ASR Nederland N.V. (AMS:ASRNL)

Earnings Call: H1 2019

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Aug 23, 2019

Good day, and welcome to the ASR Conference Call on the H1 2019 Results. Today's conference is being recorded. All participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr. Michel Holters, Head of Investor Relations at ASR. Please go ahead, sir. Thank you, operator. Good morning, everybody. Welcome to the ASR conference call on our half year results. On the call with me here today are Jos Baate and Krissy Hey. They will give you a presentation and a discussion and update on the results and the strategy. And after that, there is ample time to take any of the questions that you may have. As a customary, please do have a look at the disclaimer, which is in the back of the presentation with respect to any forward looking statements. And with that said, Jos, the floor is yours. Thank you, Michel, and good morning to everyone. Hope you all had or are still having a very good summer. So thank you for joining us on this call. Ladies and gentlemen, as you have seen from the published numbers, we realized very strong results over the first half of this year. And we continued to deliver a very solid performance with ASR. The numbers reflect our commitment and focus on operational excellence and disciplined execution. And I believe our performance shows that we are well on track to meet the medium term targets. Having said that, however, we should be cognizant of the developments in the environment and the financial markets in which we operate. These are obviously not within our control and can be challenging to navigate from time to time. So let's move to Slide number 2. As this slide shows, our performance over the first half of twenty nineteen has been solid on every key metric. Operating results amounted to €459,000,000 significantly ahead of the strong results of last year. Operating results showed an €80,000,000 of increase driven by very strong performance of the Non Life segment, which was at €56,000,000 but also by a March step up in our Life result of €28,000,000 Our costs remained well managed. Operating expenses were up driven by incidental costs predominantly due to the IFRS 17 project. When we look at the operating expenses from ordinary activities, which are part of the operating result, This declined by €6,000,000 when we adjust for the acquisition of the cost base of L'Orealis. So organic growth is fully absorbed by the existing platforms, while we're still being able to lower our expenses, and I'll come to that in a moment in Non Life and Life, due to reduction of FTEs systems as a result of the integration of Generali Netherlands and the ongoing migration of individual life portfolios on our software as a service platform. Our business yielded an operating return of 16.8% on an annualized basis well over our target of between 12 percent 14%. Overall, I believe this is an outstanding achievement. The combined ratio of ASR stood at 93.5, also better than the medium term targets. The non light business showed solid performance across all product lines and in particular we see an improvement in disability driven by solid underwriting and the price adjustments we have made on the sickness leaf portfolio. Our Solvency II ratio remained very robust at 1.91 after the interim dividend. And as you know, we are still using the standard formula. There have been many moving parts in Solvency 2 and Chris will provide further details later on in our presentation. But basically, we have been able to keep our Solvency II ratio robust while absorbing the 19 percentage points impact from the VA and the decline of the UFR. Organic capital generation amounted 189 €1,000,000 adding 5 solvency points to our Solvency II ratio. Solid business performance fully absorbing the impact of the higher UFR drag from the decline in interest rates. The quality of our capital also remained high with unrestricted Tier 1 capital alone representing close to 140% of the Solvency II. And then there is still plenty headroom to maneuver. In total, we have the possibility to issue almost 1,300,000,000 euros of hybrid capital within the Solvency II framework. Our strong solvency position enables us to remain entrepreneurial. As we have said, everything above $160,000,000 allows us to be entrepreneurial and to pursue profitable growth, which we have proven to do so with the acquisition of L'Orealis, which starts on the 1st May, which has and already contributing to our results as well as the recently announced acquisitions of WVE A'a and WEREX, which we communicated officially this morning. Deals like the latter 2 are obviously on the smaller side of the range, but clearly meet our return hurdles and the bottom line and strengthen our strategic position. I'm sure you have noticed the increase in the net IFRS results. In addition to the €80,000,000 increase of our operating result, we also benefited from incidental results from the acquisition of L'Orealis as well as from higher indirect investment income. We're happy to offer an interim dividend of €0.70 per share, which is an increase of almost 8% compared to last year and represents 40% of last year's dividends. Let's now move to slide number 3. Let me highlight some developments and achievements in the execution of our strategy. First of all, we've almost completed the integration of the Generali businesses on the onto the ASR platforms. The final part is the integration of the remainder of the pension book. As a result of the integration and the merger of the legal entities, it's no longer possible to accurately report on a separate performance of Generali. However, more anecdotally, we believe we will achieve better business performance and results than anticipated. It will be likely more towards the $35,000,000 $40,000,000 in net operating result instead of the $30,000,000 that we initially expected. And the fungible capital invested will be lower than we earlier expected. While we still need to integrate the last part of the pension businesses, we feel comfortable stating that overall this acquisition exceeds the final the financial expectations. So let's have a look at our solid back books in Box B. We continue to migrate the remaining books towards Software as a Service platform, making the cost base more variable in order to keep costs in line with the decline of the book. The acquisition of VEVE A'a recently announced and comprising an annual premium of roughly €28,000,000 and provisions of €430,000,000 will be integrated on to the same platform. Looking at the Capital Lights space in BOX B, we have made further progress as well. Within DC patients, we see still very good momentum as employers decide to move to the so called Berghneemus pension. This half year, we have reached over 75,000 participants, up from 50,000 participants end of last year. And in the meantime, we are already over €1,000,000,000 of €1,000,000,000 under management. In asset management, there are also other good developments to mention. Just a year ago, we reported on the mortgage funds that we had achieved the €1,000,000,000 of assets under management. Now the €3,000,000,000 landmark is already in sight and we're very pleased with this success. We also see that external investors appreciate our ESG funds and we've seen an inflow of €430,000,000 in the first half there. In the top left in box A, our business you will find our businesses that provide opportunity of growing cash flows. As we announced this morning, we are happy with the acquisition of Veyorex, which is an income insurer for the personnel of railway and affiliated companies. This transaction perfectly fits in our business domain of sustainable employability, which you will find on slide 4. And as said, the acquisition of Verex is the latest piece we added to this ecosystem, it strengthens our proposition in the field of sustainable employability. While the transaction itself is relatively small, it really fits well with the rest in the ecosystem. And more importantly, it will be integrated onto the platform of L'Orealis. This marks the fact that with L'Orealis we have gained unique access to semi public sector organizations. Later this year, as you may know, we will start with the rollout of our vitality program, helping customers to live healthier and at the same time reducing claims. Having mentioned claims, let's talk about Non Life, which you will find on slide number 5. In the Non Life segment, we reported a very strong performance, a €56,000,000 increase of operating results to a total of €122,000,000 The increase is high quality and driven by improvements in all the plants. We experienced lower storm claims than in comparable periods in 2018. Also, Gulf claims showed better performance, partially offset by some higher level of large claims. And in disability, we particularly benefited from the strong underwriting and pricing adjustments in the sickness leaf portfolio. As you may recall, last year, we said we saw unfavorable claims development in the sickness leaf portfolio, but we took pricing measures and over there resulting in margin expansions within the sickness leaf portfolio. The combined ratio in P&C and disability together was 93.5 percent in the first half, a strong improvement compared to the 96.7 percent in the prior year and also ahead of our 94% to 96% targets. Improvements across all business lines and driven by better results from expenses commission and claims. So we are very pleased with an expense ratio of 7.2 for our total non life business, which as you may know includes Health which shows a further improvement from last year. So clearly broad based improvements in the non LIGER. Also, our gross written premiums increased by 4.3% overall, mainly driven by solid organic growth of €56,000,000 and the inclusion of L'Orealis, which added €18,000,000 in the first half. Excluding L'Orealis, organic growth in P and C and disability combined was 3.3%, in line with the medium term targets we have over there of between 3% 5%. I should also add that this growth number also includes the negative impact from rationalization of the Generali Enel portfolio. So we see continued good growth opportunities to grow organically the Non Life segment. And moving on to Slide number 6, we'll zoom in a little bit on P and C. I've already mentioned the strong performance of our R and R Live business. Our P and C business has been market leading in the past few years. While large claims and storms can impact the bottom line performance from time to time, over the years, we have built and strengthened the foundation of a successful and profitable P and C business. We've optimized our processes and harmonized or migrated to the admin system of Chris, improved the quality of our underwriting due to the use of FRISS and implemented product rationalization to the benefit of efficiency, service levels and customer satisfaction. We've been able to absorb organic and organic growth onto our platform with only marginal expense impacts. We've seen favorable developments in the non life markets driven by market consolidation and commitments by various peers to adhere the rational and economic pricing. This had been a favorable backdrop for our performance in recent years, which we believe may continue for the near term. The graph top left hand show the 3.2 percentage points improvement in expense and commission ratios over the recent years, while the graph at the bottom demonstrates the growth we have achieved in the same period. Our expense ratio in P and C amounted just to 8.3%, which we believe is market leading. And with claims ratio as the remaining part behaving as anticipated, this provides basis for sustained growth and profitability going forward. Let's now look at Slide 7, the Life segment. In Life, we saw a strong increase of operating result of 8.3% to €368,000,000 This was mainly driven by an increase of investment margin of €25,000,000 about half of which is driven by a decline of required interest because all the parts of the live book books are expiring. This has a positive impact on the investment margin as we manage to keep our investment income relatively stable. The other part of the increase is mainly driven by an increase of the investment margin from the Generali Netherlands portfolio, which is the effect from an extra month of revenues. 2018 was 11 months as you may recall and also the impact from some rerisking activities last year. We see most of the increase of the life as sustainable. However, please bear in mind that H1 is typically supported by dividends. Furthermore, we are pleased with the continued inflow, which we see in the so called Verkneemus Consume, the gross written premiums of the DC product increased by 55% and assets under management exceeds the €1,000,000,000 mark. Together with the premiums of L'Orealis, this partially offsets the decrease in premiums coming from Individual Life and Pension DB. Cost containment is critical in the Life segment and I'm happy with the Life expense ratio of 52 basis points, which is within the medium term target range of 45 to 55 basis points. On Slide 8, we'll have a look at all the other business segments. The operating results of Asset Management showed an increase of 30% up to €11,000,000 This reflects the higher fee income, particularly from mortgage funds and ESG funds as well as a higher fee income from our real estate funds. This is driven by both new inflows as well as higher asset base from REIT. The operating result of the Distribution and Service segment declined slightly as anticipated to €11,000,000 The decrease is primarily the result of the expected downward pressure on fee income of Dutch ID as a result of adjusted tariffs for mandated brokers. This decline is partly offset by organic growth. Operating results of the holding decreased mainly due to higher interest expenses roughly €3,000,000 on the newly issued $500,000,000 Tier 2 subordinated loan. The proceeds of this of the bonds were primarily used to fund the acquisition of L'Orealis. Then on slide 9, this slide puts the financial performance of our businesses in a historical perspective. As you can see, we've been able to sustain the growth of our operating results over time. While from time to time business results may show some deviations, it is clear that we have been able to grow our results and deliver an operating return on equity well ahead of the medium term targets. Operating results for the 1st 6 months this year is truly a record performance, and I'm pleased with the quality of the business that has been delivered. Noteworthy here as well, the increase in the non life compared to the same period last year. While the January storm in 2018 provides for a favorable comparison in the $56,000,000 increase of our non life operating results clearly outstrips that and reflects the quality of our business. Surely, a question on your mind is what we expect in the second half of this year. Now from my presentation so far you have gathered that we are really happy with the quality of our business and the performance it has been delivery. So a good starting point would be to take the operating result from H2 last year. The €362,000,000 included some nonrecurring items, which actually offset each other. Additionally, one could assume somewhat improved business performance as we have seen over the first half year and at the expected half year contribution from L'Orealis. In line with our earlier guidance, when we acquired L'Orealis, it may seem reasonable to assume an amount in the range of between €15,000,000 €20,000,000 for the second half of this year. So I now would like to hand over to Chris for further details on our capital and solvency. Yes, thank you very much. Ladies and gentlemen, I'll go through the capital and solvency position of BASR. I've been pressed by Jos, the IR team and the entire education department to be brief. So I'll try to restrain myself to maximum 2 minutes per slide. Stock first, then flow and finally, sensitivities and some headroom. Turning to Page 11, our balance sheet, you can see the Solvency II ratio of a group of 191%, a robust and solid number. A couple of points to note. This number did absorb the UFR decline from about 3 points. It did absorb the VA decline in last half year, which cost about 15 points to 16 points. That's all absorbed in the 191, which it also shows on the right hand side. If you exclude the impact of the EURPA reduction, which is in euro terms about €91,000,000 owned funds, the lower VA, which could be over 500,000,000 of own funds, but also just for the fact that we acquired 176,000,000 of own funds to Lojabis, ASR on a gross basis pre all of that added about $550,000,000 of capital in the first half year. I don't want you to double that for the full year, but it is a testament to a clear way to generate organically capital in our group. Part of it is captured in the OCC, part of it is captured in the bucket other. So by generating standalone over CHF500 1,000,000, we're able to absorb the VAR decline, the VA decline and we acquired L'Orealis. So again, evidence of solid capital generation ability, which is also confirmed by the development of our book equity, which is in FXE. Our IFRS book equity grew by another SEK300 1,000,000 in the first half year and over CHF500 1,000,000 in the last few years. Again, numbers pointing into the same direction. This chart also shows you the development of our required capital. More details in Appendix F. I would just like you to note that we did a conscious allocation of capital to the acquisition of L'Orealis. We made an allocation of capital to real estate. We made an allocation of capital to the rest of our non life business. And we reduced capital in interest rate risk, we reduced capital allocated to concentration and counterparty decoupled risk And we absorbed or had to deal with increases in longevity charges simply because of the rate decline. And we absorbed higher valuations of equity which lead to higher capital charges on equity. And the active capital allocation decisions were about real estate, were about Loyales acquisition and were about growing in non life disability and P and C. Turning to Page 12, shows the flow of our solvency. Again, OCC of SEK189,000,000 The chart shows from left to right with the Tier 2 issuance in the Loyales acquisition. Those are, of course, exogenous factors. The second half of the chart shows what ASR has done itself. OCC up to €189,000,000 5.1 percent of our required solvency. What I would like to note to point out is that the increase in our business capital generation compared to the restated numbers last year, up 33,000,000 which is a number I can actually pretty proud of because this is the capital generated by running the business, its underwriting results, investment results, fee income and lesser cost. Business cap change up €33,000,000 Actually that more than offset the increase in the UFR unwind. The UFR unwind H1 to H1, so first half this year to first half last year was up 13,000,000, 1.3. So we were able in this half year to overcompensate or counter the UFR unwind with bigger business results, actually better underwriting results. Release of capital down a tiny bit, some part of it is interest rate development, but mostly development of our new business. We wrote new business, which affected the release of risk margin because we're building up new risk margin. We're building up a new business strain, which is an evidence of or the consequence of the amount of business growth in disability and non life business. So OCC up from last year from 179,000,000 to 189,000,000 Business captain up significantly €33,000,000 absorbing increase in UFR and then also you can see the impact of our new business growth in the net release of capital. I would also like to point to Appendix G, which shows you our OCC and our long term investment assumptions that preempt the question that no doubt someone is willing to ask. We are having we are developing or defining our OCC based on relatively specific long term investment margins. If you look at where the actual rates are today, you can see that our long term investment margins slightly overstate the contribution from government bonds, core and non core. They understate the contribution of credit and mortgages and they understate actually or make our excessively conservative when it comes to the accrual of liabilities or using a VA of 20. If we were to harmonize the entire fixed income component of the OCC to the actual market rates that we observe today, We lose a bit on gobbies. We win a chunk on credit and mortgages. We win on the VA. That will increase our OCC by about CHF 20,000,000. Then also our real estate and equity assumptions are also based on a spread over swap. At this point in time, for example, real estate, we're assuming 300 basis points over swap. The direct rental income of our real estate business is already more than that. So leaving aside any capital gains, that's a very conservative assumption. If we were to move, say, for example, to 5% asset return on equities of real estate, you would add another CHF 30,000,000 of OCC, which is somewhat something that I think the industry does. So on a more harmonized or market consistent OCC definition, our number would be around SEK 50,000,000 higher in the first half year. Details are presented in Appendix G for Europe for approval. So that leaves me on CapGen, solid cap generation of conservative assumptions driven by what our business does and our business underwriting results have overcome and compensated the increased U of R decline. So actually quite pleased with that development. Page 13 shows the sensitivity of our solvency II ratio to the UFR. By now a famous number, we think that the most appropriate way to look through the UFR and we're aware of the UFR fetishism in the market and all the discussions of what the right number is or could be or might have been or should have been, we think that the right UFR is actually something that is very limited or linked to your actual investment returns, which is between 2.2, 2.4. Every year, we'll revisit that number. This year, we tick it at 2.4. The cash income, cash flow direct return on our portfolio, that gives a solvency II ratio of 152 percent, actually quite stable for the last year, again also absorbing the VA decline in that. And you can see the development between stock and flow if you change the U of R assumption increasingly clear that U of R is a flow element not so much a stock element as long as your starting solvency is sufficient. So again, in the economic UFR, solvency of 152 well above any norms that you might have. Total sensitivity is on Page 14, a page that you will shift as you all know. For your clarity, the spread sensitivity is excluding any corresponding VA movement. So it's a naked sex spread movement. For the actual result, there will be a compensated VA movement on the side, but that's to be determined on how what the VA looks like. But you can see our sensitivities. Key message is that with reasonable sensitivities, the 191 shows us to be safely above and inside the entrepreneurial range of 160%. One other note I'd like to make on the interest rate sensitivity, you can see if interest rates go up, as long as it goes up by 7%. If you go down, they go up by 1%, which is a correlation effect. We have really tightened our interest rate hedge in the last 6 months. Our capital allocated to rate risk is the lowest ever. We extended our hedge up to the point that rates decline from here. Actually, the dominant rate risk becomes rate up. Today, we're a rate down, then it becomes rate up. And modeling wise, secondly, that changes the correlations that we apply which gives the solvency uplift. We can question the economics viability of that, but modeling wise we think if rates decline significantly from here, rate up becomes dominant, which gives us a temporary solvency uplift. Just want to be clear on that. And then our balance sheet on Page 15. It's at a strong balance sheet with ample flexibility. I think that's an understatement. Market risk, financial risk are both low. Financial leverage today at 30.4% on an IFRS basis. Hybrid is a function of our own funds at around 24%. Please note this is based on our own IFRS accounts. If you were to adjust for shadow accounting and the capital gains reserve, which is more in line with what the industry does, this ratio would drop to around 24%, which gives us a relatively low leverage versus the rest of the industry and a very strong interest cover around 15 times. Actually, it makes you wonder whether if we were to call the existing the older Tier one instruments that are up for coal, if we were to call those and our leverage ratio would fall to 28%, whether our group would not be a bit under levered in today's very low rate environment, something we're chewing on whether an opportunity to optimize our balance sheet post that potential call. Again, the potential call notifications will come at the relevant formal notification dates. When it comes to market risk, market risk is about 43% of our total risk, which is something we're very comfortable with. As you can see, the risky asset as a function of unrestricted Tier 1, our risky asset ratio, it went up from 106 to 111. It really is a valuation thing. We added about 116,000,000 of nominal exposure to real estate. That was an active decision. The other component is really revaluations. The valuation of our equity portfolio went up. The valuation of our spread portfolio went up. That caused the risk asset ratio to increase. Just when you look at the asset decisions, so the €160,000,000 of real estate would have kept the risk asset ratio stable at 106. So we feel very comfortable with the amount of risk assets we have on our balance sheet, certainly in combination with the amount of the low leverage that we have. And before I get back to Joss, our cash position holding cash at the end of the period GBP354,000,000 up from last year. Last year at this point in time was €229,000,000 from €354,000,000 of cash. A complete unused RCF, so our credit facility is undrawn. There's an undrawn CHF350,000,000 credit facility at the group. We upstream cash from our Life business and not more simply because there was no need to. There were no impediments, but there was no need to upstream. And we're very comfortable with CHF 315,000,000 holding cash and unused cash facility. So OpCo solvencies, life at CHF 187,000,000 non life at 191. The non life solvency ratio is slightly overstated due to the acquisition of Loyales. At this point, the L'Orealis legal entities have not been integrated. That is scheduled for the second half of this year, which means in non life, L'Orealis P and C is a strategic participation of ASR non life, which artificially lifts the solvency ratio of ASR Non Life. On the group life, it consolidates to A, so the solvency number of group life is unaffected. But for the specific ASR Life entity, the 191 is to be overstated. The underlying number is 174. Same thing counts for double leverage. Post the integration and consolidation of the L'Oreal legal entities of double leverage will move to close to 100%. And it's all scheduled and planned for actually end of October. And our debt maturity profile, as you can see, very robust. Weighted average life of 7.5 years and the next maturity date 2024. And again, with ample financial flexibility and room to add leverage to our balance sheet if we wanted to. Closing out, I think I did well with spending no more than 2 minutes per slide. Comfortable with Joss, plenty of time for you to give a summary. Thank you, Chris. I think on average, you're right. And you just tested the new world record in providing detailed information in such a short period of time. So ladies and gentlemen, to wrap up this call, I would like to conclude that we are very pleased with the operational performance and its financial results. The business has delivered, as you may as you can imagine. The record operating result and the growth of our business both organically as well as through acquisitions reflect our discipline of our value over volume at all times. Our balance sheet is strong with ample financial flexibility allowing us to remain, as Chris already said, to remain entrepreneurial and pursue profitable growth. I've already provided some pointers for the second half of this year. And to conclude, I should mention that we will have a review of our capital management policy, including capital return in the second half of this year. One of the reasons for us to review our policy is the notion that the current policy may be somewhat rigid, specifically with respect to capital return, which demands our Solvency II ratio to be at least 200%. We may consider to move to a policy that offers us more flexibility with respect to decisions in capital return. We will update you on that with the full year results. So having said that, I would like to hand over to you. And the floor is open for questions. Our first question comes from Cort Lewis from ABN AMRO. Please go ahead. Your line is I got a couple of questions. First of all, on the non life premiums, you had in P and C 2% growth and disability 9% growth. What was that nonlifepremium growth excluding acquisitions for both P&C as well as disability? That's my first question. Second question is about Tier 1. You currently have well below usage of your Tier 1 capacity versus peers. If you would issue some, you saw obviously would usually be 10 percentage points, 15 percentage points higher given the current low interest interest rates and credit spreads. Are you considering to issue in Tier 1 hybrid in the near term? Or could comment on that way of thinking? My third question is about operating expenses in the holding. I think that was €32,000,000 including €21,000,000 incidentals. Last year, I think it was €30,000,000 incidentals. Could you give an kind of long term guidance, what the holding operating expenses might be? There will always be some incidentals like an IFRS 17 or will come up later, but at least I think this quarter was a little bit high on the operating expenses due to a few one offs like integration expenses, etcetera. But give some indication in that respect? And last question is more generally about M and A. The M and A pace continues, VVA and recently the National Railway Disability Insurance Company. What's your view about M and A in the future? Because this year, you've done quite a few deals. And could you comment on that and that's in respect to the capital return story as well? Those were my questions. Thank you, Kare. I will take your last question and your first question and Chris will take question 23. On the developments the premium developments in non life excluding M and A, If you take out L'Orealis, which I think I mentioned the €18,000,000 of premium of L'Orealis, Then the organic growth of the Non Life business, excluding Health, will be 3.3%. Of that growth, 1.6% comes from P and C. And that number is somewhat inflated because at the same time, we have sanitized the portfolio of Generali assets. And that also did cost some top line and it's even more than €20,000,000 because some of the risks in that portfolio were not very much liked by us. If you take a look at disability, excluding L'Orealis, the growth was 5.8%, up from 5.77 percent sorry, up from 5.45% last year to 5.77% this year. So in total, 3.3%, 1.6% from that is in P and C, 5.8 percent is in disability excluding M and A. Then on your last question on M and A, we are happy with the deals we've done. As you know, we missed on VIVA, so the team had some time and we asked them to look into Greenland. But in the meantime, it has become clear that Greenland is not for sale anymore. So we're now preparing the next pipeline because we first want to take some time to integrate all the smaller business we've acquired. They are maybe small in the thinking of some of you, but the work to integrate them also reporting wise will require some time. And in the meantime, we will prepare for the next year potential deals that we think that could be done. And we still think in Dutch market as well as in the individual life space and funeral as maybe in other spaces like distribution. We expect that we looking forward can do some interesting transactions for ASR. They may not be as big as L'Orealis or Generali, but we still see some potential. Having said that, Chris, I would like to hand over to you for the second and third question, of course. When it comes to our balance sheet indeed well, first of all, I think our balance sheet we've got headroom in each and every category both in Tier 1, but also in Tier 2. So the Tier 2 headroom is about €462,000,000 which was for a small increase in the SCR move towards €500,000,000 which is a benchmark Tier 2 bond at Moncadeti. That's 1. Secondly, if you need if we were to call the existing 2 instruments at €200,000,000 of grandfather instruments, indeed, we would be probably under using the RT-one space. We have an RT-one instrument out there. And we have probably an unlevered balance sheet. So we will be very opportunistic on that if we do something because we also need to have a proper application of the funds. It is not going to raise capital just for the fund of it. We just need an application for that. But again, if we were to do something in the current environment, and I would probably go for Tier 1 rather than Tier 2 simply because rates are very low. There appears to be cash to be invested by bondholders. We actually had some reverse inquiries by some of our bondholders where there would be room, whether there would be an interest, pushing something to help them invest their cash, put their capital to work. It's always good to reflect on that. So there's no yes or there's no no. We're going to be opportunistic. If we do something more likely to be in the Tier 1 space than Tier 2. But again, we don't need a whole lot and we need application for the funds. The application could be found in smaller acquisitions, could be found in allocating capital to mortgages. Mortgage spreads have widened considerably and today are very attractive to add new mortgages to your balance sheet. So we're going to be very economic on that. On your holding cost question, my guidance would be stable for the next couple of years declining thereafter and the most issue there is of course IFRS 17. We're spending more money on IFRS 17. If look at this half year, project costs were up a bit from IFRS 17. There were some integration costs from Generali, which we gradually feed out. We spent money on the vitality project I just mentioned. So what we're going to see going and some M and A costs. So what you see, I guess, going forward is continued spend on IFRS 17 until that's really due date is there. Some decline in M and A integration spend as the recent acquisitions were lighter and require less M and A cost. Some spend on Videlity and possibly if rates stay where they are, saw an increase in pension charges. So my best guess would be stable from this level next 2 years and decline thereafter if IFRS 17 is behind us. Okay, very clear. Thank you very much. Thank you. Our next question comes from Albrecht Plog from ING. Please go ahead. Your line is open. Yes. Good morning, Albrecht Klotz from ING. Indeed, a few questions from my end. Maybe the first question, a bit more strategic. You clearly shown discipline when it came to the FIFA file in terms of pricing. But in a way, the landscape has changed, of course, fundamentally given the PE interest shown. So what have you learned from this process? What surprised you the most? And could this also have some implications for your own strategy going forward? Yes, are you, for example, willing to explore options to unlock capital locked in your closed books in the Netherlands? Or you actually would like to do more the opposite, expanding that book? Book. Somewhat color there would be helpful. The second question is on the organic capital creation. I mean, the target 2021 is still €465,000,000 It seems that clearly operationally you're very well on track. And if race would not have moved, you feel very likely would have started to over deliver potentially on that target. So do you still see, let's say, mitigation actions that you can still probably even in the current rate environment get close to that target? And maybe to stay a bit closer to home for 2019, if I remember correctly, you're guiding for something like €415,000,000 OCC by the end of 2019, including something like $15,000,000 or $20,000,000 from Loyales. But still, it means a gap to bridge from the $190,000,000 and where rates are. How comfortable are you with that? And can you still get somewhat close to, let's say, the €390,000,000 €400,000,000 level for the full year? I'll leave it at that for now. Thank you. Thank you, Albert. On the first question on what have you learned from the Vivat trajectory. Well, one of the things we've clearly learned is that looking at a life insurance company and spending investing in a different way seems to give a higher valuation in Life Portfolios. However, we, as you may know, are a real insurance company, and we balance the liabilities we have with our investment portfolio. So from our point of view, our learning is there might be more space to be a bit more aggressive in terms of investing from your life books. But on the other hand, we are a Dutch insurance company and we want to live up to the obligations we have guaranteed to our policyholders. So we will always be careful with that. So I think that's one of the main learnings. Would we be willing to divest our own Life book? Well, one should never say no upfront to any idea. However, you need to take into account our individual life book is part of a larger life book. It contains PensionDB. It contains PensionDC. Our funeral business, it's all managed as one investment tool. So splitting it up would be quite complicated. It would require some time. And another question is whether the valuation of a company like Vivat, which is the first sale of a PE company in the Netherlands, could be equaled in the second transaction. I think there was also a strategic premium involved. And we yet don't know how DNB is going to react whether the price is the whole investment or given the low interest and other findings in the Solsysio FIFA, you need they maybe need to add additional capital. And then the question is whether the valuation of an ex transaction would be at the same level as the first one. Our current strategy, and we will continue to do so, is that we are a good or maybe the best owner of our own individual life book. We want to add volume to that as we have done with VV AA with the life portfolio of generality and L'Orealis. And up until now, we think we're the best owner. And at least in terms of running it at a very low cost level, we were able to deliver very good returns also for our shareholders. So from that perspective, we you shouldn't expect a big change in our strategy concerning life. And Chris on the 4 65, I think you're Let me add a few points on Cifap, if I may. 3 points I'd like to add, stuff that we learned or we think we learned. I mean, one is, I cannot rule out that there are difference in assumptions when people set solvency numbers. And we don't do assumptions based capital, so to speak. I mean, that might push up the numbers on the short term, but someone somewhere will pay the bill for that. So we will not go into assumptions based capital creation. We want to have very robust numbers. I think that's one. Secondly, on rerisking the balance sheet, yes, there may be some opportunities, but we're going to be careful. This is not the time to load up on non investment grade stuff. So we think there's opportunities to optimize the investment grade side of our fixed income portfolio. So, with relatively little capital spend, optimize the return on investment on our investment portfolio. Maybe do a little bit more on mortgages, especially given where spreads are today, to optimize the investment grade side. Actually, as a matter of fact, we reduced the non investment grade exposure. We did have a U. S. Leveraged loan mandate that we canceled. We wanted to move away from non investment grade securities. So all in the investment grade space. And finally, when it comes to unlocking capital, indeed, we've seen a longevity swap being executed. We know there's talk about longevity swap. There is appetite in the reinsurance market to take on longevity risk. That's something we're actively contemplating, not something to be do this side of Christmas. It takes more time to be prepared. But it's something to that's the nice thing to have on the shelf and unexecuted longevity option We have one little caveat. The impact of ASR could be positive with not a double digit solvency release simply because there's diversification. We have a fairly diversified book, so longevity risk diversifies away. So also longevity swap benefit will diversify away. And secondly, the impact of such a swap is bigger if you got more in payment annuities. And relative to others we may have less in payment annuity. So a longevity swap will have a positive benefit, but maybe not as large as some others have it. But again, it's something that we are constantly evaluating and there is appetite in the market that is a nice add on, a nice option to have. And we're also checking ourselves whether if you want to think about raising capital, whether the cost of a Tier 1 at this point is more attractive than a cost of a reinsurance deal. And that's how we think about it. So what's the economic cost of attracting capital? My hypothesis is that in the market today, you see our rates are today. That in our Tier one is a cheaper form of capital for us in our longevity trades, although longevity swap of course, you want to add on yourself. When it comes to the OCC, indeed, we've targeted for 4.65% in a couple of years' time. Of all the components, the stuff that's in our control, namely what the business generates, is actually doing better than Platts is doing very well. Also the early contribution from Loyales are in line with and promising to be slightly better than plants. So anything that's in our control will be better. Of course, the one thing that's out of our control is where the UFR drag will be. I don't know. We'll see when we get there. Who knows our rates will be in that very year. So I think on the components of stuff that we are managing and it's under our control are better than what we planned. And the final number will depend on what year of our bracket and we'll be very clear and transparent on that. As far as the second half of this year, you mentioned the number. It's going to be hard work. I mean L'Orealis will feed into the numbers. That's good. I mean, we have a full 6 months of L'Orealis results. But again, the U. S. Dollar drag will be higher. Again, for the second half of the year, I see strong progress in business cap generation, strong progress in underwriting results. I see delivering as planned on SCR release, potentially countered by the fact that we are writing new business, a new business trend is a bit higher. But with the combined that we have, I'm actually okay with that. I'd like to have new business trend with your combined ratio is low 90s. And then whether UFR and when it ends up, we can see how it develop in the second half of the year. Okay. Thank you for these detailed answers. Thank you. Our next question comes from Farooq Hanif from Credit Suisse. Please go ahead. Your line is open. Hi, everybody. Good morning. Happy Friday. Just quickly on the underwriting in Non Life. I noticed that as much as you see a decline in loss ratio, you're seeing quite a big decline in commission ratios, particularly when you look at commission ratio in the disability segment, there's a big drop. Can you just explain what's going on there? Secondly, going to your consideration of lowering the barrier for capital return, What has changed? So when you set the 200% versus your 160% target, what were you thinking and what could change qualitatively? So what are the drivers that you're looking at to make a decision on that? And lastly, could you remind us again where you are beating on the Generali Nederland portfolio? So you mentioned the higher profit versus target. So where is that beat coming from? And what could that imply for the other transactions that you've done recently? Thank you. Farooq, thank you. On the commission ratios, a few comments, especially in the disability space. If you may recall, I mentioned that our distribution entity that we were €1,000,000 lower there and that was due to the commission ratios that were down in the disability area. The flip side of that is that we, to all of our brokers we deal with, had to pay less commission because the average commission ratio went down over this year. That's one effect. The second effect is that we, a number of years ago, decided as an industry not to pay any commissions anymore on individual disability. The existing portfolio was left out from that decision. So people that already had a contract with us there, we still paid commission. But new business is not anymore done with commission. So over time, you will see that the commission ratio in disability will be lower than it used to be over the last few years. And then finally, the last thing, but that's more technically. We mentioned in the press release the €8,000,000 of reinsurance in the disability area, which was an additional profit. And that affected also as a one off the ratio because it was a plus for us, but it was in our bookkeeping, it is because it was commission that we got from the reinsurance company, So that's a negative on the commission paid. So just to Perugreek Yes. Sorry. Go ahead. I was just going to say just to clarify what you just said. So although there might have been a one off element, that sounds small. So generally speaking, commission ratio should be low and might even get a bit lower going forward? Yes. In the long term, the commission ratio, especially in disability, will be lower because in individual disability, we're not allowed to pay any more commissions in for the new business. Yes. Farooq, on your second question on the capital framework, what were you thinking? What we were thinking at the time was around when the UFR was higher and the VA was higher at this point in time. So, we are cognizant of the fact that since then the UFR has declined and although the VA has declined, although the VA is volatile, but the UFR decline is structural. So, if you don't act, there will be a bar creep, so to speak. We had 200% a year ago, it's actually less than 200% today. And we really we're not capital hoarders. We want to be disciplined in our allocation of capital as you can see in our M and A decisions and our capital allocation decisions. So we think it's fair to assume that the entire framework has probably shifted down somewhat with the lower UFR, Although tactically speaking, we need to weigh where the current market circumstances are. And that's why you said, we will review the entire framework with the notion of what is an appropriate level given the assumptions and how they've changed over time. And the notion is, we don't intend to sit on our capital and stare at it. We want to make it work and we think there's other applications. We'll definitely are happy to give it back to our shareholders and be part of it. So with that in mind, we'll review the framework. When it comes to where did we beat generality, on many parts, I think most prominently on the cost side. I mean the business is integrated, so it's hard now to single out the total cost assumptions. But I think the FTE decline that we achieved was much, much bigger than initially planned. So it's on the cost side is the first thing that springs to mind. Secondly, I think the speed of integration on some of the operating business disability and life, the speed of integration is faster. I think we beat on the rerisking that delivered more than we anticipated even if it wasn't in the initial case. There was even more than we did not include. So the rerisking was faster. And on P and C, more volumes. It came in with more volumes in terms of claims where we work. On claims level itself, it's kind of what we assumed, but the volumes were higher. And I think we're now working on sanitizing the portfolio and improving the combined. That's why you saw some lower growth in the P and C business because we observed a loss of volumes, happily non regrettable loss of volume. So a beat on cost, a beat on speed, a beat on rerisking and a beat on P and C volumes and and meat, so to speak, on claims ratio. Okay. That's really good. Thank you very much. Thank you. Our next question comes from Robin van den Broek from Mediobanca. Please go ahead. Line is open. Yes, good morning, everybody. Thank you for taking my question. The first one is more follow-up to Albert's question. I think your H1 reporting indicates that your year on year increase in UFR drag annualizes around €25,000,000 but that's still based on the average interest rate of the swap curve average in H1. So we're just wondering if you could give some sense to how that would look on the back of the final H1 curve for H2. And if you could also maybe for a more actual rate curve? Secondly, I think there's also an effect towards your OCC from the flattening of the curve. I your real estate and equity assumptions are based on the 10 year curve points, which you need to rebase too early on the curve. So the fact that there's massive flattening there will probably also take out some of your OCC generation. Can you specify those amounts as well? And I was wondering to what extent the €50,000,000 you've given for H1 as a more market observable approach? What kind of further offset do you expect in H2 given that mortgage margins probably are better than the average in H1? So presumably, that €50,000,000 in H2 is going to counterbalance, yes, part of the headwinds that we just discussed. Then secondly, on mortgages, the fact that you use your 110 bps long term investment margin, and you correct for that in your market observable OCC. I was just wondering for your Solvency II ratio determination, I presume you use the same spread there. So just wondering if you would use a more observable spread in the market, what would the impact to your Solvency II ratio be? Question on OCC. You mentioned you're looking at the capital return framework. But shouldn't you also look at basically redefining your OCC given the market headwinds you're facing on the flattening of the curve, for example, I think is a very counterintuitive move that's happening. Are you willing to look at that as well in that capital framework update you're contemplating? Because in the past, I think after the IPO, you did make statements that your capital return is somewhat limited to the OCC you generate. Yes, now these headwinds might give you a limitation. Just your thoughts there would be helpful. And lastly, I mean, I don't cover the real estate sector in the Netherlands, but I did see some press articles suggesting that prime real estate in the Netherlands has seen write downs in H1 and that there were some fears that there might be more to come later in the year. I appreciate you've always said you're focused on location. So I think you have some primary reset in your Any worries there or still all very solid and comfortable? Thank you. Robert, thank you. I'm not sure whether there's a question or a piece of advice. I'll take it at the latter. No, I mean, on the UFI drag, it was €25,000,000 on an annual basis. What the UFR drag will be for the second half of the year, it depends on rates. I mean, we need to look at where rates will be at the end of the year. Clearly, there is the UFR rate has a tendency to go up. That's only true. What number is bear with me. I'm not going to give you any guidance because it depends on where rates are. I mean, rates already have been bouncing back. Who knows what the Fed will discuss later. Yes, the tendency to go up, but bear with me what the actual numbers will be. Okay. Chris, maybe just quickly to maybe just quickly to you said it depends on what rates are at the end of the year. I understand from your peers that most of them basically will base the Q4 capital generation on the interest curve for Q3. But you have more an average approach of H1 and year end to determine the UFR drag. Is that what I should understand from your answer here? That's correct. We take the full 12 months of the year. So we average on the entire year. So we take Q4 into account in the averaging of the year, And you're correct. When it comes to OCC, you're right. I mean, the OCC, of course, is a it's a construct, right? It's a way to break down the bridge insolvency between different buckets and as always a bucket other. Anything that's not captured in the OCC is reflected in other. So actual returns of your investment that are not in the OCC bucket are in bucket other. That's why I said the €550,000,000 if you take the minus €92,000,000 UFR decline plus the VA plus Ooyalis, somewhere we created €500,000,000 of additional capital. That is partially excess returns above and beyond what's in the OCC. So I think the flattening of the curve that we rightly described will put some pressure on the OCC, but does not put pressure on the actual generation of capital. It will show in another phrase in the bridge. That's why, of course, a hard number of 5% is probably in our hindsight a better representation of our capital generation than the spread method that we use. So will we reflect on that? Yes, we will. It's actually something in line with the review of our capital management framework. Whether the OCC properly reflects the actual capital generation ability, the structure of the ASR is point of similar reflection. And because we are of course experiencing the same thing that you described. So any offsets will be of course in the bucket other, which is excess returns over and beyond the Elton as well. So when it comes to mortgage and evaluation of our Solvency II, we use the actual mortgage spreads. So the Elton has a fixed yield, but the Solvency number that we produce has the actual spreads as they were at the end of June. So that's why, of course, there's always a book with other that balances that. But the solvency is based on the actual spreads, not the LTIMs. Spreads are high. So there was relatively mortgages on a valuation side underperformed our liabilities in the first half simply because mortgage spreads widened. At this point, mortgages are very attractive. I think our colleagues in other insurance companies also comment on that. NAG mortgages, government guaranteed is around 130 is in a 10 year segment. Non government guaranteed goes to 160, 170 basis points already. So allocating new capital to mortgages is very, very interesting. But that number is reflected in our solvency level. When it comes to real estate, there was an article on potential markdowns in the retail space in the Netherlands, which was really driven in my view by one specific real estate asset manager. We just had a management change. To quite frank, their real estate portfolio is not comparable to ours. It's much less core in terms of high street quality shopping in the core cities than ours. In our real estate portfolio, we see rents well protected, vacancies actually falling and still lots of interest. I mean if you look at what we signed up on new leases in our real estate portfolio in retail, some very household names. And for example, the bankruptcy of Tinto Toys led to some financial vacancies. All those spots were filled very shortly with other stores wanting to take that prime retail space. Actually, specifically speaking, some bankruptcies are actually welcomed by our real estate people because that gives an opportunity to refresh tenants and actually reset rental rates. So when it comes to our real estate portfolio, I don't share that concern. I think the one thing I would say is the level of capital appreciation may be less than the past, but the rental income is good and I don't see any immediate downside risk on that space. So in summary, UFR declined bear with us. We average out in the year. We'll see where rates are. The things we can control are all moving in the right direction. And in the first half of the year, the underwriting results more than compensated the UFR decline. Will that continue to happen? That depends on where rates end up. On OCC, fair point. So the offset will flow in the bucket other, which does not mean that our total cap generation goes down, but that segment in the OCC will go down. And indeed, a review of the OCC of a definition is a rightful question and something that really bears on our mind in the next 6 months. Yes. Maybe one last remark. I mean, I get what you're saying on OCC and the market bucket. But I think for some, the perception will still be that one element is sustainable, the other one is more one off. And I get that your market bucket will be positively filled by this structurally, but I think it makes more sense I think to adjust your reporting to what's structural and what's not. Okay. I mean very few people pay a multiple for other, right? But if you look at our the bucket other has been structurally positive in the last years. Thank you for your answers. Cheers. Thank you. Our next question comes from Farquhar Murray from Autonomous. Please go ahead. Your line is open. Good morning, gentlemen. Just three questions, if I may. Firstly, on the acquisition of AHERREX, could you just work through the rationale for integrating into L'Orealis and perhaps outline the nature of the synergies you're hoping to achieve from that? And then secondly, are you seeing any consequences from the recent consolidation in the market in terms of ability to pick up business and more generally how competition is behaving? On the call you seemed a little bit more optimistic on the sustainability of pricing in non life. I just wondered what might have changed there. And then finally, in the interim report, there is a reference to limiting the impact of the Mass Labs hedge. Could you just outline the rationale around that and perhaps whether it had any material impact at all? Thanks. Okay. The first two questions will be answered by myself and Chris will take the 3rd one, Farquhar. Thanks for asking. Well, the strategic rationale for Varex is it is semi it's a semi public organization. It's the National Railways and some affiliated companies. And with Loyales, we also acquired a former pension fund owned disability business, also existing out of lots of semi public organizations like municipalities, hospitals, etcetera. So the nature of dealing with those kind of customers is one of the core qualities of Loyales. And that's why we've decided, well, it's better to implement this business within the L'Orealis business, which is today 100% owned by us. In terms our synergies, as you may have noticed, it is in terms of premium not a very large acquisition. So the number of people involved on that is not that big. It will be a number close to 1,000,000 or question, what is the effect of the recent M and A activities in the Dutch market in terms of portfolio shifting? What we always see what we did see when NN acquired Delta Lloyd that some distribution partners decided some brokers decided to move the portfolio partially to other insurance companies. We expect that the recent M and A activity that the same will happen. So we expect that a part of our future growth will come from brokers that decide that too many acts in the same basket is not good for their independent positioning and that we will be able to face further growth especially in the disability and in the non life area. So consolidation from a hardening of the market of the premiums in the market standpoint is good, but also from our distribution partners are not happy with the consolidation. But actually to be honest, we are happy with what is happening because it will give us the opportunity to increase our position in the distribution area. 3rd question, Chris, is not for you. Yes. Fakar, I did. We have a mass lapse reinsurance contract. Based on the recent specifications by IOPA, the impact of those contracts should be limited. There will be fading out. In agreement with the regulator, we've agreed a fade out scheme. So the benefit of that has reduced significantly. That has shaped actually 1% of solvency in the first half of the year simply because we are lower we take a haircut on the potential contribution. We think the Maslow's will be fading out by the end of the year. But it did cost us 1 point of solvency in the 1st 6 months. Okay. And just to ask you a quick follow-up. I mean, obviously, one of your Dutch peers kind of discussed the change in the liquid asset treatment within its Solvency II ratio. Have you heard anything similar to that? No, because our portfolio of illiquid assets very small. I mean, most of our illiquid assets are mortgages, which is the treatment of that in a standard formula is pretty clear. There may be some enlightenment or lightening of charges if the next EIOPA review comes through. But nobody really knows where it stands. But I mean, you've all seen the EIOPA documents on this. And furthermore, our illiquid fixed income withdrawal is actually relatively small. So we haven't had any major issues on that. Okay, perfect. Thanks so much. Thank you. Our next I have three questions, please. So the first one, so you plan to review your capital policy in the second half of this year. Does that include whether you want to continue on the standard formula or want to move to internal model? Because just in regard to that, will you actually, for example, using standard formula, give you some kind of disadvantage in bidding for large scale deals? So that's my first question. And then second one is looking at your asset mix on your slides, there is Appendix H, looks like that your mortgage actually percentage actually declined from full year 2018. And just wonder whether the plan is actually increase your mortgage exposure in the following couple of months because thinking that the yield is coming down and I think you probably will have some pressure from the investment return. We're actually moving to mortgage. It helps you on that pressure. And then the last question is, I noticed that you have in the first half of year, you haven't really have the despite the very good operating results for Nan Life, you haven't actually upstream any pretty much very, very few cash from the non life business. Why is that? Okay. Thank you. Thank you, Fulham. Chris will go into the second and third question. On your question whether our capital policy remark we've made is related to a decision moving to a partial internal model. The shortest answer is no. There is no relation between those 2. However, having said that, we as stated earlier, we are thinking about what it would mean to move towards an internal or partial internal model. We haven't taken any decisions on that yet because we first want to finalize the IFRS 17 trajectory that requires the knowledge and the time of the same type of people that need to look into a potential move towards an internal model. So our capital policy decision will be independent from that. However, management always needs to take into the back of the mind everything that it is preparing for the future. So decision wise, it's independent, but we, of course, will also remind our future steps when we take any decisions. Pauline, it's Chris. When it comes to mortgages, if you look at Page 8, the actual amount of mortgages went up to €6,700,000,000 to €6,800,000,000 So it was a small increase in or an increase in mortgage exposure. For the group wise, I mean, the bank has been more or less deconsolidated. So the bank has obviously taken out some mortgage for the life insurance business has actually increased its mortgage exposure. We want to do more. Our mortgage production is up significantly. Gross production is up 10%, net production is up about 25%. But those our clients are looking for mortgages. So the mortgages there is a battle for mortgages going on between the Leipzig and our clients deal on mortgages. So we're looking for ways to accelerate the production and allocation of mortgages. So it went up and we are looking for ways to allocate more to that and then speed up the access to mortgages, especially at current valuations, at current spreads. When it comes to cash in non life, why didn't we have so many cash? Because simply because we didn't need to. I mean our policy really is to have the cash in the operating entities not in the holdco. We use because we're one legal entity with one regulator with the same statutory directors at group added business. So there's really no immediate need to have lots of holding cash. Our holding cash policy is a function of dividends that we plan to pay and holding costs. So we consciously decide to keep the cash in the business and we upstream when we need to. There is no limit or no impairment to upstreaming our holding cash. We could upstream cash from the non IFRS if we wanted to, but at this point there's no immediate need. And whilst the operating entities are always yielding solid ROEs, I mean the ROI the ROE of the Life and Non Life business are both around 13% plus. We were very comfortable keeping the capital and the cash in the operating entities. And when we need the money, we upstream it. Okay. Thank you. Just to follow-up on the standard formula question, I was wondering whether if you're doing trying to do a large scale in the future, will you actually you using standard formula while your competitors are using internal model actually puts into a disadvantage? We're fully aware of that potential disadvantage And one of the reasons we are looking into new considerations whether we should move towards an internal model or not is related to the role we had in the VIVA process then and we said, well, we at least need to look at it. But it will take some time before you can move towards an internal model. And as I said, the decision is not taken yet, and we're fully aware of the disadvantage we might have in certain potential future transactions if there would be any bigger ones. Our next question comes from Benoit Petrarque from Kepler. Please go ahead. Your line is open. Yes. Good morning, gentlemen. Thanks for taking my questions. So the first one is on the market and other impacts. So you have 19 bps percentage points, sorry, negative from BA and UFR. Overall, market turnover is minus 15%, probably have negatives from rates and mortgage spreads as well. So could you talk a bit more about, let's say, the positive effect? What have been positive, I guess, over performance has played positively, but just wanted to get a bit of granularity on that? Second one is on regulation. So just wondering if you could disclose the impact for moving the last liquid point on UFR to 30 years for Pfizer, but what it will mean for the Solvency II ratio? And also linked to that, why are you reviewing the capital in H2, the framework? I mean, with this couple of regulatory uncertainties still for life insurance, so I was wondering what is the purpose of that. The other one is on the business capital generation of 163 €1,000,000 I was wondering if you included the €8,000,000 positive non recurring on the commission on reinsurance in that figure. And then last point is on the 5% returns on real estate and on the assumptions. I understood that your reroll portfolio is yielding 2.2% renting yield. So I was wondering why we'll justify your move to the 5% yield? Thank you. Yes. Birman, on the on what happens in our solvency, there is a significant revaluation on some of the real estate portfolios, especially in housing and to a lesser extent in and housing and land have been revalued. We do revaluation. We revalue our portfolio every quarter actually. Every object is officially tax valued by independent valuators physically once a year on a desk case the other 3 quarters. So revaluation of real estate, revaluation of equities. We have some own implied haircuts on some of our solvency. We had some prudencies and conservativeness in there. And there was one portfolio, especially in the refined contribution business that was based on the assumption that our clients I mean the solvency evaluation phase was such that our clients will actually all leave after 1 year because it's a 1 year contract and we offer a fact that the retention ratios are literally 99.7%. So there was excessive prudence when it comes to the modeling of our defined contribution portfolio. Those are the main components above and beyond what you mentioned valuation of real estate, housing and land, to a lesser extent shops, valuation of equity markets, some prudency in some elements in our own modeling and especially around the retention rates and lifetime of our DC clients. When it comes to the large liquid points, fascinating discussion. I think it's a very partial discussion. I think you can only discuss it when you see it in an integral framework with many other moving parts. If you were to move the last liquid point, I think you also can discuss about the cost of capital and the risk margin. You just talk about the UFR as a whole. You can talk about whether the Maersk Leffs assumption is the right one. So I think it's a bit dangerous to talk just about the last liquid point. If you do, it would be a stock versus flow thing probably. Your stock would go down. The flow would go up significantly. I'd rather address it when I see the whole package going forward. And the question is reinsurance benefit into the business, captain? Yes, the €8,000,000 is in there, although also some other elements, reserving elements are also in there. If you look at the non life results, yes, there was a reinsurance benefit about CHF 8,000,000. But as you can see in the document, there was also a notation to reserves, alignment of IFRS and Solvency II reserves and there was some notation to liabilities that's also in there. So I would think that net net the non GAAP results, the number that we produce is roughly what it is. And releases and notations cancel out to be very, very, very specific. When it comes to yield on land, indeed the land portfolio is around 2.2%. But for example, in our housing portfolio, the direct income of about sorry, retail is close to 5%, housing income houses are over 3%, offices are well over 6%. And we've just launched a product about that is on Science Park yields and the Science Park rental yields are over 7%. So yes, land is a bit lower, but especially with retail and offices are much higher debt, together driving the total direct income from the real estate business north of the 3% that we're issuing today and very close to the 5% of the return. Thank you very much. Thank you. Our next question comes from Matthias de Wais from Kempen. Please go ahead. Your line is open. Hi, good morning. I've got 2 questions remaining, please. The first one is on the guidance for the operating result in the second half. If I understood you correctly, you expect a somewhat slower progression compared to the one seen in the during the first half of the year on a constant scope basis. So did I understand that correctly? And is there anything yes, explaining or is there any driver or any reason to expect a slowdown in the earnings momentum? And then secondly, on capital, what was the reason to defer the update to the full year results? So are you waiting more clarity on the Solvency II review? Or do you want higher rates before you're willing to launch a buyback? And just linked to that, can you confirm that ex UAVR Solvency II ratio is still above 100% or is it below at this point in time? Thank you. Matthias, on the operating results, as Joss said, you take the second half of last year add some additional results from to that because we our ASR stand alone is actually outperforming ASR stand alone for the last year and at Ooyalis. We're a bit reticent on the number. I don't think we'll add another CHF 60,000,000 to CHF 70,000,000 on the second half of last year simply because Q4 last year was very good. But we think overall, it's safe to add on average a markup versus the result last year. I mean, not the same amount, but simply because Q4 was a great result last year. When it comes to the capital policy review, we want to do it thoroughly. Look, a lot of our smart people have spent lots of time working on feedback in the first half of the year. They want to make a thorough and well informed decision. Don't be too hasty about it. And more information is always helpful, but I doubt whether by the end of this year we'll have all the clarity on AOPA that we want. I don't think you'll ever have full clarity what AOPA wants. I mean this is a progressing framework. So that is not the issue. It's more like we want to spend our time to think it all through and make sure that the people who are working on this are fully available for this. And yes, we did spend quite some time on M and A in the first half. And your third question was on solvency ex UAVR. Again, it's a partial analysis. Mind you, our solvency ex UAVR is very solid. There's no point in giving a number because it's a partial analysis. If you want to give me a solvency number ex UAVR, that would assume that will also make no investment result whatsoever. Is probably a factor that also strike out the market risk component, which then boosts the solvency again and you get a fully derisked solvency number. Actually, I think the relevant benchmark for solvency ex UFR to be quite frank is rather 0 than 100. I mean, do you have any owned funds left if you had no U of R because the 100% is an arbitrary mark if you then still keep a full allocation to market risk. So and it's way, way above 0. The exact number, I don't care. I don't look at it. I look at the UFR 2.4 because that's the number that we actually steer on. 0. Our next question comes from Stephen Haywood from HSBC. Please go ahead. Your line is open. I was going to say good morning, but good afternoon. I think it is now. Just a few questions from me as well, please. The thank you for the falling interest rate sensitivity explanation, but I see that your equities sensitivity has reduced significantly. And now for falling equities, you have 0% change to the San C2 ratio. Can you explain what has happened here as well? I think you highlighted that you would potentially look at optimizing the balance sheet as well later in this year. Would you consider potential debt issuance to pay for a share buyback in the future? Or is debt issuance is more geared towards doing business acquisitions and sort of business growth organically as well? And then finally, just out of curiosity, the Loyalist VVA, Verex acquisitions, I wonder if these were included in the number of possible small, midsized businesses you discussed at your Capital Markets Day? Thanks. Okay. Stephen, it's Chris. When it comes to equities, I mean, the volatility change because of the way the equity dampener works, which is a technical thing in Solvency. And secondly, we have got a put strategy under equity that we optimize in the first half. So, it's a combination of equity dampener with the recent technical thing and our put strategy that limits the amount of downside risk from falling equities. When it comes to issuing debt, I'm not sure that we're going to issue debt. I said that we're going to be opportunistic. And if there's an opportunity to raise capital cheaply, you should not let it go. And it appears that at this point, RTI is relatively an attractive form of capital versus others. We've had to reverse inquiries. Our balance sheet is sustainable. So something we're shooting on, but we need to have the right application. Ideally, you spend it inquiring companies. Would you use it to buy back shares? Well, we're not in the business doing a leverage recap, but a portion of its finance could be done, could be doable if your total solvency allows. To me, a share buyback or capital return is a function of your total capital base and what it looks like pre and post rather than a function of one specific single transaction. So you need to look at it in a more integral fashion. When it comes to acquisitions, our famous pyramids that we produced on the Capital Markets Day, indeed some of these businesses were implied in that pyramid. When we produced the site on the Capital Markets Day, of course, we were already working on Loyada because we signed the deal 2 months later. So that was something we knew was coming. VX and VVR were kept distance vaguely rumored at the time. So yes, these numbers they were included in that potential pool of acquisitions. Okay. That's great. Thank you, Chris. Thanks, Geoff. Thank you. Our next question comes from Andrew Baker from Citi. Please go ahead. Your line is open. Hi, thanks for taking my questions. Just a couple. So a follow-up to the famous pyramid, I guess. So there was I think $27,000,000,000 of GWP identified in that pyramid at the time. I appreciate that some transactions have come and gone. Do you see the size of that pyramid now as similar? Or would it be reduced materially in any way? And then maybe related to that, is there anything to read into the review of the capital policy and really freeing up the ability to potentially do buybacks as your outlook for M and A has and the pipeline for M and A has changed materially? And then just finally, can you just confirm, is there still a 2 year lag between when you make a decision to go to a partial internal model and when you can actually implement it? And have you actually started work on the partial internal model itself yet? Thank you. Andrew, thanks for your questions. To your last question, we haven't really started working on that because I said all the bright and smart people are still working on IFRS 17, which is a must do. From the start to the application and to the use, in general, one will need 2 to 2.5 years, even up to 3 years if the right people in the market are not available before you will see it in the numbers. The first year, you have to build the model, then you have to do the application. You have to prove that you used the model. So in general, it will require at least 2.5 years. To your first question on the Famous Pyramids, as Chris already said, a number of opportunities that we, in the meantime, have done are in that pyramid. We also have seen companies for sale that we decided not to bid on. Those were also in this pyramid. There has been a it's already in the Dutch market for a number of years that there is one funeral insurance company that is for sale. And we have thoroughly looked at it and then that the value that we want to deliver to our shareholders will not be in such a transaction, and that was also in this pyramid. So yes, we still see opportunities. The size of the opportunities might be smaller than, for example, L'Orealis or Generali, but there is still some stuff out there. So we're still optimistic about our ability to do transactions, but the number indeed has decreased because we've done some and some of the potentials that were still in there are refused to do by us. Okay. Thank you. At this time, we have no further questions in the phone queue. I would like to hand the call back over to you, Mr. Batten, for any additional or closing remarks. Well, ladies and gentlemen, thank you for joining us during this call. Hopefully, it was helpful again to get the detailed answers on the detailed questions. We're looking forward to see most of you soon. Chris and I will be on roadshow over the next weeks. And with some of you, we already planned a dinner and we a lunch. We're happy to see you there. And have a nice day for the remainder of this happy Friday.

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