Good day and welcome to the investor call interim results ASR H1 2018 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Michel Hülters. Please go ahead, sir.
Thank you, operator. Good morning, ladies and gentlemen. Welcome to the ASR conference call on our first half year results. On the call with me today are Jos Baeten, our CEO, Chris Figee, the CFO. Jos will kick off as customary with an overview of the highlights of our financial results, and we'll discuss the business performance. Chris will then delve into the developments of our capital and solvency position. After that, we'll open up for Q&A. We've got scheduled till 12 o'clock. As usual, please review at the time that's convenient for you the disclaimer that we have in the back of the presentation on any forward-looking statements, and the disclaimer. Having said that, Jos, the floor is yours.
Thank you, Michel, and good morning, everyone. Good to have you all here. Thank you for joining us on this call. Ladies and gentlemen, as you have seen from our, this morning published numbers, we realized very strong results in the first half of this year. We continued to deliver solid performance. I believe we are well on track to meet or even exceed all of the medium-term targets for 2018. Without further ado, let's turn to the highlights. Those are on slide two. As you may see at this dashboard, it shows our performance over the first half of 2018. It has been solid on every key metric.
Operating results amounted to EUR 382 million, almost at the same level as the already very strong result of last year, which we already knew was going to be tough to compare with due to the exceptional favorable claims experience last year. While in January this year, we suffered from a severe storm that impacted our non-life results with EUR 31 million, 31. Underlying our non-life performance continues to be very strong. Each of the other segments reported higher results in the first half this year, reflecting higher investment margin and good momentum in the fee-based business segments. Our business yielded an operating return of 14.7% on an annualized basis, well over our target of up to 12%. Overall, I believe this is an outstanding achievement. Combined Ratio of ASR stood at 97.1%, just above our target of 97%.
The 97.1 includes the impact of the storm, which is 2.1 percentage points. Furthermore, the inclusion of the Generali Netherlands portfolio with a Combined Ratio of 101.4 in the first half of 2018, which had an impact of roughly half a percentage point on the Combined Ratio. We remain, as you know, sharply focused on cost levels and are pleased with our achievements. Our operating expenses headline figure increased with EUR 60 million to EUR 299. It was due to the inclusion of the EUR 22 million of operating expenses from Generali. Adjusting for additional cost base of Generali Netherlands, our operating expenses decreased by 3.2% over the first half year, mainly driven by expense savings within the life segment for EUR 8 million. Our Solvency II ratio remains very robust, still based on the standard formula at 194 after the interim dividend that will be paid in September.
Basically, we have been able to keep our Solvency II ratio pretty stable while absorbing the impact from the Generali transaction for nine points. Organic Capital Generation amounted to EUR 179 million, adding five points to the solvency. There are some other moving parts that Chris will provide further detail later on in this presentation. Quality of our capital remains high, with unrestricted Tier 1 capital alone representing 151 of the Solvency II. There is still plenty headroom to maneuver. In total, we have the possibility to issue almost EUR 1.6 billion of hybrid capital within the Solvency II framework. Our strong solvency position enables us to remain entrepreneurial. As we have always said, everything above 160 allows us to be entrepreneurial and to pursue profitable growth, which we have proven to do so with, for example, the acquisition of Generali Netherlands last year.
Speaking about Generali, as you may recall from the call which we hosted in June, this is progressing very well. Generali Netherlands contributed to the operating results for already EUR 8 million in the first half of this year. As announced last February, we introduced an interim dividend of 40% of last year's dividend. This amounts to EUR 92 million of interim dividends, or EUR 0.65 per share. Together with the full-year dividend already paid, we will distribute in total EUR 321.5 million to shareholders this year. Let's now turn to our business portfolio and talk about the developments there. That's on slide three. Starting with our solid back books in box B. In the first quarter of 2018, we finished the migration of two individual life books towards the Software as a Service platform, making the cost more variable in order to keep costs in line with the decline of the book.
The migration of those two books were completed with a total of roughly 215,000 policies. Like I mentioned earlier, strict cost control is key. In the life segments, this led to a decline of EUR 8 million of operating expenses. This is due a decline of EUR 5 million within the individual life business, driven by the system rationalization. A decline of EUR 3 million within our pension business. In the top left, in box A, are our businesses that provide opportunity of growing cash flows. In funeral, we successfully migrated the first portfolio of Generali Nederland to the ASR Funeral Platform. The migration of 353,000 policies was finished on the 1st of July. In P&C, organic growth was driven by inflow in the broker channel, as well as price increases in the motor segment.
Within disability, we launched two new products, the so-called Flexibele AOV disability insurance in June of 2018. This is a disability product aimed at the blue-collar group to offer an affordable disability product for this class with a cap payment for the insurer in case of disability. Initial market response was very positive, and already in the first few weeks, we could welcome more than 100 new customers in this product. Within pensions, we see good momentum in the DC area as employers decide to move to the so-called Werknemers pension. This half year, we have reached the milestone of over 50,000 active participants and almost reached 3,000 employers who have opted for a contract with this product. Currently, over EUR 600 million of assets under management are in this product group, and this is gonna grow on a year-on-year basis.
In asset management, there are also very good developments to mention. We see that investors appreciate the recently launched ESG funds, and we saw already an inflow of over EUR half a billion. Also, the mortgage fund proved successful with new inflows of EUR 700 million. The mortgage fund today has now reached over EUR 1 billion of assets under management. Within the real estate funds, we see continued interest from investors over there. This half year, we had a withdrawal request from an investor, but we were able to provide liquidity for that investor and actually realized more inflow than outflow. Let's now move to slide four. As this slide shows, momentum in our operating results remained high in the first half of 2018. Despite the severe January storm, we managed to almost equal last year's result.
Higher results from life, plus EUR 26 million, bank and asset management, plus EUR 6 million, distribution and services, plus EUR 2 million, and the holding and other, plus EUR 3, almost offset the decline in non-life. We are confident with our performance, but would urge some caution and not automatically multiply by two when projecting for the full year. As you know, typically, we see in the first half year seasonality mainly driven by the investment margin because most dividends are in the first half. For instance, half year two dividend could be roughly EUR 30 million lower than the first half year's dividend. Let's have a closer look at our business segments. Starting at slide five with non-life. In this segment, we still see a very strong performance. Despite the storms in January, we managed to keep our combined ratio at 100% sharp.
The disability combined ratio improved even further from already very strong levels. Our gross written premium increased by 16.5%, mainly driven by the inclusion of Generali Netherlands. Excluding Generali Netherlands, the gross written premium increased with 4.5%. Organic growth over the first half year, again, was very high with 4.5%. All of our business lines showed an increase of the gross written premium driven by new sales and in some areas with price increases within the existing portfolio. We still see good opportunities to grow organically in the non-life segment. Combined ratio, as said, was 97.1% in the first half and slightly above our target of 97%. The storm in January had an impact on the combined of 2.1 percentage points, and the inclusion of the Generali Netherlands portfolio had an impact of 0.5 percentage points.
When adjusting for those two events, a normalized score of the portfolio is below 96, meaning that we have a very profitable underlying Combined Ratio at this moment. As the health business is more regulated, also from a margin and profitability point of view, we also look at a non-life Combined Ratio excluding health and consisting of only P&C and disability. On this basis, the Combined Ratio of ASR would be 96.7. The Combined Ratio of P&C and disability, excluding Generali Netherlands, would be 96.0. All in all, a very solid Combined Ratio in the non-life area. In the breakdown of the Combined Ratio, you can see a pickup in the claims as an effect of the storm of January this year. We had roughly 12,000 claims only due to this storm.
The increase in the commission ratio is mainly a consequence of the inclusion of the Generali Netherlands portfolio. This portfolio comprises mostly P&C products, which in general come at a higher commission ratio. Therefore, the uptick in the commission ratio is a reflection of the change in the distribution mix. If we were to look at the combined ratios for each of the different business lines, you can see good momentum in the disability portfolio. Last year, we saw unfavorable claims development in the absenteeism portfolio, though we took measures over there and resulting in margin expansions within this portfolio. Let's now have a look at slide six, the life segment. In life, we saw a strong increase of operating results of 8.3 towards EUR 340 million. This increase was mainly driven by an increase of the investment margin of EUR 27 million.
The increase of investment margin was driven by a number of factors. First of all, our direct investment income benefited from the re-risking we have done over the last year of the investment portfolio. For instance, we received EUR 10 million more dividends. Furthermore, as the individual life book runs off, there is also a decline of required interest, which is positive for the investment margin as investment income remains relatively stable. Generali Netherlands had a contribution of EUR 8 million, mainly within the investment margin. We see most of the increase of the life result as sustainable for the coming years. Please bear in mind that H1 is typically supported by dividends, as I just have mentioned. Furthermore, we are pleased with the inflow which we see in the so-called Werknemers pension .
Currently, 82% of the new business APE is for the new DC solution, which is a very positive development because it's all recurring premiums. The gross written premium of the life segment increased towards EUR 885 million due to the increase of capital light gross written premium within pensions, and a contribution of EUR 54 of Generali Netherlands. This positive development was slightly offset by experienced higher lapses in the individual life portfolio. Let's now turn to the other segments of ASR which are gaining traction, and that's on slide seven. Operating result of the bank and asset management showed a strong increase to EUR 11 million. This was driven by the launch of the mortgage fund and ESG funds, which resulted in additional fee income from third parties for the asset manager and higher fee income from the real estate funds.
Furthermore, the operating result of the bank increased mainly due to lower costs. Operating result of the distribution and services segment increased with 20% to EUR 12 million. This was driven by a strong contribution from Dutch ID and a contribution from the Generali Netherlands distribution companies like ANAC, which contributed almost EUR 1 million. Holding results were slightly better. This was mainly driven by lower net current service cost due to our own pensions scheme for an amount of EUR 1 million and lower incidental cost compared to last year. Let's move to slide eight to measure our performance against our targets. As said in my introduction, our performance has been strong on all key metrics in the first half of 2018. We've been able to keep our business momentum at a high level, and our performance is better than our medium-term targets.
As you may know, 2018 is the final year of the medium-term targets, and we will present new medium-term targets at the Capital Markets Day in October this year. Having said this, I would like to hand over to Chris for further details on our capital and solvency. Chris, the floor is yours.
Very good. Thank you very much, Jos. Ladies and gentlemen, please turn to page 10 before we start to talk about our solvency. Firstly, apologies for my voice. Fortunately, our solvency is better than my voice, but it's still better than the other way around. My voice keeps cracking out from time to time, so bear with me. Page 10 shows our book values, IFRS equities and Solvency II own funds, and we see continued growth in book values, something we like. In the long run, we appreciate that the book values of our company, whether measured from an IFRS perspective or a Solvency II perspective, continue to grow. Grow slightly less than last year, grow around 1% to 2% mark year-on-year.
Due to the fact that in the first half year, we tend to pay our dividends. We acquired Generali in this first half year, and as you understand, in financial markets, the valuation, the unrealized capital gains were a bit less than last year. In spite of dividends and the Generali acquisition, we continued to grow our book value. Interesting to note that own funds of our group, including hybrids, touched to EUR 7 billion. That's not a specific goal in itself, but it's fun to see that we've met EUR 7 billion just before we paid interim. The unrestricted Q1 level is around EUR 5.4 billion. Good bit of background to our solvency numbers. Turn to page number 11, please, on our solvency levels. Solvency II, 194% as per the standard formula. After payment of interim dividends, before interim dividends at 196%.
Business-wise, effectively, our solvency stayed stable from the year-end last year, 196%, to the 30th of June this year, 196%. You take out the interim dividend to get to 194%. In the Appendix E, you will find more data and more intelligence on the development of the required capital. At this point, it is safe to say that we feel strong and comfortable with the level and quality of solvency. Tier 1 is about 78% of our capital. The Tier 1 ratio alone would be 151%. Tier 2 and Tier 3 head over EUR 750 million. An increase from Q4 last year. ASR does not use Tier 3 capital. We do not have the DVA. We still have a net DTL position on our books. LAC DT is still at 74%. Our market risk is at 43%, leaving some room to re-risk our business.
It is fair to presume that depending on markets in H2 of this year, we will spend some of our capital on re-risking our business. We feel that risk spreads have now widened to and around where they become attractive again. The equity market is stable, expecting us to use some of that market risk room to continue to support our earnings. Not the entire 7%, some point of solvency we will spend on market risk. As far as we can see, a solvency good from a level perspective and good from a quality perspective. Please move to Page 12 on capital accretion. We continue to amass capital. Page 12 shows a breakdown of the sources and uses of capital, generating an accretion of EUR 331 million, or about 9%, 9%-10% of our required capital.
After the payment of EUR 92 million of interim dividends, we get to a retention of capital of about EUR 239 million, or 6% of our capital base. 6% retention out of 9% net accretion. That is the increase in the fungible and upstreamable and investable capital that we have, as you are aware, we have a very strong and consistent capital spend framework, but the EUR 240 million gives additional flexibility for our group to invest. Page 13 is our alternative view or the most common view these days on capital generation. It is a solvency ratio movement. Let me give you some further details on this. On this page, you can see how we spent nine percentage points on Generali acquisition from 196% to 187%. That is the base you could start with to assess how our solvency moved through a year.
We moved from 187% to 197%, which is again, the 9%-10% capital accretion that I explained in the previous Page. On this page, we have an operating capital creation of EUR 179 million, organic capital generation of EUR 179 million. Slightly less than last year, if you appreciate the fact that we this year had a significant storm as well to avert, the underlying capital generating ability of the group actually gone up. I just explained the storm charge in H1 was EUR 31 million in January. Secondly, there was some water damage in May. Last year, we had no large claims in Q1, effectively, in our property and casualty business on a like-for-like basis, we generated less capital than last year. Fully understandable. It is a comparison thing, large claims, or it is a storm thing.
If you adjust for the storm, you can actually see that the underlying Organic Capital Generation is up. If you dive deep into the sources of that increase of the structural improvement in capital generation, it is with a lower UFR unwind, which effectively is countered by slightly higher hybrid costs. It's higher excess spreads, it's lower costs, and higher returns in our disability business. All in all, we feel comfortable with the Organic Capital Generation, EUR 179 million, but structurally elevated versus last year. Also, of course, Generali starts to contribute to that level. Think about EUR 5 million to EUR 7 million of structural capital generation that the Generali business adds to this number. If you look at our OCC over the quarters, there's not much point in principle to look at quarterly OCC.
In Q2 this year, Q2 2018 versus Q2 2017, we already have EUR 9 million higher OCC in the quarter, which confirms that in a quarter where there is no storm and a normal claims pattern, this group generates more capital than it did last year. Finally, to preempt any questions that are no doubt coming towards us, if we were to align the investment spread to the actual market rates, so instead of using our long-term investment assumption to market rates, the OCC would increase by about EUR 7 million. We align fixed income spreads, we align the VA, you'd add about EUR 7 million. If we were to put our equity and fixed income, actually in real estate returns, let's say 7%, you could add another EUR 60 million to the Organic replicable Capital Generation.
Again, that's not our policy, just for your perusal, for your background, aligning to fixed income market rates at seven, aligning to 7%, as an example, for equities and real estate adds another EUR 60 million. That's for you to assess how you wish to use it. Overall, we see 10% solvency creation, out of which is 5% is organic, 3% paid out in dividends, ending up with a virtually stable solvency ratio in spite of the acquisition of Generali, in spite of the lowering of the UFR. From our perspective, tantamount to the ability of ASR to continue to finance capital. Move to page 14, please, if you wish. Sensitivity of our ratio to the UFR. You can see the stock of our solvency at various UFR levels, the flow, the additional or lowered UFR unwind, and the amount of own funds.
At this point in time, the UFR is 4.05%. We expect it to be dropping by 15 basis points a year. By the year 2021, as far as we can see today, you're expected to drop to 3.6%, at least according to the current market information. Roughly, every 15 basis points drop of UFR cost us 3.5%-3.6% of solvency, but adds about EUR 5 million of lower UFR unwind per year. That was also the case in this year. This was the actual development in the UFR contribution and the UFR unwind. With 183%, we are very well able to absorb any lowering of the UFR if they come due. Furthermore, please note the solvency at the UFR of 2.4%.
You may be aware of our more economic view of the UFR, where we said that economically speaking, you would like the UFR to reflect your investment income and use that as a more economically consistent solvency metric. The economic UFR, which increased from 2.2 to 2.4, reflecting a higher investment income, also in line with the IFRS results and operating results that just reported in Life. I think the investment income is structurally higher than where it used to be, adding 20 basis points to that long-term, more economic UFR. This gives a Solvency II ratio at a UFR of 2.4 of 154%, safely north of 100, safely north of our risk appetite of 120.
Finally, if you were to calculate the solvency ex UFR and ex CA, depending how you deal with peering, think about a number around 110, 125% in terms of solvency ex UFR, ex CA. In that sense, the impact of LGD measures on our solvency is very, very manageable and very well under control. Moving to page 15, which is our strong balance sheet. Balance sheet strong with ample financial flexibility. You can see here again, our solvency composition of 194%. Financial flexibility, again, there is no DPA. We only have a DPL on our balance sheet. Headroom has increased, so we can actually, there is sufficient financial flexibility, if we wanted to further strengthen our capital base. Financial leverage is at 25%.
I think if you did on a more like for like basis compared to industry norms and used it just for the shadow accounting reserve that is not reflected in our book equity, a more comparable number would be around low twenties. Both from a Solvency II perspective, as an IFRS perspective, this group has financial flexibility. This is confirmed by interest cover, which is still at 12 times on basis of IFRS. If you had an operating result interest cover, it would be 9.4 versus 10.2 last year. Again, whether you take the IFRS perspective or you take the operating result perspective, interest cover is stable to strong. A strong balance sheet with ample financial flexibility. Last but not least, our solvency and cash position. Holding cash at the first half year is EUR 229 million.
Just to reiterate our holding cash policy, we do not strive to maximize cash as a holding. We believe for our company as ASR, one jurisdiction, one management team, one regulator, that cash is best placed at the operating entities. That is just the way we do things around here and the way we continue to do things around here. We hold holding cash to cover holding costs, to cover hybrid costs, and to cover dividends. Not too much to optimize a cash pool as a whole. We believe it's best served in the business where it supports our customers and where it yields an income. Holding cash at the group EUR 229, actually comparable to last year was EUR 201, up EUR 28 from last year. EUR 195 remittances. Little details, little note here, the EUR 195 is a net remittance. Actually, the gross remittance to the group was EUR 246.
We upstreamed EUR 246 million out of our entities to the group, injected EUR 51 million back into the Generali entities just after the acquisition. Now to fund some re-risking of the Generali business, which gives the EUR 195 million. EUR 246 million was the upstream out of the traditional ASR businesses, which is roughly equal to the EUR 253 million we upstreamed last year. We just injected cash back into Generali, and when the Generali entities merged back into ASR Life and ASR P&C, that cash showed up back into the ASR Life business. There was a small kind of circling out of cash to support the timely re-risking of the Generali balance sheet. Again, reinvestments exceed our operating capital generation at around 70% of the net operating profit.
Finally, all our entities this year will contribute cash to the holding, not just life and P&C but also, for example, the asset manager, also, for example, distribution businesses are able and will be able to upstream cash. In terms of cash, holding cash, we hold cash to support the operating businesses and for the rest we keep the cash in the operating entities. With that, I get to Jos who's going to wrap up.
Thank you, Chris. As said, to wrap up this call, I would like to conclude that we are very pleased with the strong set of results. We were able to match our records of operating results in the first half of 2017, despite the severe impact of the storm in January. Our businesses are all very well-performing, and that enables us to remain entrepreneurial. We have shown that we put our excess capital to work. We are pleased with the progress of the integration of Generali Netherlands, but also with its contribution to the operating results and the OCC of ASR. Before we open for Q&A, may I remind you of our Capital Markets Day, which will be hosted on the 10th of October, where we will provide a full update on the strategy and a fresh new set of medium-term targets.
With that, I would like to conclude this presentation, and we are very happy to take any question that you might have.
Thank you. If you would like to ask a question on today's call, please signal now by pressing star one on your telephone keypad. That's star one to ask a question. We can now take our first question from Cor Kluis from ABN AMRO. Please go ahead.
Good morning, Cor Kluis, ABN AMRO. I have a couple of questions. First of all, about the own funds of Solvency II. Could you elaborate a little bit more on the category markets and operational developments, which is minus EUR 53 million, and that includes, of course, the UFR effect of minus EUR 93 million, but which other components are in that category? Related to that, also the de-risking. What could be the effect on solvency ratio of the de-risking in the second half of the year? Of course, related to that, the P&L effect of that, how much could it enhance the profit stream? As we are already almost at the end of the second month of the third quarter, could you give an update on the Solvency II ratio developments in the third quarter, especially given what's going on in the macro environment?
The last question is about the bank and the asset manager, which had quite strong results in the first half. Is this a kind of run rate or was this something one-off in it? That were my questions.
Great. Good, Cor. It's Chris here. Thanks for your questions. I'll take them all four one by one. On the bucket on market developments, indeed, it was minus EUR 53. I mean, the key driver, of course, was the UFR decline. Had it not been for the UFR decline, this thing would have been roughly EUR 50 million positive. The rest is really a collection of different bits and pieces. Some pluses, some minuses. On the positive side, we have an increase in the VA that supports this bucket. We have some positive revaluations in real estate, especially. On the neutral to slightly negative side, we had impacts on equities in the first half year, and to some, but lesser extent, credit spreads widened. There were some tailwind from rate developments, especially on our DBO own pension plan, according to very specific IAS 19 modeling.
There were some modeling and assumptions changes in the life best estimates. We increased our lapse rate assumption. Jos talked about the life business. We see a structurally elevated level of unnatural lapses, which has to do with a de-leveraging cycle that's going through our country. Clients are paying down their mortgages, lapsing policies. It's slightly less than what it used to be last year, but we think the lapse level in life is structurally elevated. We reflected that in our best estimates. Finally, we made some modeling changes in our disability business, and here it gets a bit techy and a bit geeky, but for example, claims handling costs used to be classified as claims costs.
We moved them from claims to expenses, and when you expense them, the capital charge for expense risk and NPV of the duration of the disability book is a bit higher. We reserve more capital due to the reclassification of claims handling costs, which then costs capital. There's nothing changing the business, it's just the charge that goes up. By the way, we've done this pretty prudently. If you would go further, that means the reclassification of expenses would also actually lead to a lower modeling of lapses, which should lead to a small release of lapse risk, which we haven't yet put through. In summary, a bunch of, I would say, very nitty-gritty, almost geeky changes in modeling where we've taken a prudent approach, and that together drove a minus EUR 53.
Again, if it had not been for the UFR decline, it would have been a EUR 50 million plus. On your second question on the de-risking, I think it depends a bit on the market. When we commenced this year, we had a de-risking ambition. During the first half, we paused it. If you look at the developments in markets, spreads that were widening, there's no point in re-risking while the markets are very jittery. Today with spreads widening, we think we can continue again. Think about up to five points of solvency. It depends a bit on how the market develops, but think of it up to five solvency points that we can spend. We'll continue on real estate. We're very comfortable on our real estate business. We'll continue on mortgages.
I think we will pick up the tap again on credits where spreads have widened, and there will be some room to buy equities. I think the return on solvency capital is today around 12% after diversification, is our estimate. If you think about the direct yields that we're going to make on all these investments after diversification, so on this 5%, we think we can make around 12% return on capital, which will then gradually feed in. That not immediately it will feed in if you reinvest those cash and it gradually start to contribute to earnings. That's the order of magnitude that we're looking at. Solvency II during the quarter is positive. Markets were still a bit volatile. The VA widened a bit year-to-date. I think the VA is now around 12-ish points.
From where we are today, which is the 29th of August, solvency of the group has probably moved up a few points. Again, that's really the weekly lay of the land. The formal numbers only will be done on a quarterly basis, but when I look at our weekly monitor, it shows supportive developments. Finally, on the asset manager, indeed, we're proud with a significant increase in earnings, significant increase in fee-based earnings. What I like a lot is that both the asset manager and distribution business together, our fee-based earnings are now at EUR 23 million earnings. They're on track to contribute for the full year, at least one point of solvency, which is where we wanted. We actually like it to go further, but this fee-based earnings adds one point of solvency during the year, from an OCC perspective. I wouldn't double the number.
I would be careful to take full year is twice half year, but we'll continue to see some growth in the asset management earnings.
Okay. The 12% return coming back on your re-risking, is that around EUR 20 million or something in extra profit stream pre-tax?
No. It's EUR 75 million of required capital, right? If you think about the current solvency is 194, which means EUR 75 million required capital is about up to 5% of ratio impact. If you've got 12% on the required capital is more like EUR 10 million-EUR 15 million.
Okay.
You need, there is always a numerator and denominator effect. If you spend 5% on the denominator, the total ratio, you need to multiply by the ratio itself.
Yeah.
5% is after the multiplication effect.
Okay. Very clear. Thank you.
Thank you. Next question comes from Albert Lo from ING. Please go ahead.
Yes. Good morning. Thank you for taking my questions. I have basically three. One is on the life earnings, which clearly were quite strong. In the opening remarks, you already mentioned, and also a couple of times, not to double for the full year. I recognize the impact of the extra dividends in the first half. Adjusted for the different effects, can you then in the line basically say, okay, the second half could then mirror the first half, adjusted for the dividends? That is question one. On the non-life premiums, which is stripping out the acquisition impacts, was still up, I think around 4.5% organically, quite a strong performance. I guess you are clearly winning market share.
I know in the past you alluded that you want to remain very disciplined on underwriting, but yeah, the low Combined Ratio gives you some leeway to become also a bit more aggressive on the market share. Is this basically a reflection of that and should we expect this to continue going forward as well? The final question is a bit more related on accounting on IFRS 9 and IFRS 17 compared to what you disclosed that you made quite some upfront investment costs already for the implementation. Is there anything in the results of ASR already? What are your thoughts on the potential impact of IFRS 17? Thank you.
Thank you, Albert. I will take the first two. Chris will answer the last one. On the life earnings, yes, it is right that we said you should not double it, and your assumption that if you take out the dividends, and could you double it then, the answer is yes. The assumption made by you, that would be a fair way of looking at the life earnings. On your non-life question, the 4.5 percentage points of growth, we are very happy with that indeed. We, however, did not change our way of looking to risk. We still are running the company value over volume. Within that, we have identified market parts where we are able to grow our business, especially in packages
In individual packages for families. There we have seen significant growth, and that is all within the strict criteria of accepting risks. For example, in Q2, our Combined Ratio was at 96, which is below target. It is better than target. We have not changed our philosophy, and yes, we are growing in market share, but not at the price of getting sloppy on how we look at risk.
Okay. Albert, on your question on IFRS 9, IFRS 17. To be honest, Albert, the mood in this group was very cheerful this morning. Now that you're mentioning IFRS 9 and 17, this is darkening a bit. We'll be facing our destiny with a facial bravery. No. In the first half year, we spent about EUR 3 million on IFRS 9, IFRS 17. It actually is a costly project. I think we spent EUR 3 million. I think the second half we'll spend probably at least another EUR 3 million, probably more, EUR 5 million in the second half of the year. We'll try to keep our costs as low as possible, be as constrained as possible. That's the realistic perspective on this.
Okay. Any thoughts on, let's say, actual implications of IFRS 17 or 9?
Yes. Many. Early days, I think we'll spend some time on this in our Capital Markets Day in October. Perhaps not then or to the full extent, because we're all trying to read tea leaves here. Only IFRS 9, IFRS 17 will be postponed by one year or by two years. Our honest perspective is, I wouldn't mind a small postponement, not a lot. If we have to go through it, rather close our eyes and work our way through it and just not continue to postpone it. One year would be good. More than three. If you actually postpone it by more than two years, you'll find that the cumulative cost will go up. The more you take, the more you spend. Again, in the CMD, we'll talk about more about IFRS 17.
We can give some first color on what it means, it depends also a bit on what we get and what we learn on the timing from [audio distortion].
Okay. Thank you. Thank you very much.
Next question comes from Matthias de Wijs from Kempen. Please go ahead.
Hi, good morning, thank you for taking the questions. The first one is on the life business. You referred to the decline due to the acceleration of lapses linked to the mortgage prepayments. Just wonder if you could expand a bit on this. What are, for example, the like-for-like decline in reserves or number of policies? Is there any risk that this could accelerate going forward to a level, for example, where it becomes more difficult to cover the costs? Just linked to that, I remember you updated us once on the unit cost assumptions in the best estimate liability. Can you update us on these in light of everything, what's happening in the life business? Just secondly, on the non-life business, can you provide a breakdown of the organic growth in the premiums between pricing and volumes?
Is there anything you can say in general on the pricing environment you're currently observing in the non-life business? Thanks.
Yes. All right. Matthias, on life, the unexpected lapses, indeed, unexpected lapses were up. We said to ourselves, when we IPO'd our business, we said our book will decline in terms of premiums, in terms of policies by about nine to 10, nine points a year on average. I think if we compare to our premium levels today as to the IPO, which is now two years back, our premium level is about 5% less than what we expected at IPO, which is two years down the road. Actual expirations of life policies in terms of premium levels, were 5% more than what we expected. The unexpected lapses, think about another two percentage points in the number of policies or number of premium level on an annual basis. I'll give you some color on the order of magnitudes.
In terms of competent nuances, actually this level, the unexpected lapses peaked, appeared to peak in Q3, Q4 last year. If we look at the unnatural lapses, Q3, Q4 last year, they were really up high. Also, in our mortgage business, we saw an increase then in mortgage redemptions since then. Today, H1 2018 versus H2 2017, the unexpected lapses have dropped back by another 20 points, 20%. Mortgage redemption has also dropped by another 7%. In the last two years, 2% is more decline in our premium levels per annum than we expected because of unexpected lapses. It's probably structurally at an elevated level, but calming down a bit after last year's de-leveraging wave. That's one thing. Second observation is this affects premiums, affects number of policies. It affects much less our reserve base.
The reserve base in our life entity declines by two and a half percentage points a year. You get to see lapses in terms of number of policies, lapses in terms of number of clients, but much smaller impact when it comes to the total reserve base and therefore total asset base. Which in the long run will have the consequence that our life business becomes much more an investment business. You can see a shift in the investment contribution to our life earnings will gradually grow, the contribution from technical results will gradually fade away as the book declines. In the last half year, we have been able to keep the technical results stable. Components vary, but mortality and cost results were virtually unchanged for the last year. In the longer term, expect this to decline, expect the investment result to keep up for longer.
That's some point on lapses. Secondly, on unit cost. The unit cost on life has gone up a tiny bit. The cost per policy, simply because of the lapsing effect. We are reducing cost in the life business, but when there is a peak lapse event, you can't just cut your cost as quickly as that. Our cost initiatives will continue to feed through. I would expect us to take additional cost initiatives in the coming years. Some we're contemplating. We're moving fast when it comes to the migration of policies and then the integration of Generali, for example, adds scale and will ultimately lead to a further improvement in the cost per policy. We're responding to this by cutting costs faster into migration, and doing scale deals like Generali, where you take out much more cost, so the average cost policy goes down.
When it comes to the unit cost assumption, our best estimates, we feel very comfortable that the assumptions in the best estimate today we can and will meet. The lowering lapses we've had some has been reflected in our liabilities, but it's more on a best estimate side than in the cost element. When it comes to unit cost and best estimates, we feel comfortable in that area. It's a lengthy answer, but it gives you some color on the lapse developments.
Yeah. If I remember correctly, you were-
On your-
Yeah, sorry, can I just very briefly follow up? If I remember correctly, you were assuming rising unit cost assumptions for both funeral, individual life, and group life. Is that still the case, or?
Yeah. Up to a certain. Not eternally. Up to with some reason. You can't, in 2040, you divide all the costs on one policy. There's a gradual increase up to a certain point, mitigated by long-term, some variabilization. Our cost assumptions in our best estimate, I would not see them as very aggressive in light of the book developments.
On your last question on life. Organic growth, it was on average 4.5. All three businesses were able to meet that number. In P&C, it was mainly pure organic growth. Roughly 4% out of the 4.5 was organic growth, 0.5% was due to price increases, especially in car insurance. In the disability business, the pricing in the individual area remained stable. Out of the total growth of 4.5 disability, roughly 3% is due to a better market position, 2.5% is due to price increases, especially in absenteeism that we have done over last year. In health, there we also have seen some growth. There, the total growth is due to premium increases that we did last year. On your second part of the question, pricing conditions in the market.
We still see the continued hardening of prices, especially in P&C. The storm in the first quarter has helped to stop thinking about lowering prices in the market. We think that is still a favorable development going forward. Same in disability. There is currently not a lot of downwards pressure on the price level, that's also good. Health, we will have to see in the last quarter because health insurance, as you may know, Matthias, in Netherlands, is only in December, a product where people can make a new choice for their insurance company. In general, pricing conditions still favorable in terms of better margins going forward.
Okay. Very clear. Thanks a lot.
Again, if you would like to ask a question, please press star one. Next question is from Farooq Hanif from Credit Suisse. Please go ahead.
Hi there, guys. Thank you very much. Could you comment again on your plans for internal model? I know it's a pain to do it, and you've talked about that in the past, but it seems to me that as you think about growing inorganically and given EIOPA et cetera, it seems to be something that probably has gone up your agenda. Could you comment on preparations for that? And on the debt capacity, is your capacity number that you give on slide 15, do they also work on a rating agency framework where you look at financial leverage and interest coverage ratio? Do you think you could raise that much debt and remain within tolerable levels? Thank you.
Okay. Farooq, it's Chris. On the internal model, couple of perspectives. If you look at our solvency level today, standard formula, there's no immediate need or immediate benefit to go to an internal model. As you will say, we could report a higher number, but it wouldn't materially change the business. We, of course, continue to look at the EIOPA rules and regulations. I think the recent consultation paper that they published is reasonable. Although version 0.1 did scare us, honestly. The version 0.1 of the consultation paper that was out in December last year had some very inappropriate ideas on how to calculate solvency for a Dutch insurance company. Luckily, they didn't make it to the final report. The final report gives a solvency number that we still see as really appropriate.
We are, of course, always on the lookout for what it would mean and could mean if you were to move to an internal model. We've done some sketches and done some calculations on what it could mean and what it would require. We need to be vigilant on understanding that today, the same people that would build the internal model would also be the same group of people that would build IFRS 17. You need to think very carefully about capacity planning and where you could do it in parallel. Finally, when it comes to M&A, I can imagine cases where internal model might very well work very well in an inorganic growth situation. That depends, of course, on that very situation. In summary, Farooq, not much news to add. There's no immediate obstacle to building an internal model.
We need to be careful on capacity planning. I can see the uplift in the numbers from doing internal model, but we have to find a meaningful way to use the proceeds from that model. That depends on how the external market develops and depends on how EIOPA develops. When it comes to debt capacity, I go to slide 15. You asked a question about the rating agencies and how they look at stuff. I think from a rating agency perspective, we of course, would have room to lever the business. I think the capital redundancy from an S&P perspective, we're at a triple A level, whatever that could mean. But basically, we're at triple A level. I think the formal upper limit for leverage in an S&P environment is 40%, and interest coverage between four to seven times.
With the current level, we could actually add more debt within the current rating band. I think within the current rating band, I would think that we're pretty strong in the singular rating band that we have. Again, it also depends what you do with the debt. If you just raise money just for the heck of it, I don't think S&P would see the humor of that. If you raise debt to make a meaningful acquisition, make an investment, put the money to work, it could make sense. I think at today's rate and today's balance sheet, there is no constraint from either our own balance sheet or a rating agency perspective.
Can I just come back on one thing? Sorry, this is actually a third question, just on the great development that you've had in bank and asset management and all the sort of fee-based businesses. What is your ability to grow further inorganically there? It seems that the payback from what you've been doing has been great. Is that something that's constantly on the radar as well, still?
Farooq, maybe one more comment on the pieces on the debt. It's not that we're just now about to go out and massively do debt finance acquisitions, but we have the headroom to do it. Of course, it also depends on what you're actually doing with it. If you were to acquire a business that's completely debt-free, it would make sense to buy with leverage. If you were to buy a business that already has significant debt on its balance sheet, we definitely need to take into account in the funding mix. I think what we have today is flexibility from multiple perspectives to optimize financing, and you then need to take into account what you should do with the money. When it comes to the asset manager, we're pleased with the fee-based income.
It's both in the real estate business and in the capital markets business, where the fee has grown up. Today, we're looking at mostly organic growth opportunities. We are not, at this point, looking at massive inorganic opportunities in the asset management space. I think most asset managers are fairly expensive and/or not for sale. If you bump into a more niche play where you can continue on our buy and build strategy, yes, we'd definitely look at it. If you look at what we've done, we bought a small LDI specialist. We bought a specialist in money for government institutions. We have invested money in buying a portfolio warehousing than turning into a fund. Think more about those buy and build type of initiatives rather than pursuing a big standalone asset manager at current valuations.
Thank you very much. Thank you.
Next question comes from Robin van den Broek from Mediobanca. Please go ahead.
Good morning, everybody. Thank you for taking my questions. Sorry to come back on the bank asset management and distribution of services. Last year, you seemed to show quite a bit of seasonality on H2 versus H1. I appreciate the comment you made before, but can you maybe explain why that seasonality is there? Just to give a little bit more of understanding what kind of number we should add to the second half of the year. The second question is on the economic UFR. Spreads and yields have moved up and down quite a bit over the last few years, and this is the first time you've basically changed your economic UFR. Just wondering why now and how often are you planning on doing this? A third question is on M&A.
I won't ask too much about Vivat specifically, but I was more wondering from an operational and financing point of view. You've been talking about M&A for quite a while. There's still loads of opportunity in the funeral market, in the non-life and in the life market. Just wondering how would you prioritize M&A from an operational perspective, from a financing perspective? If you could elaborate on that a little bit, that would be very handy. Thank you. With operationally, I mean basically integrating the asset. Is it a binding constraint that you can only do one or can you do more at the same time, basically?
On the seasonality, I'll tell you a bit on the seasonality of the asset manager. Jos will take distribution business. On the asset manager, in principle, there's not that much seasonality. It depends on how your asset under management develop. I think you could see continued earning growth in H2. I just wouldn't double it simply because, if you look at the pipeline of asset management discussions we have, there are a number of significant potential assignments out there, but they need to fall. They need to close. Of course, the summer period means you get new inflows in the months up to May and June. July and August is very few new mandates are being assigned. You have always this seasonality when money comes in.
There will be growth in the asset management fees, just not something you double because it depends on actually how the pattern of new inflows actually evolves.
In distribution. Distribution is commission business. For us, the inflow are commissions earned by the distribution company. It fully depends on how a portfolio looks like. If you, for example, have a portfolio only existing out of car insurance, and they came in constantly over a year, there will not be a lot of seasonality. Traditionally, the first quarter and the last quarter, you see more commissions in distribution companies, in the second and in the third quarter, the level of commission is lower because people tend to go on vacation, don't buy insurance. It's fully depending on the portfolio of the distribution company. The Van Kampen Groep, for example, is more in the P&C business, gets more through the year, a consistent picture. Boval Group is more in disability, and there it is more loaded in first quarter and last quarter.
That to the seasonality on distribution. Chris, on the economic UFR.
The economic, the setting and determination of the economic UFR is actually quite an elaborate process. It's not that there are two guys in a room who say, like, "Let's pick a number." We look at the actual returns we make on the investment portfolio, and then we run an extensive Monte Carlo simulation that if we value our liabilities with this new UFR, and we run 10,000 risk and return scenarios around it, and we just continue our distribution policies that we have today, what are the odds of us at some point missing our solvency level? You stress it, you Monte Carlo simulate it with a UFR of 2.4, and then we assess the annual and the underscoring probability. That's something we do in the first quarter of every year. It's quite an elaborate process. It takes time.
We do it once a year, mostly around the end of the first quarter when the full-year results are done, when the strategic asset allocation review has been done. That program is underway and implementing, and that's when we do the annual economic UFR reassessment. It's an annual thing done around March, April.
On your last question, the M&A flexibility from a more operational point of view, I think Chris already elaborated a little bit on the room to maneuver that we do have financially. It's depending on how the balance sheet of a company looks like, whether it is fully loaded with debt or not. Operationally, it depends on the type of business you acquire. For example, we already integrated the funeral portfolio of Generali. If we could do a funeral transaction tomorrow, the team in Enschede is ready to integrate such a portfolio because they are already done with the integration of all the funeral portfolios we acquired recently. In non-life, we are in the middle of the integration of the portfolio of Generali. That should be done somewhere over the first quarter. That wouldn't withhold us from looking seriously at potential non-life portfolios. Same for disability.
In life, it's more a matter of building a queue to bring our portfolios to our Software as a Service platform. That wouldn't withhold us from buying businesses, even when we could do a very good and responsible transaction. In general, there is no operational reason for us at the moment for not looking at potential transactions in the area of the insurance business. Same for Distribution companies are not integrated into ASR. We leave them alone and entrepreneurial, that wouldn't withhold us in that area. In general, Robin, if and when there would be an opportunity, there wouldn't be a lot of operational reasons not to look at it. Having said that, let's assume there starts a process tomorrow. It normally takes 3 to 4 months to get a signature. Then you need 2 to 4 months to close the transaction.
Any integration would start as from mid-next year.
Okay, that's very helpful. Maybe, Chris, one follow-up on the economic UFR. I guess it's some sort of game between stock and flow, but is there any implication connected to the fact that you've raised it on how you look at M&A as well? Or is it irrelevant?
No, it's not linked to M&A. It gives you more feeling on our Well, in essence, it gives you some feeling on our capital capacity, right? If the UFR moves from 2.2 to 2.4, from our perspective, we believe that if you compare that number 154 to say, 120, there's a good 30 percentage points of capital that is actually not immediately needed to run the business from that perspective. It gives you more feeling on our capital strength and on our investment pot. It's not given by because we do this once a year. We run the numbers, we test it, out comes the economic UFR, this is what then drives the number and gives you a feeling of our distribution or investment capacity. That comes first and how we spend it comes later.
It's not that the spending plan comes first and then we think, "Oh, gee, how are we going to make a UFR that fits this plan?" That's not the way we work.
That's very clear. Thanks.
Next question comes from James Shuck from Citigroup. Please go ahead.
Hi. Thank you for taking my questions. Just two questions, please. First is on the individual life systems. I know you converted two in this period to the Software as a Service platform. Can you just remind me how many are left in the queue and what the approximate timing and size of these conversions are? If there's any reason to believe that the cost savings associated with the two systems in this period will be materially higher or lower versus the other systems in the queue. Then secondly, you touched on the EIOPA changes or proposed changes to the standard formula briefly. Are you in a position where you're able to give any potential impacts to your ratio at this point? Thank you.
On the individual life systems, the Software as a Service system, James, is a system which we don't own. We only pay the variable cost per policy. There are two in the queue currently. One of that is a portfolio of our own, and the other one is the Generali portfolio, and they should both be done before the end of next year. We might be able to shut down some of the existing systems which are all based on fixed cost, and that would be a next jump in lowering the cost in our life business. That's all projected in our targets to lower the cost according to the decrease of the portfolio. That's already in the plan, those lower costs.
On the EIOPA review of the standard formula, James. If you go through the entire report, which I hope you do not do, if you were to do it, we could be affected or it could impact us, which is the capital charge for rate risk, which is government-guaranteed mortgages, which is LAC DT. On rate risk, that could be a small negative for us. The existing standard model does not allow for negative rates, the new model actually does allow for negative rate, which makes all the sense in the world. That will feature in over time. There will be a small negative. In the past six months, we actually did tighten our rate exposure a bit. We reduced our interest rate exposure.
The impact of this change is a function on your interest rate exposure anyway, how much a lower or a negative rate assumption could affect you. It's going to be a small negative, not a huge amount because through rate management, you can actually manage a lot of this. Secondly, the new EIOPA regulation do actually recognize government-guaranteed elements in mortgages. That will reduce the counterparty default element of your mortgage book. That's a small positive. Finally, there is a LAC DT. Today, our LAC DT does not require any future fiscal profits to substantiate our LAC DT. Our LAC DT is fully built up. Current year profits and DTLs are enough of the risk margin. Pure future profits are not in there.
The way I interpret the EIOPA documentation is that actually there is some more room to include future profits under certain conditions, as substitution for your LAC DT. It could give some upside to your LAC DT if you were to use that component as well to substantiate and underpin your LAC DT assumption. Today, we haven't done that yet. The net of all those three components, I would guess it's a neutral, possibly a small positive, depending on how far you want to go in your LAC DT assumption. Far, we've been quite conservative on LAC DT and the way we substantiate it. Depending on how far you want to stretch yourself in that field, it's a neutral to possibly a small positive given the fact that the tightening of our interest rate has actually reduced a small rate shock.
Very clear. Thank you.
Last question comes from Ashik Musaddi from JPMorgan. Please go ahead.
Hi, good morning, Jos Baeten and Chris. I have three questions, if I may. First of all, if I read the press release and your presentation, it looks like you're talking about de-risking your assets versus full year 2017. If I look at one of the slides, which is where you have shown the SCR movement, slide 26. That says that market risk is going down by EUR 63 million in the SCR. You de-risk your assets, you have acquired Generali Netherlands' asset portfolio, that should have brought some market risk, whereas this slide shows market risk has gone down. What am I missing? Because this slide shows that spread risk has actually decreased whereas you have moved more into corporate bonds. That's one question.
The second question is, I may have misheard it, but you mentioned that your Solvency II xUFR is 154%, if we x out VA, it's somewhere in 110%-125%. That looks like your VA benefit is north of 30 points. That number doesn't make a lot of sense to me because if I look at your sensitivity, you have always given that 1 point VA is equal to 1 point of solvency. VA at the moment is 10-12 points. Is that understanding correct or I misheard something when you mentioned xUFR, xVA number? The third thing is, can we get some clarity as to your IFRS numbers and Solvency to capital generation is diverging a bit for past two years as well and this half as well.
Your Solvency II capital generation dropped by 7% year-on-year, whereas your IFRS earnings was only down 1%. In past two years as well, that similar trend has been visible, 2017 versus 2015. Any thoughts on these three questions would be very helpful. Thanks.
Yeah, Ashik. Chris, I think you're referring to page 26. Indeed, you can see our market risk down by 63%. That market risk reduction actually is a result of various moving parts. In the first half year, real estate risk was up a tiny bit. Equity was virtually stable in that portfolio. Spread risk was down slightly, not because we declined our corporate bond portfolio, but we shortened the duration of our corporate bonds. Basically, the sensitivity against spread movement was down. It was a duration of credit spreads rather than credit spread as such. The main driver of the reduction in market risk was a limitation on the rate exposure on rate risk.
We felt that actually, the expected return on an open interest rate position is very small, and given today's rate and market environment, we thought it was not very useful to run some rate risk. We actually reduced our rate risk. That interest rate risk component, that was the key driver behind market risk. If you net for debt, market risk would actually have gone up during the first half. The de-risking we're proposing today will be as opposed as 5% before Solvency II for today. In the first half, market risk x rate went up a tiny bit. It was net negative due to interest rate risk charge, we thought it will go up again. That will be on the classical assets, Credits, Equity, and so on mortgages.
Sorry, just a follow-up on that. You're mentioning that you're shortening the duration of Credit and you are taking hedges on interest rate. How does that stack up with your duration matching or cash flow matching? Is that not getting changed? Because I think last year as well, you mentioned that you have shortened the duration of your sovereign bonds. If you keep on shortening your duration, does that match with your cash flow profile or duration?
Because we also have a significant derivatives program. The interest rate management is a function of corporate bonds, swaps, and swaptions. It's a mix of the thing that works. We tighten the interest rate risk on a total holistic basis in that we shortened corporate credit, to some extent. We swapped some traditional government, even for Italian government bonds, post the spread widening. There's a swap and swaptions portfolio that is the rounding to make sure the total interest rate risk is where it is. We felt at this point in first half-year, that was more efficiently, slightly less duration credit plus more long-dated swaps than the other way around.
Okay.
On the UFR, you've slightly misunderstood me. Apologies for that. I think the solvency at a UFR of 2.4 is 154, right?
There's UFR of zero, UFR of 2.4 is 154. Our VA effect is around 10, or one point of VA is a one solvency effect. If you were to look at a solvency xVA, you would move from 194 to 184. The solvency ex VA and ex UFR is 113 to 127, to be very precise, depending on whether you take the simple UFR out, you get to 127. If you at that point in time would also take a hit for less tiering risk, if the UFR would be take out completely, you would have a tiering issue like most others have today. If you adjust for the tiering, you'd move to 113. To recap, solvency 194, solvency ex VA 184, ex VA, ex UFR 127.
If I then take the harshest view on tiering, assuming that there would be mechanical consequences for tiering, I get to 113.
Okay.
With the UFR of 2.4 is 154%.
Yeah, got it. That's clear. Thank you.
That concludes today's questions.
Sorry. Actually, on your first question, I think there are various parts. I think the gap between the two on operating results and solvency generation is of our classical shadow accounting. Shadow accounting results contribute to operating results or the release of the capital gains reserve does contribute to our operating results, but does not contribute to our solvency. The cap gen release was effectively stable. It was down EUR 6 million in the first half year, effectively stable. When it comes to headline IFRS numbers, I think they probably move more in sync. There you see slightly less capital gains than we had last year, and a contribution to the Generali social plan cost to fund the reorganization of Generali.
Okay. That's very clear. Thank you.
Thank you. That concludes today's questions. I will now turn back to the host for any additional or closing remarks.
Well, thank you. Hopefully, this call was helpful to answer all your questions. We were happy to do so. We look forward to meet you all at our Capital Markets Day at the 10th of October. In the meantime, we continue to deliver on our medium-term targets, and we are confident that we will be able to continue the delivery in the way as we have done it until today. Thank you all, and I wish you all a very good day.
Thank you. That concludes today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.