are the leading mortgage company amongst all the insurance companies in the Netherlands, and mortgages are, for us, a very interesting investment category. With that platform and a successful integration, I think we are ready for further growth. Having mentioned the integration, we already in length talked about it on the thirtieth of November last year, but let me quickly update you on where we are today in the integration.
We have finalized a lot of discussions with our Works Council in a positive way, and that's, that's a step we needed to, we needed to take. We're moving towards our final target operating model. In a number of areas, we're already almost done with the integration. For example, in the asset management area, but also in P&C and disability, we expect that we'll, that we will be done with the integration before the end of this year. For next year, integration will be predominantly about mortgages and individual life, and the pension integration probably will be finalized before the end of 2026. So we're gonna live up to the promise we made, that we will finalize the integration within three years after the, after the, the closing, which was actually roughly one year ago. So we're one-third on our way. ...
Looking forward to the strategy, I think it's important to stress what the fundamentals of our business strategy going forward are? People that are already for a longer period with us will not be surprised. First of all, it remains key that we steer the business on a value over volume basis. We rather don't do any business if we can't create value. Growing the business without creating value is very easy, but we want to grow the business while we create value. So value over volume remains very important for us.
Of course, in a country where growth is not the natural thing, cost discipline remains very important, and we think we have shown that we are able to run the business with a significant cost discipline, and we will keep on doing that going forward. Maintaining a flexible and strong financial framework is, of course, important for financing further growth, et cetera. So, also the financial discipline we have shown over the last, over the last period will also, going forward, remain very, very important. So let me talk you through the key priorities for the next couple of years. This type of slide, I could talk hours and even days about it, but I'll try to keep it brief. Where do we see opportunities for a.s.r to continue our growth path?
First of all, in the P&C and disability market, we still think we will be able to grow in an organic way. So we will continue to grow the P&C business and the disability business in an organic way. In pensions, we have created, with the transaction with Aegon, a very strong position, and we expect, and I will come to that in a moment, we expect that we will be able to grow the pension business as well, as well in the DC area, and with that, setting a foundation for further growth through annuities. But also because we are now also having TKP within the group, we will be able to grow through pension buyouts, and I will come to that in a moment.
In the area of our fee business, we already have a strong position, and we expect that we will be able to continue the position and building the position while we are investing in, for example, TKP. We aim to continue the growth of the fee business also, and that includes our Distribution and Services entity and our mortgage business. Being the leader in the consolidation of the individual life market, we expect that we can capture more efficiencies there going forward, while we keep on serving our customers in the best possible way.
With the changing distribution environment, it is very important for us to be close to our customers, and we think that getting even more closer to our customers and our intermediary will support growth for growth going forward, and that will include becoming more and more gradually an online player in the Netherlands. Of course, our capital base could be more enhanced, especially because of the integration of Aegon Nederland. We do see opportunities to enhance the outcome of our investment portfolio specifically, and Ewout will talk about it in a bit more specifically on the Aegon part. Then a very interesting part of our strategy. We still think maybe unlike some others, we still think that there are opportunities for growth with further M&A, with bolt-on acquisitions.
And I will talk about that on a specific slide where we do see those opportunities. And last but not least, I already mentioned it in my introduction, we are keen to maintain our leading position in terms of of being an ESG insurance company. So with that, let's look at how we... Next slide, please. Yes, thank you. How we look at the deployment of capital. And actually, this is one of the slides that Ewout wanted to present, but when I saw it, I said, "Well, I'll nick this one." And so we will see how he will deal with that. And it is actually about an important sentiment. It is about: How strong is our capital base? How are we deploying capital?
How are we generating capital? And what's our view on returning capital? And let me just give, because I don't want to mow all the grass for Ewout, let me just give some examples. We expect that the total of capital catalysts will generate roughly 40% solvency points going forward. In terms of capital deployment, we think we will be able to create further growth. And with that capital, with that capital generation, we are able to raise the OCG target for the full year 2026 towards EUR 1.35 billion, and I will talk about it in a moment. And with that, we will be able to generate capital return through our dividends and today's announcement of the resumption of the share buyback program of today.
I already mentioned M&A, because there is no M&A in the targets we present today, but I like to talk about it anyway. Where do we expect that we will be able to grow further through M&A? At the end of this year, we are done with the P&C integration and with the integration of our disability business. Specifically in P&C, the top three in the Netherlands owns rounded 65% of the market, and we expect that we will be able to do M&A in the tail of the remaining 15-20 companies in the Netherlands. Because as a P&C company, you have to invest in online, you have to integrate Gen AI, et cetera, and we expect that not every insurance company, small insurance company in the Netherlands will be able to do so. And therefore...
Maybe one back, please. And therefore, we still believe that in the P&C area, there are opportunities, but also in the life area. There are still some small pension platforms that probably may need to find a safe home going forward, due to the fact that everybody has to move towards a new pension law. There is still opportunities from our perspective in the funeral area, and we're hopeful that we, over time, can do M&A in there. And finally, after we have finalized our own integration in individual life, we expect that there are important opportunities in the individual life area. And with that, we think, and as said, it's not included in the targets we present today, we think there is still room to grow, also in an inorganic way, going forward.
Having said that, let's talk you through the targets. You probably have studied them already. Let me start with the organic capital generation. Overall, we have raised the ambition. And I think OCC has quite a nice uplift with over EUR 100 million. Because it, when we announced it, it was EUR 1.3 billion on a run rate base, and it still included Knab. Knab is now sold, so you have to deduct that. And we have raised the target to EUR 1.35 billion, not anymore on a run rate basis, but annually in 2026. So I think quite ambitious in the Dutch market.
Regarding our Solvency II ratio, we keep the hurdle at 160, and that is important because everything above 160 for us is what we call entrepreneurial capital, which we can use to do M&A, but also which is helpful to absorb potential market shocks in the financial markets. We call it our entrepreneurial zone, and as you know, as from 175, we might consider to do share buybacks. Our operating return, also under IFRS 17, needs to be above 12%. So the hurdle remains 12%, and we always wanna be above it, and if we can do more, of course, we will, but the limit is 12%. And of course, that's not nothing new.
The synergy target, the target for EUR 215 million, is still the target which we're aiming for, and we're confident that we will be able to realize that before the end of 2026. But also a number of important business targets. First of all, combined ratio and combined with a growth target. We aim to have at least a combined ratio between 92%-94%, and at the same time, growing the business with 3%-5%. And we can have a lengthy debate whether the combined ratio is ambitious enough, but in our view, and we've done a lot of calculations on that, this will, at the end of the day, create the highest absolute profit growth, and it's a way to protect our in-force profitable portfolio.
So it's a balanced game, and we believe this will create, at the end of the day, the highest absolute growth. In pensions, we have two targets. First of all, due to the change in the pension law, we think that there will be growth acceleration in the pension DC market. Almost every employer in the Netherlands has to think about the pension plan, and we expect that until the end of 2026, we will be able to grow the assets under management in the pension DC business with rounded EUR 8 billion. And that will create tremendous platform for further growth, because all those pension plans will end up in having an annuity. If people are pensioned, that will end up in annuities.
In 2026, we already expect by then that we have done EUR 1.8 billion of annuities, and that will create also further long-term OCC growth. Second target in the pension area is on pension buyouts. If we look at, at the pension market, there definitely will be a number of pension funds, and Ewout will talk a bit more about it, and it will also be addressed in the, in the breakout session this afternoon. We expect that there will be a number of pension funds that will seek for a different solution, than moving the, the in-force liabilities to the, to the new, pension law. We expect that the market will be between EUR 20 billion and EUR 30 billion, and that we, as a, as an important player in the Dutch market, will be able to grab our fair share in the market.
So we assume that before the end of 2027, we are able to generate an additional EUR 8 million of pension buyouts in a profitable way. Because as you all know, the hurdle for every business decision we take is, it needs to have a return of 12%. So if and when we're not able to get a return of 12% in the pension buyout market, we just won't go there. But for now, seeing all the quotes that are asked, we expect that it will be a market, and that we will be able, over time, to reach that EUR 8 billion. And in our fee-based business, we have said, well, at the end of 2024, sorry, 2026, we want to have reached the level of EUR 140 million of operational profit.
So that part of the business is becoming more and more important for us, specifically because it is a fee business with a low capital requirement. Then let's move to the return to shareholders. When we announced the transaction with Aegon, we have raised the dividend bar already with 12%, and on top of that, we have said by then that we will move from low to mid-single digit towards a mid-single digit to high single digit growth of the dividend up until 2025. Today, we announced that we will extend that period, and from now it will also include 2026.
Because of the fact that we don't have already worked out plans for the period after 2026, for the time being, we assume that we, after 2026, might decide to return to normal growth levels in terms of the dividends. As you know, today we also announced the resume of the share buyback, and we have the clear intention to do share buybacks up to EUR 525 million before the end of 2026. Over 2024, we assume a share buyback of EUR 125 million, over 2025, 175 million, and over 2026, a share buyback of EUR 225 million.
And with that, I think we've set a clear set of financial targets with a clear ambition, growing the business, but also the right balance between growth and capital return. But we don't have only financial targets. Today, we've also announced a new set of non-financial targets. First of all, being a customer-oriented company, it's very important that customers perceive you as a positive company. That's why we introduced a new target for customer satisfaction, the so-called NPSI, and that's a Net Promoter Score, balancing how customers look at you after they have had contact, and how customers look at you from an online perspective. So the combination of those two will create the NPSI, and we cover with that, actually, all customer interaction, which we think is important.
Further on, having a dedicated workforce, having fun working at ASR is very important. And we've said, well, we want our employee engagement in 2026 back at the level where we were before we announced the transaction with Aegon. And as you can imagine, during such a period of integrating two companies, it is difficult to remain at that high level, but in 2026, we wanna be back at that same level. We also included a new target on gender diversity. One of my key learnings is that having a diversified management, and we're now 50/50 in the management board, is helpful to grow the company in a balanced way.
We've set a target that in 2026, we want to have at least 40% of our management people being either a female or a male person. We're not yet there, but we believe that in the next three years, we are able to grow towards that number. It's also important, as a large financial institution, to have a positive attribution to climate control. That's why we introduced two targets. We already had two targets. First, the first target is a target on CO2 reduction. Up until last year, we were able to reduce the CO2 footprint of our portfolio with 70%. But now we've added the portfolio of Aegon.
We had to create a new base year, so the new base year is 2023, and as from 2023, up until 2030, we aim to reduce the CO2 footprint in our portfolio with 25%, and we want to be fully neutral in 2045. On top of that, we also have set a target on impact investment in 2027. We want to have at least 10% of our total portfolio in the area of impact investment. And with that, I come to the final target being the brand reputation. I don't know how it is in other countries, but in the Netherlands, it's very important that you, as a company, are perceived positively in society.
That's why there is an important target being perceived as a positive brand, and that's why we have set a target on brand reputation, and that needs always be between 38% and 43%. So at least roughly, this percentage of the people in the Netherlands should think positively about a.s.r. Very ambitious targets. With that, I think we present today a very compelling investment case. A resilient balance sheet, also going forward with a strong financial flexibility. The ability to deploy our capital in a rational way, with a very compelling business plan, offering growth in an organic and inorganic way. An ESG profile reflected in clear targets going forward.
Very attractive capital return through either the dividend and the share buyback, and a potential return over the next 3 years, where we did EUR 3 billion in the last 8 years, a capital return of over 2 and 2.5 billion for the next 3 years. And with that, I like to wrap up. I think we have the proof that we are able to deliver, because we have a very solid track record looking back. We're quite excited about the opportunities to grow the P&C business, the disability business, have a strong position in mortgages, and specifically in the pension business. We have a compelling strategy for that, with ambitious targets in the Dutch market, and a strong record.
And that's returning to my dream, that we are able to grow the business combined with capital returns to shareholders. And with that, I'd like to hand over to my dear colleague, Ewout, and he will talk you through a lot of interesting things in terms of our capital position. Thank you.
Let's do that. And, thank you, Jos, and good morning to you, to you all. I, I mentioned it yesterday to, to many of you already, but I really appreciate it, that so many of you actually came to Utrecht to visit the Capital Markets Day. And of course, also a warm welcome to everyone who is dialing in through the webcast. And Jos already made clear in his presentation that a.s.r. has attractive growth opportunities, and we have the capital actually to support that. And at the same time, the growth in the business will go hand in hand with increasing level of capital returns. And the title of my presentation actually says it all, Putting the Balance Sheet to Work.
When we look to my key messages, I think it's important to mention that a.s.r. has a strong and resilient balance sheet, which is the foundation on which we can operate and realize further growth. That's also what we have done when we did the Aegon NL acquisition. We used EUR 500 million of excess cash from our balance sheet to actually invest in growth and in a profitable manner. We see four main areas for capital deployment: organic growth, pension buy-out, de-risking, and M&A. And these opportunities, with the exception of M&A, will result in the higher OCC ambition of EUR 1.35 billion in 2026. And this is also the basis for our capital return to shareholders, with a strong and progressive dividend.
As promised with the Aegon NL acquisition announcement, we will have a mid- to high single-digit dividend increase until 2025, and today, we actually increased that with one year until 2026, which underpins the trust that we are having in the business plan that we are presenting today. In combination with the share buybacks, we expect our capital return to exceed EUR 2.5 billion in the coming three years, which is actually very close to the EUR 3 billion that we have done since IPO eight years ago. Three years ago, we introduced this capital wheel, and this is actually still the way we are looking to it. A strong and robust balance sheet is really the foundation for everything.
That, together with a strong financial performance, has been the foundation that enabled us to execute our strategy over the past years. And my definition of a strong balance sheet is a strong and high quality solvency capital, with manageable sensitivities and ample financial flexibility. Because we value this highly, this is also why we have said we want to grow back into the balance sheet in 2024, to absorb the impact of the Aegon NL transaction and strengthening the balance sheet, which brings us back in a position to invest in growth again. And that give us the opportunity to deploy capital rationally, like we have been doing since we got IPO'd, and actually also the years before IPO.
We expect to allocate around 20 percentage points of solvency in de-risking and pension buyouts, and we will have ample room, room to grow even more. Through this deployment of and of course, running our business successfully, which is always a very important element, we will grow the business and our level of capital generation to EUR 1.35 billion in 2026. And this will in turn lead to an increased shareholder return with progressive dividends and share buy, share buybacks, that also will keep pace with the growth in the OCC. Yeah, this slide shows our solvency management ladder, and I hope it is familiar for many of you, because actually the setup hasn't changed before, and actually, we could also have skipped this slide.
But still, I feel it's important actually to look at it and discuss it a bit. Because it is actually true that we now also maintain the solvency management ladder, now we bring a.s.r. life to partial internal model as well. And some of you, and we have had discussions in the past, thought, "Okay, so you actually lower your required capital, so then you will probably increase the level of your management ladder." Others ask us the question, "Now you have better assessed the risks on the assets and liability side, and you have the capital that you hold is more related towards the portfolio.
There's actually less risk available, so you can lower your capital management ladder." I think both are fair views, and that's why we say, "Okay, we keep it as it is," because we are actually very comfortable with this solvency management ladder, and that's why we maintain and stick to this Solvency II management ladder. It remains important to keep the sensitivities manageable, and from that point of view, we are very comfortable to be entrepreneurial above the 160% level. And of course, pay out our progressive dividend policy over the 140% level, and when we are above the 155% level, we are in an additional capital return zone.
And where we look at the additional capital return in a way that is most efficient for you as a shareholder, and it can be halted, as, as we have done with, with the Aegon and NL, acquisition, when large M&A or added value, or the value opportunities arises. As you know, our post-acquisition solvency ratio by full year was 176%. And we, and we mentioned that we want to grow back in the, in, in our solvency, position. And we see four catalysts for the solvency. The sale of bank is something you already know, which we, which we announced in, in, in the beginning of the first of February 2024, which will leads to a EUR 510 million proceeds that we received from BAWAG, and an increase of the solvency position with 13 solvency points.
Secondly, in line with our presentation that we did in November, we have increased the level of synergies that we expect from the Aegon NL transaction. That, that will flow into the OCC, but also partly will be recognized in the level of solvency. There are still 9 solvency points to come from actually the level of synergies that we realize in the life segment. Thirdly, we are on track to implement the partial internal model. The first phase is to implement the partial internal model for a.s.r. Life by end of 2025, and that will also be included in the full year 2025 figures as we see it today.
And after that, we will continue to implement the partial internal model for the non-life business, and we expect that the total solvency uplift will be somewhere between 10-15 solvency points, of which the a.s.r. Life partial internal model is the largest component of that increase in the solvency position. The fourth element to mention is the Solvency II 2020 review. It is something that has been discussed for many years already, but it looks like we are on the final stretch of getting this passed, and translated into the adjusted delegated acts. Currently, we expect as of that, that it will be implemented as of full year 2026.
Could also be the first of January 2027, but it's also, everyone is working actually to be set to recognize that by end of 2026. At full year 2023, we expect, we, we estimated the positive impact to be around a high single-digit number, and the driver behind that is the lower cost of capital for calculating the risk margin, which is only partly offset by a change in the regulatory curve, where you now take into account, also market data of the 40 years and 30 years and 40 years points on the, on the curve. All of these elements together, as presented on the slides, will lead to around 40 solvency points uplift on the a.s.r.'s group solvency ratio until 2026. A real significant uplift, one could say.
At the same time, we also expect some extraordinary capital deployment, and we have discussed it already, but mostly worth mentioning, pension buyouts and the riskier parts, which in total will take roughly 20 solvency points over the next years. The number that we present over here does not reflect the retained OCC nor the capital return, but should already give a clear visibility on the improvement of the solvency ratio in the plan period. And that provide us with ample flexibility to operate with a robust balance sheet. Extra so, if you take into account the healthy leverage ratio that we are having, ample Solvency II headroom, and a nicely staggered debt profile. And I think also the pro...
The confidence is recognized by S&P, which already confirmed a single A rating and stable outlook after the acquisition. Looking at the own funds and the required capital development over the last few years, it actually doesn't really capture what happened since our last Capital Markets Day in 2021. In 2021, I told you about the benefits of having diversification in your portfolio, both in operating results term, post-COVID, but also from a capital diversification perspective.
What happened since then is even further proof of our resilient balance sheet and business portfolio, and just to name a few: We have seen a lot of geopolitical uncertainty, various wars as well, an energy crisis with a huge increase of energy costs and electricity prices, and we have seen banks in the U.S. and in Switzerland even go bankrupt and getting into troubles, also leading to an RT1 and AT1 market that's actually crashed. Interest rate, we have seen rising from 0% to 4%, which is a huge, huge gap if you are not equipped for that. And we, of course, as a.s.r., and like, and others in the sector, also have settled the unit-linked file.
This, in combination with two other factors, namely the introduction of IFRS 17, accounting standards, and the acquisition of Aegon the Netherlands, resulting in a situation that is barely similar to what it was three years ago. The fact that all of these elements have been absorbed in the eligible own funds and in the required capital without any notable impact is a testament to the robust approach that we have on risk management. The underlying quality of own funds have significantly improved, and today reflecting much more economic reality. The UFR benefit in the solvency position has reduced significantly, so it's almost disappeared. Because of that, you also see that the UFR drag is at a much lower level than it was before.
The capitalization of cost synergies will further improve the eligible own funds and add additional positive impact to that. Also, organic growth will, from our business and plans and the organic capital generation, will further improve the quality of our own funds. The required capital increased a bit more than the own funds, but bear in mind, the required capital is also impacted by the bank that we still have in these numbers. The underlying division in the different risk categories, between market risk and insurance risk, have remained roughly unchanged, and the implementation of the PIM for ASR Life will lead to an overall reduction of the required capital. Having said that, let's look to the next slide on how we look to capital deployment. So basically, we have now discussed the robust balance sheet, and now we will look to capital deployment.
We see actually four main areas for capital deployment. That's organic growth, which is, has been discussed by Jos, so let me focus on the other three parts, being the pension buyouts, the balance sheet de-risking, and shareholder return. We start with the pension buyouts. I'm sure this will also be widely discussed in the breakout session later today, but let me give you some insights on how we look to this opportunity. The main buyouts opportunity are coming from corporate pension funds. Roughly 90 corporate pension funds, we believe, may look for an opportunity to actually hand over their business via a buyout. The market, the 90 corporate pension funds in total represent a kind of EUR 300 billion of AUM.
On the back of the new pension legislation, corporate pension funds have to take a decision what to do with their pension obligation. They can either convert it, the existing entitlements into new DC type of business. That's one opportunity that they have. Or they, they keep the existing setup for accumulated reserves themselves, which is difficult because there's no new business added to it. Or they can enter into a buyout agreement with selected parties like a.s.r. We expect by the end of the day, that EUR 20 billion-EUR 30 billion of AUM will choose for a buyout selection, solution, which will most likely be the smaller corporate pension funds.
We target EUR 8 billion of the total, of the 25, 20-30 billion, that, that we can, that we can aim ourselves, and that is the target that we are, that we are having. Please note that the plan that we are having exceeds 2026, because the pension reform no longer allows DB per the first of January 2028. So there's also a 2027 year that we expect buyouts will come to us. EUR 8 billion is roughly one third of the, of the market that we expect, and knowing that the competitors are NN and Athora, we are actually saying here we believe we can have our fair share in the market. And competitive advantages and why is that the case, yeah? Because it's all about competitive advantages.
We believe the competitive advantages in this field are the following: It starts actually with that the board of directors of corporate pension funds will have a look at the company profile. And ASR, being 100% Dutch name, a reputable name, a thought leader in the pension area, and with a strong track record, makes actually that it's a reputable name to choose and pick as in corporate pension board of corporate pension funds. The admin capability of TKP is widely regarded as top-notch. Being able to onboard large pension fund admins and provide high quality services and also participant communication, are a differentiating factor to this. In pricing itself, there are three areas where you can stand out. One is that, is the level of cost.
With TKP, we believe we have a cost-efficient platform which provides us a competitive advantage in pricing. The second element, which is also very important, is actually the day one strain that you have. So when you calculate an IRR, it's the day one strain is very important in the IRR calculation, and then you have a benefit when you have a partial internal model like a.s.r. is having, compared to a standard formula. And so that's the second benefit of distinguishing factor. And third distinguishing factor is in the asset mix that you choose and the excess return that you are applying.
I do not want to inform our competitors too much, but you have to seek a healthy mix between liquid assets and illiquid assets, and also high return on capital versus an absolute, in absolute terms, an attractive yield. As communicated earlier, we will strive for an IRR of at least 12%, which is regular to our M&A approach that we are having. Also the M&A team is highly involved in all buyouts that we should have as a management board on the table. If we can't do deals for this 12%, we will withdraw. The potential impact of doing buyouts will differ per portfolio and is dependent, for instance, on the duration of the portfolio. That's one.
It's dependent on the asset mix that you choose, but it's also dependent on whether or not you use longevity reinsurance in buyouts. On average, we expect that EUR 1 billion of AUM will roughly cost us 1.5 Solvency points. And EUR 1 billion will probably bring around EUR 10 million of OCC, and that brings you to a payback period somewhere between 8-10 years. That's where how we look to buyouts with a duration, roughly on average, about 19-20 years. The And the OCC impact that we, that we calculate is done on a quarterly basis and will this, so will be visible in the OCC the first quarter after a deal has closed. Let's now turn to the next slide to start on the second part of capital deployment being de-risking.
Running a robust balance sheet also means that you have to have to have an attractive risk-return profile in your asset portfolio. Each year, we run a thorough strategic asset allocation study, and we included some additional information about this process in the breakout presentation of the segment asset management. In the strategic asset allocation, we run over 2,000 scenarios to find the optimal investment portfolio, taking into account Solvency and liquidity position. In general, the ASR balance sheet is already in a relative optimal state, but given the addition of Aegon NL, we see additional room to optimize the investment portfolio. For the medium term, for the medium term, we see a potential uplift in the OCC of EUR 30 million-EUR 50 million, and the optimization mainly relates to three key areas.
One is the spread optimization within the govies portfolio. So we have seen that the Aegon NL balance sheet is heavily invested in triple A govies, and we see room actually to invest more in single A and double A govies, actually picking up some additional yields that these instruments are offering. The second one is that we see opportunity to increase the portion of equities by moving out of mortgages, and that's the effect because we have seen that there's a kind of underweight in the position of equities in the Aegon Life balance sheet.
The third optimization that we are seeing is actually moving more from the liquid, credit side to the illiquid credit side, and these are assets that, that fit well with our long duration liabilities, and our way to monetize actually the liquidity premium. The increase, the required capital, of course, will increase also on the back of this de-risking side, and we expect it to be somewhere between 5% and 10%. We on average say it's roughly 8%. The de-risking is, an outcome will, of course, be dependent on market circumstances, and we will always look, and we will always run this as a, as a strategic asset, allocation process every year, so there will also be room to further optimize in the years thereafter.
This is the view that we are currently having when we talk about the de-risking of the investment portfolio. A large part of the plan to optimize the sovereign portfolio is actually already done, as you can see also on the slide. I will expect it will, that it will take until 2025 before we do the full de-risking in equities and in the illiquid sides, because we want to take a patient and economic approach in de-risking. With our in-house asset manager, we can act swiftly when opportunities come up. Let me turn to the next slide to see how this is impacting the OCC going forward. Jos already said it, we expect to make a significant step up in the OCC in the coming 3 years.
In October 2021, with the acquisition announcement of Aegon NL, we targeted a run rate OCC of around EUR 1.3 billion after 3 years of the closing of the transaction. With the sale of Knab this year, the EUR 1.3 billion would be lowered with EUR 50 million related to the loss of earnings from the bank, but also the loss of earnings from not managing any longer the mortgage business on the balance sheet of the bank. From this adjusted level, our now new target represents more than EUR 100 million of uplift, resulting in the EUR 1.35 billion OCC in 2026. And let me discuss the main moving elements in this uplift. One is the updated cost synergies that we presented in November last year, leading to an OCC uplift of EUR 20 million compared to the original target.
Second one is the OCC contribution, and we discussed that, coming from the buyouts that we are expecting to realize in the planned period. The third element is the de-risking side, EUR 30 million to EUR 50 million, on average EUR 40 million, that we also expect in the planned period to come through the OCC. Furthermore, we would foresee an increased OCC contribution from the updated business plan that we have presented today, and a small positive impact from the updated OCC methodology, which I will explain in more details later on. Our new target also includes higher debt expenses and a lower expected OCC contribution from the TKP platform related to additional investments that we are doing over there to become the winner in pension administration.
As a reminder, our current number is a reported number, 2026, and not a run rate number as it was before. I believe, all in all, a very strong and ambitious OCC target for 2026, which is based on the assumption of normal financial markets and current expectation in relation to interest rates and spread development. I think this one is a very nice slide because three years ago we presented the 10-year projections of the organic capital generation from the life segment to show you all that the contribution to the OCC from this segment is actually very stable going forward, despite the fact that we are looking to a run-off book....
On this slide, we show you actually a similar projection, now including the Aegon NL business, to prove and show that it's, this is actually still the case. In this picture, already included, is after three years, the fact that we move towards a partial internal model, which lowers the release of required capital, but also the implementation of these Solvency II 2020 review, which lower the release of risk margin over time. That's already included in this picture. For the medium term, the strong expected growth in life OCC is mainly due to buyouts. In the years thereafter, the OCC contribution from pensions includes an increase in contribution from pension DC and annuities, partly offset by a declining contribution from pension DB.
The funeral business is actually expected to remain stable contributor, given the long duration of the portfolio and because we still add some new business to it. The OCC contribution from individual life shows a declining pattern in line with the run-off of the portfolio, which actually also proves the same that Jos is making, that we still expect also other individual life players to seek for a solution. So to summarize, what we actually see over here is that DC annuities, pension DC annuities, and buyouts will more than offset the decline of the individual life book and the in-force pension book. So again, OCC contribution from the life segment for the next 10 years is expected to be stable to slightly growing. And let's now look to the updated OCC methodology on the next slide.
We have decided to remap organic capital generation components to enhance the comparability between IFRS 17. As of H1 2024, we will start disclosing our OCC according to this new methodology and bucketing. In addition, we further align OCC with the concept of free cash flow generation, and that will enable us also to disclose segmental numbers as per full year 2024. Let me briefly touch upon the remapping first. As you can see on this slide, the remapping will result in some differences. The idea behind the buckets are the following: business capital generation will represent business impacts, like the result from fee-based business, value new production, risk margin impacts, and holding expenses. The net SCR release will now only relate SCR-related components.
The finance capital generation represents the excess returns, the finance expenses, expenses, including hybrids, and the UFR drag, which is actually the equivalent of the elements of the, that are part of the operating finance and investment result, that are part of the IFRS operating result. And that will improve comparability between those worlds. And we will still have differences in the outcome between IFRS 17 and OCC. For instance, the interest rate curve that you apply, the credit risk adjustment, the volatility adjustment, the CSM, et cetera, et cetera. So a lot of differences are still there, but because of this, it will become much more transparent and possible to bridge IFRS to OCC. The main changes that we have made to the OCC methodology relate to the following points.
OCC will be a quarterly number going forward, where in the past we had a UFR drag and the SCR release as on an average basis between beginning of the year and the end of the year. We will now do that on a quarterly basis, so the full year OCC will be addition of four quarters. The OCC will now be built up from the underlying insurance entities, and not, instead of from a group perspective, which reduces non-cash components like diversification impacts. The SCR release methodology is updated, and SCR impacts are now multiplied with the SCR target of the underlying insurance entities and not the reported ratio at the group level.
There's, by the way, no change in excess returns, let that also be clear, and there's also no, no change to the existing seasonality pattern regarding new business. So H2 OCC will still be lower than H1, especially given the new business rate in disability. All of these adjustments will have the benefit of further align OCC with free cash flow, free cash flow generation and enable segmental disclosure in the future. I've seen Jason coming in, because during the full year call, we already received a question from you, Jason, so hopefully this commitment also make you happy going forward. And on this slide, you can also find a rough indication of the expected OCC per segment as a percentage of the total OCC before deduction of the holding and other segments.
That brings us to the capital return. As you can see, we have a strong, a very strong and increasing track record of capital return. With a total of EUR 3 billion capital return since IPO eight years ago, we actually returned more than the market cap that we had at the IPO. Over the last year, the payout ratio have been somewhere between 60%-70%, and with the capital commitment, we expect the payout ratio of OCC will be between 70%-75% in 2026. This will reflect that we first grow back into our balance sheet and then grow our OCC related to the synergies and the capital deployment. And that enables us to offer a strong capital return in combination with business growth.
Let's have a next slide, and Jos picked it for me, but I will discuss it myself as well. In the new plan period, we offer very attractive return to shareholders, as said. Starting our progressive dividend policy, we continue to deliver on the promise that we made on the 25th of October, 2022, with the—when we announced the Aegon NL deal. We did a step-up of 12% in dividend per share at that moment in time, and we increased actually the progressiveness of our dividend policy from low to mid-single digit, to mid to high single digit. And we have promised to do that until the period of 2025, and as said, today, we actually extend that period to 2026. So a mid to high single digit progressive dividend also in 2026....
and that we are confident in doing this because of the business plan that we are presenting today, where we have a lot of confidence in. After the plan period, we expect this to normalize again, but we will see how things are going at that moment in time. In addition to the dividend, we intend to have a progressive share buyback also, which is announced every year at the full year results. And the share buyback will grow from EUR 125 million over 2024, EUR 175 million over 2025, and EUR 225 million over 2026. We have the intention to participate in the potential sell-down of the ASR stake by Aegon, if and when that would happen.
And this participation will be funded from the total EUR 525 million of intended share buyback of the planned period, which actually could lead to an acceleration as well in the timing of the share buybacks. So in total, our capital return is expected to be more than EUR 2.5 billion in the coming period, just below the EUR 3 billion that we have done since we got IPO'd eight years ago. And that brings me actually to the key messages that are presented over here. To summarize, we have a strong and resilient balance sheet. That is the foundation for future growth and capital return, and where most of the corporates are focusing on one, we are actually focusing on both.
We will deploy capital in organic growth, re-risking, pension buyouts, and if possible, always also M&A, always sticking to our financial discipline. Our business plan drives our OCC ambitions up towards a level of EUR 1.35 billion, and that allows us to offer attractive shareholder return with a progressive dividend and EUR 525 million of share buybacks, resulting in EUR 2.5 billion of expected capital return in the next three years. With that, I conclude my presentation and would like to hand it over to you, Michel.
Thank you, Ewout, and can I invite you, Jos, as well, to the podium, because we're going to start the Q&A session. Okay, some housekeeping rules here. So if you have a question, yes, please do raise your hand. Carla, we have here, and Jan Willem carrying the microphones, they will come to you. But if you could please state your name, company name, and limit yourselves to two questions, so everybody get a turn to ask questions. So I thought, yeah, Cor was, I mean-
Now, good morning, and thanks for the clear presentation. Cor Kluis, ABN AMRO Oddo. Got two questions. First question is about the pension buyouts. You put EUR 40 million of pension buyouts in your 2026 target, but you target EUR 80 billion in pension buyouts, so I miss another EUR 40 million. So does it mean that for the years after 2027, 2028, we will get an extra EUR 40 million? So that's a little bit guidance for OCC after 2026. But is that correct, and are there other things we have to take into account what's going to happen after 2026?
My second question is about, I think it's also more for Jos, the excess capital. If you make a little bit back-of-the-envelope calculation of the excess capital by the end of 2026, we come quite close to, maybe EUR 1.5 billion, 1.5 billion, 1.2 billion excess capital, around 220% solvency ratio. It's a lot of excess capital, even after this big share buyback that you announced today. Can you elaborate on what you could do with that? You already have included share buyback, the pension buyouts in this one, so that's out.
So, just through all M&A and share buybacks, what's the thinking about returning that extra excess capital by in two years from now?
Maybe you want to answer the first one, and then, Yeah. Yeah, no, on the, I think on the pension buyouts, so what we take into account is so we, the ambition that we set is a reported number, right? So that's I think that's important with that. So, and in the reported number, we expect a contribution from the buyouts of in total EUR 40 million, and we expect the buyouts, and what that actually means is that we expect buyouts to come in, well, maybe some, by end of 2024, some during 2025, and some during 2026. But the full amount of what you realize in 2026 will not be recognized in the in the reported number.
And indeed, we also expect still, in 2027, that buyouts will kick in. So that's the reason that you don't see the EUR 80 million, but the EUR 40 million. And then to your question, if we are able to, to indeed live up to our target of EUR 8 billion of buyouts in the, in the, in the coming four years, actually, then I, we would expect that in total, EUR 80 million will be the contribution from buyouts, so that's correct. And to your second question, Cor, I think well done, the calculations, but we still have to see to get there. That's I think, the first reaction. We never put a number on as from which exact solvency number we consider, that we are in an excess cash situation.
I think learning, and Ewout presented what happened during the last couple of years and the economic movements, et cetera, the wars, the energy transition, et cetera. I think we're comfortable to be always somewhere in the zone between 195-205. So theoretically, you could consider that higher solvency numbers could end up in a discussion on excess cash. The way we look at it is, as long as we are able to deliver above the 12% return on investment-
... We're still doing the right thing with shareholders' money. We prefer to invest it in the business, so it might give us the ability to look to more M&A, et cetera. And at the same time, we've always been clear, if we can't use the capital for the business and our ROE starts to erode, that is the natural moment to start to think about additional capital returns. So we don't want to be capital hoarders. If we can't use the capital in an efficient way, and as long as it is above 175, we always will consider what to do with the capital towards shareholders.
And if we can't use it for the business, then we definitely will find the most efficient way to return it to shareholders. It's like having a mortgage. If you have a higher mortgage than you need, at the end of the day, you return it to the mortgage provider.
My visual focus was quite narrow, and I saw Benoit hand-raising as well, so I will come to the periphery a little bit later on, guys. But Benoit.
Yes, Benoit Petrarque from Kepler Cheuvreux. So just to come back on this, excess capital, so the fast-forward 196 plus the capital generation, so towards the 215% plus by 2026. Clearly, you could get significantly above the 205% level you just mentioned. So, you know, could you reconsider the EUR 525 million share buyback during the plan? Or, you know, will that not change whatever happens on capital? So is that fixed for the time being?
Let me first respond to that, immediately. What I've said, we feel comfortable in the 195-205 range. That is not setting a hard number, let that be clear. We don't want to be capital hoarders, as I said, and I consider those kind of situations as quite luxurious situations to be in, and we will take decisions when we get there. I think the key message is we don't want to be capital hoarders. If we can't spend the capital on growing the business, we definitely will find a way to return it to shareholders in the most efficient way.
Yeah, clear. And just maybe on the M&A opportunities, do you think that we could get something during the plan in by end of 2026? It seems that the tail will take time. It's bit... You know, you have companies, smaller companies, who are really waiting a bit longer. And linked to that, you know, could you also use the leverage? Because you have also leverage capacity, obviously. And could you leverage up a bit to fund the M&A side? Thank you.
Thank you. It all depends on the size of a transaction. We prefer to finance it from our own balance sheet, if the returns are above the hurdle of 12%. And if we might need additional capital, of course, we still have room in our debt situation. And whether that will happen in the planned period, by definition, M&A is more or less opportunistic. It depends on market situations, it depends on decisions from others. We're always keen to talk with parties, and we never mention whether we are in conversations or not.
But be aware of the fact we're always on the lookout, and if there are opportunities, we're keen to entertain conversations with the clear remark that our preference for the short term might be more in the area of small pension portfolios, P&C and funeral. And we first have to finalize the integration of the individual life book, because that is a large integration. So, hopefully, if there are opportunities in the individual life business, they start to arise, let's say, somewhere as from mid-year next year.
Okay. Michael?
And you've got more... I worked out, you've got more capital, so that's one question. And then the other one is TKP, where it sounded you were going to put more money in, and I was interested in that.
Mm-hmm.
On the capital, so EUR 3.6 billion is roughly the OCC earnings in the next two years. Two point five is what you give to shareholders, so there's an extra EUR 1.1 billion, which is about 20 points. So you'd actually reach 235%, not 215. So I just wondered if the math is right and what you'd do with it. And on TKP, it appeared as a negative in the slides, and you didn't put a number to it, but I'd be interested to understand what your thinking is and, because I sat at the same table as Paul last night, and he said, "Actually, I'm the facilitator." I thought he was actually the switch, allowing pension buyouts to happen.
Maybe you could give us a little bit more color there. That'd be lovely.
Maybe you want to go into the-
Yep
... first question.
Yeah, no, absolutely. I think, I think that it comes down to the, to the same questions as, Scott and, and Benoit asked. So indeed, so we expect when you look to the, to the, to the catalyst that we have in our solvency position, the fact that we generate more OCC than we return, that we can grow into our, to our balance sheet. We believe actually that's a good thing because it offers us the opportunity to grow even more, right? So that it will not. That is actually the, the key preference that we're having and that we also want to pursue, is that we believe we can further grow, the, the business.
By growing the business, can also, will also result in a, in a higher level of capital generation in the years thereafter. Like Jos said, if there is a moment in time that you actually see that the growth opportunities are not there, it's eroding the, the return on capital that we are making. Yeah, we are. We haven't been capital hoarders in the past. We will not be capital hoarders in the future. So if there are no deployment opportunities, we will be rational like we have been all the time. So that would be my answer to the question, actually, hopefully consistent with what Jos already mentioned to that.
... I think it is. On your second question on TKP, actually, TKP, if you, if you zoom into the organization, you see two different organizations within one company. One is a rounded number, roughly 75% of the TKP business is serving the admin of pension funds, and roughly 25% of it is working for the insurance business. The investment we're doing in TKP currently is not specifically on the insurance part.
So if we do pension buyouts, that the fact that we're still developing TKP is not harming that part of the business because the investments are predominantly in the servicing of the pension funds that are already a client of TKP, and because all those customers have to move towards the new to the new pension system, we have to invest there. It's right, we haven't put an explicit number on it. The investment will be predominantly this year. I do it by heart. I think it's this year, around EUR 18 million. The next, in 2025, around EUR 7 million, and the last year, another two, rounded number, two million. Payback time of the investment is very interesting.
It's very short-term payback time, and we expect that we in 2026 will be already neutral. So as from 2027, the business will add additional value. So we were happy to do the investment because it is a very short payback time.
Looking also at that side. Yeah, Ian?
Hi, Iain Pearce from BNP Paribas Exane. Just a couple on the growth that you've talk, sort of spoken about, mainly on the organic side. On the 3%-5%, is that just in line with market assumption, or are you expecting to grow ahead of the market? And if, if you are expecting to grow ahead of the market, why? And then secondly, just on growth strain, you've spoken a lot about the growth strain coming from some of the inorganic opportunities. What do you see as the growth strain in the organic opportunities, and are there any other investment costs associated with capturing some of this growth beyond what you've spoken about with TKP?
Okay. If I look, for example, at the P&C markets, the last couple of years, I think, most competitors were able to grow the business with one to two percent. We were able to grow the business with three to five percent, and I think that's predominantly to a number of factors. First of all, our relationship with brokers in the Netherlands is considered to be as one of the best. Secondly, what brokers hate is a policy that one year premiums go down, the next year, they go up significantly because it's necessary, because there are losses, and then it goes down, et cetera. We've been fairly consistent in how we deal with pricing going in the past and going forward.
And, thirdly, the way we are servicing brokers and customers is perceived as very positive, that we do see that in all kind of investigations done by independent organizations. So that together, and the fact that we are rational pricers, made us as one of the preferred suppliers. And the predominant growth in the, especially the P&C business, was in the area of SMEs. Our market share in the retail, it also grew, but that was more towards premium increases. But especially in the SME markets, we were able to grow the business harder, more towards the normal market share we have also in retail. And maybe you want to reflect-
Yeah
... on the second part of the question about-
Thank you. So, correct, yeah. So the inorganic growth strain is what we presented. Separately, also to make clear that there is also a kind of deployment that you are doing. When we look to the OCC ambition that we have set, the organic growth strain is actually included in that. So if you grow in the non-life business, that also costs you capital, and that is part of the OCC ambition that we set. Having said that, let's assume that you grow in, for example, annuities, or that you grow into non-life business, you also receive more premium that you are having today. You always try to optimize, for example, the investment portfolio also for that type of business.
That's not included in the OCC, so that could be a kind of additional capital deployment that you get, but might also offer additional returns. But in general, the business plan that we are presenting, it brings growth, it brings indeed strain, and that is included in the OCC ambition.
Okay. Steven?
Steven Haywood from HSBC. I know it's not really looked at much, but on your IFRS target, your 12% operating ROE, it seems challenging to me. You know, after the bank sale, it's taking out some earnings, and the deployment of capital into pension buyouts takes time. So if you look at the second half of 2023 earnings, which then you annualize 'cause they're fully consolidated, it doesn't seem like it's getting close to the 12% return on operating equity here. What am I missing? Is really my question on here: Is there some further positives to come from synergies or integration costs falling out? Is there some improvement in the margins coming through, et cetera? Any kind of help on the IFRS side-
Yeah.
And then... Sorry, second question. Second question, you've announced a EUR 525 million share buyback. Do you actually have to take it out of the Solvency II ratio right now?
... Yeah. So let me start with the first question. So what are you missing? Let me start with saying how we are actually running this process, yeah? So a lot of people asked yesterday the question: "So is this the end of a long journey that you are running?" And actually, that's the, that is, that is the situation where we are looking at. So already in, by end of 2023, while we become one company, we actually run a multi-year budget planning process to look, okay, how is the combination, how is the combination looks like in terms of of financials? We harmonize a lot of elements also in the full year results.
We created an opening balance sheet, and that's why we said, "Okay, we do another multi-year budgeting, actually, the first half of 2024." And actually, that is the basis for the plans that we are presenting today. So this is not something that we say, "Okay, this is probably what the analyst and investment community is expect us to say." No, this is kind of the outcome of a bottom-up process that we run with the whole company. And we would not present an ROE ambition if we had don't, if we do not have the confidence that we can reach that. That's one.
Then second, on the H2 numbers, I think a lot of elements play a role, but I think one to mention is kind of a seasonality pattern that is there. For example, also in the P&C domain, H2 was a bit not as good as H1 was. And when we look to the ambition that we are setting today, we are confident that for a full year, we actually will be on the level of the full year combined ratio, and that is kind of have impact on the, for example, the multiplying the H2 by two. There are also investment results changes in that, so the investment income changes in that.
So actually, a few elements play a role why you can't multiply H2 by two. And then the second one, no, so that's why you have always to be very careful in what you say around share buybacks. I also have said we, if we decide to do a share buyback, we will announce that by the full year result numbers, and that also helps to ensure that you don't have to take something already upfront into your solvency calculation. So it's something that is... Well, you have to find the right words also to avoid that, actually.
There are also auditors in this world looking strictly to how we are saying things and whether we should already include it or not, so.
They said-
I think... Oh, sorry.
Very sorry, sir.
It's your role.
I could, we could-
Jos don't like control.
Thank you. David Barma-
David
... from Bank of America. First question on the EUR 140 million in the fee, the fee-based earnings, which surprised me a little bit because you're already above that, even adjusting for the mortgage servicing-
Yeah
... business. So is the gap only the TKP investments? And maybe, can you talk about the OCC contribution you expect from the pension DC over time?
Yeah.
That's the first question. And secondly, on non-life, the 92-94, so there are two, you're around the top end of that today. I think you're talking about high single-digit price increases. Hopefully, disability should underlying improve quite a little bit, too. So why couldn't you get quite soon to the bottom end of that target? Thank you.
Okay.
Yes.
You take the first one, I'll take the-
Yeah. That's fine. So that's another answer to the question of Steven, actually. So there are three elements that plays a role why you can't, because why you can't do the kind of the fee-based segment multiplied by two, because that's the question. So for the audience, it's around EUR 70 million for H2 2023, and when you multiply that by two, you would expect EUR 140 million already to be reached in 2024. The reason that that's not possible is indeed the TKP investments that we are doing. Jos already mentioned that we see, especially in 2024, a significant portion of investments there.
Secondly, is that we benefit in the mortgage company. We had a good net interest margin, a higher, a higher net interest margin than you would expect on a regular basis. So that's one also to be adjusted and normalized. And the third one, which is more kind of an internal element, but we have brought two companies together. You have kind of also expenses for your staff, for your IT, for your HR, et cetera, et cetera, and you have to allocate that also over your business lines, say, over your business lines, and that resulted in towards the fee business to a somewhat higher allocation, which also makes that the, in, on a pro forma basis, actually, the starting position is at, is, is at a somewhat lower level.
That's why all those elements together makes that you can't multiply actually the H2 results by 2. Actually, what we expect is that when you more or less take the normalized numbers on the fee-based segment, it's kind of a high single-digit growth that we are actually expecting in the plan period.
And to your second question, the 92-94 is the combination of disability and P&C. I said during the presentation, it's a balanced number together with 3%-5% growth going forward, and also to protect the in-force portfolio. So this is how we deal with the pricing. And of course, if we can do better than the 92, we will not stop at 92, and if we can deliver 91, that would be great. But from our perspective, protecting the in-force portfolio, taking into account that specifically in the disability business, we and this afternoon, there is a slide in the presentation of the breakout in non-life, that we see a gradual shift-
... percentage-wise from the individual disability portfolio, which historically requires more capital, but is also in terms of the combined ratio, delivering a lower combined ratio. There is a gradual shift towards more sickness leave and group disability, and that impacts the average of the of the combined ratio number. So from a capital return perspective, I think this is, this is the right number to steer the business on, to price the business on. And of course, if we can deliver 91, we 91, we definitely will deliver 91. But we also have an in-force portfolio, and if we would go overboard in terms of requiring more from the business, then it would, one, harmonize our growth ambitions, but it also could erode the profitable part of the portfolio.
It's a very balanced approach of the Combined ratio target. Yeah.
Okay. Nancy?
Hi, thanks. Nancy Bowman from UBS. First, one quick one. Can you walk us through the moving parts on the mark-to-market on the solvency year to date? Second one is on margins. So you say EUR 1.8 billion of annuities. What kind of IRR are you expecting in those annuities, and is that the right metric to look at? And on DC, you're doing EUR 8 billion. What's the margin on that?
Yeah.
How much of the margin is coming from asset management? What I'm trying to get at is how much benefit do you get from having the asset management on the DC business?
Okay. I hope I remember all the questions. It started with... The first question was-
To do mark-to-market.
Also to mark to market. Yes. So to mark to market. As always, we have always have to discuss that amongst the sensitivities that we disclose, as you will appreciate it, as you will appreciate. What we're actually seeing is that the mark-to-market spreads normalized relatively. So it—I think it came down with, let's say around 35 basis points. It's, it's, I mean, today, I haven't seen the rates because it can change by rate movements, but I think yesterday it was around 30 to 35 basis points normalization of mark-to-market spreads. I think when you look to sensitivities, let's say around 5 Solvency points addition. So that's one element to take into account.
Second element to take into account is that we actually see that, that credit spreads are, are widening, so that's a, that's a minus, let's say, around -3%. We have seen some lowering of the volatility adjuster. So the volatility adjuster, which is also -1, -2, depending on the, on the last situation. So when you bring that all together, you actually see that we are probably mark-to-market back at the levels of that there is no impact from a mark-to-market perspective.
Question on DC margins.
The DC margins. Yes, on the DC margins. So we expect that the DC margins in the plan period is around 10 basis points that we are seeing. The way we calculate that, so we receive a fee from the customer, and that's a fee for both the asset management business and the insurance and the insured business. So there's no direct split between those elements. Then you have to take the cost of those both doing the pension administration, as doing the asset management activities, and that will bring us somewhere between a 10 basis points margin over the plan period. Important to say over here is that the margin that we have, this is a real scalable business, it's a real scalable business.
So the bigger you get, the higher the margin that you will see. And I think this is a real promise also for the future, is that the margin will improve further, but also the assets that you have under management will definitely improve further after the plan period that we present today. And that, and then you will also see both the growth in the AUM as to both in the margin. And then to your third question, that's actually related to that. When we talk about DC and margin that we get there, it's not only about DC, which makes it attractive.
By the end of the day, what you see today, and because of also the change towards DC schemes, is that the annuity business will also become much bigger than it has been in the past. And it's part of the actually pension opportunity that we are seeing, is that yes, we are the administrator for pension funds. We can grow in pension DC, we do the buyouts, but annuity actually is directly related to the pension DC business. So over time, we will also see the annuity business growing. So I think this is also something that is really nice to discuss also in the pension breakout session, because you will also see that we have an ambition there to gain.
But then to your question on what profitability do you get, in my view, it is possible to get a good IRR there. Well, we know, you know, we always target an IRR of 12%, but I think because it's kind of in-force business and there's a high retention from the business that you are having in-house from DC towards the annuities, there could be a potential to even get better IRRs than you see, for example, in buyouts.
You want to mention the target that we have on annuity business?
I didn't want to say everything, otherwise the breakout session is not as relevant anymore. But, so on the annuity business-
Michael
... we also aim to have EUR 1.8 billion in the coming three years, actually, to grow. So that's also part of the growth that we are seeing in the pension business, EUR 1.8 billion.
Maybe one addition to the returns on the DC business. In the 10 basis points, there is still the investment we are making to move the ASR admin towards the new pension platform. So after the plan period, actually, the 10 basis points will gradually improve and could end up at a much higher number in years from now.
... Looking. Anthony?
Hi, thanks. It's Anthony from Goldman Sachs. The first question is actually on the OCC calculation. Are there any change to your expected return assumptions for the underlying assets? That's question one. And then question two is coming back to the 20 percentage points Solvency II strain. Could that reduce with the new partial internal model transition? Thank you.
Yes, thanks. So, starting with the questions on the OCC methodology. No, nothing changed under the, when it comes down to the excess return. So when we look fundamentally, actually, to the excess return, you do see that, that of course, the risk-free rate are higher. One could argue fundamentally that, that the excess return are, well, 10, 20, 30 basis points higher. But we actually decided, because that would be eating up the story, not to change anything on the excess return assumption. So we keep it as it is today. Then on your question towards the, can the partial internal model impact the level of the impact of rerisking on the solvency position?
No, actually, the rerisking that we are seeing is on the Aegon Life balance sheet today, which is already on partial internal model. And that also means that when we do the rerisking on that balance sheet, there will be no future change in the level of capital. So the, well, let's say, the 5%-10%, on average, 8% that we expect, will also be what we see. That is, that's how we look at it today.
Okay. Michael, then again.
Just one question. So 525 is the buyback. If we assume 10-15 participation in any Aegon sell down, and their stake is worth EUR 3 billion, so that would be EUR 300-EUR 450 million. So basically, if Aegon decides to sell, there's just one buyback coming to the market, and then there's nothing until 2027? Is that roughly how we should think?
Well, I think we discussed this question through other different angles and questioning already. Let's see how the world looks like when we get there. If everything develops in the way that we are now projecting and expecting, I think we are in a luxurious position to take decisions. And if we can't invest our generated capital in the business at the right returns and our IRR or ROI starts to decline, we will look at the most efficient way to return it to shareholders. But we're not going to put any number on that today. May I add one element to it? So when we look to the progressiveness of dividend, I think because we it seems to be.
Yeah, it seems to be missed in the, in the discussions that we are having. So we expect also in 2026 to have an, over 2026, to have a mid- to high-single-digit dividend growth. When you look at the numbers today, it will probably brings us from, well, EUR 610 million to EUR 650 million, to EUR 700 million to EUR 750 million, when we assume kind of the 7% what we have done over 2023. If you then add also the EUR 225 million, it brings us also almost to a EUR 1 billion capital return that we are doing over 2026.
When you then look to the EUR 1.35 billion OCC that we are expecting in 2026, we are already in a kind of a range of the 70%-75% that we have mentioned often in the past. So I think also when you look in via this lens towards capital return, I think we do exactly what you know us to do, how that we are very consistent in how we've approached things. And to add to that, if we see that the capital is still very strong, always be rational, always look to further capital deployment opportunities, and if not, then probably we will find a way to return it back.
But actually, what you see to the plan that we present is very much in line with the way we have communicated over that in the past.
One, one follow-up from Michael, and then, David.
Sorry about that. This is a really tricky question you're probably saying you can't answer. If you-
Oh, we're used to that.
If you're allowed, what share price would you sell at?
Well, I think you know his email and his mobile number, so give him a call. We're interested, too, in that question.
Okay. David, please.
Thank you. Just two, two small follow-ups, and sorry, just to be sure on the timing of the, of the capital return. You're saying you want to do it, the, the EUR 525, during the planned period, but it's only on an annual basis, so the EUR 225 will be paid in 2027. Is that correct?
After the announcement of the full year 2026, we will take the final decision on that. And that's... We, Ewout and I already referred to it. If we would frame it too hard today, we already needed to take it into account in our solvency, and that's not the way we would like to do that. So we will take the decision at the full year 2026 numbers.
Okay.
But we used to do it kind of in a, when you announce it after the full year numbers, you most of the times use the H1 period actually to realize it.
Okay.
Yeah.
Got it. And on pension DC, what are your expectations beyond the plan period in terms of AUM growth per year? Does the EUR 8 billion apply to of an annual run rate beyond that, or does it change after the transition phase?
Well, what you see in the pension DC, those are all annual contracts, and the growth will continue-
... quite steeply after that period, because it are all enforced contracts where still premiums are paid. So the larger your portfolio is at 2026, the steeper the growth will be after that period. Maybe the new addition of customers will decline a little bit, but if you already have a portfolio, it's an annual premium payment, so the growth will be pretty steep. But we haven't because we our plan is up until 2026, we haven't done any calculations that are already ready to communicate. But there will be a steep growth also after that, and that's at the end of the day ends up in annuity.
So the combination of the two and, and the high return we expect on annuities compared to, to, for example, pension buyouts, it's a, it's a very promising and profitable future. Okay. Michele? Michel, there was also a left wing in the- I know. I'm moving, I'm moving from left to right. I... It's in the flow, Jos. It's all in the flow. Some people are getting tired with
Michele Ballatore from KBW. If you think about the, let's say, the components of your capital creation, if we think about the especially the exposure to investment risk, so how much is coming from, let's say, stable source of earnings, like fees, like underwriting or, biometric risk in life, versus, you know, investment spread and investment risk? Of course, you are doing a re-risking. So I'm just curious about how you are thinking about this different, this, this evolution-
Yeah
... in the next 10 years, let's say.
Okay. Yeah, that's so we give a kind of a rough indication also on the slides on what the relative size is from life versus non-life and the fee, and the fee segment. I think it's also important to mention to your question, life in itself is also a very stable cash flow that you actually expect, because excess returns that you make on the portfolio are there. You get your annual payments, so you have a spread of your liabilities that you are having. So to that extent, I believe that maybe that's even the most stable cash flows actually over time. But again, yeah, I have the exact numbers.
I think it's 20%-25% was non-life business. I think 5%-10% was more the fee-based business, and the remainder is life. So that's more or less the deviations. But again, I would not say that the life segment is less stable cash flows than the non-life segment is, but that's more or less the split. Like said, we did take into account also the feedback that we received, especially by Jason, of on the full year call, and that you are also looking for more segmental numbers.
So we are now actually moving towards that, and by the full year results of 2024, we also expect to present actually the segmental numbers, so that it's also, the split is also available actually in the reporting that we are doing. So you can even follow that better than you can do today.
But I think the question was also relating to the market risk in the OCC, and what's your view on that, the development of the market risk within the OCC? I think that was also what-
Yeah
... Michele was pointing.
The market risk in the OCC. I think when we look today, we see the market risks are quite moderate. I think we have seen over the last quarter of 2022, last half year of 2022 and 2023, we have seen that real estate, of course, was under pressure, so that resulted in lower valuation. And because you apply an excess return methodology of real estate and equities, that resulted in somewhat lower excess returns on that side. I think since the beginning of 2024, we see actually that real estate has become much more stable compared to the period before that, as we also have expected and communicated over that in the past.
So actually, neutral to positive to, to that element. Equity market, of course, we have all seen it, raising quite significantly in, in 2020, end of 2023 and, and also the, first half year of 2024. So actually, also that is, I think, quite stable at this moment in time. But no, yeah, no one can project the future in that. And when we look for the last part, more the credit portfolio, there we see actually no losses on the credit portfolio at this moment in time, and we are actually quite comfortable there. So all in all, from a purely, an investment portfolio risk perspective, we are neutral and not seeing significant risk at this moment in time coming towards us.
Farquhar.
Farquhar Murray, Autonomous Research. Maybe starting with dreams, actually. I just wondered if you could outline maybe what your dream scenario would be in terms of M&A. I mean, obviously, you've done some deals already.
Mm-hmm.
I just wondered what you're seeing and whether there are other things you're seeing at the moment that might be of interest to us just to understand. And then are any of those deals outside the Netherlands, just as a double?
Well, actually, actually, the dream was not about M&A.
Okay.
So I have to return to reality on that. It's always difficult, and you know that, Farquhar, to give comments on potential targets, et cetera. And we know there are a lot of rumors in the Dutch market about a well-respected competitor considering whether they should get rid of the part or the whole individual life and pension businesses. I think that's an ongoing process, at least that's what we understand. And we have to see where that will end. We would be very interested, under certain conditions, to look in such a target.
But as said, the priority now is finalizing the integration of the individual life book of Aegon, and we will see whether that opportunity will be there at the moment that we are ready to go there. More of a personal view, it's probably a process that will take some time, and we will see where it will end up. And we really believe in general, looking at the Dutch market, there is more consolidation to come. It is really needed because there are several as well in the smaller pension players, but also in the P&C business, there are players that have to rethink their future.
And they may not be there yet, because they still have a significant high solvency ratio level. But if I see if I look into the dynamics, for example, only due to AI, and this afternoon in the non-life breakout, you probably can talk a bit more about it. If I see those developments, the speed of those developments, I can't imagine that every smaller company in the Netherlands will be able to capture that and to invest in that and to keep up to pace. So we really expect, and unlike some respected colleagues of us, we really expect that in that market, there will be a dynamic over the next couple of years.
And then just a follow on, just in terms, hopefully not the stuff of nightmares, but, in terms of re-risking, which geographies would you be looking at in terms of the kind of single A and double A categories in term?
Before you answer that question, I didn't answer your question fully, but I said, "Well, let's wait whether he comes back to it." You always – you also asked, are your dreams also outside Netherlands? Yes, they are significantly, specifically, thinking about holidays and sometimes, road shows, and that was my dream was about a road show in London, so that was already, was already abroad, but not about M&A.
Yeah. So, what geographies we are looking at when we talk about the carry spread optimization? So there, then talk about Belgium, for example, France is a additional yield to pick. They are typical countries that we see that Aegon was actually... Aegon-like balance sheet was actually underrated. They were a lot heavily invested in Germany and the Netherlands, and that you see you can actually pick up some additional yields against a low cost of capital, which gives a very nice return on capital from an investment portfolio perspective. Question could also be, in this situation with France and Belgium, should you do that?
What we actually see is that when you look, for example, to the European reference portfolio, as presented in the volatility adjustment, we see actually that we are still very much underweight in this type of countries. So it's not that we are now that brings us heavy exposure towards the type of countries. It's just optimizing a bit by picking up some additional yield that is, that is there to gain.
Focusing on... Yeah, Jason, we-
His arm already tired.
Yeah, yeah, yeah.
Yes.
Jason Kalamboukis at ING. First of all, of course, I very much appreciate the new disclosure policies, so thank you very much, Ewout. Quick questions. The one is, first on the dividend. You mentioned that you extend to 2026, and then you're going back to normal in a certain way. Did I understood it wrongly that this is more of a firm statement, or do you think with what you see in the market, there is a potential to hope that, you know, that could extend, you know, as things develop? And also when we're talking about normal dividend, is it- I mean, what I have, 2027, 2028, what I'm, when I'm thinking about, it's more of a 3%-4%.
So what are your thoughts and, you know, free to go well beyond the five years, you know, at what we should be thinking at? And the second is on the combined ratio target. Is there any color you can give on how you think about a split between P&C and D&A? That would be helpful. Thank you.
Okay, maybe you want to take the second one to the... The first one, I was thinking about the second one. The first one was on-
Dividend. Dividend
... On the dividend, yes.
Dividend, yeah.
Well, the way we framed it was actually that because we don't have a plan for a plan that is already in details worked out, we framed it in a way that at this moment in time, one may expect that we would return to more normal dividend growth after the plan period. Of course, during the plan period, we will start to work on detailed plans for the period thereafter. We will see by then whether we are able to keep up to the current dividend level or that we indeed have to return to normal dividend levels. Normal dividend levels always have been between a low single digit to mid single digits, so let's say around 3%-4%.
It's not a firm statement that we will do that, but I think it's realistic that the market should realize that it's not a certainty that we will continue from the mid to high single level just because the fact that we haven't worked out all the plans. And, you know, we always try to be responsible and not to increase market expectations above what we already planned in our multi-year budgets. And the second question?
Yeah. I think historically, when you look to disability and the P&C, you also have seen that disability was kind of the lower, at the lower combined ratio, and P&C is somewhat higher combined ratio. Which is, no, that was what historically was there. Nowadays, you see that both the portfolio is more or less of similar size, P&C in terms of cross-written premiums, a bit high larger than disability, but it's almost at the same size. And you also see that P&C and disability are moving towards each other. I think a few reasons for that. One is just already explained. In disability, you see that sickness leave becomes more and more important.
That also means that sickness leave is a kind of a bi- type of business like P&C, so short duration, and when you have healthy combined ratio, your return on capital is actually very good. So that's, that's one reason that you see kind of a small trend upwards in the disability side. You actually, on the P&C side, see that the combined ratio is going down. We have seen a lot of consolidation over the last couple of years in P&C, and you also see that that is actually helping in remaining disciplined in that market and growing at the same time. And that also helps actually to lower the combined ratio in the P&C domain.
Within disability, that consolidation was already there for many years. So the largest player already had a big chunk of the market for actually for many years. So you can now on one end, you see disability slightly going up and P&C coming down because of this dynamic. In total, as if they're moving to each other. Not a clear target on one to another, but actually moving closer to each other is, I think, the way to present it, and the businesses of the same size.
Okay, Steven. I'll get to you guys in a minute.
Steven Haywood, HSBC. Just a point of clarification on the mid- to high-single-digit dividend growth, that's on a nominal basis. Is that correct?
Yeah. It's on an absolute dividend level, so that's indeed should also be taken into account, if that was not clear. So we are not, the buybacks that we are doing is not actually kind of financing the dividend payment. It's kind of a mid to high single digit growth on the absolute level of dividend.
Thank you. And then just following on something that's not been talked about, is on any plans to deleverage on your debt? I see there's a couple of calls coming up in 2024, 2025. Any plans to deleverage?
Our leverage ratio is now below 25%. I think we are perfectly happy when we are within the 25%-35%. So 25%-30% we see as kind of optimal. So actually, we don't intend, we don't, by the way, intend to do more, but we also not intend not to have not, no intention to lower actually the leverage ratio, also. So actually quite happy with the debt, with the leverage, size of leverage that we have as part of the total group.
Okay. Lenora, please.
Just a question on the 2026 OCC. I think you trade on that basis at 14.5%, OCC yield. So it seems that is somewhere confidence problem in the OCC figure, sounds very high. And, yeah, could you just explain again, your view on the quality of the OCC, how close it is from the cash definition? And that's basically, yeah, sustainable also in terms of definition-
Yeah
... and assumptions.
Yeah. Yeah, we- I think we, as an insurance company, actually insurance industry, actually need you, the analysts, to explain indeed to the whole investor community that insurers are trading at low multiples. Having said that, when we look to our own OCC definition, we have made some small changes. We were already very close to actually free cash flow. What we did see is that there were kind of diversification effects, for example, in the because of take into account the group the group ratio to multiply the to multiply the SCR release, that we say, "Okay, there are still elements that actually are non-cash components." So the step that we took actually brings it further towards the free cash flow definition.
So there's no misalignment between operating capital generation and the free cash flow that we have in the legal, in the legal entities. And that's actually the, especially from this way of thinking, we have, we have made the small amendments. So OCG, OCC is free cash flow.
I see we're approaching the end of the Q&A session, so we have time for one final question. Michael, then.
It's a really simple one. So do we have quarterly earnings in September, or will we have them next year? 'Cause you said you would have quarterly OCC.
We intended to do that from September, but probably it will not be necessary because that has everything to do with the relationship with Aegon and they reporting quarterly. I think the current view is that we will start with that next year and not already in September.
To add to that, it's the buildup of the OCC, yeah, where we're talking about. So the buildup of the OCC is now done per quarter, in place kind of instead of an averaging between the beginning of the year and the end of the year. So that makes it also closer towards free cash flow, again. So that was one of the few elements that we changed. So, and indeed, like you said, Q1 will be the first moment to also report quarterly results, which we only do, by the way, because of the agreement that we have with Aegon, because we are part of Aegon Group.
So this is not something when Aegon step out, that we ambitious to continue actually thereafter, because insurance business is a long-term business, and we believe much, we believe actually in the fact that you should also look at it and communicate it more for, on, well, semi-annual basis than on a quarterly basis. But again, doing it on a quarterly basis for a certain period is not-
... It's not wrong, we can do, but, it's not something that we are anxious to continue for a long, long period.
Maybe to reframe one thing you said: you said we're part of Aegon Group. We're not part of Aegon Group. We're part of the reporting of Aegon Group.
I'm sorry. That's... Thanks. Yeah, that was...
Otherwise, we would have new headlines going forward, and
That's not the intention.
Part of the report, but it's, I think, in reporting,
Yeah, I know. I know that's your world. Let's take another final question?
There's still one minute to go, so-
There's one minute to go, so we really do have time for one final question. I'm looking at particularly also that side of the room. No, I think we have had all the questions. Yeah. Cor, then.
Then on CPI, yes. Sorry, Cor Kluis, ABN AMRO. Then on CPI Plus, that's a big, big thing, of course, where rental increases. Can you give us an update on the latest? When can we expect a high court verdict, and how conservative or how do you already take this into account in your role?
I think we-
Real estate valuation?
... we're pretty confident on that. It's an ongoing discussions. We have seen some lower courts with an outcome stating that because of the fact that everything is in one clause in most of the contracts, that you can't increase rentals. I think the discussion at the end of the day will not be about the increase of CPI, and will probably be more about the additional increase. From our perspective, we already for a longer period, we're very limited on that. We have seen some increases from others up to 3%. We on average have never been higher than the 1%.
That is actually the percentage that is also in the most recent law that additional increases should be not more than that 1%. So we... It is some turbulence at this moment, specifically because there is one newspaper presenting discussing it a lot. But we also have seen, for example, the court in Rotterdam gave an adverse judgment. They were much more in favor of the industry. So it might take some time, but we already started to act at the end of last year to change the-- everything in-- having everything in one clause to bring it to different to do to two different clauses.
The renewal of our portfolio is roughly 12% per year, so we expect that over time, we will have changed it if and when the outcome might be negative over the longer term. But that's not. That's actually not what we expect. So we actually are confident on the item. There's a lot of discussion on it, but for the longer term, we feel confident.
Maybe one thing that is important to add to that, so when we look to the-
Evaluation
... the valuation of rented real estate that is nowadays less than 70% of actually the fair value of real estate. So we already see, I think it was since Q4 2023, that we see house prices increasing in the Netherlands quite rapidly, so wages increases. And because of that, you see that the consumers are better able to pay their mortgages. That drives actually house prices in Netherlands quite significantly already in the last nine months. And you don't see that value increase in the rented value. So the gap between that is now more than 30%, which is, in a historical context, quite a high gap, actually, where we are looking at.
Which also gives a sense that the market is also taking this into account and the conservative approach on fair value, actually, so is also an element of lowering any risk in this situation.
That concludes the Q&A. So, we have a break now until 11:30 A.M., but this also concludes the webcast. So I would like to thank all the viewers on the webcast for attending this in a virtual way. We have now a break. 11:30 A.M. sharp, we'll start with the breakout sessions. They're on this floor in the conference center, just down the hallway. So enjoy your coffees. Thank you.