Earnings Call: H1 2020

Aug 26, 2020

Good day, and welcome to the ASR Netherlands Half Year Results 20 20 Conference Call. This call is being recorded. At this time, I would like to turn the conference over to Michel Halters. Please go ahead, sir. Thank you, operator. Good morning, ladies and gentlemen. Welcome to the ASR conference call on the half year twenty twenty results. On the call with me today are Jos Baader, our CEO and Annemiek van Meelijk, our CFO. Joos will in a minute kick off as customary with the highlights of our financial results, and we'll discuss also the business performance. And then Annemiek will delve into the development of our capital and solvency position after that, and then we'll open up for Q and A. We have got scheduled till 12 o'clock sharply, but that leaves us ample time for any questions that you may have. And as usual, please do have a look at the disclaimer that we have in the back of the presentation for any forward looking statements. So having said that, Jos, the floor is Jos. Thank you, Michelle, and good morning, everyone. Thank you for joining us in this call, and I hope you and your beloved ones are all in good health in those challenging times. Let me start to say that I'm really proud of the way our company and our employees have continued serving our clients during the challenging COVID-nineteen times. As from day 1 of the lockdown, we were able to work from home without any disruption. It proves ASR's digital ability. The well-being of our employees and customers service has been top priority during the COVID-nineteen period and it still is today. Despite these extraordinary and challenging times ASR is consistently delivering against ambitious targets. Today, we present strong results over the 1st 6 months of the year. Our diversified business portfolio has shown to be able to absorb the COVID-nineteen effects as it is reflected in our operating results and our robust solvency. We are executing our strategy diligently and the acquisition of the BNP IORP fits well in this. And as we announced earlier, we are resuming dividend payments and the share buyback program offering an attractive capital return to our shareholders. Without further ado, let's turn to the financial highlights on slide number 2. As this dashboard shows, our performance in 2020 has been really strong. Operating result of €446,000,000 is only €18,000,000 lower than the record first half year of twenty nineteen and this includes a negative impact of €3,000,000 from COVID-nineteen. Our Solvency II ratio still based on the standard formula further increased with 5 percentage points to a solid €199,000,000 after the 2020 interim dividend and the share buyback of €75,000,000 Before subtracting these capital returns, our ratio stood at €2.03 As it was our full intention to make up for the postponed 2019 final dividend, we never added the amount back in our solvency. So the €199,000,000 is really after everything. Organic capital creation amounted to €298,000,000 Despite higher UFR drag due to lower interest rates, the strong performance of our business delivered a stable outcome compared to last year. Operating return at 14.8 percent is well above our targets of between 12% 14%. This number is somewhat depressed by the postponement of the final dividend. If we wouldn't have postponed in the first half year, the number would have been 15.1. The combined ratio improved further to 92.9 ahead of our target of 94% to 96%. This includes a positive effect of corona impact of roughly 2 percentage points. The operating expenses increased by €34,000,000 and this was mainly driven by acquisitions, holding costs and growth of our fee based business. Based on the strong performance and in line with our existing policy, we have set our regular interim dividends to €0.76 per share. So in sum, we have shown a strong result over the first half of twenty twenty. As mentioned, we resume our share buyback and dividend payments. Since our IPO in 2016, we have built a strong record of returning capital to shareholders driven by higher operating results and supported by a robust balance sheet. During this period ASR has returned over €1,400,000,000 of capital to our shareholders via dividends and share buybacks. This roughly equals 35% of our market cap as per half year. As the graph shows, our solvency ratio has remained robust and safely above the return thresholds in any of the past years. Our dividend threshold at 140% Solvency II and if above 180% then there is room for additional capital returns. Also our dividend payout ratio has been on the lower end of the range of 45 to 55 of the net operating results attributable to shareholders. This provides some cushion to absorb potential volatility in results. We will continue to allocate our capital rationally. If sufficient capital remains from the targeted OCC of $500,000,000 in 2021 after investing in organic growth and market risk. And as long as we are above the thresholds, we will decide on capital returns to shareholders. As you might remember, we have the clear intention to buy back 75,000,000 of our shares for the book years 2019, 2020, 2021. This way we can grow our business profitably and meanwhile offer an attractive capital return to our shareholders. Now let's turn to the next slide for our non financial achievements. Our strategy will continue to focus on sustainable long term value creation. We take our role as sustainable company in society very seriously. Our ongoing focus on customer service has led to an increase in the Net Promoter Score from 44 to 47 positive, already well above the medium term target of 44. One of the drivers behind the increase was the more personal contact with customers during COVID-nineteen outbreak. Due to the lockdown, our employees work from home and reached out to customers who were also working or staying at home. Being in the same situation really helped creating a positive experience between employees and customers. Moreover, our CO2 footprint has been measured for already 91% of our investment portfolio and with over 1,200,000,000 dollars investing in impact investments, we have already met the target for 2021. Due to the lockdown restrictions and social distancing rules, our employees have not been able to do any of the activities we typically do for society. As such, the employee contribution to local society has decreased with roughly 60% and is not expected to meet the target for 2020 this year. So having said that, let's continue with the impact COVID-nineteen has on our employees, our customers and our business. In periods like this, our first and foremost attention goes to the health and well-being of our employees and customers. Starting with our customers, we continue to offer suitable solutions for customers who have been impacted by the COVID-nineteen crisis. For instance, we have received requests for temporary pause on premium payments, mortgage payments or rents. So far, these numbers are relatively small. Think about in total less than 1,000 requests on the total customer base of approximately 1,500,000 customers. And we were the 1st insurance company to have face to face contact again with intermediary, which was highly appreciated. This helped to continue to deliver on our organic growth targets. In March, we instantaneously moved to fully working from home. This went very smooth. We are using a mood monitor to track the employee morale and we were very happy and proud with the outcomes. Our approach since 2012 to build one culture based on time and place independent working proved to be a very strong foundation for managing the current crisis. In the meantime, our offices have been adjusted to the social distancing measures and make our office a safe working space for just a limited number of employees today. On the financial side, we have observed a negative impact as said in the introduction of €3,000,000 on our operating results so far. This consists of a negative effect in our disability business of roughly €50,000,000 due to unfavorable claims experience limited possibility of visiting of our vocational experts and delay in the reintegration processes. In our P and C business, we have observed tailwinds up to roughly €70,000,000 due to less traffic and less burglaries towards the end of the first half year. This trend by the way has been normalizing. In our Life business, market conditions have lowered dividend and rental income and increased UL provision leading to a roughly negative effect on our operating result of €25,000,000 And finally, our IFRS net result is significantly lower, primarily due to the decrease in indirect investment income and a goodwill impairment in life both due to financial markets impact of COVID-nineteen. Please note that the decline in the net IFRS result, which we report today is not fully driven by COVID-nineteen. In last year's number, we also reported a purchase gain of €88,000,000 on the acquisition of L'Orealis, which is of course a non recurring item. Let's move to slide number 6 and talk a bit about the business strategy and how we're doing. Some business developments I would like to highlight there. Earlier this year, we announced the intention to bring the reintegration activities of CarePoint to ASR, of which we already owned 50%. This expands our expertise in the field of reintegration and sustainable employability and creates additional value for our customers. In the Life department, we delivered on creating synergies by reducing the number of applications. Also we have successfully migrated part of the L'Orealis portfolio. The remaining part will be migrated in the Q3 of 2020. Also advantage of scale is created by the acquisition of VEVE A A Life, which will be integrated before the end of the year. Our fee based business are doing very well. 3rd party assets under management have increased €500,000,000 to €21,200,000,000 and was mainly driven by growth in the mortgage funds. With a strong mortgage pipeline mortgage origination is expected to exceed the target of €5,000,000 for 2020. Today, we also announced the acquisition of the brand new Day IORC. This acquisition contributes to the growth in the DC pension market and gives ASR a number 2 position in the institutional occupational retirement provisioning. I'm only going to say that once during this presentation markets including the brand new day IRDC assets under management increase over time to €2,500,000,000 And lastly, we have transferred the remaining accounts of the divested ASR Bank to Van Landscroat Kempen. This means the recently announced obligation of including banks in the Solvency II ratio of an insurer will not affect ASR at all. Now let's move to slide 7 and elaborate a little bit on the acquisition of the brand new Day's IHOP. We are very pleased with this acquisition because it fits in our strategy nicely. The acquisition of the remaining 50% stake in Brand New Day raises our DC market share to 15% adding almost 6,000 employers as a customer. The brand new day, Ayorve, is originated in 2011 and has already 145,000 active participants and employs 52 employees. Roughly €1,000,000,000 of DC assets under management are added to our portfolio in 2022. The transaction fulfills strict requirements ASR has on acquisitions and delivers over 12% return on investment after integration. This is calculated over the total investment of €55,000,000 which represents a cash outlay of €52,000,000 and the estimated €3,000,000 of integration costs. The transaction will have no meaningful impact on our Solvency II ratio. We expect migration to take place from 2021 to 2020 3 and we are planning to transfer the asset management activities in 2022. The expected net operating results after costs and synergies and OCC equal €8,000,000 as from 2024 with more potential in the years thereafter. This acquisition confirms our strategy to grow in DC pensions and increase the 3rd party assets under management. Closing is expected in the beginning of 2021. So let's now turn to slide 8 and talk about Group operating results. For the last couple of years, our strategy has been focused on managing our life books as efficient and stable as possible, whilst pursuing organic and organic and inorganic growth in our Non Life and Asset Management and Distribution businesses with a goal to both mitigate the runoff in Life and further diversify ASR. By doing so, we increased the operating result of our non life business from €62,000,000 in half year twenty sixteen to 124,000,000 this year and that of our Asset Management and Distribution business I. E. Our fee business from €12,000,000 in 2016 to €28,000,000 first half of this year. This further diversification helped us mitigating the aggregate impact of COVID-nineteen in H1 to a negative of only €3,000,000 so far. Within the various business lines, we see different impacts of COVID-nineteen, the already mentioned 25 negative in life and an aggregate positive effect of 23% in non life existing of a minus 50% in disability and a positive effect of every 70% in P and C. Excluding the COVID-nineteen impact, our operating results decreased by SEK15 1,000,000 largely related to the increased holding cost for higher current net service costs for our own patient scheme and additional interest expenses related to the €500,000,000 Tier 2 placed in April last year. We obviously also benefited from an additional €20,000,000 contribution from L'Orealis, which was only included for 2 months in H1 2019. However, this €20,000,000 was offset by Tiara and Dennistorms for roughly €11,000,000 and some reserve strengthening for P and C related to an industry wide lowering of the actuarial interest for the bodily injuries due to court rulings, which amounted roughly to €8,000,000 Underlying our business showed strong operating performance with improved efficiency levels in both life and non life. Let's talk a bit more about non life. A solid performance in non life including COVID-nineteen effects with operating results remaining stable at 124,000,000 dollars Overall, in the 1st 6 months of this year, COVID-nineteen had a positive impact on non life aggregate of €23,000,000 This includes the already mentioned headwinds in our disability business and tailwinds in our P and C business. In our disability business, vocational experts could not visiting clients due to the lockdown restrictions and reintegration processes were delayed. However, the negative effect observed in disability does not only include COVID-nineteen effects in our sickness leave portfolio. We also observe an unfavorable claims experience like the whole market does. As said, this seems to be a market phenomenon. We expect further price increase later this year. Also the application of lower interest rates and strengthening of provisions had a negative impact on the performance of disability business. Within P&C, we observed a positive effect compared to last year's H1, mainly due to COVID-nineteen impacts, less claims motor and fire due to fewer accidents and burglaries. And this is absorbing the claims from Kiara and the impact of lowering the actuarial interest rates for personal injury. This leads to a combined ratio of 92.9 percent 92.9 percent for both P and C and disability together beating the target of 94% to 96%. If we would adjust for the COVID-nineteen effects, the combined ratio would move towards the middle of the range of the 92% to 94%. The cost ratio, by the way, decreased, which is driven by a higher gross written premium whilst realizing at the same time cost synergies from the Generali Netherlands IT migration. So all in all, we became more efficient. Organic growth in rough written premium for disability and P and C amounted to 6.9% exceeding our target of 3% to 5% per annum. We would expect to normalize this a little bit in the second half of the year. The acquisition of L'Orealis and Veyorex have increased our disability gross written premium with over 160,000,000 At last, the increase in health gross written premium reflects the strong interest of customers in the new benefit in kind short products. Let's move to slide 10 and talk a little bit about Life. Some highlights to mention here. Operating result of Life segment decreased by only €9,000,000 to €361,000,000 despite the €25,000,000 negative impact from COVID-nineteen. If you relate this to the total operating result, we believe this is a benign impact. The $6,000,000 higher investment margin despite $20,000,000 hit in direct income due to COVID-nineteen and the $5,000,000 positive results on cost were more than offset by the €5,000,000 increase in UL provisions compared to last year due to the COVID-nineteen, various other small non recurring incidental and high mortality results in the first half year of twenty nineteen. This explains the €20,000,000 increase you see on the slide under the second half of twenty nineteen. We did not see a significant effect of COVID-nineteen on mortality results whereby we observed excess mortality at the beginning of the outbreak, which was offset by lower mortality than normal towards the end of the second quarter. At this moment in time, mortality in our portfolio seems to be roughly equal to 2018 where we had a bit more of flu in the beginning of the year. The higher investment margin was driven by higher direct investment income from acquired portfolios and income from the derivatives portfolio. This was partially offset by lower dividends on equities than this was all COVID-nineteen related. The amortized realized gains are lower due a swap recouponing program in H2 2019 and this is offset within direct investment income. The required interest showed a decrease of €8,000,000 due to the slightly runoff of the individual life portfolio. Gross written premiums grow with 18.8 percent. The additional contribution from L'Orealis with €59,000,000 and the pension DC portfolio growth of 42% exceeded the decrease of the existing DB pension portfolio. At the same time, we continue to focus on our cost levels. Life operating expenses expressed in basis points of the basic life provision improved to 47 basis points. Last year, we ended with 53 basis points. And this is in line with our target of 45 basis points to 55 basis points targeted to be reached latest in 2021. Let's now turn to the other segments of ASR, which are also gaining traction and this is on slide number 11. Operating results of the 2 fee generating segments Asset Management and Distribution and Services combined amounts to €28,000,000 up from €23,000,000 in our record first half year of twenty nineteen. This confirms that we are running ahead of the medium term target. Asset Management showed a strong increase to €15,000,000 driven by higher fees from continued strong inflows and positive revaluations. Also external mandates contributed mainly driven by our recently announced mortgage fund. The operating result of the Distribution and Services segment increased to €13,000,000 mainly due to small acquisitions and combined with organic growth. And to finalize before I hand over to Annemiek, operating result of the holding amounted to a minus of €67,000,000 The decrease is mainly driven by higher net service costs for our pension plan due to lower interest rates and the increase in interest expenses of €6,000,000 from the €500,000,000 Tier 2 subordinated liability as placed in 20 in April 2019. And with that, Annemiek, I hand over to you. Thanks, Joss. Well, quite a few things happened since our last analyst call in February, but I'll try to be brief and take you through the highlights of all of those developments within our balance sheet solvency figures and spend some time on the composition of our investment portfolio. If we start with Slide 13, which is the stock slide on solvency, it's good to point out that our solvency remained resilient. Despite the impact of COVID-nineteen, we ended up at 199,000,000 up 5% versus where we ended at year end 2019. All of that is based on standard model, obviously. Now within the 199%, we absorbed a further U of R decline of 3.75% towards 3.75%, reflecting 3.5 Solvency points. And we also observed, obviously, the restarted capital returns of 4.5% points. In addition, there were some minor impact of the VVAA and Varex acquisitions, which we closed in January, representing 1% solvency point. Our eligible loan funds grew $365,000,000 to close to $8,200,000,000 including an increase of $347,000,000 of unrestricted Tier 1. If you would exclude the $121,000,000 of U of R reduction and the $180,000,000 of capital return, we would have added over $650,000,000 of own funds, which was really mainly driven by business capital generation and market developments. Our unrestricted Tier 1 capital represents 100 and 49% of the SCR and 75% of total loan funds. We didn't issue any hybrids in H1. In terms of the required capital developments, our SCR rose by $83,000,000 which was mainly driven by an increase in insurance risk, largely for life, mainly due obviously to the effect of lower interest rates on life, some premium growth within non life and obviously the acquisitions of Verex and VVA. Market risk remained stable as the increased SCR for interest rate risk due to lower interest rates was mitigated by lower SCR for equities driven by share price developments and lower SCR for real estate driven by some derisking there. Now we did optimize our portfolio including some re risking and less liquid assets, think about €1,500,000,000 of which we did around €500,000,000 in credits and around €1,000,000,000 in additional mortgages and some minor component into equities. However, that optimization or re risking didn't really lead to an increase in market risk or in counterparty risk as far as the mortgages are concerned. We also monitor our solvency on a more economic scenario, which uses the U of R of 2.4%. And our solvency ratio based on that U of R of 2.4 percent actually remained solid and increased further from 153% at year end to 159% now. It's good to point out that we still have ample room, ample headroom within our Solvency II framework. It's actually growing, where we could still add $1,000,000,000 of unrestricted Tier 1 and over $500,000,000 of Tier 2 Tier 3 headroom. All in all, our solvency level of 199% pose, and if you use a pre dividend and share buyback figure, 2 0 3 percent based on standard model with ample tiering headwind represents a strong figure to go out with. Now if we turn to the next slide and talk a bit about the flow that we've seen, you can see that starting at the 194 level at full year, the acquisition of VVA and Varex, as I said, had a negative impact of 1% point. And we added over 7% points in solvency due to the OCC generation, and we also had a positive contribution of 3% from market development and other effects. We are about to subtract the $180,000,000 capital obviously related to the regular interim dividend and the buyback and that $180,000,000 capital is absorbed in our solvency ratio, it's around 4.5 solvency points. Now if you really look at the OCC to get a feel of ASR's own capital generation, it's good to point out that it's relatively flat versus last year. It's $298,000,000 now versus $299,000,000 last year, whilst actually absorbing an increased UFR drag of $38,000,000 And that's basically absorbed by an increased business capital generation and to a lesser extent some increased release of capital. Within the business capital generation, I. E, the capital ASR has really generated itself by running the business, our underwriting results, investments results and fee income, that increased by $32,000,000 to $383,000,000 It's there are kind of three main reasons for that. It's largely driven by a higher technical result and non economic variance. It's also driven by higher investment returns, and there is also additional fee income of our business compared to last year. The release of net capital also increased as lower interest rates led to a higher SCR release and risk margin. In terms of technical movements, those are almost fully driven by the U of R drag, which decreased ROCC by 96,000,000 dollars The U of R drag actually increased by $38,000,000 year on year, which includes an echo from last year of $18,000,000 $20,000,000 additional U of R decline drag due to rates movement since December 2019. All in all, it's a solid OCC, where we were able to cover the increased UFR drag. We also benefited from a positive contribution of 3% from markets and other developments, and despite a 3.5 percentage point negative impact of the further UFR reduction, that 3% increase more than compensated actually was driven by an increase in the VA, which more than compensated the negative impact from the further UFR reduction. If you look at the 290,000,000 that we generated in OCC for the first half year, it's good to bear in mind that that OCC shows some seasonality, specifically within the net capital release buckets due to the typical Q4 Q4 sales season for part of our disability business. And to bring back a memory of the $501,000,000 OCC we generated last year, dollars 299,000,000 was generated in the first half of that year. Let's turn to the investment portfolio on the next slide. Given all the direct and indirect impact of the COVID on various asset classes, we thought it would be good to give you a brief overview of our entire investment portfolio. Of the $52,000,000,000 that we have invested, close to $70,000,000,000 is actually fixed income. Now of that 35 fixed income portfolio, within that we run a sovereign book, which has an average credit rating of AAA, AA. We run a corporate and financials book, which has an average credit rating of A. And if you look at the exposures that we have within our corporate book, we have very limited exposure to sectors that are currently under pressure such as oil and gas, transportation or if you think about COVID, leisure, and the latter are actually non existent in terms of investments. It's fair to say that we haven't seen any defaults here in H1, and only a very negligible amount of downgrades were observed. To give you an indication of a rating migration risk, if 20% of the entire corporate and financial credit portfolio would experience a full letter downgrade, I. E. 3 notches, This would result in approximately 4% point impacts on our Solvency II ratio. Now moving from the fixed income real estate portfolio constitutes $4,200,000,000 which is around 8% of our total investment portfolio. Now of that $4,200,000,000 1.6 percent is actually invested in rural real estate, representing 3.2 percent of our total investment portfolio. We have around 800,000,000 percent of our total investment portfolio invested in retail. Now that retail exposure is kind of twofolded, slightly over €600,000,000 is indirect exposure via our ASR Dutch Prime Retail Fund, in which we currently have a stake of 43%, and the remainder of that EUR800 million minus EUR 625,000,000 exposure is actually some direct exposure that we still have ourselves. Our Dutch Prime Retail Fund invests for roughly onethree of food related district shopping centers, I. E. Supermarket related centers and for twothree in high quality retail shops industries in the largest cities. Now obviously, that supermarket part is less sensitive to the COVID-nineteen situation, while we do obviously see some impact on the high street retail part. Having said that, the $800,000,000 total retail portfolio is only 1.6 percent of the total investment portfolio that we have. We also have a mortgage book, which currently equals around $9,700,000,000 or 19% of the total portfolio. And that mortgage book is 38% NSG covered and has an average LTV of 74%. In general, we've not seen any significant increase in arrears due to COVID so far, arrears maintaining about 5 bps, which is the level equal to where it was at full year 2019, nor have we seen actual rise in credit losses. Dutch mortgage market in general has shown quite some resilience during the last financial crisis. Credit losses remained lowest within Europe and warehouse prices came down over 30%. And so far, we're relatively comfortable with the mortgage position as we currently are, and we may actually extend that a bit further into H2. Our total market risk is about 43% of our total risk pre diversification, a level which we're comfortable with and also below our threshold of 50% pre diversification benefits. Risky assets as a function of unrestricted Tier 1 decreased to 94% as both equities and real estate value declined, so our unrestricted Tier 1 grew as I indicated before. Our asset portfolio is, as far as we're concerned, robust against the financial uncertainty and it also offers some further room for asset optimization. As said, we did some rerisking into credits and mortgages. And for H2, we're contemplating a bit of further optimization of the portfolio and potential some further rerisking into mortgages as well. A couple of words then on the balance sheet. You are familiar with it. Not a lot has happened here, so I'll be short there. We continue to have ample tiering flexibility. Headroom actually increased further, dollars 1,000,000,000 Tier 1, dollars 500,000,000 Tier 1 Tier 2, Tier 3. Our financial leverage decreased further to 28.4%. It's well below our maximum of 35%. And if you would actually adjust there for some shadow accounting and capital gain reserves, which is more in line with what the industry does, you can subtract another 5% there. Double leverage decreased to close to 99% and our interest ratio dropped. And our interest ratio is based on our IFRS net result and it actually took a COVID crisis to get that within our targeted range between 8% and 4%. Obviously, we're still happy with that figure. Solvency ratio for the group remained strong. Ratios for non life and life entities are 158 and 186, which is well above the respective targets that we have there of 150 160, respectively. Quick word on our liquidity position before I hand back to Jos. Holding liquidity at the end of the period is $608,000,000 which is up from last year, mainly due to the postponing of the $160,000,000 final dividend and the $24,000,000 of buyback. The position is aligned with our policy, which basically is to keep the cash at work in the operating companies and only upstream the cash to lower moving expenses, coupons and dividends, I. E. We don't remit more than we actually need at the holding. We have an unused RCF of 3 $50,000,000 within still at our availability. And we did upstream cash from Life and from other entities. Life was around $290,000,000 other entities around 8,000,000 dollars There was no need to upstream more. As I said, it is in line with our policy. Debt maturity profile, as you can see, is very robust and the next maturity date isn't until 2024. And with that, I'd like to hand it back to Joss for final remarks. Thank you, Annemiek. Well done. Let me summarize briefly and conclude that ASR is a very strong position and we delivered again a very solid performance. During the COVID-nineteen pandemic, the well-being of our employees and the quality of our customer service has been top priority. As a result of this focus, our business all of our businesses are running very well. Looking ahead, we are positive about the commercial and operational outlook for ASR. We're very pleased to continue dividend payments with 9% DPS growth and we also showed solid progress in executing our strategy and demonstrating financial discipline. Today, we announced the acquisition of Brand New Day Ihorpe and remain interested in growth through small and medium sized acquisitions. Our strong capital position provides sufficient scope for this. Looking forward, acknowledging that our performance in 2020 H1 was only slightly lower than in our record first half year of twenty nineteen, we expect our 2020 results to be slightly north of the mid range of 2019 2020 results. So we have become somewhat more positive on the full year than we were after the Q1 update. Having said that, I hand over to the host and we're willing to take any questions you might have. Thank you. From Kurt Klusz. Please go ahead. Good morning. Kurt Klusz, ABN AMRO. I've got a couple of questions. First of all, on the good OCG figures, could you split out what the positive experience variance was? You said some positive non economic variance and of course that's the non life, especially interested in the life positive experience that we saw at NN Group, certainly in the presentation, but could you all comment on that? You said on IFRS, there was not much impact of COVID-nineteen in life, but maybe the OCG, it might be. So that's one. Second question is on the UFR strain on Slide 14. You mentioned, of course, that the technical movement is €96,000,000 negative in the first half. If the rates would remain as they are as of today, what would be this figure or the technical movements of the Johan Vaas trade in the second half of this year? So this figure would be a little bit higher. And third question is about what do you see currently in the Dutch market in disability and P and C claim development? It's a little bit more people on the road now. So maybe on the P and C that has some adverse effect. And then disability, when or do you already see some improvements on the claims there or what is required for getting that improvement? And last question that was just a semantic question. On Solvency II ratio, you said in your introduction, our Solvency II ratio is still based on the standard formula. Is there an intention to call it still based or are you looking to an internal model or not? Those are my questions. Well, let me start with the claims development and Annemiek will talk about the other questions. What we currently see and I at least try to mention it in the first half, we have seen less claims in burglary in car. And in the second half, it actually turned back to normal with maybe a bit different split in bodily injuries. In normal years, bodily injuries are mostly caused by accidents between cars. And we have seen an increased number of bodily injuries due to accidents where bikes are involved. Obviously, Dutch people were already a lot on bikes, but that increased further during the crisis. So we see an increase of bodily injury due to bike accidents, not yet up to the level where it used to be in normal years, but actually we're close to normal now. Same for burglary claims. So actually in P and C, we expect the second half a more or less normal year. In disability, we have observed increased claims over the 1st month. The number of new incoming claims have normalized as well in the individual disability business as in the group business and sickness leave business. However, we are still not yet at the level of dealing with the already filed claims in the first part of the COVID-nineteen crisis. It just takes more time to reach out to people to have discussions with people. So we expect that the second half of 2020 in disability will be a bit better than the first half, but we definitely will not be back at the levels we're used to. So I think that would answer your 3rd question and Annemiek is happy to take the other 2.5 questions. Hey, Gord. And your question related to the non economic variance and technical result, let me help out there a little bit. If you look at the increase in business capital generation, which is the about $283,000,000 which actually was an increase of $32,000,000 versus last year, it's fair to say that the majority of that is through our additional excess returns. That's around $80,000,000 We've also added some more fee income from net other operating entities, which already gets you to over 20 of that 32. Now the remaining part is either within technical reserves or non economic variance. Within that non economic variance, we don't have any life impact. It's mostly related to non life or actually only related to non life. And I recognize that the comments you made that some other insurers have maybe referred to it, but we have not seen we don't have within ROCC any non economic variance on life related to longevity or whatsoever. In terms of the UFR drag, the drag that we currently show here of 96, it's fair to if interest rates would remain at the levels where they currently are, you could actually double that in terms of drag for the next half year. And then the comment that just made on our solvency still being based on a standard model. It's more related to point out and I guess we don't need to do that for you guys because you're well aware that we're at a standard model that we are at standard model. Having said that, capital optimization is something we will always be looking at. There are various things we could do ranging from longevity trades to further stuff in hybrids or actually moving towards an internal model. At this point in time, there is no specific need to do so, but be assured it's always on our mind to review. We can now take our next question from Albert Plaut. Please go ahead. Yes, good morning. I've got a question also on the seasonality effect from the disability book. And also when looking at your full year presentation, the 501 OCC at the time, there was a new business strain of around €120,000,000 Now the strain, at least on the disability part, is Q2 towards Q4 with the renewals. Is this still your working thesis that it will be around that level? Or you have indications that could be materially different than the 120? And just for completeness sake, what was the absolute level of new business strain in the first half? And the second question is on the disability And then what kind of behavior do you see at some of the clients? And then what kind of behavior do you see at some of the clients? Are they potentially lapsing policies? As in for most, it is potentially an expensive policy, so some savings? Or yes, but what kind of behavior do you see, let's say, on the client side and maybe also on the group disability as well? Thank you. Yes. Let me first go into the second question. Before we acquired L'Orealis, it was roughly fifty-fifty, the gross written premium in individual business and in more group oriented business. Since we acquired L'Orealis that number shifted a little bit. And today roughly 40% is in the individual business and 60% is in more group oriented business. The behavior of customers in individual looks a bit like what we have seen in the group portfolio in sickness leave that at the beginning of the crisis, we had more claims filed also from individuals. We've dealt with that since we were able to visit clients again. Today the inflow of new claims from individual from the individual portfolio is at a normal level, but we're still dealing with the inflow of claims that we had during the first half year. So as from today, we don't expect any adverse additional claims in the individual portfolio, assuming that there will not be any further lockdowns, etcetera, which hopefully will not happen. So I think that's the answer to your question Albert. And the first question on OCC will be taken care of by Annemiek. Yes, Albert, in terms of new business strain, you kind of have to see that on an aggregate level. Obviously, it's a release of capital, new business strain you kind of communicated, right? You add new business, the new business strain has a negative impact on SCR and it flows out through the rest of the year. What we saw last year was actually a net capital release of around €100,000,000 in H1 and that actually was flattish in H2. Total net capital release, I. E, corresponding will be current 111 that we've disclosed now. We haven't seen any deviating patterns on the new business riding capability over disability business line so far. So the GWP generation hasn't really been affected yet by COVID. There could be some impact on it in H2. But by and large, we have no reason to currently estimate a completely different impact of the business train, an impact therefore on net capital ratio. Thank you very much. We can now go to our next question from Robin van den Berke. Please go ahead. Yes. Good morning, everybody. Thank you for taking my question. Sorry to come back to OCC, but I was just looking to get an answer on H2 versus H1. I think you're indicating that the seasonality in D and A is probably around €100,000,000 negative, H2 versus H1. You compare it to last year H1 versus H1 was roughly flat just slightly down. I was just wondering how you're looking at this for H2. Do you think you can also get close to that 200? Or will there be some negatives coming in? Like, I guess, your excess spread will be lower in H2 and maybe the net from non life where P and C normalizes a little bit quicker than D and A might also be a net negative. So your thoughts there would be very helpful. Secondly, on capital return, it's good to see that Dutch Central Bank made a U-turn there. I was just wondering if you can comment on how they look at capital return. I think to give an example, I think from your IPO, you've always seemed to indicate that your level of capital generation is sort of the maximum you can do. Is that still the best way of looking at it? Or are there other thresholds to take into account going forward? And lastly, I just want to ask you on your M and A pipeline. Good to see a more substantial deal come through today. Just wondering if you see more opportunities at the moment. Well, let me start with the question on how we think DNB looks at capital returns. I think from a DNB perspective, it is very important that every company has its own way of looking at capital and at capital hurdles etcetera. So we have set our capital return hurdle for dividend for example at the €140,000,000 for additional capital returns the €180,000,000 in share buybacks. And what is important from a DNB perspective is that you stick to your own criteria. And further on, they expect you to take into account not only a view on the regulatory solvency, but also a view on what is underlying economically really happening. That's why we've been always clear that if you would more look at an economic basis on our solvency that we don't calculate with UFR, but that we have lower debt towards what we expect to be the normal returns on our the normal long term returns on our portfolio. And currently we assume that that will be 2.4%. So that's why we also look at economic solvency. And as long as you are within your own policy combined with an economic view, DNB is willing to take any discussion on capital returns. But from their perspective, the most important is that you stick to your own way of looking at capital and your own policies. And that's why we, of course, had discussions with DNB on the capital on the recent capital return. But those discussions were not different from discussions we had in 2019, 2018, 2017, 2016 etcetera. So I think there is acknowledgment for the strong balance sheet of ASR and the way we run the company and capital. That is yes, yes. So from that perspective you don't see any risk basically to continue to deliver on your capital return promises you made earlier in the year? Well, we've always said if and when our capital remains strong and above 180,000,000 and we will judge that in February next year when we present our full year numbers 2020. We still have the intention to come up with a second buyback of again €75,000,000 like we announced at full year numbers last year. So from that perspective, you never can predict whether you're going to face any issues. But based on everything we know today and our view of today, the answer to that question is no, we don't expect any severe issues in that. And there will be always discussions and I think that's good. On your second question M and A, like you we were happy to announce this transaction and to use a part of the OC generated in for inorganic growth. We never comment on what might be next, but we're still hopeful that over the next couple of years we now and then will be able to do smaller M and A or medium sized M and A. We still see opportunities. There might be some opportunities still in Life, hopefully over time also in Non Life business. So we're optimistic. And at the same time, our focus remains on delivering on organic growth because that is what we can see directly today. So the first question was again on OCC and I hand over to Annemiek for that. Hi, Robin. I guess you're basically asking whether we will make the €500,000,000 again next year this year in total. And listen, there are a couple of uncertainties there. I mean, first half here in line with last year, we see where we absorbed the additional UAVR drug. Looking forward to the second half, I'm unsure ultimately what the U of R drag will be because interest rates can still move. It will be largely driven by the way our excess returns will continue to develop. We did some rerisking and we'll reap some of the benefits of that. But obviously, it's very depending on how spreads will move within that within the buckets, the market observable spreads that we use there. And in addition on the disability and on the new business strain there or in total in the net capital release, It's really up to what the disability business and the impact of COVID there will be on the second half of the year. And that's whether it's for operating result or whether it's for the implications for net capital results on OCC, that's among the hardest thing to actually assess at this point in time. Will companies maintain the same level of employees that they currently have? Will they actually seek for collective disability? How will the individuals continue to look for disability products? So they're both in terms of volume, but also in terms of value because we did do some repricing there. It's the jury is still out to see how that will develop in the second half year. So we're not pessimistic there at this point in time, but it really depends on where interest rates will move, how market observable spreads will go and what will actually happen with the both volume and pricing of the disability business in the second half of the year. But based on the market standings for Q2 or to or compared to today, you wouldn't dismiss feasibility of the €500,000,000 basically. Is that a short summary of the question or I guess it's difficult to be precise with all the moving parts with it. Okay. Thank you. I think the CFO says we are not pessimistic. You should draw your own conclusions. Yes. But it just remains a very lumpy thing to predict specifically due to the disability business. That's why we have a little bit mindful here. Thank you again. We can now take our next question from Benoit Petrar. Please go ahead. Yes, good morning. It's Benoit Petrarque from Kepler Cheuvreux. A few questions on my side. Just maybe to come back on the UFR drag, could you repeat the kind of drag into H2 at current rates or the doubling of the effect, but I think it was €96,000,000 which kind of doubling will make it a bit too negative. So could you help us to quantify that one? Could you also maybe comment a bit more on the market observable spreads at the end of H1? What do you see currently to just to help us to model the OCC again towards for the rest of the year? The third one was on maybe on a business we don't talk about much, but the Health business, which contributed really on the growth return premium on Non Life, which were I think 9% organic, mainly due to the Health segment. Kind of this new business, which was quite impressive in H1, kind of how much combined ratio do you expect to generate on this new business? Just to get an idea on whether that will be a profitable business or not. And then sorry to come back on this ability. Maybe thinking more about 2021 and not just H2 where, I mean, you do see a bit of normalization there, I understand. But not just talking about an environment where macro will be more difficult, well, some corporates might go bankrupt as well at some point in the cycle. How do you see the disability combined ratio moving on an underlying basis more in 2021? Thank you very much. The questions on the OCC and the market observable spreads within that will be taken by Annemiek. On Health, yes, we have seen growth there. The targeted combined ratio in Health since the IPO has been 99%. And the business we've currently written will as far as we can judge it today deliver within that target. We had significant growth in the Health portfolio. Overall, the quality of that growth seems to be good enough or even be better than what we had in our portfolio to deliver on that target. So yes, it is profitable. On your disability question, actually the answer is maybe not as clear as you would hope for. It's all going to depend on how many companies will be bankrupt in the remaining part of the year and the current year. We're a bit more positive than we were at the end of Q1. And also CPB has been a bit more positive. We have up until now used the 2 scenario of CPB that are most forceful, CPB 3 and 4. Recently, they have said that they expect to come more close to the light scenario to CPV2. If that's going to happen, then there is reason for some optimism next year. But to be honest, it's going to depend on how economically the Netherlands will do going further. Up until now, I think there's reason for more optimism, but it's going to depend on how we as citizens behave and whether the government or cities think it's going to be necessary to have further close downs going forward. And for the first two questions Annemieke I hand over to you. Yes. Your question on the UFR drag, we didn't mean double in a way that it would be 119 in H2, but I think you can just extrapolate the $96,000,000 so add another $96,000,000 for H2 if rates are to stay at the current level. Right. In terms of spread and spread movements, what we've seen there at the end of the quarter, Obviously, for excess return, we used the fixed spreads for shares and for real estate. What we've seen there for corporates would be anything around 130 bps, 140 bps, sovereign non core around 20 bps. That's probably the figure to work with there. And on mortgages? On mortgages, we're currently at around 150. 50. 150. 150. 150. Yes, okay, cool. Thanks. Thank you very much. I know there's a bit much pressure, but thank you. Not that much, thank you. We can now take our next question from Fulin Liang. Please go ahead. Hi, thanks and good morning everyone. That's very good results. I have a couple of questions. So the first one is that on the Page 32 of the slide, I noticed that the credit loss of your H1 is actually just 1 bps, which is substantially lower than just a normal average here. So I wonder, could you actually give some color on that? And is that if we expect, say, for example, even we are going to experience just normal average year credit loss, would that actually drag your second half OCG? So that's question 1. And then second one is, in your assets portfolio, you disclosed the components, but the large part of them is actually derivatives. Could you have give some more color on the risk exposure of this derivative asset? Was it exposed to high interest rate, lower interest rate, higher credit spread or lower credit spread? So some color on that would be great. And that's it. Thank you. Yes, the one basis point credit losses indeed extremely low, but we just really have not seen any foreclosures in the first half year. Now could that increase in the second half? Yes, it could. Do we currently have signs within our mortgage portfolio that arrears are really ramping up and that clients have contacted us and that we feel we have to go to foreclosure on certain situations or has a pipeline of foreclosures ready there, not as of yet. So that continues to be quite well and it also continues to show a trend of declining arrears over the last 3 years and also declining credit losses. And obviously, hard to predict now what unemployment will do and whether there will be a significant impact in H2 or whether it will be more of an impact in 2021 coming. But as of yet, we don't expect any massive impact there in the second half. In terms of derivatives, that's really the entire derivatives portfolio is mainly the portfolio we use for interest rate hedging and more or less all very common swaps and swaptions in there. Okay. Thank you very much. Sorry, just a follow-up question on the spread. If I understand correctly, so your OCG would reflect the actual credit loss on the mortgage, right? If the credit loss goes up, it will be reflected on OCG right away? The spreads that we use for mortgages are market observable. So to the extent that will then be reflected into the market observable spreads, it will go directly into the excess return. Okay. Got you. Thank you. We can now take our next question from Ashik Musaibi. Please go ahead. Yes. Hi, good morning, everyone. Just a couple of questions I have is, first of all, on solvency. Now if I look at the group solvency, it has gone up versus full year. But if I look at the Life and P and C, both of those divisions' solvency ratio has gone down. And my focus, especially on P&C, I mean, you haven't taken out the dividend and yet the solvency ratio has declined in P&C. So can you give us some color on that? And do you expect like capital upstream in second half from P&C? And are you comfortable with that basically? So that's the first one. And secondly, if I look at your dividend of 9% growth, I mean, it looks like you have just used 40% of last year's dividend, but how should we think about the dividend given that your capital is still strong, capital generation is still pretty robust, The cash remittances are still good. I mean, so should we be thinking more about a midrange payout as well rather than sticking with the low end of the payout ratio? Thank you. All right. Let me start with your first question actually, Ashley. In terms of solvency movements, I'm trying to get the page actually that you referred to where we have those figures. The group level solvency is higher obviously than we have at both Life and Non Life also due to the diversification benefits that we actually see at that level. And also if you look at the non life figure, it's a small decrease, it's 162% to 158%, which is also largely driven by the new business that we've been doing there. In terms of upstreaming, we now upstreamed the $290,000,000 out of life. And we actually would expect for the second half of the year to continue upstreaming out of the Life business and out of the other non operating businesses and probably not from non Life. If you look at the upstreaming that we did last year, the €501,000,000 the majority there also came from life. That was around €360,000,000 from life and that was around €65,000,000 from other and only 80 from non live. And I think it's fair to say if we look at upstreaming for the second half of the year, we'd probably look more towards the live than some of the other operating entities not being non live. And Ashik, on your second question on the dividend, yes, we are now for the interim at 40% because that is the number that we use within our normal policy. We've been always clear, everything being equal and no strange thing happens that we would love to show a slightly growing dividend over time. And in the introduction, the message was we do still have room between the 45 and the 55 to move up if and when operational results would be lower than the year before. So we do have room to stick up to our promise and it's too early to comment on whether we would move to the midpoint or to the higher end or stick to the lower end. End. We do have the cushion and if necessary and it's good for the company for the long term, we are willing to use that cushion. Okay. That's very clear. Thank you. We can now take our next question from Farquhar Maury. Please go ahead. Good morning all. Just two questions if I may. Firstly on non life and the organic premium growth in disability and P and C is put about 6.9% year on year. Could you possibly split that between volumes and tariff trends? And just more generally, are you seeing any competitive pressures or regulatory pressures to hand back frequency benefits we've seen at all? And then secondly, on the real estate portfolio, you mentioned reductions in rent. And I just wondered if you could explain what's happening there because I'd have thought the contracts are probably relatively long term. So a bit surprised to see something material coming from rent reductions. And equally, on the COVID side, are there any material magnitudes for rent deferral or rent forgiveness in terms of ASR as a landlord? Thanks. Well, on your volume question in P&C and Disability, Roughly 1 third of the increase comes from increased premiums. Last year, we increased the sickness leave premiums. That has been helpful. And also in car and fire, we had some slight increase last year. So that has been helpful. But most of the growth is real organic growth and new customers in that business. On your second question regarding pressure from the regulatory or the political side on giving back premiums to customers, Well, I think one should realize that in some countries there has been a complete lockdown. In the Netherlands, we never had a full lockdown. People were allowed to travel etcetera. So everybody realizes that the potential pluses in car insurance and in fire insurance are very temporary and that this is not a structural trend. And I think the industry has been clear that if and when this would be a structural trend and a long lasting development, then you have to adopt a lower risk profile into your premiums. But given the fact that traffic in the Netherlands is close to normal compared to the last few years because people don't want to travel with buses and trains etcetera, but take their own cars and bikes. There is no pressure at all to give back premium. Sometimes there are news articles popping up, but I think everybody realizes that this is not a structural trend. And like a big storm, if we had a big storm, we don't start raising increasing premiums the day thereafter. We wait before the full year is over and then make a fair judgment whether this is a structural development and you need to increase premiums, but that's not the case yet. And then your question related to real estate and rents there. We did indeed see specifically at the start of the lockdown and then through the lockdown period, which in the Netherlands lost it for a couple of weeks starting from March, We did see some RAN deferrals there within the retail space. We've mostly engaged with those clients and have made arrangements whereby the rent is being postponed and whereby if necessary during that lockdown phase, our clients would get depending a little bit on what type of client it is. If it's a large company, if it's a smaller company, we've tailor made that a little bit. But on balance, we've given some of the retailers the opportunity postpone the interest, the rent that they had to pay. What we're currently seeing is a catching up there. And out of the around €5,000,000 or something that we missed in terms of rental payments, the postponement on a cumulative basis, of which we've actually provisioned for more than half of it, we still expect to see most of that actually coming back. And we now see people actually starting to repay again. And we've mostly changed the contracts or made some special arrangements so that the missed payments, they will have to repay them as additional payments over the next couple of months. Obviously, whether they will be able to actually we will be able to recoup that and to get the missed payments back in full really depends also on whether there will be second wave and whether there will be a true lockdown again. It's not the case in the Netherlands as of yet. If that will happen, there will be an impact within retail. And I remind you that the retail fund that we have also contains 1 third of supermarket related distribution regional shopping centers and those really weren't affected by COVID. So yes, we've seen deferrals. We haven't yet seen any full stop cancellations. We do see people starting to repay, but obviously, it's really up to the second half to see if they will manage to repay that. In terms of vacancy, we started the year with around 3.5% vacancies in the retail space and we're now at 3.7 Okay. Just to clarify then, when you talk up to rent reductions, is that the provision you are making for kind of postponement? I think that the total postponement that we've granted was around €5,000,000 and the provision we made for that was close to €3,000,000 So we've provisioned for more than half of the postponements and still expect to get quite a chunk back of that. Yes. But then is that the reduction in rents that you're talking about in the P and L that we're seeing? Correct. Yes. Okay. All right. Thanks so much. We can now take our next question from Stephen Haywood. Please go ahead. Thanks very much. You've obviously spoken about guidance for the full year 2020 operating profit between the midpoint of full year 2018 and full year 2019, and now you're saying slightly north of this. Are you specifically talking north of €800,000,000 If you can be more clear, that would be very helpful for me. Secondly, on the goodwill impairment you saw in your Life business, can you tell me what this was specifically for And whether you think there's going to be any further impairments in the second half? And then finally, on the 3% to 5% gross written premium target that you're exceeding in P&C and disability, is there any specific source of customers here, any specific source of distribution or is there any specific competitor which is losing business to you? Thank you. Shall I start with the impairment question? We did actually we did see some impairments coming through. I think we've even disclosed in our press release that, that was on total a difference versus last year of €32,000,000 And those impairments predominantly relate to the equity portfolio, where we obviously have to follow the IFRS rules. And if it's a large drop, you have to take it immediately. If it's a prolonged lower drop in share prices, you will have to take it over time. So I guess the immediate impairment that you have to take if there is a large drop that we've had in Q2, obviously depends on what will happen in the remainder of the year. But if we will not see such a huge decreases in share prices as we've seen in Q2, there will be much of that. Having said that, there is also an IFRS rule that will prevent smaller share price movements. And there we may see some additional impairments on equities come through. Thank you, Annemiek. Well, Steve, as you might know, I have a legal background and I assume you've been better in math than I was at school. So I think the guidance on the full year is pretty clear. If you would take the number, which we ended on in 2018 and you would add it up in 2019 divided by 2 and then pick a number just north of that, then I think you will be pretty close. So I think more I'm sorry, but more clearer than that we can't be. On your second question, where do we gain market share? Overall, we are gaining market share in almost every area of business in the Pension DC business in the business of P&C, but also in the disability business. I think the main driver behind that is still in the intermediary business. We see that intermediary is gaining traction and there's still the a large part of the business in the Netherlands. And I think where are we taking market share? I think in general the pie didn't grow that fast, but the number of competitors in the market has decreased. For example, Delta Lloyd Disappeared, VIVA Non Life is going to be integrated in the NN business. So the number of intermediary addicted insurance companies has decreased. And therefore, I think we're gaining especially more business from the companies that over time are disappearing, but mainly through the distribution of intermediaries. And I think I'm look to Michel this was also the last question and we're nearing 12 o'clock. So thanks for joining us. I think we don't need to repeat the key messages. Having said that, we as a Board of ASR are quite happy with how our people delivered during those challenging times, how they remained serving our customers, how intermediary remained loyal to ASR and we were able to grow the business organically, but also inorganically with the recent announced acquisition of the IORP or brand new day. So I wish you all the best. Normally Annemieke and I would now go to the airport, take a plane and meet you all in person. So we regret that that is not able this year, but hopefully some smart person in the world will find a solution for COVID-nineteen. And hopefully having presented the full year results, we were able to meet again in person. I wish you all the best and stay healthy. Thank you. That concludes today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.