Good day. Welcome to the ASR Investor full year results 2019 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michel Hülters, Head of Investor Relations and Ratings. Please go ahead, sir.
Thank you, operator. Good morning, ladies and gentlemen. Welcome to the ASR conference call on our full year results 2019. On the call with me today are Jos Baeten, CEO, and Annemiek van Melick, our CFO. Jos will kick off, as customary, with an overview of the highlights of our financial results, and then discuss the business performance. Then Annemiek, she will delve into the developments of our capital and solvency position. After that, we'll open up for Q&A. I have to remind you that we have scheduled till 12:00 P.M. sharp. We need to catch a flight to London to see some of our investors and also some of the analyst community. We need to keep it within the hour.
To make sure that everybody gets a turn in asking questions, we would appreciate it if you could observe a limit of two questions from each per round. As usual, please do have a look at the disclaimer that we have at the back of the presentation. With that said, Jos.
Thank you, Michel. I'm happy to be here again today with Annemiek, our new CFO, who joined us very recently. Together with Ingrid de Swart, the board team of a.s.r. is complete and ready for a bright future of a.s.r. Ladies and gentlemen, as you have seen from the numbers which we have published this morning, 2019 was again a very, very strong year for a.s.r., beating the record operating performance of 2018. I'm proud of our overall performance as it demonstrates our discipline in executing our strategy and our successful pursue of profitable growth. a.s.r. is consistently delivering against ambitious targets, and also in 2019, we offer our shareholders an attractive progressive dividend, and we intend to do so going forward.
As I am sure you have noticed this morning, we also announced a share buyback of EUR 75 million as part of our review of our capital management policy. More about that later in our presentation. Let's move to slide two. As said, our performance in 2019 has been really strong. Operating result of EUR 858 million, exceeding the already record level of 2018 by EUR 109 million. Especially favorable weather-related claims compared to 2018 helped our operational result and the acquisition of Loyalis. This on top of overall improvement of all our business segments. The operating return, 15.1%, well above our target. Combined ratio, also well above target with 93.5%. We remain sharply focused on our cost levels. Operating expenses declined slightly by EUR 5 million when adjusting for the cost base of the acquisitions like, for example, Loyalis and some incidental costs mainly related to M&A projects.
Solvency II ratio, still based on the standard formula, remains robust at 194 after the proposed full-year dividend. There are quite a number of items that impacted solvency, such as the 18% point impact from the lower VA, the impact of the acquisition of Loyalis, but also the issue and redemption of hybrid capital. Organic capital creation amounted to EUR 370 million, stable with last year and absorbing the additional UFR unwind, higher new business strain, and flattening of the yield curve. In 2019, we also reviewed, as promised, our OCC definition and return assumptions on this new definition, which is now more aligned with the market. Our OCC for 2019, based on the new definition, amounts to EUR 501 million. Annemiek, of course, will provide further detail on this. Based on the strong performance and in line with our existing policy, we offer a progressive dividend.
We propose to raise the dividend with 9% to EUR 190 per share, taking into account the interim dividend we paid already in September. There remains a final dividend of EUR 120 per share. In sum, a very strong set of results achieved in 2019. Let's move to slide three and talk a bit about our capital review. You are all familiar with the Solvency II management ladder here on the slide on the left. With a Solvency II ratio of 194, we are comfortably above the management level of 160, the level we tend to call the entrepreneurial zone. This means that we can allocate capital to pursue profitable growth, both organically and through bolt-on acquisitions such as we did with, for example, Loyalis, and we remain active in optimizing and re-risking the balance sheet wherever we see attractive opportunities.
It also provides a buffer to absorb the impact from regulatory changes, such as the ongoing decline of the UFR. As announced at the half year results, we undertook a review of our capital policy in the second half of 2019, in particular with regards to the possibility of additional capital distributions. In doing so, we took into account the level of solvency, our organic capital creation, and potential opportunities for allocating capital for acquisitions or/and rerisking. While we still continue to see opportunities to allocate capital to profitable growth, we also believe there is scope for additional capital distributions. We are comfortable with the current level of stock. Our intention for the medium term is to make an additional capital distribution of EUR 75 million per year. A condition is that our solvency ratio needs to remain above 180%, as we aim to maintain a robust balance sheet.
As is shown on the right of this slide, we expect that regular dividend, additional capital distributions, and value creation opportunities will be covered by the OCG. If larger and value-creating acquisitions present themselves, we will of course give priority to those. As you know, we maintain strict financial disciplines and require at least 12% return on invested capital. We will assess the possibility of additional distribution on an annual basis. The new policy will be implemented with immediate effect, and we have decided to buy back EUR 75 million of shares starting as from tomorrow. Let's now move to slide four, business strategy. This slide is mainly self-explaining, so I will restrain myself to two remarks. I'm especially pleased with the inflow of 11,000 customers in the first two months of the a.s.r. Vitality program, which is aimed at prevention.
This marks our long-term ambition to become an even more relevant insurer in the daily lives of our customers, on top of providing cover for risk and the accumulation of financial assets for later. Second remark I would like to make is we finished the migration of all a.s.r. own individual life books to our variable cost platform. Over 800,000 policies are migrated. Loyalis and VvE are the next in line to migrate to our new platform. We're again open for new business for new acquisitions. On slide five, we elaborate a little bit on our strategy in the pursuit to become the most sustainable insurance company in the Netherlands and possibly in Europe. A few remarks there. We consistently aim to improve the service we provide to customers.
The increase of the Net Promoter Score from 42 to 44, and even more important for our intermediaries from 60 to 62, show as an example that we are successful in this. As an investor, we are committed to a more sustainable world. Our impact investments amounted already EUR 900 million, the CO₂ footprint has been measured for close to 90% of our investment portfolio. We are on our way to meet our targets there. We increasingly receive external recognitions for our achievements. For example, for the third year in a row, we are the number one sustainable insurer in the Fair Insurance Guide, we have been voted the most sustainable investor by VBDO, a Dutch organization, twice in one year. Finally, in our business operations, we focus on reducing our direct CO₂ footprint.
Since this summer, our office no longer makes use of gas and is fully CO₂ neutral. Let's move to the Non-Life segment on slide six. In Non-Life, a very strong year, up EUR 83 million to EUR 226 million. All major product lines are doing better as demonstrated in the improved combined ratios. The two key drivers, the significant improvement in weather-related claims. The Jan storm in 2018 added up to EUR 32 million, and the addition of Loyalis, which is for the full year EUR 24 million, of which EUR 17 million in the second half. Combined ratio assets 93.5, a beat on the target of 94/96. On top of that, our gross written premiums increased by almost 6%, driven by a solid 4% organic growth by P&C and disability. By the way, for Loyalis, it makes sense to look at the net earned premiums and annual contracts.
Gross written premium, not appropriate measures this broken year. The uptick in the expense ratio is first of all, a consequence of the inclusion of the Loyalis portfolio. Without Loyalis, the expense ratio would have declined to 8%. The absenteeism portfolio reported better performance as we took measures within this portfolio. As you may have noticed, we took some additional provisions in disability and P&C for changes in the discount rate for bodily injury, which added up to a total of EUR 15 million. Let's move to slide seven, our Life business. Some highlights to mention here. Operating result up by 3.7%. The increase was primarily driven by higher investment margin, EUR 44 million.
This reflects lower required interest for individual life and higher direct investment income as a result of rerisking of investments and the integration of the Loyalis investments, partially offset by lower amortization of realized gains. Operating results from H2 last year to H2 2019 is relatively stable. It is up when adjusting for the EUR 10 million non-recurring benefits from Generali Netherlands in 2018. Gross written premiums grew 3.4%. The additional contribution from Loyalis, which was close to EUR 60 million, and the new pension DC portfolio growth exceeded the decline in the individual life and the decrease of the existing DB pension portfolio. Life operating expenses and basis points of the basic life provision improved to 53%, already meeting our medium-term targets. The last slide before I hand over to Annemiek. Other segments, I think mainly self-explaining. Two remarks.
We already expected, the distribution and services segment declined a bit towards EUR 23 million, but still better performing than target. This was mainly due to the lower fees for mandated brokers, which is a market phenomenon, and this was offset by solid organic growth. Operating results of the holding amounted to a minus of EUR 112. Decrease in operating result of holding and other is mainly driven by the increase in interest expenses from the EUR 500 million Tier 2 subordinated liability placed in April. Having said this, I will now hand over to Annemiek, and she will deep dive into solvency and capital.
Thanks, Jos. Good to meet you all by phone. I see some familiar names from my time as a bank CFO and some new names, looking forward to meet you live at one point. I was asked by IR to keep it relatively short. I will try to restrain myself. Having said that, I do want to take you through solvency stock flow, the new OCG definition, and some sensitivities. It won't exactly be two minutes either. If we go to page 10 and start with the stock, Solvency II came in very robust at 194% on a standard model. Especially robust if you consider that we absorb the impact of a further UFR decline of 3 percentage points, a VA decline of 18.4 percentage points, and the acquisition of Loyalis of 6.5 percentage points.
We added EUR 410 million of unrestricted Tier 1, and if you would exclude the impact of roughly EUR 490 million in hybrid capital, the own funds we acquired through Loyalis of EUR 176 million, as well as the impact of own funds of the lower UFR and VA decline of EUR 91 million and EUR 582 million respectively, we would have added around EUR 900 million of own funds during 2019. Now, I believe this EUR 900 million of own funds generated reflects the company's resilience to absorb the UFR decline and VA volatility while still being able to invest in organic and inorganic growth, as well as returning capital to shareholders. With that in mind, we have announced the intention for a yearly additional capital return of EUR 75 million, as Jos already pointed out earlier. Capital generation is also reflected in our IFRS equity.
You can see that in Appendix E, which grew by EUR 611 million last year. In terms of required capital development, we've made a conscious allocation this year to the acquisition of Loyalis and Non-Life growth, particularly in disability and P&C, as well as some re-risking into mortgages. We've reduced capital allocated to counterparty default and concentration risk. Obviously, in terms of required capital, the real movement here is the increase of market risk, which only for a minor part is driven by re-risking. It's mainly driven by a positive revaluation of equities and real estate. It also includes some additional risk to interest rate risk driven by lower interest rates, which we partly mitigated by increasing our hedge, primarily in the first half of the year. Despite these developments, our market risk as a percentage of required capital remains well under the soft limit of 50% with 44%.
Insurance risk also saw some increase with slightly over EUR 500 million, and that predominantly relates to life and health. Life, due to the impact of lower interest rates on longevity risk, and health, primarily due to the acquisition of Loyalis. Our diversification benefits increased by EUR 248 million, and we've seen a slightly higher LAC-BT impact, which was mainly driven by the changed tax plans. The VPB changed from 20.5 to 21.7 there. Good to point out that we still have ample headroom available, actually slightly more than in 2018, with EUR 923 for restricted Tier 1 and EUR 500 for Tier 2, Tier 3 combined. All in all, strong solvency level of 194% based on a standard model with ample headroom.
If you were to adjust that for the announced buyback of EUR 75 million, which will start tomorrow, and which will actually flow into the stock in H1, solvency would be 192%. A bit on flow now, if you turn to page 11. As Jos already indicated, we've reviewed the OCG definition in H2, and we've aligned it a bit more with market practice. Now, in terms of consistency and transparency, I'll first present the OCG on the old method and then indicate the delta towards the new methods. If you start at 197% in 2018, you can see that we issued the EUR 500 million Tier 2 to absorb the Loyalis acquisition, and we issued and redeemed some Tier 1, Tier 2 capital in H2, basically offsetting each other.
If you leave those exogenous factors aside and look at what was really generated by a.s.r. itself, i.e., the OCG, you can see the EUR 370 million, which is close to 10% points of our required solvency. That OCG number is roughly the same as last year's. Within that OCG, we see an increase of business capital generation with EUR 61 million -EUR 344 million. That's really the capital generated by running the business, i.e., the underwriting result, investment results, fee income. That EUR 61 million increase there more than offsets the EUR 35 million higher UFR unwind, which you can see in the technical movements at -EUR 125, really caused by lower interest rates.
Please be aware that our methodology takes the average over a year in terms of UFR unwind, that basically means that there will be a comparable echo of an additional UFR drag in 2020, obviously depending on rates this year. The release of risk margin was somewhat less compared to last year, primarily reflecting the new business and the contract renewal cycle of Loyalis, which typically occurs at the end of the year. We'll see that impact. We've seen that impact in Q4. It's profitable business, and it will generate OCC in the future. Impact of markets and VA decline, as well as the lowering of the UFR rate fall in our bucket market and operational developments, as you are aware. All in all, OCC comparable to last year, absorbing a higher UFR drag with EUR 61 million higher contribution of business capital generated.
As we already indicated previously, we were looking at a more market consistent/harmonized OCC definition. That has been worked out through the second half of last year, and is now finalized and will be introduced in 2020. Let's go to the next slide 12, so I can talk you a little bit through the changes that we've made there. On the new definition, the OCC would have been EUR 501 million, which is an increase of EUR 131 million versus the old definition. Key changes here really relate to the return assumptions for the investment portfolio. For fixed income, including VA, we will move from excess returns to market observable spreads, and for equities and real estate, we will move from an excess return over swap to a total return assumption. That total return assumption is post-tax 5% for equities and 4.1% for real estate.
These new return assumptions align better with market practices we see around us, and the total return assumptions for equities and real estate are actually consistent with the long-term assumptions we use in our strategic asset allocation. If you look at the impact of that change in LVIM assumptions, you would see EUR 182 more of business capital generation, and you can break that down in fixed income, which is EUR 56 million, and then equities and real estate, which is EUR 124 million. Within the fixed income space, we lost a bit of govies, both core and non-core, but we gained on corporate bonds and on mortgages there, and we actually gained on VA a bit. Within equities and real estate, the split is relatively equal between equities and real estate in terms of gains that we made there.
We've also made some other model refinements while we were at it. Those included the net release of capital bucket. In the old OCG, we only included a release of insurance risks in line with the unwind of our life book. In the new OCG, we will also include the related market risk capital requirements, i.e., predominantly related to interest and spread risk. We've also included a revision of the new business strain methodology, leading to a higher but more accurate required capital for new business. Those two factors combined had an impact of minus EUR 63 million in terms of release of capital. Technical movements, we only used to look at the unwind of the UFR there. We consider it more appropriate to also include the unwind of the TVOG. That time value tends to get smaller as time passes by.
All in all, that new definition OCG would have come in at EUR 501 million for 2019. Now bear in mind, it still remains quite sensitive, obviously, to movements in interest rates, UFR drag, and it is more sensitive now to market observable spread movements for fixed income and VA. In terms of target setting, we did introduce an OCG target at the capital markets day of 2018 of more than EUR 430 million for 2021. You would obviously need to add Loyalis to that, then you would get to EUR 465 million, all based on prevailing interest rates at the capital markets day. I believe that was in October 2018.
If you would adjust for the additional UFR drag of EUR 90 million since then, for some flattening of the curve, which knocked another EUR 40 million, you would get to around EUR 335 million, if you would translate that EUR 465 million targets at full year 2019 rates. You can find some more information on that on appendix I. I think we've done well reaching an OCG of EUR 370 million in 2019.
Bear in mind that there will be some echo impact of the UFR drag on that going forward, that you will also see on the new OCG model. The new OCG came in at EUR 501 million, you may consider the EUR 500 million target for 2021 not that challenging. As said, bear in mind the UFR drag echo that we will have, bear in mind that 2019 was a very strong performance year weather-wise for P&C.
The new OCC is really the basis from which we intend to invest annually in organic growth, in some inorganic growth, and re-risking. Obviously, it's the basis from which we intend to pay the regular dividend and the additional capital return of EUR 75 million. Page 13, we show some sensitivities. I think you're all familiar with this page. It really presents an indication of the stock solvency today if a lower UFR would be applied without any capital generation added to it. You can see what the impact would be of applying an economical UFR, i.e., closely linked to our actual investment returns, what we've kept at 2.4%. This would actually lower the stock to 153%, but it would obviously simultaneously enhance the OCC by EUR 63 million annually. That economical UFR has actually been pretty stable for the last year.
We've added a broader sensitivity in Appendix G, which is broadly in line with H1 2019, indicated that our current 194% solvency is still well placed within the entrepreneurial zone, even after applying the sensitivity similar to what we've seen at the half year. Returning to balance sheet on page 14. As already touched upon earlier, a strong balance sheet with ample headroom within our capital structure. Both market risk and financial risk are low. Market risk at about 44% of total risk, something we feel very comfortable with. We aim to keep that below 50% pre-diversification benefits. Financial leverage today at 29.2% on an IFRS basis, slightly up versus last year as we issued a Tier 2 instrument, but still well below our max of 35%. Risky asset as a function of unrestricted Tier 1, our risky asset ratio, relatively stable at 107, which we feel very comfortable with.
A few words on cash, and then I'll hand back to Jos on slide 15. Holding cash at the end of the period was EUR 458 million. It was up from last year, and it's still aligned with our policy to cover holding expenses, coupons, and dividends. In addition to that cash position, we have an unused RCF of EUR 350 million. We've upstreamed cash from Life, EUR 356, Non-Life, EUR 80 million, and other entities, EUR 65 million.
There was no need to upstream more, given our holding policy, but there were also no impediments to upstream more. The remittances that we've done are in line with the remittances that we have done in the previous years, percentage-wise. We are comfortable with the opco solvency, with Life at 192% and Non-Life at 162%, levels all well above management targets. Our debt maturity profile, as you can see, very robust, evenly spread.
Our next maturity date, 2024, something, again, that demonstrates that we have some more flexibility. Double leverage, as expected, just above 100%. All in all, very comfortable with the balance sheet and cash position as it currently stands. With that, I'd like to hand it back to Jos for a final wrap-up.
Thanks, Annemiek. Well done. Let's move quickly to slide 17, so we're not making Michel more nervous than necessary for the Q&A. Two graphs on this slide. The first one to highlight our steady multi-year increase in our operating result. As you can see, our Non-Life business and capital-light free income generating business in Asset Management and Distribution represent a greater part of the total company, and the new business we are writing in those businesses will push this further going forward. Second remark, those results will fuel our capacity to pay attractive dividends to our shareholders. As you know, it's our ambition to offer shareholders a progressive dividend per share in the long term. As said, full year dividend will grow towards EUR 1.90 per share, an increase of 9.2%.
On top of that, we aim to provide additional capital distribution as we announced this morning with the share buyback program of EUR 75 million for this year. All in all, since our IPO in 2016, we returned well over EUR 1 billion to our shareholders in dividends and share buybacks. If we would be able to execute on our intention, as we just discussed, then we would again return another EUR 1 billion in the current plan period. Concluding on slide 18, and guiding you a little bit towards the outlook for 2020. Again, a very strong set of numbers, so a very solid performance again from a.s.r. As is evident from all the key metrics that we discussed, our business is running very well, and we're happy that everything we can influence has done according to targets or better than targets.
Looking ahead, we are positive about the commercial and operational outlook for ASR. However, we are keeping a close eye on developments in the financial markets and in particular, the impact of the exceptionally low interest rates. While there are no new facts on the EIOPA review, we will of course monitor any regulatory change that may have an impact. At the same time, we remain interested in growth through small and medium-sized acquisitions. We still see opportunities there. Our strong capital position provides sufficient scope for this. Looking forward, acknowledging that our performance in 2019 was very strong and significantly increased compared to the prior year, we would be very happy if and when we could deliver those results again in 2020. With that, I hand over to the operator to go into all the questions you probably will have.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question on today's call, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star one at this time to ask a question. We'll now take our first question over the phone from Cor Kluis from ABN AMRO Bank. Please go ahead. Your line is open.
Good morning. Cor Kluis, ABN AMRO. I got a couple of questions. First of all, maybe just for the record, the Ciara storm and the Dennis storm, maybe you could give some clarity on that and related to that, of course, the reinsurance contracts that you have for such kind of events. Second question is about M&A. Currently, you basically make clear that you will be turning around 70% or a little bit more of your capital generation back to shareholders via dividend and share buybacks. There's still around a little bit less than 30% left for M&A and risk. Could you elaborate a little bit more on the M&A pipeline? You say you see still opportunities. Each year you delivered, for instance, since the IPO that you found a few acquisitions.
Did anything change after VIVAT or do you still see similar kind of pipelines and possibilities and interest of potential acquisitions? My last question is a technical one. On the 500 million OCG target of at least 500 million OCG target that you have, what amount of UFR strain is included in that figure? You mentioned there will be a little bit extra UFR direct, of course, for 2020 versus 2019. The UFR direct will be a little bit higher. In that 500 million, how much UFR direct is there? If you would bring it back to what you put on the slide to a lower level, what might be the offsetting positive effect? Is it the EUR 63 million or have you not included that EUR 63 million with extra UFR direct that you will get this year in 2020? Those are my questions.
Well, thanks, Cor, for those questions. Annemiek will go into the last one. I will take the first two. Ciara and Dennis together, they make a nice couple. The proof that Ciara cost a bit more claims than Dennis proves that in most families, the females are the boss. Having said that, the weather-related claims in 2018 added up to EUR 32 million. We had lots of large claims by then. Looking at the first feeling this year, we had, again, lots of claims, but very small ones. Fences and some smaller car incidents. Our first feeling is that the total claims for the two storms jointly will be somewhere between EUR 10 million-EUR 15 million. Hopefully, on the lower side, the projected range today is between EUR 10 million-EUR 15 million.
On your second question, M&A, we still do see, in line with what we said last year, chances for M&A. They may not be as big as Generali or Loyalis, but there are still some medium-sized chances we see going forward. That's why we've explicitly said that we want to reserve a little bit of the OCG that we expect for M&A and risk risk. Actually the storyline there didn't change over the last few months. Yes, we are looking at a pipeline, but as usual, we're not communicating about what's in the pipeline and what, when could happen. M&A is lumpy business. It could happen overnight, but it also can take a couple of months more. Then for the third question, I hand over to Annemiek.
Cor, on the question on target OCG, if you look at the EUR 500 million target we have, that includes this year's UFR drag, which was EUR 125 million, and then you would have to add the echo of the UFR drag of 2019, which would add another EUR 35 million. In total, that would be around EUR 160 million.
Great.
I missed one. Sorry, go ahead, Cor.
Yes. As you said, the following on that UFR drag of that 160, on slide 13 that you showed there, where you basically say if you bring the UFR down from 3.9% to 2.4%, it will be EUR 63 million positive for the OCG. Was that based on the 125 or was that based on the 160?
That was based on the current 125.
Yeah. Okay. Very clear. Thank you.
You mean on the sensitivities to stock, slide 13.
Yeah. Sorry, Jos.
One addition to the question about Ciara, our reinsurance cover starts at EUR 135 million for the first storm. This is all on own account.
Very clear. Thank you.
Ladies and gentlemen, if you do find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll now take our next question from Albert Ploegh from ING. Please go ahead. Your line is open.
Yes. Good morning, all. Thanks for taking my questions. The first one is, a.s.r. has always been known to be conservative, and you have a good track record of under-promising and over-delivering in the end. Now today, you're aligning more the excess spread assumptions in the OCG. I was wondering, are there also maybe further alignments possible in other, for example, let's say product lines where you are maybe excessively prudent in terms of reserving that you could revise as well? In a way, do you think you're still also in a way understating operating earnings on certain areas? That's the first question. The second question on the capital return decision and the dividend.
I noticed that you keep the link with operating earnings there, with the 45%-55% as a base payout ratio range, and you're clearly at the low end, so you can basically grow that and show the progression. The reason that you did not decouple like one of your peers, should they also take therefore confidence that you still see room to grow operating earnings, despite a very solid level of operating earnings we saw over 2019? A bit of thinking around that. Finally, on the progression itself. Now you have announced a buyback, which will, of course, result in a reduction in the share count. What kind of progression in a percentage you would feel comfortable with? To frame that a little bit. Thank you.
Okay. Annemiek will take the first one.
Shall I start with the under-promising, over-deliver question and whether that's also somewhere in our operating results? I don't think there is a lot of additional conservatism or prudence versus our peers on that side. I think where we've mainly seen it was really related to the OCC, and a bit to the solvency side. No, I don't see that on the operating results side. On the solvency side, I think on the OCC definition, we've now really aligned it with peers. If you look at stock solvency, it's good to bear in mind that we're still on standard model there. I think that probably sums it up.
To your second question. We think it remains important to base dividend policy on an audited number. That's why we've said we will stick to the 45%-55% of the operational, et cetera. There is still a lot of room to increase the nominal dividend because we're now at 45%. We also trust that we will be able to continue to grow ASR as provided in the targets on the capital markets day, the 3%-5% growth in P&C and in disability. We've always said we want to have a stably growing dividend, and we're happy with the current 9%. Everything that is between 5% and 10% will make us and shareholders hopefully also happy going forward.
Thank you. That's very clear.
We'll now take our next question from Farooq Hanif from Credit Suisse. Please go ahead. Your line is open.
Hi there. Thank you very much. Firstly, there's been a further decrease in interest rates. As well as the echo of UFR, there's potential for further UFR drag in 2020. I was just wondering, is there a rule of thumb we can use for each basis point in swap curve reduction to measure that? Aligned with that, mortgage spreads going down as well, will that impact now your OCC? Second, obviously, with the change of CFO, is there now a change potentially of policy towards internal model? Thank you.
Thanks, Farooq. In terms of your first question related to the year-to-date OCG/solvency position. Yes, obviously, we've seen a lowering of the UFR further to 375. We've seen interest rates decrease. We've seen some movements on mortgages spread. All in all, that may have an impact on it. There's no real rule of thumb to use there, and I understand that you would like to know that as of year-to-date, but we're not going to give any numbers there. In terms of change in CFO, whether that would impact the internal model stance, the answer is no. I think an internal model is quite costly. If we were only to do that to get the capital out, that may not be the right movement.
Having said that, if the standard model is very punitive to us, or if we really see M&A opportunities where we would have to need that, we will definitely look at that. I can assure you it is something that is constantly on my mind and that we're constantly evaluating and looking through it to see whether and at which point it may be a good move to do.
That's clear. Thank you very much. Thank you.
We'll now take our next question from Fulin Liang from Morgan Stanley. Please go ahead. Your line is open.
Hello. Thank you for taking my question. I have two questions. First of all is, you have EUR 500 million OCG, and your cost of ordinary dividend plus buyback or special dividend would be roughly EUR 340 million-EUR 350 million. That will leave you EUR 100 million budget for M&A, which I understand that you still have a pipeline for M&A. Just wonder that if you don't use all the capital for M&A, what's your timeframe or way of returning the unused M&A budget? Will you say, okay, every three years, five years, I will review what's not used, or will the review frequency by per annum every year? That's my first question. The second one is, you talk about that using the capital to rerisk.
If I look at your investment portfolios, your mortgage is substantially lower in 2019, is substantially lower than the percentage in 2018. Apparently, you are shifting your investment out of mortgage. Is my understanding correct? Also, if I compare the allocation of within the fixed income or by credit rating bucket, I did not see any sign of taking higher risk. Could you just give a bit of clarification on what do you mean by rerisking? Thank you.
Okay. Annemiek will go into the second one. In terms of what to do with unused M&A budget, first of all, we assume that the part of the OCG that not will be used for dividend or buybacks could be used for rerisking and/or M&A. If and when we, in a certain period, haven't done any M&A, we take it from there and will, on an annual basis, decide whether there is a nearby pipeline which we believe that we can invest in, or that there is no pipeline, and then will we decide at that moment in time what to do with the potential additional OCG that we have generated.
In terms of your question on investment portfolio, in the appendix on slide 30, we indeed have an overview of that. We did add over EUR 1 billion of mortgages on nominal value last year. You only see EUR 400 million of that in the actual category mortgages other loans. Around EUR 700 million-EUR 800 million is allocated to the fixed income portfolio because it's done through mortgages funds, partly our own, partly some other funds. We did add over EUR 1 billion of mortgages. In terms of relative size of mortgages, the other components have increased in market value. The relative size is not a true reflection of the additional investments that we've made there. If you look at further room to optimize the investment portfolio, I think overall, we're pretty comfortable with equities and real estate as it currently is.
We do see some more room to rerisk into mortgages and a little bit within the fixed income space where we could move a bit more from govies to credits.
Okay. Thank you.
We'll now take our next question from Johnny Vo from Goldman Sachs. Please go ahead. Your line is open.
Yep. Thank you. Just three questions. If I look at slide 11 and then I look at slide 28, and I look at the change in definition, it just looks slightly disingenuous that you're taking in your new definition of OCG all the benefit through own funds, but no negative benefit through SCR. I can look at pretty much a EUR 200 million transfer into own funds, and minimal amounts of the SCR moving in. Given that the fact that your solvency has remained flat broadly for a long period of time without the buyback, this suggests to me that the OCG that you currently report is broadly about correct. Can you comment on the two slides, 11 and 28, in terms of the remittances that you've got as well of about EUR 500 million?
At the half year stage, you said that the solvency position of the Non-Life business should have been 174. It's 162. There clearly was some one-offs in that, in terms of the remittance that you received this year. In addition, we had a very strong bull market in equities. Most of your equities reside in your Life business. Of the remittances, how much of the remittances is really one-off and how much is sustainable? Finally, the third question on the EIOPA review. If I look at what they're suggesting, if they put through a negative interest rate shock, what is the impact on your solvency? Thank you.
To start off, Johnny, with your first question on comparing slide 11 with slide 28, and then the new OCG definition. A couple of points to make there. Obviously, the excess returns and the change that we've made there, that's something that will flow through the own funds there. We have seen some changes to the SCR, in that new definition, also related to release of capital, where we've included new business strain, which actually added quite a bit there. You see there that we went from -45 on a release of capital to -13. Within that, there are two big chunks. Obviously, we had the release of market risk. The impact of the new business strain was actually more than double that. We did take some new business strain SCR into account there as well.
On your questions of remittances and the actual Non-Life position, I'm going to move to the slide where we have that, which is I think slide 15. We did guide at the half year results that the then prevailing Non-Life solvency ratio would have been 174 if you would have taken Loyalis and goodwill into account. What was in there is that we didn't do any remittances out of Non-Life in H1. We did the remittances out of Non-Life in H2, which is basically what you see there in terms of impact going from 174 to 162. That explains that jump. It's not a one-off, it's more a difference in timing of the remittance.
Shall we see the solvency decline year-on-year then every time you take a remittance out?
Not really, because you also have the generation within there. It's more the timing of when you take it out. In the H1 figures, we did already take some remittances out of the Life, but not yet out of the Non-Life. That's why you see a bigger chunk movement into the Non-Life part from a half year to a half year basis there. In terms of EIOPA, I think it's still pretty early to say what the actual impact there will be. Of course, we will see an impact if everything they have now checked in the market would come true, but it's probably good to bear in mind that all supervisors, including DNB, have said that it should be a balanced approach. They're not aimed at increasing capital. We've seen some opening towards discussion on the risk margin.
We've also found DNB quite constructive and open-minded to explore measures to counter any negative impact arising from the changes. It's still wait and see. It's an early stage. It has to go to European Parliament, probably be a 2023 event. We still have some time to absorb whatever comes out of there. With that in mind, we still have the potential to move to an internal model.
Maybe to add on that, Johnny. Part of your question on the remittance was the sustainability of it. The answer to that is quite clear. All remittances we've made last year are sustainable also going forward. No worries about that.
Thanks.
We'll now take our next question from Steven Haywood from HSBC. Please go ahead. Your line is open.
Thank you, Steve. Just another three questions from me. Going back to Johnny's question about the Non-Life ratio, have you thought about what sort of normalized remittances you'll be doing from this business every year? I know the ratio went up from 154% to 162% throughout the year, but you only took out one dividend in the second half. Is it going to be similar going forwards, or is it going to be every half year on that? Thank you. Second question is, this EUR 75 million per annum share buyback. Is that a limit? Is it a minimum limit or is it a maximum limit, or is it just that EUR 75 million set in stone? On your total return assumptions for equities and real estate, you state 5% for equities, and you state 4.1% for real estate. These are total return assumptions, so these include dividends.
Do they include capital gains for the real estate side of things as well? Again, it seems a bit conservative considering the AEX index already has a yield of about 3% on average for equities anyway. Thank you.
Annemiek will go into the remittance on Non-Life. Your last question, Steven, on the EUR 75 million, let me put it this way. It's a promise, as long as we are above the 180 for the medium term. If and when the OCG, as earlier said in this call, is not fully used, we take it from there, if there are other ways to spend it. As you know, we've always said we don't want to be capital hoarders, so if we can't use capital, we will always look at the most efficient way what to do with it. EUR 75 million, we wanted to be clear about the number, and I think that's what analysts and the market is used to. ASR is always clear about what they will do and want to do. That's why we said, well, let's just put the number out. It's EUR 75.
In terms of remittances, what we've historically always done, given the cash holding policy, and that only needs to cover holding and hybrid expenses, and obviously dividends, is that we remitted 70% of the operating profit of the underlying companies. We don't see any reason to change that policy right now. As far as that's concerned, we try and stick to that, and see what the future will bring. In terms of the new LVIM assumptions that we use for the OCG, yes, they are total return assumptions. It does include dividend, et cetera. It doesn't include gains in the real estate portfolio. It is more in line with markets. It's hard to see what all the other peers have there. It might be slightly conservative on the equity side, probably not so much on the real estate side.
Okay. Thank you very much.
We'll now take our next question from Ashik Musaddi from JPMorgan. Please go ahead. Your line is open.
Thank you, and good morning. Just a few questions. First of all, this change in the new OCC, the drag from new business strain, can you give a bit more clarity as to what has happened so that you have more drag from new business strain? Why it was not taken in past? Why is it taken now? What is the change there? If I look at your new capital release, it feels like it's only -EUR 13 million in a year, which is like rounding error on your SCR. Does this mean that the life book is not going backwards even by a penny? In past when it was EUR 45 million, it was around 1.5% of SCR. You're growing P&C somewhat, so it is fair to say that in past, your life back book was running off at around 2%, which sounded more reasonable.
If it is a zero number, then it just sounds a bit weird that your life back book has no runoff at all. Are you growing in life book, or are you able to maintain it flat with the new business? That would be the first question. Why this change now? The second thing is, in that cash flow chart, the holding cash one, there is something called EUR 236 million other. Sorry, I might have missed it. Can you just give some clarity as to what this is in total? What this other is? Just on that remittance, I think you did mention on the previous question, you have a 70% policy on remittance. If you just remind me again on that would be great. Just the last question is, how should we think about dividend growth?
You clearly mentioned that 5%-10% would be ideal for investors as well. If I think about this 5%-10%, is it fair to say 1.5% comes from the buyback? Now you're saying that your current OCC is about EUR 450 million. Your target is north of EUR 500 million. That's a 10% growth in two years. That's a 5% growth in OCC. Is that 6.5% reasonable to bake in, or do you think that it could be more or less? Thank you.
A lot of questions.
Three, actually.
Yes. I still remember the first one. The first one was on the OCC drag of the new businesses strain. As you can see on page 28, and I think that is the page that you are referring to, actually. There you see the EUR -13 in release of capital, which used to be EUR -45. There is definitely a release of the life book in that SCR. Obviously you can see the release of the life book back in the risk margin, which remains unchanged. You also see it in the SCR. If you would break that down.
The largest chunk, that would be slightly over EUR 200 million release in SCR, still comes from the release of insurance risk related to the life book. In the old definition, there was a new business strain which was below EUR 200. In the new definition, the new business strain and the SCR that's added to that is over EUR 200. A market release related to the Life business that flows out, that's less than EUR 50. It's really there, the uptick in the new business strain that has the impact and that causes it to go down. The reason why we did not have that in the old definition is that we were working there from the assumption that actually the new life growth was roughly the same as the redemptions that we saw in Non-Life. Non-Life has actually grown quite a bit last year.
We continue to focus on that as a growth area. It feels actually more transparent to, as of now, leave that old assumption and actually include the full new business strain of Non-Life in that regards. In terms of the cash for other, several moving parts are in that EUR 236 million that we see on, I think on slide 15. On the cash position, it covers all hybrid expansions, it covers the redemption of the revolving credit, it covers a bit of the smaller acquisitions that we have there, and it also covers pension expenses. It's really a mixed bag of lots of stuff that's in there.
Just a request on that. It would be great going forward if we can get the remittance and the recurring costs, like hybrid expenses, holding company costs, that we can figure out as to what's a one-off repayment of debt or M&A and what's a normal course of expenses. That would be helpful in future. Thank you. Sorry.
We'll think about it. On your last question, I think the 1.5 that you assume due to the lower number of shares as a result from the buyback, I think that number is correct. To be honest, I think the second part of your last question, I didn't get anymore. What was the second part of your last question?
If I look at your OCC of EUR 500 million at the moment, there is not fully UFR is reflected in that, as well as you have some better weather. If I adjust for that, let's say your clean OCC, the base OCC should be EUR 450 million for 2019, and you're targeting north of EUR 500 million for 2021. That's in two years, you expect to grow OCC by about 10%-11%. That's a 5% growth. Is that what we should add to the lower share count to get to a normalized growth in dividend?
Well, we've said the ambition is to deliver EUR 500 OCC.
I'm glad you recognize, by the way, that it is a very challenging target.
It is. I don't know whether I agree that you could calculate those to grow because you mix up IFRS accounting and Solvency II accounting. Let us think a moment about the real answer to your question, and if there is a good answer, we will come back to that tonight. Is that okay?
Yeah, absolutely fine. Yeah. See you this afternoon, anyways. Thank you.
Thank you.
We'll now take our final question from Andrew Baker from Citi. Please go ahead. Your line is open.
Hi. Thank you for taking my questions. Just two from me. Just interested on why now is the right timing to commit to a recurring buyback. Understand the buyback, but on the recurring side, you're committing EUR 75 million a year at the same time that you're flagging headwinds to OCC, and we have the EIOPA sort of noise in the background. Just a little bit on what went into that thinking and why now on that. Just on the partial internal model, is it still two to three years before sort of after you make the decision to move to a partial internal model until it's fully implemented? Thank you.
Annemiek will take the last one, and I'll give the last answer, and immediately after that, close the call. Annemiek?
Yes, if we were to move to an internal model before we have it all implemented and have done the use tests on it will definitely take about three years, yes.
On your first question, why now? At Capital Markets Day, we guided the market if and when we would think about additional capital distribution, and then we came up with this famous formula. It starts with a two, et cetera. At that time, we took into account that there was an ongoing opportunity called VIVAT. When that didn't occur, we promised to the market that we would reconsider our earlier guidance. The why now is because we made a promise on the reconsideration. We feel comfortable with our current level of capital.
Also having heard all the noise on the EIOPA review going forward and reactions from as well EIOPA and our own regulator at this moment in time, given the opportunity that we still have to move towards an internal model, if we would end up all wrong, we feel comfortable with the outcome of that going forward. That's why we've said, well, we've made a promise, and we want to live up to the promise, and that's why we've guided the market now with this new guidance on the EUR 75 million buyback, which we intend to do for a longer period, if and when the solvency is above 180%, and we will make a final decision on that on every new year. Having said that, and having answered the last question, many of you we will see tonight. Thanks for attending.
Hopefully, you are going to like the new team as you liked the old team. I'm happy with Annemiek being part of the team, also happy with Ingrid being part of the team. We face a challenging future, but we feel very comfortable that we, as we have done in the past, keep on delivering on the promises we have made. At least that's what we work for every day very hard, and we will hopefully enjoy a nice dinner with the analyst community tonight. Thanks for attending, and see you all later.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.