M&A Announcement

Dec 4, 2018

Slides

Good day, and welcome to the ASR Conference Call on the Acquisition of Loyalties. Today's call is being recorded. And at this time, I'd like to turn the call over to Michel Husseras. Please go ahead, sir. Thank you, operator. Good morning, everybody. Welcome to the ASR conference call on the acquisition of L'Orealis that we announced earlier this morning. On the call are Joost Baate, CEO and Christi Seys, CFO. And they will talk you through the transaction highlights from a strategic rationale and the financial metrics. And Joss will kick it off. After that, we'll open up for Q and A. And as is customary, please review the disclaimer that we have in the back of the presentation as well as any forward looking statements that we have. So with that, Joss, it's all yours. Thank you, Michel, and good morning, everybody. I'm sure you all have seen the announcement this morning, so let's not waste too much time. I'll briefly mention the highlights of transaction before we take any questions you may have. As you can understand, we are very pleased to announce this transaction shortly after our C and D of the 10th October in which we detailed our plan to actively pursue profitable and inorganic growth next to the normal organic growth, especially aiming for bolt on acquisitions in the SME space. I believe we have been able to present an offer that beyond an attractive financial package also resonated well with our strategic principle of putting clients first. This transaction truly ticks all the relevant boxes and we will discuss that during the Q and A from a strategic point of view as well as financially. With Loyales, we significantly strengthened our position in the disability market. We gained unique access to an important cluster of customer groups and expands the product offering. In disability, we grow our market share to 28%. In Life, the acquisition fits very well with our strategy to consolidate service books. We can unlock the synergies by rationalizing and migrating these books to the Software as a Service platform what we already have. As you can see on this slide, the transaction that comfortably meets the financial criteria we maintain for M and A and demonstrates our ability to deploy capital to enhance the value of the organization. Pro form a impact on Solvency II ratio of ASR at closing is minus 9 Solvency points, so equal to the Generali transaction. And when the integration work is successfully done in 2022, the impact is minus 8 Solvency points. Return on investment is expected at well above 12% on all metrics. This is calculated on a fungible capital investment of roughly €200,000,000 The transaction is expected to contribute €40,000,000 to the net operating result and 35 €1,000,000 organic asset creation in 2022. This represents an EPS accretion of more than 8% based on our last full year results in 2017. Transaction will temporarily be financed with a short stated bridge loan, so ASR maintains a very strong financial flexibility. The financial leverage of ASR will due to this transaction increased to roughly 29% well below our target of maximum of 35%. This short term financing basically means that we keep our options open for developments in other strategic areas going forward. So let's move to the next slide where I will provide an overview about L'Orealis. As you may know, L'Orealis is an insurance company currently owned by APG and is located in here a town in the south of the Netherlands. It implies roughly 300 employees. L'Orealis is mainly a non life company with 161 gross written premium in non life and 105 of gross written premium in life. The IFRS earnings of Royalis were €71,000,000 so €71,000,000 in 2017. There are some difference in accounting standards. L'Orealis for instance applies fair value accounting where market movements including interest flows through. Therefore, this is not a number you should expect going forward. Estimated stand alone run rate of the net operating earnings is approximately €30,000,000 and this is based on ASR's accounting standards. Loyola's balance sheet is just above SEK 3,300,000,000 and is fairly well capitalized with strong Solvency II ratios for the operating companies. Important to note is that Loyales carries no debt. The cooperation between Loyales and ABG will be continued and is covered under long term agreements with ABG. The cooperation pertains to knowledge sharing on sector, which enables Loyales to develop insurance products in the future and will remain closely related to the collective labor agreements of the sectors Loyales and ABC currently serve. So let's have a closer look at disability and Life starting with disability. L'Orealis strengthens ASR competitive position in sustainable employability segments as it offers a broad portfolio of disability products with a strong emphasis on RIA accounting for 86 of gross written premium in 2017. Out of the total earnings of reales 80% is in a non life predictable earnings stream. With L'Orealis, we also will have meaningful access to new customer groups, governance and education offering the opportunities for ASR's disability suite. Complementary to ASR's strong position in the disability market, particularly for individuals and small companies is L'Oreal's strong presence in the area of mid- to larger sized corporates with over 100 employees. Our objective is to safeguard current profitable proposition. To do so, we aim to continue running the business from Heerle. As such, it will be only a partial integration of staff functions and IT rationalization. The relation with APG on knowledge sharing, product development and efficient client solutions will continue. We will keep the Loyales brand intact being well recognized in the sector they service. As you can see, there is also a relative small absenteeism portfolio, which will be managed as a closed book and now future offering will come via the ASR product line. Turning to live. This part will be fully integrated into ASR's platform in Utrecht. Migration expected mid-twenty 20. As mentioned, this fits very well with our strategy to consolidate the individual life market and here we can actually lever our proven integration and migration skills and experience. Loyales adds scale to our existing service books and increases the cost coverage. Also we will manage the €2,000,000,000 investment portfolio in Life. Let's move to slide 5. And for those who attended our C and D in October, this is a familiar slide. It depicts how we look at the various players and roles around sustainable employability. It is an entire ecosystem in which we have a strong and unique position with the various entities that we either fully or partially own or with companies which we work closely together. With Lialis, we strengthened our position in underwriting and targeting significant clusters of customers with products that meet their needs. This ecosystem will continue to develop and I would expect us to continue to our aim to further expand this in the future. As is shown on the right hand side, Laelis will increase our market share to 28 percent and become co leader in the disability market. So now turning to the impact on Solvency 2. That's slide 6. As you can see, the pro form a impact on Solvency 2 when all capital and cost synergies are taken into account amounts roughly 8 points. I will briefly run you through the major changes. Day 1 pro form a solvency impact is 9 points and this consists of the purchase price. As you have read, this is CHF450,000,000 cash out, partially offset by capital synergies, which includes diversification in eligible capital as well as the alignment of assumptions and the impact of combining the businesses. Given the fact that Loyales already has very strong balance sheet, the impact of the latter is close to 0. At legal merger, the impact is minus one point reflecting the remaining capital synergies and further alignment of assumptions. After the legal merger, we will pursue to realize cost synergies, which are expected to increase Solvency II ratio with 2 points. This number includes capitalized cost benefits and is partially offset by non recurring restructuring expenses. When determining the return on this transaction, we look at the amount of capital, which is required based on ASR Solvency II level above the dividend threshold for the operating companies. Fancherable capital deployments amounts to €200,000,000 This number takes into account the capitalized cost synergies we expect to realize. Excluding these capitalized cost synergies, defangible capital investment amounts up to €260,000,000 Now let's turn to a snapshot of the financial metrics on this transaction and that's on slide 7. The acquisition of L'Orealis is expected to deliver a return on investment of well over 12% based on operational and capital synergies. LAYALIS is expected to contribute SEK 40,000,000 to the net operating result as from 2022 after realizing all the cost synergies. Railix is expected to contribute €35,000,000 to the OCC to be realized in 2022. I'm sure you will understand we are very, very pleased with this acquisition. Not to only all the financials ticks the boxes, but also this acquisition is in the core of our strategy. Having said this, I would like to conclude this presentation and let's go over to Q and A. Thank you. We will now take our first question. This comes from Cor Kluis from ABN AMRO. Please go ahead. Good morning. Kennen Cor Kluit, ABN AMRO. Congratulations with this acquisition. Yes, couple of questions. It's midnight for you, I believe. That's correct. No problem. Yes, if you look at the question about the difference between the €450,000,000 and €200,000,000 Could you help us a little bit more with the pieces between we see the slide on 6, of course, but could you give a little bit more granularity on Legg Beatty piece, which probably is not at Lejano's excess capital, which you see there, assumption alignments where you're a little bit more conservative than they are. So a little bit more granularity for that gap between those two figures. And my second question is about the APG contract. Can you talk about a long term contract? Could you elaborate a little bit more on how that works? How long can you contact new APG clients? Or do you put them on their website? Or how does that work? My last question is about the LCC. Which piece the €35,000,000 which piece is a capital release SCR effect because I think the LIBOR is shrinking somewhat in there. So to what extent is that included in that and probably the visibility piece is growing, so that consumes probably somewhat. Up. So that's perfect questions. Good morning, Cor. Good morning, it's Chris. I'll take your question on the capital spend. Look, a couple of points to note. This is a business that is well capitalized. If you look at the own funds that are present in the 2 operating entities, Loyales Leib and Loyales Gare and excluding any adjustments we may or may not make, but as it is today, the own funds in this business are €560,000,000 So you would argue we're paying €460,000,000 for €560,000,000 of own funds. Now that's of course paid value. There will be some adjustments. But it shows you that these businesses are well capitalized running at policy levels of standalone, EUR 172,000,000 in L'Orealis, EUR 175,000,000 in L'Orealis Life. That one. Second thing, what I like about this business, we're buying effectively a non live earnings business. If you look at the profit of this business and also especially on ASR accounting standards, ASR 80% of the profit of the business is non live. So it's a non live earnings stream. So we're acquiring own funds with a very limited UFR or VA sensitivity. As I said, the owned funds that I do business are €560,000,000 If you take took out the UFR and the VA as a whole, that will drop to €520,000,000 before any adjustment. So we're looking at a business with sufficient a significant amount of capital in there, which have limited UFR, VA sensitivity. So then the walk from the €450,000,000 to €200,000,000 is we paid cash out €450,000,000 at this point. In our assessment, there is €100,000,000 of level fungible capital we acquire. You could say we're paying €1,000,000 for €1,000,000 but as this capital is in this business based on our own dividends and our capital management ladder. So we're paying €450,000,000 for €100,000,000 of additional tangible capital. So it's a euro in for a euro out. Then there's about €90,000,000 €90,000 of net capital synergies. They consist of diversification benefits, a DTA and I'll elaborate more, but those are the main components. That brings you to €260,000,000 of spend of capital. And then there's about €60,000,000 of capitalized cost benefit in solvency, so lower expense charges in your Solvency II, which bring you to the CHF 200,000,000. So the Brita is CHF 450,000,000 minus €100,000,000 minus €90,000,000 brings it to €260,000,000 and take out €60,000,000 it gets to €200,000,000 In those capital synergies, as I said, the dominant one is diversification benefits. I mean, disability is a risk factor that naturally diversifies very well in existing insurance book. Next to mortality is the 2nd best diversifier in your in your risk base. Actually, 20% of the business is mortality and 80% is disability. Secondly, there's an ineligible DTA on the loan analysis that will become eligible on our side. And then there are a few smaller ones where on the negative side we'll have some adjustment on there from the mortality assumptions. In the L'Oreal's book where we have a slightly different approach on quantifying and reserving for mortality risks. It's a small negative from dealing with profit sharing, where we don't follow their methodology yet on how you account for profit sharing and the cost of the loss absorbing capacity of technical provisions like TP, in euros which we don't apply yet. And then there is a small amendment on the interest rate risk charge and a small positive on further synergies in disability solvency. So in summary, diversification and DTA are the main drivers. Then small adjustment or number of adjustments for mortality and profit sharing. Those are the negatives, the actuarial assumption alignments and then the number of positives mostly around reserving and treatment of obviously the expenses. But the core thing to us is that you will pay €450,000,000 for a business with north of €500,000,000 on funds. Ex VA, ex U of R is still north of €500,000,000 on funds. So we take out some €100,000,000 of where we're paying €1,000,000 for €1,000,000 That brings it to €350,000,000 take up €90,000,000 of clear capital synergies that will be there already actually on very quickly within the 1st 6 months. And then there's about €60,000,000 of opportunity on reserving, which will show up if and when we complete the integration. So that will take a bit more time, but we've got confidence that we will deliver on those. And on the contract Sorry, Corren, go ahead. And on the contract, the We aim that it will be an indefinite contract. However, we have agreed that we every 5 years will evaluate how the collaboration works. So after 5 years, we have the first evaluation of how we have worked together over the last 5 years and then aim at continuation of the contract going further. The aim of the contract is to keep on offering the current product suite of L'Orealis under the L'Orealis brand, which mainly is via business. As said, 86% of their non life portfolio is in via business and there is a small sickness leave portfolio involved also, but they are not currently offering active sickness leave. We have agreed that we will be able to build on their current customer portfolio and offer also other ASR's products. So for example, they don't offer any sickness leaves today. We could decide to start on offering sickness leaves and all kinds of other additional products too. So going forward, it is keeping the current products in place and adding new products that are not offered yet by Loyales. And all the non life business runs at a very profitable combined ratio. If we would apply our own way of calculating the combined ratio, their combined ratio is already in the target level of ASR's combined ratio for disability, so in the very low 90s and sometimes in below 90. So having said that, keep the business in place. That's what we have arranged with the contract and extend the business going forward. Cor, and to your question on the OCC, what's in there, as I said, this is 80% a non life business. The profit in 2017 was €71,000,000 but that's on fair value accounting, which we don't apply. So the numbers in 2017 when spreads narrowed kind of overstates, especially the life earnings when you compare to our accounting standards. On our standard, it's 80% non life profit and about 20% life profit. And also shows up in the OCC. So the OCC really is all about underwriting results and new business results in the Non Life business. Think about risk margin release of SEK 2,000,000 to SEK 4,000,000 in the 1st year, SCR release of SEK 3,000,000 to SEK 4,000,000 in the 1st year. So about €5,000,000 to €7,000,000 of capital release and the remainder is old fashioned insurance business and returns. Over time, you can see the risk margin to decline gradually from €4,000,000 to around €2,000,000 in 2022 and the SGR release will also be around €3,000,000 Please note that in the OCC assumption, it also assumes that we know about a new business. So the capital release is actually netted, which gives you about €2,000,000 to €4,000,000 of net contribution from risk margin in FCR release in the long run. If we were to stop writing new business, which in the long run is not a good idea, but if we were to do that then the OCC would jump by another €5,000,000 But I think the key point to make is that out of say the €30,000,000 or €35,000,000 of capital release of OCC we're seeing in 2021 Only up to 5 is really book release and the other 30 is underwriting business and returns. Okay. Wonderful. Thank you. Thank you very much. Thank you. And we now move on to our next question and this comes from Farooq Hanif from Credit Suisse. Please go ahead. Hi there. I hope you can hear me. I'm calling from home. Just on two questions. Firstly, on the debt, the short term debt that you raised, what is your intention there? So if you need to fund another deal, what would you convert that into? And if you find you don't need to fund another deal, what are you going to do in terms of kind of a long term leverage? That's question 1. And second question is on some of the things you haven't talked about. So the uplift from looking at their investment portfolio and the uplift from cross selling other products that are not currently on the suite. What kind of case study can you show us in the past that might be relevant here in the potential uplift? Thank you. So, look, it's Chris. First of all, congratulations. When I dial in from home, you hear dogs barking, kids screaming. So well done on keeping your house under control. Yes, thanks, Marzil. That's fine. So well done, Amit Sabine, leading the chart there. On the debt side, look, we think this business lends itself very well for hybrid financing. We get the €450,000,000 cash out acquiring a stable and predictable non life earnings swing with long term client relationships and a good combined. So this thing smells, breathes, eats hybrid financing. And we will hybrid finance this transaction in the long run. However, the instrument itself, the choice of instrument is something that hinges a bit on other M and A files that are out there. Now I don't want to have a call on other files, but please know that if there if Loyan would be the last acquisition we do, this thing would be financed with a Tier 2 instrument. Hybrid capital will keep the solvency stable at the lowest cost possible. However, if you take into account that there are potential other transactions out there that may or may not start that we may or may not buy and who knows. But it might be the case in other transactions you rather use Tier 1 financing to protect your Tier 3 headroom protect your Tier 3 space. In a year from now, we will know better or we'll know what the optimal financing against this strategy is. Will we use a Tier 2, which you take on a standalone basis? Or would you rather issue a Tier 1 instrument, which may make sense if you include other transactions out there. So with that in mind, you said, look, we will do this with a hyperplansing. So our solvency will be stable against this transaction. However, the instrument itself, it's fair to choose better to choose in a year from now than to choose today in order to protect and preserve optionality. With that in mind, we are going for a short term financing, a 1 year financing. Options there could be either a public, a 1 year senior in the capital markets or a bridge financing with a bank. We have until closing to do that. I think my hypothesis is that a bridge financing with a bank is slightly more, offers more flexibility in the space because flexibility is what we're looking for. And the cost of financing today are relatively low. Most banks have fair amount of liquidity and are willing to extend short term credit at attractive rates. So our view is 1, Solvency of the deal will be unchanged because we will fund it with hybrids inside the leverage ratio that we have. However, it's not wise to choose today which instrument it is to and so preserve optionality, take 1 year loan out at a very low rate. The option doesn't cost a lot these days. And that actually provides time and room to pick the final instrument when we're there. Just to interrupt, I hope you don't mind. When you say solvency will be neutral, I mean, actually it will go up, wouldn't it? If you raised Tier 2 or Tier 1, you'd add €452,000,000 in the funds. That's what you're saying. Yes, exactly. Yes. So the €450,000,000,000 will be met by at least the €450,000,000 cash inflow. For example, Tier 2 is going benchmark size of €500,000,000 So you'd expect if you issue a Tier 2 bond, you'd issue a CHF 500,000,000 Tier 2 bond, which nearly perfectly matches the cash outbound. Okay. So and on Q1, there's a little bit more I mean, the a little bit less evidence of what a benchmark Q1 bond is, but it's probably in the same order of magnitude. So the owned funds out will be met the owned funds in from a hybrid issuance. Okay. As to the other point, uplift on the investment portfolio, it could be a small uplift in there. It's not that the numbers yet. Their portfolio bears a reasonable amount of asset risk. It's slightly less yielded in our portfolio. There is some room to add mortgages and real estate. If you compare the L'Orealis investment portfolio to ours, the upside is not in the numbers at this point in time. Similar to Generali, we think that rerisking an asset book is never the key reason to do a deal or to justify doing a transaction. So the ROIs you see are solely based on operating and underwriting synergies. Re risking itself is the icing on the cake, which should not justify the case. So you're looking at relatively single digit numbers. If you look at the asset base and what you can do, there's a couple of million we could add probably, but that's not going to move the dial. And in terms of cross sell, something similar, we can see obviously for cross sell, but we haven't quantified them yet. Maybe Joss you can elaborate on those. Yes. You know as very conservative, so we haven't assumed any top line cross sell assumptions going forward. Between timing and closing, we will start developing plans with the management team on what the product demand from their customers which we can add. But for the time being we have said let's assume no further additional growth to justify the business case. So the business case is based on the current product suite without any future cross sell involved. Okay. That's very clear. Thank you very much. Thank you. And we move on now to our next question, which comes from Robin Vandenbroek from Mediobanca. Please go ahead. Good morning, gentlemen. Congratulations on the deal. My first question is on what kind of cost of financing have you assumed in the €35,000,000 of OCC you've guided for? That will be question 1. The second one is, you lean back on the 140 percent Solvency II ratio. I think that was also the rebase you used in the Generali Netherlands deal. And I was just wondering, this doesn't really talk about the quality of capital. L'Orealis clearly has no debt on the balance sheet. So that's €140,000,000 for them is a lot better than it would be for potentially other assets. So I was just wondering if you could explain to us how your rebalancing on the capital position works if there would be more leverage in place? And then the last question is on whether this deal makes you come closer to a potential internal model validation process? Thank you. I will ask the first question and I need a little more clarity clarification on the second question. So on the first question, we assumed a small couple of million cash out for the funding. I mean, if you look at the bank loan mark, the all in funding for a 1 year bank loan, including commitment fee where you will see interest rate fees. It's probably up to 70 basis points that's why we enrich. I mean our negotiations haven't been closed. So we were not done there yet. So if you think about look about a €2,000,000 to €3,000,000 of financing cost in the 1st year. For latter years, we have not yet included those because that depends on the transaction we on the final deal we will make. But in principle, it's about SEK 2,000,000 to SEK 3,000,000 in the 1st year. And the second question, well, I'll think of your 3rd one. Will this bring us close to the internal model? A tiny step, but not the final step, so to speak. So it adds a €3,000,000,000 AUM portfolio to our assets. The rerisking will be done in areas of mortgages and real estate that to some extent are less affected to the mortgage, less affected by the internal model, real estate a bit more. Internal model helps, but it is not moving the dial or making the final call on requiring internal model for this deal to work. This deal works standalone with or without an internal model. And your second question, could you elaborate because I can talk about how we're spending capital? I mean, L'Oreal is basically all the own funds are is unrestricted Tier 1. If you would look at I guess the big elephant in the room here is Zivas then you have a lot more Air Tier 1 and Tier 2 capital in there as well. If you then would do a rebase capital towards 140%, you could even argue that, yes, VVAT has excess capital. So just wondering how leverage basically is affecting that excess capital within this within these M and A frameworks? Look, I think let's keep this call to L'Oreal's, not hypothesize or speculate in other parts that may or may not come. On the Royale situation, look, this business is actually fully debt free. And what I find very important is not so much even the leverage, but also the sensitivity of the VA and UFR. L'Oreal is our estimate, if you exclude the UFR, exclude the VA, it would still have, for example, a life of solvency north of 140. I think L'Oreal's life of solvency ex UFR actually is 149. And in P and C, we would we still be around the 170 mark. So I think at this point, we think it's fair to assume that for this transaction, which is a non life business not sensitive to UFR, not sensitive to VA that our existing management letter is fully consistent and could be applied in this case. And in that sense, I'm more looking at sensitivity to assumptions, mostly UFR and VA and assess the 140 level of dividends. If you would buy somebody else with different level situations, we may want to revisit it. But in the previous it's actually both Generali and both Embodialis business without leverage and with very limited UFRVA sensitivity, we think the 140 makes perfect sense. Although by the way, if you were to run the number as say €160,000,000 that means our capital commitment, the fungible capital would be roughly €60,000,000 higher. So we did do the test what if we did not define fungibility on 140%, but on 160%, the 200s ultimate capital commitment would become 260. And the 540 by 260 the deal still holds. So even if you do the transaction the numbers on a 160 basis you'd still be north of 12% ROI. And secondly, you still are north of beating, for example, spending the same amount of capital on buying back our own shares. So in short summary, we talk about L'Oreal as only sensitivity to UFR and VA is more important to leverage at this point in time. The $140,000,000 holds for us, holds for them, holds for Generali, but also $160,000,000 the deal is still washing its face. Thanks for that, Chris. I agree with you, by the way. Thank you. We'll move on to our next question and this comes from Albert Fleur from ING Bank. Please go ahead. Yes. Good morning, gentlemen. We have two questions from my side. First one is maybe on the customer base currently of Loyals, the $450,000 I think that was mentioned. Yes, what percentage is that basically what you would call civil servant? And because I guess L'Oreal is also opening up to, let's say, other customer base as well. You mentioned retention rates are still high. Can you give a bit more color what they are and what the trend has been in recent years as far as you have of course that information? And the second question is a bit related to the cost synergy potential of the €10,000,000 €15,000,000 and let's say the target of OCC and net operating result of €35,000,000 €40,000,000 where you put a year 2022, of course, still some years away. So can you maybe give a little bit more color on the phasing of that? I guess it's a bit back end loaded due to the, let's say, consolidation of the Life portfolios. A bit more color would be helpful there. Thank you. To your first question, roughly 80% is in the area of universities, schools and civil servants of the portfolio, mainly disability portfolio and 20% is in the area of large corporate institutions like, for example, some hospitals. So hopefully that answers your first question. And that's the area where we aim at further growth going forward, but what is not yet included in the deal specifics and in the financials. And Chris? Yes. On the Financi, think about there will be already in the initial set of Financi in 2019 mainly around the asset management space where in house the asset management today is done by APD. We'll bring back the asset management to our own business and that is of course highly scalable activities. Secondly, there are some cost allocations from services provided by APG to L'Orealis that we will deliver from ASR. So in that sense, there will be some savings early in year 1. Think about something like up to €5,000,000 in 2019. That will move to around €8,000,000 in 2020. When we think around 2021, you're pretty close to the run rate of up to €50,000,000 So in the 1st year, it's savings on services provided by ACD that ASR will take on board with very limited additional cost. And then the further cost savings will commence in 2020 and mostly 2021. But by 2021 you'll be looking at closer to €60,000,000 run rate synergies. Okay. Thanks very much. Thank you. We now move on to our next question and this comes from Stephen Haywood from HSBC. Please go ahead. Just to clarify on one point earlier, you mentioned about a low 90s combined ratio. Could you be a bit more specific on that combined ratio? And whether that's been achieved or whether that's sort of the forecast you expect to get from Ooyalis? And then secondly, on your service book consolidation process, can you remind me of where we are, particularly with regards to your internal books, your General and Other ones book? And then what where the Loyalist book will come into the sort of consolidation process here? And then finally, is there any chance you can give us a ASR standalone solvency II ratio or sort of guidance towards what it should be for the end of Q3 or even for the end of November? Thank you. Hi, Steven. This is Jos. On the combined ratio, this is we recalculated their combined ratio based on our way of calculating the combined ratio and they have been in the space between 8590. So if I say low 90,000,000, I actually mean it's €90,000,000 or even a bit lower. And that's within the target range of our own disability targets going forward being between 9294. So this perfectly fits in our disability targets going forward and we don't have to do a lot of repairing on that like we had to do in the non life business of Gerhardi, for example, where combined was above 100. So it's a healthy portfolio. On your second question, Stephen, where are we in the integration of the different individual life books? We have finalized all the own books except one. There was actually an outsourced book to India. We're now considering whether we should in source that again and bring it over to our own software as a service platform. Even when we decide to do so, then it will be done half twenty nineteen, so half of next year. Also the Generali integration will be finalized somewhere in the second or third quarter next year. So if we take 3 to 4 months for closing the transaction of L'Orealis, preparing the integration of the L'Orealis book, we will be able to start the integration of the L'Orealis book as from the end of 2019 and finalize it as said in my introduction in 2020. And to your question, Stephen, on solvency for Q3, well we don't disclose solvency on a quarterly level. So let's not go into there. But the numbers you can see on the pack work on the pro form a half year numbers. Without disclosing too much, I think you'd be very safe to work with these numbers on the basis. We will now move on to our next question and this comes from Bart Doris from Degroof Petercam. Only one strategic like and the more another one is more a little bit details. So first on the life offer for L'Oreal, is there any unit linked, any DC PC in there? Or should we just see this as additional service books that will be run off? And how is the liabilities regarding the reserves? Talking about reserves, there are €3,400,000,000 while in the press release, you're talking about asset managers of 3,100,000,000. Could you explain the difference? And then finally, probably on the cost savings, there will be some restructuring Bart, could you please repeat your first question because we were already that was on? On the Life portfolio. On the Life portfolio. Yes. We have looked into the Life portfolio. There is a smaller a very small amount of Unit Life policies involved. Hardly any legal cases on them and they have delivered on all the agreements that were made with the government and with AFM to deliver on compensation. So from a risk profile of the transaction, our judgment is that we are not onboarding additional risk on the unit linked file. And then on the difference between the SEK 3,100,000,000 and the SEK 3,300,000,000, the SEK 3,100,000,000 is the assets we are going to manage ourselves. And if you look at their balance sheet, there is some liquidity and the difference between the 3.1% and 3 3.3 is mainly liquidity. Okay. Are the books maturity hedged liabilities assets? Well, the Bartus, it's Chris. We have a slightly different hedging profile. I think the existing hedging profile by L'Orealis is more aimed at protecting the IFRS balance sheet and less on Solven Q2, because they run an IFRS mark to market balance sheet. So their hedging strategy is slightly different from ours. What's relevant is our strategy will once we control the business move it into our interest rate hedging policy, which effectively is a combination of duration and maturity hedge. We try to be as much as possible cash match in terms of our duration. But effectively there will be some practicalities that no will require you to completely EOB cash match especially for long dated deals. But fair to say that the relatively short maturity book of L'Orealis will be when it comes in our balance sheet predominantly be cash immaturity hedges. And then the cost of all this integration and restructuring? On the timing, we assume that all the integration is done in end of most will be done end of 2020. And Bill, on the cost and the results will kick in as from 2021. And on the cost, we haven't yet disclosed an exact number, but given our experiences in integrations, you can assume that the numbers we have presented and those already include the integration costs that they are fairly conservative. Okay. Thank you very much. Thank you. And we will now take our next question from Benoit Petrar from Kemper. Please go ahead. Yes. Good morning. Just one on the combined ratio on my side. Could you talk about the quarter cycle combined ratio for the business? Obviously, Cielo Cell is not business you know well typically. So just wondering or is the behavior in terms of combined research recycle also more difficult to have in the cycle, which you have seen in the books? And into that, is the 85%, 90% the kind of average positive cycle or at the kind of current level you expect in the current cycle? Thanks. Thank you, Benoit. Over time, we have seen a relative stable development of the combined ratio over the last by heart over the last 5 years at least, which has been consistently based on our way of calculating the combined ratio between €85,000,000 and €90,000,000 So it's a very healthy and stable portfolio going forward. And that's what we assume that we are able to continue to deliver going forward. Thank you. Thank you. And we'll move on to our next question and this comes from Robin Vandenberg from Mediobanca. Please go ahead. Yes. Sorry to come back on the cost of financing question I asked before. But Chris, if I understand your reasoning during the call correctly, you indicate that Tier 2 financing would be the most logical way to deal with L'Orealis. I think Tier 2 debt currently has a yield of 4%. And when I ask the question, what's baked into that €35,000,000 of OCC, you seem to imply that that's not 4% of the potential financing, which would be roughly probably more than half of the €35,000,000 if you pay 4% on the €500,000,000 So am I seeing something wrong here? Or could you elaborate a little bit? To some extent, yes. To some extent, no. Indeed, we've baked in the 1 year funding cost in the OCC. Going forward, the new round we haven't. Although, but at the same time, if you were to fundraise another €500,000,000 of hybrid that will probably change the asset allocation of the business somewhat because that would mean you have more capital spend on the richness of the site. So today we keep the asset mix as it is and that's why we're spending 9 points of solvency on this. If you were to fund it with a Tier 2 hybrid, which for example could cost you €400,000,000 you have say €500,000,000 of Capable that you could also spend supporting a further market risk allocation that would then also be added to the OCC. So if you do the numbers correctly, you take out some funding costs, but you add more market risk income at that time because you'd have more €500,000,000 of more capital in your base. In today's situation, we spend 8% of solvency points, but we keep the existing investment portfolio. So both sides do not take any risk. And you would assume that those sectors basically cancel out against each other, if I understand your reasoning correct? Okay. Thank you. Thank you. And there are no further questions. I will now hand the call back to Johan Frasen for any additional remarks. So thanks for attending this call. As you can imagine, we're very happy with this transaction. Hopefully, we have clarified some of the questions that we got already this morning when we announced the transaction. We think from a strategic perspective, but also from a financial perspective, it is a very, very value creative transaction, which perfectly fits in our strategy to build an ecosystem in the area of disability. As you may expect from us, we will deliver on the integration targets that we have set and also we will deliver on the timeline. So this concludes from our perspective our call. And thank you for attending and for those attending one of our colleagues in the U. S. Have a great day in the U. S. The next week. Thank you very much. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.