Good day, 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 Hülters, Head of Investor Relations at ASR. Please go ahead, sir.
Thank you, operator. Good morning, everybody. Welcome to the a.s.r. conference call on our half-year results. On the call with me here today are Jos Baeten and Chris Figee. They will give you a presentation and a discussion and update on the results and the strategy. After that, there is ample time to take any of the questions that you may have. As is customary, please do have a look at the disclaimer, which is in the back of the presentation with respect to any forward-looking statements. With that said, Jos, the floor is yours.
Thank you, Michel. Good morning to everyone. Hope you all had or are still having a very good summer. 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. We continued to deliver a very solid performance with ASR. The numbers reflect our commitment and focus on operational excellence and disciplined execution. 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. Let's move to slide number two.
As this slide shows, our performance over the first half of 2019 has been solid on every key metric. Operating results amounted to EUR 459 million, significantly ahead of the strong result of last year. Operating results showed an EUR 18 million of increase, driven by very strong performance of the Non-Life segment, which was at EUR 56 million, but also by a marked step up in our life result of EUR 28 million. 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 EUR 6 million when we adjust for the acquisition of the cost base of Loyalis.
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 Nederland 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% and 14%. Overall, I believe this is an outstanding achievement. The combined ratio of a.s.r. stood at 93.5%, also better than the medium-term targets. The Non-Life 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 leave portfolio.
Our Solvency II ratio remains very robust at 191 after the interim dividend, as you know, we are still using the standard formula. There have been many moving parts in the Solvency II, and Chris will provide further details later on in our presentation. Basically, we've 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 EUR 189 million, adding five 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 remains high, with unrestricted Tier 1 capital alone representing close to 140% of the Solvency II. There is still plenty headroom to maneuver.
In total, we have the possibility to issue almost EUR 1.3 billion of hybrid capital within the Solvency II framework. Our strong solvency position enables us to remain entrepreneurial. As we have said, everything above 160 allows us to be entrepreneurial and to pursue profitable growth, which we have proven to do so with the acquisition of Loyalis, which we got on the 1st of May, and already contributing to our results, as well as the recently announced acquisitions of VvAA and Veherex, which we communicated officially this morning. Deals like the latter two 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 EUR 80 million increase of our operating results, we also benefited from incidental results from the acquisition of Loyalis as well as from higher indirect investment income. We're happy to offer an interim dividend of EUR 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 three. 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 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 EUR 35 million-EUR 40 million in net operating results instead of the EUR 30 million that we initially expected. The franchisable 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 financial expectations. 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 VvAA, recently announced, and comprising an annual premium of roughly EUR 28 million and provisions of EUR 430 million, will be integrated onto the same platform.
Looking at the Capital Lite space in box B, we have made further progress as well. Within DC pensions, we see still very good momentum as employers decide to move to the so-called werknemerspensioen. 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 of €1 billion in assets 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 billion of assets under management. Now, the €3 billion 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 million in the first half there.
In the top left in box A, you will find our businesses that provide opportunity of growing cash flows. As we announced this morning, we are happy with the acquisition of Veherex, 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 four. As said, the acquisition of Veherex is the latest piece we added to this ecosystem, and 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 Loyalis. This marks the fact that with Loyalis, 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 a.s.r. Vitality program, helping customers to live healthier and at the same time reducing claims. Having mentioned claims, let's talk about ASR Non-Life, which you will find on slide number five. In the ASR Non-Life segment, we reported a very strong performance, a EUR 56 million increase of operating results to a total of EUR 122 million. The increase is high quality and driven by improvements in all claims and experience, frankly, lower storm claims than in comparable periods in 2018. Also, belt claims showed better performance, partially offset by some higher level of large claims. In disability, we particularly benefited from the strong underwriting and pricing adjustments in the sickness leave portfolio.
As you may recall, last year, we saw unfavorable claims development in the sickness leave portfolio, so we took pricing measures over there, resulting in margin expansions within the sickness leave portfolio. The combined ratio in P&C and disability together was 93.5 in the first half, a strong improvement compared to the 96.7 in the prior year, also ahead of our 94%-96% targets. Improvements across all business lines and driven by better results from expenses, commission, and claims. 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. Clearly broad-based improvements in the non-life sector. Also, our gross written premiums increased by 4.3% overall, mainly driven by solid organic growth of EUR 56 million and the inclusion of Loyalis, which added EUR 18 million in the first half.
Excluding Loyalis, organic growth in P&C and disability combined was 3.3%, in line with the medium-term targets we have over there of between 3% and 5%. I should also add that this growth number also includes the negative impact from rationalization of the Generali NL portfolio. We see continued good growth opportunities to grow organically the Non-Life segment. Moving on to slide number six, we'll zoom in a little bit on P&C. I've already mentioned the strong performance of our Non-Life business. Our P&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&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 Fresh, and implemented product rationalization to the benefit of efficiency, service levels, and customer satisfaction. We've been able to absorb organic and inorganic growth onto our platform with only marginal expense impact. We've seen favorable developments in the non-life markets, driven by market consolidation and commitments by various peers to adhere to rational and economic pricing. This has 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&C amounted just to 8.3%, which we believe is market leading. With claims ratio as a remaining part behaving as anticipated, this provides basis for sustained growth and profitability going forward. Let's have a look at slide seven, the life segment. In life, we saw a strong increase of operating result of 8.3% to EUR 368 million. This was mainly driven by an increase of investment margin of EUR 25 million, about half of which is driven by a decline of required interest because older parts of the life books are expiring. This has a positive impact on the investment margin as we managed 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 Nederland 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 re-risking activities last year. We see most of the increase of the Life as sustainable. Please bear in mind that H1 is typically supported by dividends. We are pleased with the continued inflow, which we see in the so-called waarneemingspensioen. The gross written premiums of the DC product increased by 55%. Assets under management exceeds the EUR 1 billion mark. Together with the premiums of Loyalis, this partially offsets the decrease in premiums coming from individual Life and pension DB. Cost containment is critical in the Life segment. I'm happy with the Life expense ratio of 52 basis points, which is within the medium-term target range of 45-55 basis points. On slide eight, we'll have a look at all the other business segments.
The operating results of asset management showed an increase of 30% up to EUR 11 million. 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 refi. The operating result of the distribution and service segment declined slightly as anticipated to EUR 11 million. 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 partially offset by organic growth. Operating results of the holding decreased mainly due to higher interest expenses, roughly EUR 3 million on the newly issued EUR 500 million Tier 2 subordinated loan. The proceeds of the bonds were primarily used to fund the acquisition of Loyalis.
On slide nine, 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 result for the first six 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 EUR 56 million 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. 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 delivering. A good starting point would be to take the operating result from H2 last year. The EUR 362 million included some non-recurring 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 Loyalis. In line with our earlier guidance when we acquired Loyalis, it may seem reasonable to assume an amount in the range of between EUR 15 million and EUR 20 million for the second half of this year.
I now would like to hand over to Chris for further details on our capital and solvency.
Jos, thank you very much. Ladies and gentlemen, I'll go through the capital and solvency position of ASR. I've been pressed by Jos, the IR team, and the entire communication department to be brief. I'll try to restrain myself to maximum two minutes per slide. Stock first, then flow, 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 of about three points. It did absorb the VA decline in last half year, which cost about 15 to 16 points. That's all absorbed in the 191, which it also shows on the right-hand side.
If you exclude the effect of the UFR reduction, which is in EUR 91 million own funds, the lower VA, which could be over EUR 500 million of own funds, but also just for the fact that we acquired EUR 176 million of own funds to Loyalis. ASR on a gross basis pre all of that added about EUR 550 million of capital in the first half year. I don't want you to double that for the full year. It is 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. By generating standalone over EUR 500 million, we were able to absorb the UFR decline, the VA decline, and we acquired Loyalis.
Again, evidence of solid Capital Generation ability, which is also confirmed by development of our book equity, which is in Appendix E. Our IFRS book equity grew by another EUR 300 million in the first half year and over EUR 500 million 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 allocations of capital to the acquisition of Loyalis. We made an allocation of capital to real estate. We made an allocation of capital to the rest of our non-life business. We reduced capital in interest rate risk. We reduced capital allocated to concentration and counterparty default risk. We absorbed or had to deal with increases in longevity charges simply because of the rate decline.
We absorbed higher valuations of equity, which led to higher capital charges on equity. The active capital allocation decisions were about real estate, were about Loyalis acquisition, and were about growing in non-life disability and P&C. Turning to page 12, shows the flow of our solvency. Again, OCC EUR 189 million. The chart shows from left to right with the Tier 2 issuance and the Loyalis acquisition. Those, of course, exogenous factors. The second half of the chart shows what ASR did itself. OCC up to EUR 189 million, 5.1% 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 EUR 33 million, which is the number I'm 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 gen up EUR 33 million. Actually, that more than upsets the increase in the UFR unwind. The UFR unwind H1 to H1, first half this year to first half last year was up EUR 13 million, one three. 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 stream, which is an evidence of, or a consequence of the amount of business growth and disability in non-life business. OCC, up from last year from 179-189.
Business CapGen up significantly, EUR 33 million, absorbing increase in UFR. 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. To preempt the question that no doubt someone's willing to ask, we're 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 in mortgages, they understate actually or make us excessively conservative when it comes to the accrual of liabilities, where we're 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 govies, we win a chunk on credit and mortgages, we win on the VA. That would increase our OCC by about EUR 20 million. 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. 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 and real estate, you would add another EUR 30 million of OCC, which is somewhat something that I think the industry does.
On a more harmonized or market-consistent OCC definition, our number would be around EUR 50 million higher in the first half-year. Details are presented in appendix G for your perusal. That leaves me on CapGen. Solid cap generation on conservative assumptions driven by what our business does and our business underwriting results have overcome and compensated the increased UFR decline. 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 on 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 to 2.4. Every year, we'll revisit that number. This year, we took it at 2.4, which is the cash income, actual direct return on our portfolio. That gives a Solvency II ratio of 152%. Actually quite stable versus last year, again, also absorbing the VA decline in that. You can see the development between stock and flow if you change the UFR assumption. Increasingly clear that the UFR is a flow element, not so much a stock element, as long as your starting solvency is sufficient. Again, at an economic UFR solvency of 152%, well above any norms that you might have. Further sensitivities on page 14. A page that you will shift, that you will know.
For your clarity, the spread sensitivity is excluding any corresponding VA movement, so it's a naked spread movement. For the actual result, there will be a compensating VA movement on the side, but that's to be determined on what the VA looks like. 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, our solvency goes up by 7%. If they go down, they go up by 1%, which is a correlation effect. We've really tightened our interest rate hedge in the last six months. Our capital allocated to rate risk is the lowest ever.
We extended our hedge up to the point if rates decline from here, actually, the dominant rate risk becomes rate up. Today, we're rate down, it becomes rate up. Modeling-wise, secondly, that changes the correlations that we apply, which gives a solvency uplift. We can question the economics viability of that, 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. Our balance sheet on page 15. It said 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. Hybrids 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 of around 15 times. Actually, it makes you wonder whether if we were to call the existing, the older T1 instruments that are up for call, 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 there's 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. You can see, the risky assets 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 EUR 160 million of normal 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 risky asset ratio to increase. Just when you look at the active decision, the EUR 116 million of real estate would have capped the risky asset ratio stable at 106.
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. Before I give back to Jos, our cash position, holding cash at the end of the period, EUR 354 million, up from last year. Last year at this point in time was EUR 229 million, so EUR 354 million of cash. A complete unused RCF, so our prep facility is undrawn. There's an undrawn EUR 350 million prep 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 EUR 350 million holding cash and unused cash facility. OpCo solvency is life at 187%, non-life at 191%.
The non-life solvency ratio is slightly overstated due to the acquisition of Loyalis. At this point, the Loyalis legal entities have not been integrated. That is scheduled for the second half of this year, which means in non-life, Loyalis P&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.s.r., so the solvency number at group life is unaffected. For a specific a.s.r. life entity, the 191 is a bit overstated. The underlying number is 174. Same thing counts for double leverage. Post the integration and consolidation of the Loyalis legal entities, our double leverage will move to close to 100%. That's all scheduled and planned for actually end of October. Our debt maturity profile, as you can see, very robust.
Weighted average life of seven and a half years and the next maturity date 2024. 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 two minutes per slide. Comfortable with Jos. Plenty of time for you to give a summary.
Thank you, Chris. I think on average, you're right, and you just set the new world record in providing detailed information in such a short period of time. Ladies and gentlemen, to wrap up this call, I would like to conclude that we are very pleased with the operational performance and the financial results the business has delivered. 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 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. Having said that, I would like to hand over to you, and the floor is open for questions.
Ladies and gentlemen over the phone, if you wish to ask a question at this time, please press star one on your telephone keypad. Please ensure that the mute function is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Once again, it's star one if you wish to ask a question. We'll pause for just a moment to allow everyone to signal. Our first question comes from Cor Kluis from ABN AMRO. Please go ahead. Your line is open.
Good morning, Cor Kluis, ABN AMRO. I got a couple of questions. First of all, on the Non-Life premiums. You had in P&C 2% growth and disability 9% growth. What was that Non-Life premium growth excluding acquisitions for both at P&C as well as disability? That's my first question. Second question is about Tier 1. You currently have a well below usage of your Tier 1 capacity versus peers. If you would issue some, your solvency would easily be 10, 15 percentage points higher. Given the current low interest rates and credit spreads, are you considering to issue a Tier 1 hybrid in the near term, or could you comment on that way of thinking? My third question is about operating expenses in the holding. I think that was EUR 32 million, including EUR 21 million incidentals. Last year, I think there was EUR 30 million incidentals.
Could you give a long-term guidance, yeah, what the holding operating expenses might be? There will always be some incidentals like an IFRS 17 or what 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 the integration expenses, et cetera. Could you give some indication in that respect. Last question is more generally about M&A. The M&A pace continues, VvAA, and recently, Veherex. What's your view about M&A in the future? This year you've done quite a few deals, and could you comment on that and that in respect to the capital return story as well? Those are my questions.
Thank you, Cor. I will take your last question and your first question. Chris will take question two and three. On the premium developments in Non-Life, excluding M&A. If you take out Loyalis, which I think I mentioned the EUR 18 million of premium of Loyalis, then the organic growth of the Non-Life business excluding health would be 3.3%. Of that growth, 1.6% comes from P&C, and that number is somewhat deflated because at the same time we have sanitized the portfolio of Generali, and that also did cost some top line, and it is even more than EUR 20 million because some of the risks in that portfolio were not very much liked by us. If you take a look at disability, excluding Loyalis, the growth was 5.8% up from EUR 545 last year to EUR 577 this year.
In total EUR 3.3, EUR 1.6 from that is in P&C, EUR 5.8 is in disability excluding M&A. On your last question on M&A, we're happy with the deals we've done. As you know, we missed on Vivat, the team had some time, and we asked them to look into Greenland. In the meantime, it has become clear that Greenland is not for sale anymore. 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.
We still think in the 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 Loyalis 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 Cor.
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. The Tier 2 headroom is about EUR 462 million, which for a small increase in SCR moved towards EUR 500 million, which is a benchmark Tier 2 bond at 1 condition. That's 1. Secondly, if we were to call the existing 2 instruments, the EUR 200 million of grandfathered instruments, indeed we will be probably underusing the RT1 space. We have an RT1 instrument out there, and we have probably an unlevered balance sheet. We will be very opportunistic on that if we do something, because we also need to have a proper application of the funds. We're not going to raise capital just for the fun of it. We need an application for that.
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 versus something to help them invest their cash, put their capital to work. It's always good to reflect on that. 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. Again, we don't need a whole lot, and we need the 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. 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, of course, IFRS 17. We're spending more money on IFRS 17. If you look at this half year, project costs were up a bit from IFRS 17. There were some integration costs from Generali, which will greatly feed out. We spent money on the a.s.r. Vitality project that Jos mentioned. Some M&A costs. 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&A integration spend as the recent acquisitions were lighter and require less M&A cost.
Some spend on vitality and possibly if rates stay where they are, some increase in pension charges. My best guess is stable at this level the next two years and decline thereafter if IFRS 17 is behind us. Okay. Sort of clear. Thank you very much.
Thank you. Our next question comes from Albert Ploegh from ING. Please go ahead. Your line is open.
Yes. Good morning all. Albert Akkermans, ING. A few questions from my end. First question a bit more strategic. You've clearly shown discipline when it came to the Vivat file in terms of pricing. In a way, the landscape has changed, of course, fundamentally, given the PE interest shown. What have you learned from this process? What surprised you the most? Could this also have some implications for your own strategy going forward? Are you, for example, willing to explore options to unlock capital locked in your closed books in the Netherlands? You actually would like to do more the opposite, expanding that book. Some color there would be helpful. The second question is on the organic capital creation. I mean, the target 2021 is still EUR 465 million.
It seems that clearly operationally you are very well on track. If rates would not have moved, you very likely would have started to over-deliver potentially on that target. 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 were guiding for something like EUR 415 OCC by the end of 2019, including something like EUR 15 million or EUR 20 million from Loyalis. It still means a gap to bridge from the EUR 190 and where rates are. How comfortable are you with that? Can you still get somewhat close to, let's say, the EUR 390 million, EUR 400 million level for the full year? I'll leave it at that for now. Thank you.
Thank you, Albert. 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 investing in a different way seems to give a higher valuation in life portfolios. We, as you may know are a real insurance company, and we balance the liabilities we have with our investment portfolio. 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. 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. We will always be careful with that. 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. You need to take into account our individual life book is part of a larger life book. It contains pension DB, it contains pension DC, our funeral business, it's all managed as one investment pool. Splitting it up would be quite complicated. It would require some time. 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 a second transaction. I think there was also a strategic premium involved, 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 sale of Vivat, they maybe need to add additional capital.
The question is whether the valuation of a next 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 VvAA, with the life portfolio of Generali and Loyalis. 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. From that perspective, you shouldn't expect a big change in our strategy concerning life. Chris, on the 465, Well, let me add a few points on Vivat, if I may.
Three 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 differences in assumptions when people set Solvency numbers. 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. We will not go into assumptions-based capital creation. We want to have very robust numbers. I think that's one. Secondly, on re-risking 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. We think there's opportunities to optimize the investment grade side of our fixed income portfolio. With relatively little capital spent, optimize the return on investment on our investment portfolio.
Maybe do a little bit more on mortgages, especially given where spreads are today, but optimize the investment grade side. Actually, as a matter of fact, we reduced the non-investment grade exposure. We did have a U.S. leverage loan mandate that we canceled because we wanted to move away from non-investment grade securities, so all in the investment grade space. 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 executed this side of Christmas. It takes more time to prepare that. That's a nice thing to have on the shelf, an unexecuted longevity option with one little caveat.
The impact of a.s.r. could be positive, but not a double-digit solvency release simply because there's diversification. We have a fairly diversified book, so longevity risk diversifies away. Also longevity swap benefit will diversify away. 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 annuities. A longevity swap will have a positive benefit, but maybe not as large as some others have it. Again, it's something that we are constantly evaluating and there is appetite in the market. It's a nice add or a nice option to have. 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. That's how we think about it.
What's the economic cost of attracting capital? My hypothesis that in the market today, you see our rate card today, that in our Tier 1 is a cheaper form of capital for us than a longevity trade. Although a longevity swap, of course, something you want to have on your shelf. When it comes to the OCC, indeed, we've targeted for 465 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 planned. It's doing very well. Also, the early contributions from Loyalis are in line with and promising to be slightly better than planned. 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. I think on the components, the stuff that we are managing and is under our control are better than what we planned. The final number will depend on what the UFR drag is. We are very clear and transparent on that. As far as the second half of this year, you mentioned the number. It is going to be hard work. Loyalis will feed into the numbers. That is good. It means we have a full six months of Loyalis results. Again, the UFR 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 or new business trend is a bit higher.
With the combined ratio that we have, I'm actually okay with that. I'd like to have new business trend with your combined ratio is low nineties. With the UFR and when it ends up, we need to see how rates 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 ratio. 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? When you set the 200% versus your 160% target, what were you thinking and what could change qualitatively? What are the drivers that you're looking at to make a decision on that? Lastly, could you remind us again where you are beating on the Generali Nederland portfolio?
You mentioned the higher profit versus target, 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 EUR 1 million lower there, and it 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.
Decided as an industry not to pay any commissions anymore on individual disability. The existing portfolio was left out from that decision. People that already had a contract with us there, we still paid commission, but new business is not anymore done with commission. Over time you will see that the commission ratio in disability will be lower than it used to be over the last few years. Finally, the last thing, but that's more technically, we mentioned in the press release, the EUR 8 million of reinsurance in the disability area, which was an additional profit, and that affected also as a one-off the ratio. It was a plus for us, but in our bookkeeping, because it was commission that we got from the reinsurance company, so that's a negative on the commission paid.
But just to-
Farooq, quick.
Basically. Yeah, sorry.
No, go ahead.
Go ahead. I was just going to say, just to clarify what you just said. Although there might have been a one-off element, that sounds small. Generally speaking, combined ratio should be low and might even get a bit lower going forward.
Yeah. 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 for the new business.
Farooq, on your second question on the capital framework, what were you thinking? What we were thinking at that time was around when the UFR was higher and the VA was higher at this point in time. We are cognizant of the fact that since then the UFR has declined and also the VA has declined. Although the VA is volatile, the UFR decline is structural. If you don't act, there will be a bar creep, so to speak, where 200% a year ago is actually less than 200% today. We're not capital hoarders. We want to be disciplined in our allocation of capital, as you can see in our M&A decisions and our capital allocation decisions.
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. That's why Jos 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 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 any parts of it. With that in mind, we'll review the framework. When it comes to where did we beat Generali, on many parts. I think, most prominently on the cost side. The businesses integrated, so it's hard now to single out the total cost assumptions.
I think the FTE decline that we achieved was much, much bigger than initially planned. It 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 re-risking. That delivered more than we anticipated, even if it wasn't in the initial case. That was even more than we did not include. The re-risking was faster. On P&C, more volumes. It came in with more volumes in terms of claims where we were. On claims level itself, it's what we assumed, but the volumes were higher. 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&C business, because we absorbed a loss of volumes.
Happily non-regretted loss of volumes. A beat on cost, a beat on speed, a beat on re-risking, and a beat on P&C volumes and a meet, 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. Your 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 annualize is around EUR 25 million. That's still based on the average interest rate of the swap curve average in H1. I was just wondering if you could give some sense to how that would look on the back of the final H1 curve for H2. 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 think your real estate and equity assumptions are based on the 10-year curve point, which you need to rebase to earlier on the curve. 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? I was wondering to what extent the EUR 50 million 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? Presumably that EUR 50 million in H2 is going to counterbalance part of the headwinds that we just discussed. Secondly, on mortgages, the fact that you use your 110 basis points 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. I was 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, 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? In the past, I think after the IPO, you did make statements that your capital return is somewhat limited to the OCC you generate. Now these headwinds might give you a limitation. Just your thoughts there would be helpful. Lastly, 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. I think you have some prime real estate in your books. Any worries there or still all very solid and comfortable? Thank you.
Robin, thank you. I'm not sure whether that was a question or a piece of advice. I'll take it as the latter. On the UFR drag is about EUR 25 million on an annual basis. What the UFR drag will be for the second half of the year depends on rates. We need to look at where rates will be at the end of the year. Clearly, the UFR drag has a tendency to go up. That's probably true. What the number is, bear with me, I'm not going to give any guidance because it depends on where rates are. Rates already have been bouncing back. Who knows what the Fed will discuss later. Yes, a tendency to go up, but bear with me what the actual numbers will be.
Chris, maybe just quickly. You said it depends on where 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 per 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. We take Q4 into account in the averaging of the year. Indeed. Correct. When it comes to OCC, you're right. OCC, of course, it's a construct. It's a way to break down the bridge in solvency between different buckets, and there's always a bucket other. Anything that's not captured in the OCC is reflected in other. Actual returns of your investment that are not in the OCC bucket are in bucket other. That's why I said the EUR 550 million, if you take the -EUR 92 UFR decline plus the VA plus Loyalis, somewhere we created EUR 500 million of additional capital. That is partially excess returns above and beyond what's in the OCC.
I think the flattening of the curve that you rightly described will put some pressure on the OCC but does not put pressure on the actual generation of capital. It will show up in another place in the bridge. That's why, of course, a hard number of 5% is probably, in hindsight, a better representation of our capital generation than the spread method that we use. 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 a.s.r. is point of similar reflection. Because we are of course, experiencing the same thing as you described. Any offsets will be, of course, in the bucket other, which is excess returns over and beyond the as well.
When it comes to mortgage and evaluation of our Solvency II, we use the actual mortgage spread. The LTG has a fixed yield, but the solvency number that we produce has the actual spreads as they were at the end of June. That's why, of course, there's always a bucket other that balances that. The solvency is based on the actual spreads, not the LTGs. Spreads are high. 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. Any fee mortgages, government guarantees around 130 is in a 10-year segment. Non-government guarantees goes to 160, 170 basis points already. Allocating new capital to mortgages is very interesting.
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 who just had a management change. To be 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. If you look at what we signed up on new leases in our real estate portfolio in retail, some very household names. For example, the bankruptcy of Intertoys led them to finish off vacancies. All those spots were filled very shortly with other stores wanting to take that prime retail space.
Actually, cynically speaking, some bankruptcies are actually welcomed by our real estate people because that gives an opportunity to refresh tenants and actually reset rental rates. 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. In summary, UFR decline, bear with us. We average out in a 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. The offset will flow in the bucket other.
Which does not mean that our total Capital Generation goes down, but that segment in the OCC will go down. Indeed, a review of the OCC, of a definition is a rightful question and something that really bears on our mind in the next six months.
Yeah. Maybe one last remark. I get what you're saying on OCC and the market bucket. I think for some, the perception will still be that one element is sustainable, the other one is more a one-off. I get that your market bucket will be positively filled by this structurally, but I think it makes more sense to adjust your reporting to what's structural and what's not.
I get it. Very few people pay a multiple for other, right? If you look at 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.
Morning, gentlemen. Just three questions, if I may. Firstly, on the acquisition of Veherex, could you just work through the rationale for integrating it into Loyalis, and perhaps outline the nature of the synergies you're hoping to achieve from that? 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, and I just wondered what might have changed there. Finally, in the interim report, there is a reference to limiting the impact of the mass lapse 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, Chris will take the third one, Farquhar. Thanks for asking. Well, the strategic rationale for Veherex is it's a semi-public organization. It's the national railways and some affiliated companies. With Loyalis, we also acquired a former pension fund-owned disability business, also existing out of lots of semi-public organizations, like municipalities, hospitals, et cetera. The nature of dealing with those kinds of customers is one of the core qualities of Loyalis. That's why we've decided, well, it's better to implement this business within the Loyalis business, which is today 100% owned by us. In terms of 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 EUR 1 million or something like that, but it will not be very significantly. On your second question, what is the effect of the recent M&A activities in the Dutch market in terms of portfolio shifting? 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&A activity, that the same will happen. We expect that a part of our future growth will come from brokers that decide that too many eggs 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.
Consolidation from a hardening of the premiums in the market standpoint is good, but also our distribution partners are not happy with the consolidation. 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. Third question, Chris, is for you. The mass lapse.
Farquhar, we have a mass lapse reinsurance contract. Based on the recent specifications by EIOPA, the impact of those contracts should be limited. They will be fading out. In agreement with the regulator, we've agreed a fadeout scheme, so the benefit of that has reduced significantly. That has shaved actually one point of solvency in the first half of the year, simply because we take a haircut on the potential contribution. We think the mass lapse will be fading out by the end of the year. It did cost us one point of solvency in the first six months.
Okay. Just actually a quick follow-up. Obviously, one of your Dutch peers kind of discussed the change in the illiquid asset treatment within its Solvency II ratio. Have you heard anything similar to that?
No, because our portfolio illiquid asset is very small. Most of our illiquid assets are mortgages, which the treatment of that in the standard formula is pretty clear. There may be some enlightenment or lightening of solvency charges if the next EIOPA review comes through. Nobody really knows where it stands. You've all seen the EIOPA documents on this, and furthermore, our illiquid fixed income portfolio is actually relatively small. We haven't had any major issues on that.
Okay, perfect. Thanks so much.
Thank you. Our next question comes from Fulin Liang from Morgan Stanley. Please go ahead. Your line is open.
Okay, thank you. I have three questions, please. The first one, 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? Just regard to that, will actually, for example, using standard formula, give you some kind of disadvantage in bidding for large scale deals? That's my first question. The second one is, looking at your asset mix on your slides, there is appendix H. Looks like that your mortgage percentage actually declined from full year 2018.
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 will actually moving to mortgage helps you on that pressure. The last question is, I noticed that you have, in the first half of year, you haven't really have despite the very good operating results for Non-Life, you haven't actually upstream any, pretty much very few cash from the Non-Life business. Why is that? Thank you.
Thank you, Fulin. 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 of moving to a partial internal model. The shortest answer is no, there is no relation between those two. Having said that, 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. Our capital policy decision will be independent from that. Management always needs to take into the back of the mind everything that it is preparing for the future.
Decision-wise, it's independent, but we of course, will also remind our future steps when we take any decisions.
Fulin, it's Chris. When it comes to mortgages, if you look at page eight, the actual amount of mortgages went up to EUR 6.7 billion-EUR 6.8 billion. It was a small increase in mortgage exposure. For the group-wise, the bank has been more or less deconsolidated. The bank has obviously taken out some mortgages. The life insurance business has actually increased its mortgage exposure. We want to do more. Our mortgage production is up significantly. Growth production is up 10%, net production is up about 25%. Also our clients are looking for mortgages. There's a battle for mortgages going on between the life insurance and our clients. They all want mortgages. We're looking for ways to accelerate the production and allocation of mortgages.
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 and Non-Life, why didn't we have too many cash? Simply because we didn't need to. Our policy really is to have the cash in the operating entities, not in the HoldCo. We do it because we're in one legal entity with one regulator, with the same statutory directors at group, at a business. 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. We consciously decide to keep the cash in the business, and we upstream when we need to. There's no limit or no impediment to upstreaming our holding cash.
We could upstream cash from the Non-Life business if we wanted to. At this point, there is no immediate need. Whilst the operating entities are all yielding solid ROEs, the ROE of the life and Non-Life business are both around 13%+. We were very comfortable keeping the capital and the cash in the operating entities. 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 trying to do a large scale bid in the future, will actually you using standard formula while your competitors are using internal model actually puts you into a disadvantage?
We're fully aware of that potential disadvantage.
New considerations whether we should move towards an internal model or not, is related to the role we had in the Vivat process then. We said, "Well, we at least need to look at it." It will take some time before you can move towards an internal model. I said a 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.
Okay. Thank you. Thank you very much.
Thank you. Our next question comes from Benoît Pétrarque from Kepler. Please go ahead. Your line is open.
Yes. Good morning, gentlemen. Thanks for taking my questions. The first one is on the market and other impacts. You have 19 basis points, percentage points, sorry, negative from DB and UFR. Overall market and other is minus 15. Probably have negatives from rates and mortgage spreads as well. Could you talk a bit more about, let's say, the positive effects, what are the positives, I guess, over performance has played positively, but just wanted to get a bit of granularity on that. Second one is on regulation. Just wondering if you could disclose the impact from moving the last liquid point on UFR to 30 years for a.s.r., but what it will mean for the Solvency II ratio. 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.
Was wondering what is the purpose of that. The other one is on the business Capital Generation of EUR 163 million. I was wondering if you included the EUR 8 million positive non-recurring on the commission on reinsurance in that figure. Last point is on the 5% returns on real estate and on the assumptions. I understood that your real estate portfolio is yielding 2.2% renting yield. I was wondering why we will justify a move to the 5% yield. Thank you.
Yeah. Benoit, on what happens in our solvency, there is a significant revaluation on some of the real estate portfolios, especially in housing. Housing and land have been revalued. We revalue our portfolio every quarter. Actually, every object is officially taxed and valued by independent valuator, physically once a year on a desk base, the other three quarters. Revaluation of real estate, revaluation of equities. We have some own implied haircuts on some of our solvency. We have some prudencies and conservativeness in there. There was one portfolio, especially in the defined contribution business, that was based on the assumption that our clients, I mean, the solvency evaluation based on the assumption that our clients would actually all leave after one year because it's a one-year contract. We know for a fact that the retention ratios are literally 99.7%.
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 prudence in some elements in our own modeling, and especially around the retention rates and lifetime of our DC clients. When it comes to the last liquid point, 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're also going to discuss the cost of capital in the risk margin. You just talk about the UFR as a whole. You can talk about whether the last lapse assumption is the right one.
I think it is 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 would rather address it when I see the whole package going forward. The question, if reinsurance benefit into the business capital. Yes, the EUR 8 million 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 EUR 8 million. As you can see in the document, there was also a donation to reserves, alignment of IFRS and Solvency II reserves, and there was some donation to third liabilities that's also in there. I would think that net-net, the Non-Life results, the number that we produce is roughly what it is.
Releases and donations cancel out to be very specific. When it comes to yield on land, indeed, the land portfolio is around 2.2%. For example, in our housing portfolio, it's a direct income. Retail is close to 5%. Housing income, houses are over 3%. Offices are well over 6%. We've just launched a product that is on science park yields, and the science park rental yields are over 7%. Yes, land is a bit lower, but especially with retail and offices are much higher than 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% total return.
Thank you very much.
Thank you. Our next question comes from Matthias de Wijs from Kempen. Please go ahead, your line is open.
Hi. Good morning. I've got two 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 during the first half of the year on a constant scope basis. Did I understand that correctly, and is there anything explaining, or is there any driver or any reason to expect a slowdown in the earnings momentum? Secondly, on capital. What was the reason to defer the update to the full year results? Are you awaiting more clarity on the Solvency II review, or do you want higher rates before you're willing to launch a buyback? Just linked to that, can you confirm that ex UFR Solvency II ratio is still above 100%, or is it below at this point in time? Thank you.
Matthias, on the operating results, as you said, take the second half of last year, add some additional results to that because our a.s.r. standalone is actually outperforming a.s.r. standalone for the past year and add Loyalis. We're a bit reticent on the number. I don't think we'll add another EUR 60 million to EUR 70 million on the second half of last year, simply because Q4 last year was very good. We think overall it's safe to add on average, a markup for the result last year, but not the same simply because Q4 was a great result last year. When it comes to the capital policy review, we want to do it thoroughly. A lot of our smart people have spent lots of time working on Vivat in the first half of the year. They want to make a thorough and well-informed decision. Don't be too hastily about it.
More information is always helpful, but I doubt whether by the end of this year we'll have all the clarity on EIOPA that we want. I don't think you'll ever have full clarity what EIOPA wants. This is a progressing framework. That is not the issue. It's more like we want to spend our time, think it all through and make sure that the people who are working on this are fully available for this. Yeah, we did spend quite some time on M&A in the first half. Your third question was on Solvency ex UFR. Again, it's a partial analysis. Mind you, our Solvency ex UFR 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 UFR, that would assume that we'll also make no investment results whatsoever.
It's probably fair to also strip out the market risk component, which then boosts the solvency again, then you get a fully de-risked solvency number. Actually, I think the relevant benchmark for solvency, ex UFR, to be quite frank, is rather zero than 100. I mean, do you have any own funds left if you had no UFR? 100% is an arbitrary mark if you then still keep a full allocation to market risk. It's way above zero. 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.
Okay. Thank you, Chris.
Thank you. Our next question comes from Steven 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. Thank you for the falling interest rate sensitivity explanation. I see that your equities sensitivity has reduced significantly and now for falling equities, you have 0% change to Solvency II 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, is debt issuance more geared towards doing business acquisitions and sort of business growth organically as well?
Finally, just out of curiosity, the Loyalis, VvAA, Veherex acquisitions, I wonder if those were included in the number of possible small mid-size businesses you discussed at your Capital Markets Day. Thanks.
Okay. Steven, it's Chris. When it comes to equities, I mean, the volatility changed because of the way the equity dampener works, which is a technical thing in Solvency II. Secondly, we have got a put strategy under equity that we optimized in the first half. It's a combination of the equity dampener, which really is a technical thing, and our put strategy that limits the amount of downside risk from falling equities. When it comes to issuing debt, it's 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. It appears that at this point, RT1 is a relatively attractive form of capital versus others. We've had inquiries. Our balance sheet could sustain it.
Something we're chewing on, but we need to have the right application. Ideally, you spend it inquiring companies. Would you use it to buy back shares? We're not in the business of doing a leverage recap, but portion of it finance, it could be done. It 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. We need to look at it in a more integral fashion. When it comes to acquisitions, our famous pyramid that we produced on the Capital Markets Day, indeed, some of these businesses were implied in that pyramid.
When we produced the slide on the Capital Markets Day, of course, we were already working on Loyalis because we signed the deal two months later. That was something we knew was coming. Veherex and VvAA were kept distant, vaguely rumored at that time. Yes, they were included in that potential pool of acquisitions.
Okay. That's great. Thank you, Chris. Thanks, Jos.
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. A follow-up to the famous pyramid, I guess. There was, I think, EUR 27 billion 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? 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&A and the pipeline for M&A has changed materially? 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?
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 as 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 two to two and a half years, even up to three 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 use the model. In general, it will require at least two and a half 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. 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. Yes, we still see opportunities. The size of the opportunities might be smaller than, for example, Loyalis or Generali, but there is still some stuff out there. 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. Baeten, 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 road show over the next weeks. With some of you, we already planned a dinner and a lunch. We're happy to see you there. Have a nice day for the remainder of this happy Friday.
This will conclude today's conference. Thank you all for your participation. You may now disconnect.