Ladies and gentlemen, good day and welcome to the ASR conference call on the 2017 interim results. Today's conference is being recorded. At this time, I would like to turn the conference over to Michel Hülters, Head of Investor Relations at ASR. Please go ahead, sir.
Thank you, operator. Good morning, ladies and gentlemen. Good morning to those of you also listening in from the U.S. It's really early. Welcome to ASR's conference call on the results for the first six months of this year. With me today are Jos Baeten, CEO, and Chris Figee, CFO, and we're here to discuss the results and the business performance. Jos will start off, and Chris will follow on with capital and solvency. After that, we'll open the call for Q&A. I would like to point out, we have the time till 12 o'clock this morning, so that's an hour and a half from here. I think it's sufficient time for all your questions, but I would like to suggest if you could start with your first two questions, and then if everybody has had a round, then we can take follow-on questions.
Before handing it over to Jos, I would like to point out also the disclaimer that we have at the back of the presentation, and I would appreciate if you could have a quick look at it after this call. Having said that, Jos, the floor is yours.
Thank you, Michel. Good morning, everybody. Hope you had a good night, and those who are up early, hope you will get some sleep after this call. Ladies and gentlemen, it may not come as a surprise, but we are very pleased with the strong results that we have delivered in the first six months of 2017. I'm particularly proud that the continued solid performance is driven by all of our businesses. In each of the first two quarters, we outperformed last year's results, and it demonstrates that we have been able to maintain the strong momentum of our businesses. We will discuss our financial performance and progress of our businesses in more detail, but let me start off with an overview of some of our key metrics, and those are on slide two.
This slide shows our performance on the key metrics that we have defined and consistently report on. Performance in the first six months this year has been strong, as said, on every key metric. I will highlight some of them. Our operating result was up 28.8%, yielding an operating return of more than 17% compared to our target of up to 12%. Clearly, we are putting shareholders' money to work. All three segments, non-life, life, and non-insurance, showed growth. Operating expenses remained flat while absorbing the additional cost base of the acquired businesses. Focus on continuous expense reduction delivers results. In our non-life segment, our combined ratio of 93.6% reflects our underwriting excellence and the exceptional low level of large claims in the first half year.
Mainly due to the benign weather conditions this year compared to the first half of last year, the 2.8% improvement also includes the adverse impact of hail and water damages in the second quarter of 2016. I am pleased to see that at these healthy combined ratios, our non-life business delivered close to 6% top-line growth. Our Solvency II ratio remains robust at 194%. As you know, we are still using the standard formula. This is a five percentage points increase from the beginning of the year. Strong organic capital creation of EUR 193 million and favorable markets outstrip the impact of the share buyback of roughly five percentage points. The lowering of the VA, roughly four percentage points, and the re-risking of the investment portfolio, which was seven percentage points.
Total capital accretion before the share buyback amounted to EUR 333 million, and this includes the additional capital generated by excess investment returns and operational efficiencies. The quality of our capital remains also high as well, with Tier 1 capital alone representing almost 165% of the SCR. There is still plenty headroom to maneuver if we need to, in both terms of Tier 1, where we still have headroom of roughly EUR 1.1 billion-EUR 1.2 billion, and Tier 2 and Tier 3, where we still have room of over EUR 700 million. Chris will provide further detail on our solvency later, and those of you who have listened to our calls in previous quarters know that there is little else that gives Chris more pleasure than talking about our solvency numbers. In sum, a very strong set of results.
Talking about solvency, I would like to make a few remarks on that. Our strong solvency position enables us to remain entrepreneurial. As we've always said, everything above 160% makes us to be entrepreneurial to pursue profitable growth. Our strong solvency has also enabled us to participate twice in the sell downs from the Dutch state. In the first six months this year, we purchased six million own shares for a total amount of roughly EUR 153 million. We consider on top of the earlier commitment, which was equal to last year's capital generation of roughly EUR 340 million, to buy back an additional amount of circa EUR 100 million of shares if the Dutch state should decide to undertake a final placement of its remaining equity interest in the second half of this year.
Including dividends, the total distribution to shareholders would, in such case, amount to approximately EUR 440 million in 2017. Of course, this intention will depend on our solvency ratio at the moment of the decision of the Dutch state and the, by then, market circumstances. While we are on this topic of returning capital to shareholders, I would like to emphasize that our buybacks at this time are strongly tied to the government's process of privatization of ASR and our commitment to support that process to achieve the best results. Our strategy aims to deploy capital in our businesses to grow both organically and by acquisitions, preferably small bolt-ons. Ladies and gentlemen, we still see opportunity and will stick to our strict financial discipline and focus on value over volume.
Let's now turn to our business portfolio and the key developments during the first six months of the year. Those are on slide three. I'm sure you're familiar with this matrix in which we plot our businesses as we have done since our IPO. This slide highlights some recent developments and achievements in the execution of our strategy. First of all, in the top left in Box A are our businesses that provide stable cash flows. Here, we focus on organic growth. In P&C, we achieved an above-market premium growth of almost 6%. New sales were up almost 22%, while margins expanded partly due to premium increases in motor, especially in liability motor insurance. Further on in this segment, the Nivó migration will be completed expectably in the last half of 2017, and that will be within budget and within time.
Synergies from integration of both AXENT and Nivó start to materialize. Above that, in our funeral business, we have adopted pricing to interest rate environments to protect margins. We lowered the calculatory rate from 2.25 to 2, which means that our new business is now priced at a 6% higher level. In the capital light space, Box C, we have made also further progress. We've done an external placement in our ASR Dutch Mobility Office Fund for roughly EUR 150 million. We launched our ASR Mortgage Fund, which attracted a lot of interest from investors, and we already got, within a few weeks, a firm commitment of over EUR 300 million in the first half, and that continued in the second half of this year. Further on, the total of the third-party assets under management mandates grew with close to EUR 1 billion.
Finally, last year, we launched our general pension fund, and we already by then signed a few smaller contracts. In the meantime, in the first half of this year, we have signed the Arcadis Pensioenfonds contract, which is roughly about EUR 1.1 billion. In Box B, on the left angle down are the large service books we're managing. As you may know, our focus there is maintaining a low cost level and variabilized cost over time. We continued to migrate those books to our new platform and finalized in the first half year the migration of the Falcon book, which was one of the most complex books within our company. We now have started with the last few books and those should be done at the end of next year, latest first quarter 2019.
Finally, in Box D, the business where we decide to divest, we have completed the sale of 6 offices of the last year acquired portfolio of the Dutch Railways that didn't fit in the ASR Dutch Mobility Fund. Let's now move to slide four. As already mentioned in my introduction, momentum of our business remains at a high level. Both the first and the second quarter, we're considerably stronger than the same periods of last year. Underlying performance is very sound. While we have also benefited from benign claims, as said earlier, in the P&C business due to the benign winter, and favored from financial markets in our life business because the investment portfolio delivered a better yield pickup. All key business segments contribute to the increase, as you can see on the next slide, and that's slide five. The operating result increased by EUR 86 million to EUR 385 million.
As you can see on this slide, all three key segments, life, non-life, and non-insurance, contributed to the higher results. Non-life result was up EUR 44 million to EUR 106 million, while life was up EUR 40 million. I will talk about those two in more detail in a moment on the following slide, but first, some comments on our non-insurance activity, which combined, were up EUR 2 million in the first 6 months. Banking and asset management improved due to an inflow of assets under management, resulting in a higher fee income. As mentioned, we see good business developments in asset management, and this segment has the potential to grow to a EUR 20 million business in some years' time. Acquisitions of Corins and SuperGarant contributed to an increase in the operating result in distribution and services.
This segment is up to speed and is gaining further mass and could potentially contribute already this year a contribution of EUR 20 million. To finalize, holding another, a decline of EUR 4 million shows impact from higher current net service costs for pension obligations of our own personal, mainly due to the low interest rate environment. Overall, strong increase in operating results driven by gains across the various businesses. Let's now turn to slide six, where we highlight the developments in our operating expenses. Key message there is ASR is on track with the delivery of our cost targets. Our ongoing focus on cost is one of the key drivers of operating earnings and long-term value creation. We believe we may well be the leader in terms of cost discipline and cost culture, as demonstrated by the expense ratios of all of our businesses.
Overall, operating expenses decreased with EUR 1 million, and this already includes the absorption of the additional cost base of the acquired business of roughly EUR 6 million in the first half-year. We're, as said, on track to deliver our cost reduction. In non-life, the expense ratio improved from 8.4% to 7.5%, driven by strict cost discipline and portfolio growth without FTE growth. In life, the expense ratio was also better, 9.6% compared to the 10.1% of last year. Operating expenses decreased, benefiting from synergy efficiencies of acquired portfolios and the migration of life books to our new platform. Let me now turn to slide seven for some key developments in our non-life segment. In the non-life segment, our underwriting expertise is market leading. All non-life product lines showed combined ratios below 100% and ahead of their targets, and we are proud of that.
Gross written premiums rose by 5.6% due to growth in P&C and health. The market developments towards more rational prices allowed us to grow our top line by both prices as well as more volume, still within our strict pricing and underwriting discipline. In the P&C business, the increase was mainly driven by the success of our new combined product, the Vernieuwd Voordeel Pakket in Dutch, and in disability, our volume focus led Bezava customers to choose for the lower price proposition of government entity, UWV. Operating results in non-life increased 71% to EUR 106. The increase was driven by strict underwriting and claim handling, the absence of large claims, and favorable weather conditions in the first half of this year, while last year we had EUR 25 million of claims from hail and water damages. This is reflected in the favorable development of the combined ratio.
Overall, the combined ratio is at 93.6%, so well below our target of 97%. An improvement of 2.8 points compared to last year reflects broad-based improvement in claims ratio, expense ratio, and commission ratio. In P&C, the claims ratio was exceptionally strong at 92.7%, partially due to the already mentioned favorable weather conditions. However, also on a normalized basis, and normalized for us is a four years average level for large claims, the combined ratio of the P&C business would still have been under 96%. In the disability business, the combined ratio slightly increased to 91.9%. It was 90.2% in the first half of 2016, and this is due to higher claims relating to short-term absenteeism. This was partially offset by the release of the technical provision related to WGA own risk portfolio.
The combined ratio, to finalize, of health business improved by 1.1 percentage points to 97.1% due to the higher benefits this reporting period from the recalculation of claims by Zorginstituut Nederland and better underwriting results from supplementary health insurance. To sum this up, very strong performance in non-life in the first six months of this year. Let's have a look at slide eight, the performance of our life business. Operating result in life increased almost 15% to EUR 314 million. Our investment margin increased with EUR 58 million due to higher direct investment returns. Those were up roughly EUR 16 million as a result of higher yielding investments, especially in equities and mortgages within the investment portfolio and a higher contribution from realized capital gains, those were up roughly EUR 42 million. The latter is part of our shadow accounting method.
We also incurred lower results on cost coverage. This was down EUR 5 million due to the shrinking individual life book and a lower result on other technical sources. Those were down EUR 13 million, such as mortality in the first half year. More people than expected died. Chris will provide some further color on our life earnings. The decrease in gross written premiums in life to EUR 848 is driven by the acquisition of Nivó and the large pension contract last year, which both were recognized within single premiums. Excluding those two one-off effects, gross written premium increased in life by 3.4%, while recurring premiums remained stable. The share of capital light defined contribution products in new pension business continued to increase and is nowadays roughly three-fourths of the total new business that was in the first half of 2016 at roughly half.
The growth of new business premiums from the new DC product increased with 60%. Having said that, we are now on page 9. To conclude my part of the presentation, our performance has been strong on all key metrics during the first six months. We have been able to keep up our business momentum at a high level. Our performance is better than our medium-term targets. Of course, we will continue to work hard to make the second half of this year as successful as well. I now hand over to Chris Figee.
Jos, thank you very much. I have to make one small correction. Jos told that the best thing in life is to talk about solvency. Actually, there's one thing in life that's more fun than talk about solvency, it is to create solvency. For those of you that question my mental state, I'm talking about my professional life, of course. Never mind, let's move on to page 11. To talk about book values. I always like to look at book values as a sign of long-term developments. Healthy companies do generate book value over time in spite of accounting fluctuations. Page 11 shows our IFRS equity and our Solvency II own funds. In accounting or more market value-oriented book values, one can see over time growth in book value. IFRS equity grew by 6% since the last time we measured it, from EUR 4,581 to EUR 4,845.
If we had excluded share buybacks, our growth in book would have been about 9% in the first half year. Total book value growth in IFRS equity about 15% in the last two years. I think the continuous growth in book value in IFRS equity or even Solvency II equity, is demonstrating the underlying development of our group. To move to our solvency level, page 12. Page 12 shows the stock of solvency that we have. A solvency level without any actuarial or theatrical fertilizer. It's the actual decent, clean solvency number as we calculate. A number of 194% with very solid tiering levels.
Not in this presentation, but if you were to click and combine our historic presentation, you would find that our quarterly solvency levels since we started reporting Q1 2016, have not dipped below 186% and moved between 186% and 194% in those quarters, in spite of us in total distributing over EUR 500 million of capital to our shareholders. We believe that the stability of our solvency number is one of the more agreeable features of our balance sheet. Headroom, Tier 1 headroom stays above EUR 1 billion, Tier 2 and Tier 3 headroom, EUR 747 million, up EUR 100 million since the last time we measured. We continue also to add solvency Tier 1 and Tier 2 headroom, which gives our group substantive amount of capital flexibility. LAC DT at 60% of our potential, that appears to be a reasonably conservative number.
Again, you can see in this number the own funds and the required capital and how we got to 194%. We are particularly pleased with the, not only just the level of capital, but also the buildup of the capital and the amount of Tier 1 capital in there. Page number 13 gives more intelligence and details on the solvency of life, our life segment. From a capital perspective, this still is the biggest entity that we have. The solvency level of our life business is 187%. Own funds of EUR 5.2 billion, required capital of EUR 2.7 billion. Just as a background, 187% solvency as is at a UFR of 2.2, which we reflect on as a more economic metric of solvency. The life segment solvency will be around 134%, so still substantively above 100.
If you were to exclude the UFR or the volatility adjuster altogether, in our estimate, the Solvency II of our life business would still be above 100%. Very strong solvency on life business in 187%. Page 31 and page 32 of our document give more detail on the life earnings and the life back book, which no doubt will feature in your questions, but there is some more intelligence there. To complete the analysis, the Solvency II of our non-life entity, ASR Schadeverzekering, is 189%. Whereas the solvency of the group is 194, both our legal entities have Solvency II ratios according to the standard formula, substantially over 180%, 187 and 189 respectively. Moving then from stock to flow on page number 14. There are various ways to look at your solvency and capital development.
I would say that if you ask 10 analysts, you get 15 different metrics to look at the way you bucket and decompose your delta in solvency. We share two, capital accretion, which is on page 14, and organic capital accretion, which is the next page. Capital accretion basically is the delta between the solvency at the beginning of the period, at the ending of the period, and then broken down into sources and uses of capital. As you can see, we sourced or created about EUR 690 million of capital in the first half year just by running the business. Here we talk about technical results, underwriting results, investment results, and release of capital from our book. How do we spend or use the capital?
We spend about EUR 357 million in our business, which is adding to market risks, which is the absorption of the UFR unwind, which is the payment of contractual obligations to our bondholders, which then leaves about EUR 330 million of accreted capital. Out of this, we have paid EUR 153 million in total on share buybacks, retaining about EUR 118 million on our books in the first half year. As you have seen in our press release, contingent upon a final sell-down, contingent upon the situation at the time, it is our intention or we are exploring the opportunity to spend about EUR 100 million buying back shares out of this further retained capital in the first half of the year. If we would do that will bring the total distribution to our shareholders in this calendar year to well over EUR 400 million.
Again, we say that no matter how you bucket and decompose capital developments, there was EUR 690 million that we added, EUR 360 million that we used, and out of that, the remaining was EUR 330 million was accreted of capital, out of which we shared already about EUR 150 million. On re-risking, page 27 of our document shows the development in our required capital, the SCR. That gives a bit more color on how we re-risked. The market risk of our group increased by EUR 182 million in the first half year, predominantly in equities. There was a small increase in real estate, a small increase in credit risk. Those were the key areas where we allocated market risk and reduced our currency risk. Increased our counterparty risk a bit, mainly in mortgages, EUR 30 million more consumption of SCR mortgages, some on medical expenses.
In our business side, you can see that the allocation of capital is gradually tilting towards non-life, where the additional use of capital of the non-life business exceeded the use of capital in our life business. Page 27 shows you the bridge of our delta SCR, as you can see how our capital consumption moved. In terms of the whole re-risking program nearing completion. We spent about seven points SCR in the first half year, about five percentage points in Q1, two points in Q2. We're done equities. Actually, we de-risked a bit on equities at the end of last quarter and during the summer in Q3. More from a tactical perspective, we felt that the market was a bit heavy, so a small de-risking of equities. On the mortgage side, near completion.
We produced over EUR 1 billion of new mortgages in the first half year, and we're happy with our mortgage allocation. On real estate, we're actually done on real estate. We will make some small adjustments. Remember, we allocated more to real estate in the first half year as we warehoused the offices portfolio off our own books. That added to our real estate exposure in the first half. At the end of the first half and during the summer, we placed those assets at external investors according to our plan. That room will now make up because that came out of our own balance sheet, and that will give us more room to invest into real estate to move back to our target allocation. Re-risking virtually complete.
A bit of work to be done on credit and headroom to refill the real estate allocation of those assets that we sold to third-party investors. Moving to page 15, which is the organic capital creation or our solvency movements. On this page, you can see the below the line and above the line development of own funds and our SCR. Very pleased with a capital increase of 10 percentage points before buyback. 189% moved to 199%, after which we had a 5% spent on buyback to end up with 194%. Organic capital generation, EUR 193 million, consisting of which is about almost 6% of capital in the first half, which roughly is 4% of operational capital generation, 3% of release of capital, 1% UFR drag technical movements, four points in market and operational developments.
What we like of this number is that the total eligible own funds increased by EUR 143 million plus EUR 500 million. We think ultimately, in the long run, the test of success in the insurance business is whether one is able to generate own funds. That actually adds to solvency in book. EUR 643 million of own funds. Second agreeable feature, the release of the risk margin, EUR 15 million exceeds the unwind of the UFR. That gives stability and inherent stability to our solvency level. Finally, we believe the operational capital generation of EUR 143 million is in line with, without giving any guidance, but should be more than sufficient to cover ordinary difference during the year. If you reckon that we added EUR 143 million of operational business capital generation in the first half of the year. A few words on the market and operational developments.
One can spot EUR 500 million of own fund generation and EUR 188 million of allocation of capital. In terms of points, that is four percentage points in solvency. The calculation goes as follows, and everybody who's got pen and paper in their hands should follow me. 12% of additional financial market returns plus small modeling gains, plus 3% gain on the Unilever transaction leads to 15% point of SCR. Take out seven points of risk weighting, take out four points of the lower VA, gives a net increase of four percentage points in our solvency ratio. It's 12 plus three, minus seven, minus four, equals a net 4% of additional market and operational development contribution to our solvency level. Furthermore, please note that the organic capital generation of EUR 193 million equates about 70%-75% of the operating profit after tax and after hybrid.
The conversion ratio of profit to capital stable at about 70%-75%. No doubt you have tons of questions on this. We'll take them as they come. All so far, we're pleased with the organic generation of capital. Page 16 then shows the sensitivity of our numbers for various UFR levels. You will remember that we believe that a UFR that is commensurate to the actual cash investment return that one makes is a good metric or a good view on the economic solvency of a group. Historically, we've estimated that number at 2.2%. We will revisit that number, of course, at the end of the year, also bearing in mind actual cash yields, bearing in mind the actual rate levels that consist at the time.
At a UFR of 2.2, our Solvency II ratio would be 151% for ASR as a group, or 134% for ASR Life. At that level, the UFR unwind would be less. We lowered by about EUR 60 million, and the eligible own funds would at that point be EUR 5.4 billion. This picture also has the numbers for the end of the year, the 4.05 UFR that EIOPA is predicting for the end of the year, and the target 3.65, which is the current target level that EIOPA has in mind for the UFR, if and when we get there. You can see that our Solvency II ratio would then move to 191% or 183% respectively, and the UFR unwind would be reduced by EUR 3 million or EUR 13 million, respectively.
This should give the analyst community sufficient material to perform calculation and assess solvency basis, capital basis at various UFR levels. 4.2 is the official number, dropping to 4.05. Economically speaking, we think the 2.2 is probably a more relevant figure, which then can be compared to something that should be well above 100. At 151 solvency at a UFR of 2.2, we are safely and solidly above 100%. Page 17 shows the group sensitivities. As we have presented them before, our starting point in solvency should be enabling us to absorb reasonable sensitivity without endangering any dividend paying levels or investment payment levels. You can see here the spread level where we show the basis points impact after a VA adjustment. Roughly speaking, any point in VA, one point in VA is one point solvency ratio.
75 basis points of credit spread impact is after a 21 point of VA contributions, and 21 points in VA tends to be 21 solvency points. With that, you can actually break down the numbers into a gross and to a net number. The number that's not on this page, which you may find interesting, is a sensitivity to government spread, to sovereign spreads. If the sovereign spreads were to widen by 50 basis points, five, zero, we would assume at that point, the VA would also widen by nine points, giving us a net-net five percentage point drop in our SCR ratio. 50 basis points spread widening and sovereigns minus nine, or supported or deflected by nine points VA widening would give a five percentage points drag in our solvency ratio. Then our solvency for your approval.
The sharper analyst will find that the interest sensitivity of the group has changed a bit. We manage and hedge our interest rate risk on an economic basis, on a cash flow match basis as much as possible. In practice, we have a hedging bandwidth because you can never precisely hedge your rate risk. Given the market environment, we have actually looked for the upper end of the bandwidth. The interest rate sensitivity of the group has increased a bit. Within our management bandwidth, we've allowed the team to take a little bit more interest rate risk and to be a little bit more interest rate exposed given the development on QE that appears to be gradually, quickly unfolding.
You can see the rate sensitivity of the group to go up gradually, which is still within our bandwidth, but the upper end of the management bandwidth that we've set. Finally, our strong and resilient balance sheet on page number 18. We'd love to stress that our balance sheet is very strong. Various metrics, Solvency II strong in terms of level, in terms of composition. Substantive flexibility. We've got tier 1 and tier 2 and tier 3 headroom. As a management team, we always think about, are there opportunities to use that tier 2 or tier 3 headroom. If an event would take place, we would certainly explore various tier 1 or tier 2 opportunities to further support our balance sheet. We've got headroom there. Cash remittance, we upstreamed EUR 250 million out of our businesses to our holding. That is not a restrained number.
It's not we cannot do more. It's a deliberate choice to keep the cash and capital in our various operating entities. We did upstream EUR 264 million, there's no limitations. It's our policy to keep cash there where people are making the money. If you look at the operating returns of our entities, that's where money is being made. The solvency levels of our entities, which I said was well above 180%, do not provide, at this point in time, any limitations for upstreaming of capital. No concerns in that field. Leverage metrics, financial leverage 23.5% on an IFRS basis, well within our target range. Double leverage, 103%, within our target range. Had we not bought back shares for EUR 153 million, our double leverage would have been nearly precise under 100%. Actually, 100.3% would have been a double leverage excluding share buyback.
Still very safe within our range. Interest cover, 15 times on an IFRS basis and 11 times on operating earnings basis. We think ASR stands out with a very robust and resilient balance sheet. That ends my presentation. Knowing that Jos loves nothing more than wrapping up, I'd like to hand the sheet back to Jos.
Thank you, Chris. It's not only wrapping up the story. I will wrap you up afterwards. Before we open the session for your questions, I indeed will conclude some key takeaways. We are very proud of the strong performance during the first six months of this year. The increase in our operating performance was driven by solid performance in all of our business segments, and we are very happy with that. Especially, I would like to mention again our underwriting and claims handling skills, combined with the financial discipline resulting in a market leading and profitable combined ratio. Particularly noteworthy is the fact that each product line is ahead of target. Our solvency, as Chris already explained, remains robust at 194%. Just to reiterate, this is still based on the standard formula and after absorbing re-risking and share buybacks.
We believe that with this strong balance sheet and Solvency II, we are in a very good position to pursue profitable growth both organically and through acquisitions. Finally, as already explained, we consider on top of the earlier commitment to buy back an additional amount of circa EUR 100 million of shares if the Dutch state should decide to undertake a final placement of its remaining equity interest in the second half of this year. I'm sure, and I want to stress that you will understand that this is an intention and that this intention is dependent on the then prevailing market conditions and undiminished strong solvency. With that, ladies and gentlemen, I hand over and we are happy to take questions.
Ladies and gentlemen, as said, we will start the question and answer session now. If you have a question or remark, please star one. Star one for your question or remark. Your questions will be answered in the order that they are received. The first question is coming from Mr. Cor Kluis, ABN AMRO. Go ahead, please.
ABN. Got a couple of questions. First of all, about your solvency. It is already very strong solvency, but it seems that you use a quite conservative legacy assumption, especially in life insurance of around 60%, and some peers were using more around 75%. Could you give an indication of what your solvency ratio would be if the legacy would be 75%, and what it would be if the legacy would be around 100%?
Second question is about the de-risking. You de-risk somewhat on equities and real estate, as you explained during the call. What is the positive solvency to effect of those two actions? Last question is about the fires, or at least some large fires, which we have seen here in the Netherlands in the third quarter. I think I counted around 5 or 6 now already. Holland Casino was a big one, of course. Can you give some indication about the P&C combined ratio going into Q3? Do we have to be a little bit more conservative or do you have better in the writing than peers like you have seen in the last 8, 9 quarters? Those are my questions.
Okay, very good. On LAC DT. We have indeed used a LAC DT figure of about 60%. I am not going to comment on what our colleagues do. I am going to comment on how we run our business. Although we tend to think pretty conservatively on our LAC DT numbers. I think there is a Russian saying that says, "Free cheese can only be found in a mousetrap." In a sense that, LAC DT is a number that could vary over time. In our view, you do not want to have a LAC DT number that is very much dependent on current performance of the group, because then you enter a situation, if you ever have a dire year and your solvency is under pressure, you do not want to have LAC DT evaporate at a time when actually you need it most.
Our LAC DT, if you think about the various components that LAC DT could have, uses predominantly component 1, 2, and 3. Very little use of component 4, except for the runoff of the risk margin. The runoff of the risk margin and the contribution to that, thus to your future earnings capacity, that actually the only part of component 4 that we've used in our LAC DT. This means that today, in our view, there's very limited downside to it. Is there an upside? Possibly. Possibly, that depends on us reviewing that number. It also depends on us reviewing our DTL position over time. In terms of sensitivity, if we were to move LAC DT of ASR Life to around, say, 80%, that's the number that I have, I guess that would add for the group, about eight points of solvency for the group.
From 60 to 80 for ASR Life group solvency would move up by eight. Were we to move LAC DT to 100, from 60 to 100, that would add about 17 points for the group. I think in practice, moving to 100 is a pretty daunting exercise, and I think that would create a vulnerable number. It gives you some feel for the flexibility that LAC DT has or the impact it has. We believe downside is limited. For upside to take place, we need to view component 4. Please note there's an EIOPA consultation paper out there at this point in time. The consultation paper does note that various European countries have various perspectives on the LAC DT, and that the largest 2 countries, Germany and France, hardly use component 4.
I have no crystal ball on what EIOPA will decide, we think at this point in time, it is wise to have a stable, defendable number, and don't run ahead of what EIOPA does. First we'd love to see how our DTL develops as well. These numbers give you some feeling. 60%-80% would increase group solvency level by about eight points in SCR. From the de-risking, well, that has a small benefit. We de-risk a bit in equities. It's much less than we added in risk, actually it was more profit-taking exercise than a massive de-risking. It may support group solvency ratio across all the activities at the end of June and July by one point or something like that order of magnitude. We de-risk. It was like a profit-taking exercise rather than a massive de-risking or solvency push-up exercise.
Your last question, Cor, on the developments of the combined ratio in non-life. Until now, we're not giving any guidance going forward, we haven't seen any large adverse developments. As far as I know, we were not in one of the large claims in the big fires last period. Theoretically, it can happen tomorrow. The same is for weather-related claims. As we have seen last year, it could be possible that a big storm occurs and that would harm us too. As said, if we look at our combined ratio in non-life, I would normalize that for the 4 years average in large claims, it would be still below 96. In terms of looking forward, a number between 92.5 and 95.5 is a safe number as far as we can see it today.
Okay. Very good. Thank you.
The next question comes from Mr. Albert Ploegh, ING Bank. Go ahead, please.
Good morning. Three questions from my side, two operational ones. First, on the life performance. The technical result was down. You mentioned on the mortality side with influenza, but is that the full explanation of the year-over-year decline, or is there something else going on as well? The second question on the non-life on the disability, your premiums were slightly down. You mentioned also in the presentation that some clients switched to the UWV due to better pricing. Basically, where will this bottom out? I guess this trend is not yet fully ended, so maybe a little bit more color on the premiums on disability would be helpful. The third question is on, let's say, your capital allocation. You mentioned also in your opening statements to remain disciplined also on bolt-on acquisitions.
Is there anything you can give, let's say, in terms of update on the pipeline? Is there anything to be expected there, or is it still quite silent on that side in terms of files? Thank you.
Very good, Albert. It's Chris. Thanks for your question. Let me answer the question on life. On the technical result, it went from 59 to 46, EUR 13 million decline. I would say about EUR 8 million decline, that was a lower mortality result, which we see as predominantly incidental. We had an influenza wave in the winter that caused more deaths. EUR 8 million of that is incidental influenza wave, EUR 5 million really is other stuff that happens in your business. The majority of the decline of the technical result we see as an incidental event because of influenza in the winter.
Okay.
On your non-live question on disability, Albert. We have seen quite aggressive pricing from the UWV in the Bezava area, and we have decided not to compete with irrational pricing, at least from our point of view. That did cost in our top line, roughly EUR 13 million of gross written premium. The effect is not that big going forward. If a client decides to take insurance from the public system, he is obliged to stay there for three years. Those customers will not return in the next three years. We don't expect large adverse developments going forward, but before this area will start to grow again, that could take another two to three years. Hopefully that answers your questions on acquisitions. I'm hesitating a little bit, but let me tell you a story about my youth.
When I was young, I loved to look at beautiful girls, and I tried to understand how the character was, but I never discussed this with my parents until I was sure that she also would fell in love with me, and we were able to have some kind of an understanding that we would go further with each other. Actually, the same is with acquisitions. We see a lot of beautiful girls, some with a nice character, some with a less nicer character. As soon as we have decided to engage, we will come up to the market.
Yeah. Okay.
We still see a lot of beautiful girls.
Let me then rephrase it a bit. You've been very explicit. The buyback's done and also to help for the budget, the EUR 100 million you announced this morning, very much tied to the sell-down of the government stake. You're still generating a lot of capital, as you show, and I know you're looking first for organic growth bolt-ons, but the headroom still remains quite a lot. What I'd like to find out, is an ongoing buyback program something you clearly consider if there would be no files on the table?
What we have said, as from our IPO, we are not capital hoarders. If and when we don't see any opportunities to invest organically or inorganically in the business and our return on equity would start to deteriorate, we definitely would come up with the most efficient way to return capital that is not used by the group to shareholders.
Yeah.
At this moment in time, we still see sufficient opportunities to put capital at work. We still see organic growth opportunities and some inorganic growth opportunities.
Thank you.
The next question comes from Mr. Steven Haywood, HSBC. Go ahead, please.
Good morning. Thank you. I was just wondering, out of curiosity, if the Unilever transaction was not announced, would you have been in a position to announce the potential EUR 100 million buyback that you expected to do when the Dutch state sells down? Just out of curiosity, that was. You mentioned the EUR 20 million earnings from both of your non-insurance businesses. Is this the limit of these operations, or do you think they can potentially get bigger and contribute more to the group? If not, I guess what are the bigger drivers going to be of the group in terms of the life business, the non-life business? Where is the growth going to come from here? Thank you.
Steven, your first question on the Unilever trade. Well, that's speculation on a what if scenario. We would have to see at that point. Safe to say that executing Unilever, our solvency would have been higher than 91%. Still well-positioned to return capital and to continue to invest in our business. What we had done at that time, honestly, it's speculating on a hypothetical event. Our perspective, 191% ex Unilever would have been a very robust and solid solvency level that gives us lots of capital flexibility. It is we found that the Unilever was a tremendous, exceptional event, and we'd love to share exceptional gains with our shareholders. Of course, as you'll see, we can't write a blank check. It depends on the timing of the sell-down and depends on the situation at hand.
Our intention is to share an exceptional gain over and above what we are running on, with our shareholders. In terms of the EUR 20 million distribution business, we think this business would grow this year towards a EUR 20 million annual run rate. That is not the end of it. This is a growth business. We think there's further growth in this business ongoing. We said, in the long run, we believe the distribution business should have between 5% and 10% annual profit growth. That number, I think, is still there. It could grow to EUR 20 million and continues to grow at a reasonable pace between 5% and 10% going forward. We still stick to that forecast.
You mentioned EUR 20 million earnings for the banking asset management as well. In the long term. Is that the cap or is there potential again to grow this business as well?
No. The distribution side is nearing the EUR 20 million mark. It's at exactly half within the first half year, so it doubles, you get to EUR 20 million. We think, well, EUR 20 million is more like a mental number that this has relevance and substance. If it's EUR 20 million, you guys, at least you, are noticing it. Thank you for that. When it's EUR 20 million, it's noticeable business, it could grow from there. Our banking asset management is not yet at the EUR 20 million mark, but I think it's on track to get there eventually and continue to grow. It's not a cap. Certainly not a cap. The distribution business is already at the level of substance and will continue to grow. Banking asset management will grow towards substance, and I have no reason to believe that they will stop growing after that.
Okay, I appreciate that. Thank you very much.
The next question comes from Mr. Robin van den Broek, Mediobanca. Go ahead, please.
Yes, sir. Good morning. Thank you for taking my questions. The first question is on slide 25, where you annualize your net operating result to get to your ROE number. I was just wondering, the EUR 544, of course, includes equity dividends and a particularly strong combined operating ratio in the first half of the year. Could you maybe give some more elaboration on how close could we get actually to the EUR 544 for the full year, also taking into account some more cost savings coming through and the de-risking program that you have launched? That's the first question. The second one is on your long-term investment margin assumptions. You indicate that you significantly outperformed on those assumptions again. I was just wondering if you could quantify that.
I'm of course aware that these are long-term investment margin assumptions, you probably don't want to revise them next year. How will you look at this going forward? How soon could you be revising these assumptions again? It seems to me that your peers are more aggressive there, and that you are basically pushing more organic capital generation towards the market bucket. That's the second question. The third one is on a payout ratio. I think you've indicated that you are enjoying some benign operating conditions throughout this year so far. How should we look at your payout ratio with regards to the DPS? Are you looking for a sustainably growing DPS or are you more looking to have a flattish payout ratio going forward? Thank you. Those are my questions.
Yeah. Robin, thank you. On your ROE question on page 25. The ROE of 17.4% is the annualized version of the half-year figure. It's a mathematical effort to annualize that number. It's not a forecast. In terms of where is the business running. We don't do earnings guidance. It's a matter of principle to not give earnings guidance. However, we can give you some calculatory assistance in terms of where is the year. From the first half of the year, we ran an operating profit of EUR 385 million, over EUR 190 million in each of the first two quarters. In the first quarter call, we indicated the underlying profitability of Q1 was around EUR 175 million, although we booked, we realized we created actually more. If you look at the results for Q2 and take the broader half in perspective.
In the first half-year, we had a EUR 17.17 million benefit of no storms. We tend to budget storms, which seems to be odd, That's how you plan. The fact that there were no storms added EUR 17 million to our profits. Also in the first half of the year, Dividends add to our operating results. The third component is our project spend tends to be a bit bigger in H2 than H1, when projects come on steam. On the flip side, the summer appears to be very safe, although Q3 is certainly not yet done. There is no indication of any large storms in the plan. Secondly, the de-risking impact starts to feed in into our earnings. With that in mind, you should be able to calculate the number. I would not multiply the 385 times two.
We can only be sure when the year is over. The EUR 175 million of underlying result in Q1 is probably a pretty safe and solid estimate for how the business is running operationally, with potential upside from no storms or no fires. In terms of our long-term investment margins, I think we communicated those in the bulk of last year. We will keep them stable. If you think about the different elements between the operational bucket and the market return bucket, there's some giving and taking between the two. Our spreads, sovereigns, non-core sovereigns and credits, the LT spreads, that we assume are a bit higher than what we actually realize. In the bond field, the OCC borrows a bit from Market variance is about EUR 8 million in the first half-year. In the mortgage field, we're flat. A small contribution towards the operating variance buckets.
Equities and real estate, we plan for 300-330 basis point spreads. Depending where you think the TRS. I've seen insurance companies plan for 7% TRS in equities. We think that is reasonably aggressive. We'd rather stick to something else. If you add one percentage point higher returns, we've got about EUR 5.5 billion-EUR 6 billion of equities and real estate. Meaning one percentage point, 100 basis points, is already EUR 50 million-EUR 60 million. We think the OCC that we produce is a replicable, sustainable number across the cycle. If the bond side borrows a bit from market variances, the equity and real side lends and adds some market variances. Furthermore, this is based on a long-term VA, a VA of 20 basis points.
We use a VA of 20 basis points to accrue interest on our liabilities, which also is a reasonably conservative factor, given the VA today is about nine points. If you put a gun to my head and said, I think it's probably between EUR 50 million-EUR 100 million in the first half-year that is in bucket 4, which some more frivolous insurance companies could have added to bucket 1 OCC. Something we do not do because they're not something you can bank on. Net-net, I think it's fair to assume within the long run, bucket 4 will tend to be a positive number rather than a negative number. Now, we appreciate that the market doesn't easily pay a multiple for that, That's the price on pace for a very predictable and solid OCC, That's what we feel very comfortable with.
Robin, on your last question on the payout ratio in dividends, our communicated dividend policy is actually between 45%-55% of the net operating profit after hybrid cost. In our philosophy, we think it would be difficult to come up with a message that dividend, it has gone down over time. Our philosophy is that it needs to go up on a year-by-year basis. I think the last three years we have proven to be able to grow our dividend. As long as we are able to grow our dividend on a year-by-year basis based on the dividend per share, I think the 45% is a good starting point for our dividend policy going forward. We always have a double-check on what part of our organic created capital is returned to shareholders.
If you would recalculate the dividend payment ratio based on the organic capital created, it would be close to 70%. We return a large part of our generated capital to shareholders, that's possible because of our well-capitalized balance sheet.
Okay, thank you. These are very clear answers.
The next question comes from Mr. Darshan Mistry, Citi. Go ahead, please.
Hi there. Darshan Mistry from Citi. Thank you for taking my questions. My first question is regarding the non-life business. I noticed there was quite a significant decline in reinsurance premiums that were paid in H1 2017. Just wondering if there's been any kind of sudden change in reinsurance policy. Secondly, regarding the low level of large claims that you're experiencing within P&C, are all of the lower levels of large claims coming from benign weather conditions, or are there any other kind of structural changes happening in the market that could drive down large claim levels? Thank you.
On the reinsurance side, Darshan, no major trends in our reinsurance. We've eliminated some older reinsurance programs in the disability side, but we used to have a reinsurance program disability, which we felt did not provide sufficient return on capital or at least the cost of capital of reinsurance program was not sufficiently attractive. That has been terminated. Secondly, the reinsurance market was still reasonably soft, pricing was relatively favorable to us. Reinsurance side, termination of disability reinsurance contracts simply from a cost of capital perspective. Generally speaking, we were benefiting from relatively soft reinsurance markets. In terms of our claims, if you look at our claims, of course, benefit from no large claims, no bad weather, but also we call bulk claims. The majority of lots of small claims. Bulk claims frequency is also running below the level of last year.
Somewhat affected by the water damage and water storms of last year. It's hard to gauge. Our assessment is that bulk frequency regular claims are below last year. The bulk claim ratio in our group is below 55% for the last 14 quarters. I always look at the bulk claims, large claims, and calamities, the bulk claims ratio has been below 55% for the last 14 quarters. Generally speaking, it's not just the absence of large claims, not just the absence of storms, but also underlying claims frequency is running a bit better than what it used to be.
Perfect. Could I just follow up? You made reference to the underlying claim rate being below 96%, but if you say that part of that is driven by the lack of large storms and poor weather that you've seen in previous years, there still seems to be some improvement on your guidance. At what level should we take as the current underlying on a normalized weather basis, but take into account the lower levels of bulk claims that you just mentioned?
Darshan, that would be somewhere between 95 and 96 at the moment. As already explained before, if we would normalize our claims ratio, taking into account Chris's story, then it would be up roughly 2% compared to what we've done over the first half year.
Perfect. Thank you very much.
The next question comes from Mr. Ashik Musaddi, JPMorgan. Go ahead, please.
Hi, good morning, Jos. Good morning, Chris. I have a couple of questions. First of all, can you give us some color about U.K. Life earnings? How should we think about that going forward? U.K. Life earnings have gone up by 50% over the past two years. Going forward, you're suggesting that you're more or less done with the asset risk risk-taking. And if I look at slide number 31 or something, 40% of your business, which is individual life linked and nominal, is shrinking in nature per se, structurally. Whereas pension DB market should be tough to grow at the moment or even maintain at a flat pace because of low interest rates. How should we think about the growth in life earnings? Will this amortization of realized gains reserve keep on moving those numbers higher or will it be more or less flat shrinking?
Any thoughts on those things would be really helpful. The second, Chris, you mentioned that you basically borrow from the In terms of capital generation, when I think about the sovereign spread you're using over the cycle sovereign spread. You mentioned that you actually borrow from the market bucket. Is it possible to quantify how much you borrow from the market bucket every year? Because this is something that I think is already embedded in your portfolio. We know what is the market consistent spread you should be earning. We know what over the cycle assumptions you're using. What is the difference between the two? Because see, in terms of equity return, we don't know what equities will give you. It will depend on equity market, but in terms of bond, we know what the spreads are. Any thoughts on these two questions would be great.
Thank you.
On your question, you referred to UK Life earnings. I didn't really get.
UK Life, sorry. No, Dutch Life.
UK Life earnings have been pretty stable.
Yeah.
Not growing much, actually.
Yeah, sorry.
The individual life earnings, yes, our life book is shrinking. The actual asset base that we're in today is still very stable. I see no reason to forecast immediate decline in our life earnings, although the book itself is shrinking. It's spitting off capital that we're reinvesting, but the asset base itself, if you look at the claims payable for the book, is going up because there's a funeral business which is naturally still accreting in terms of volume. The pension book is accreting in terms of volume. If I look at the asset base that we're running, it's still holding up pretty stable.
Sorry to interrupt, a higher asset base should not really mean higher earnings. Is it because it is just mark to market, you have locked in the spreads on day one?
Given the higher asset base will allow you to actually make money on those assets. Of course, you lock them in, we find that reinvesting some of the results actually can provide the floor to your assets. The capital gains reserve is now EUR 3.5 billion at group, EUR 3.4 billion in the life business. It has remained stable. It has amortized over time. It's something that goes very pretty mechanical, if you wish. I think the fact that we added more capital gains reserve release to our P&L, the total amount has remained stable, means that at least our life earnings are well supported by this capital gain release. I see no immediate reasons for this to decline. There's some room for the risk-taking to further kick in. In the first half of the year, the risk-taking happened during the year.
The first half results contain Q1 numbers where the risk-taking had not been fully booked in. In terms of the spread, the bucketing between OCC and the actual bucket decently, organic capital generation and the market capital generation, as I said, it's my estimate that the government side borrows about EUR 8 million in the first half year across the various categories. The mortgage side actually contributes. It depends a bit how you look at the pricing, we write mortgages at 251 basis points. Swaps are 80 basis points a day. There's a spread of 160 basis points on mortgages where we bucket, we credit ourselves 110 basis points. There's a 50-60 basis point spread on mortgages. The actual credit losses, the losses of foreclosure are running less than one basis point on a half-year basis, probably one and a half basis points on a full year.
You get about 50-60 basis points of additional compensation. Part of that is for options that we grant to our customers, so an early redemption option, a moving option, a pipeline option. Those are not always actually bucketed. I believe that indeed, the bond side borrows a bit from market variances. The mortgage side actually contributes to market variances. The VA assumption across the cycle contributes to market variances. We're giving you clarity, deflect the notion that our OCC will be overstated simply because there's more giving to the market variance buckets than there is taking. You see, whereas government bonds and yields and spreads are moving, actually, that part, the borrowing is actually declining significantly. We think the 193 of the OCC across the cycle is a reasonable assumption what we can make across the cycle.
The very feature of an across-the-cycle figure is that there are across-the-cycle differences between realities. In practice, we see today that the market variance is actually a positive number. That's great. Thank you.
The next question comes from Mr. Benoit Petrarque, Kepler Cheuvreux. Go ahead, please.
Yes, good morning. Two questions from my side. First one will be on the combined ratio target of less than 97%. Clearly, H1 confirm that you are well below the actual level. Are you planning to review these targets? We have seen very good pricing and underwriting environments. Also commission and cost ratio add on, I think one percentage point versus last year. I think you've commented also on the P&C combined ratio of 96, while I think you still have a target of less than 98%. Are you planning to review your combined ratio targets at group but also at a segment level? That will be the first question. Second question will be on the market impacts, especially on the real estate side. How much positive revaluation you've booked in H1 on the real estate?
I think you review your real estate portfolio every year, is that fair to assume that you've only reviewed part of your portfolio? Can we expect more positive contribution from revaluations in H2 on that book? Thank you.
Benoit, on your first question. We just have started our budget season for the upcoming 3 years. Within that budgeting process, we of course, will discuss the sustainability of all of our businesses and also of the combined ratio targets communicated to the market. It's always a challenge to combine, on the one hand, growth of the portfolio, and on the other hand, remaining in the right area of delivering lower combined ratios than projected. The outcome of that will be part of our full-year numbers communication. We're discussing it right now, and it's weighting the balance between, on the other hand, remaining competitive and using a part of the combined ratio to gain market share, to gain healthy market share, and on the other hand, delivering the results as we have done over the last few years. Hopefully that answers your question.
In the meantime, Chris is ready to answer your second question. In the meantime, I've revalued our real estate portfolio. In terms of how does real estate revaluation process work, let me show you a few bits how this works in practice. Every object, everything we own is reviewed every quarter. Four times a year we do a revaluation, where every quarter has a physical external taxation once a year. Four times a review. Once, actually somebody goes in, an external evaluator goes and visits the building, and 3 times a year we do a desk revaluation. In the first half of the year, the unrealized revaluation of real estate was EUR 24 million in the first half year growth before taxes. EUR 24 million unrealized revaluation, mostly in the housing, retail, and commercial offices space, not the land. The land actually effectively only needs revalued in Q4.
EUR 24 million pre-tax revaluation in H1. Will there be more to come? That would be amount of earnings guide that we don't want to give here. Rest assured, we do taxation every quarter. There will be locations that will be revisited physically every quarter, and the land book is done in Q4. That gives you some color on the real estate contribution to the capital gains.
Great. Thank you.
The next question comes from Mr. Matthias De Wit, KBC Securities. Go ahead, please.
Good morning. A few small questions left. First is on the Solvency II ratio. Since the start of the quarter, there have been important movements. Just wondering if you could update us on the main impacts we've seen quarter to date. Secondly, it's on capital generation. If I understood you correctly, your current guidance is based on a volatility adjuster of 20 basis points. Could you quantify the impact if you would use the current nine basis points? Just two small follow-up on capital generation. The release of the risk margin in EOF and also the SCR release continue to contribute materially. Should we expect any changes from these components going forward, or is that quite stable for many years into the future? Thank you.
Matthias, the last question. Didn't quite get your last question, what you were trying to ask.
It's on the SCR release and the release of the risk margin in EOF. How should we think about these components going forward? They contribute materially to the organic capital generation, just wonder whether you could say anything on the release pattern of these two components.
On the quarter to date solvency, hard to say. Probably a small drag in the quarter to date, given where equity markets are. Again, within reasonable fluctuations. Depends a bit on how geopolitical risks evolve. We will see how markets do. Probably a small drag is my estimate. Again, within the normal volatility that we have. In terms of the volatility impact, I think it is a couple of EUR million. You are talking about probably EUR 4 million-EUR 5 million impact on the OCC in those numbers. For example, we can look up in more detail what my estimate it as. It is about EUR 4 million-EUR 5 million of contribution to the operations, the non-operating elements factor in our solvency generation. In terms of risk margin SCR release, reasonably stable over time.
I think you will see in those two, the risk margin release probably is higher in the early days of our book decline, SCR higher in the back end of our book decline. The sum of the two is likely to stay reasonably stable in the foreseeable future.
Okay. If I could just briefly follow up that EUR 370 million guidance you provided in Q1, including that re-risking impact. If I understand correctly, it is based on a 97% combined ratio target. Could you just confirm that, please?
Yeah.
Okay.
Confirm.
Very good. Thank you.
The next question comes from Mr. Bart Horsten, Kempen & Co. Go ahead, please.
Yes. Good morning. A few follow-up questions from my side as well. First on the buyback. You linked it to the sell-down by NLFI before the end of the year. What if there's no sell-down this year? Would you then postpone it to next year, or could it also be possible that you will buy shares in the market in that situation? Just a confirmation on your guidance on the banking and asset management numbers. I'm not sure whether you said it will be around EUR 20 million this year or that it's a midterm target. Could you confirm on that? Lastly, every underlying business unit performs very well. You have a very strong capital position, and I was wondering what's keeping you awake right now, and I mean that obviously on a business level.
Could you give some guidance on what's your biggest, well, worry, if that's the right word. Thank you.
On your first question, Bart, if and when NLFI would decide not to do the sell-down this year, it's difficult to answer that. It's going to depend on how solvency developments and market developments are. It's our clear intention to support the final sell-down of the government, we don't know when it will take place. That's up to the Minister of Finance. Even when it wouldn't take place this year, we are not considering to buy back shares in the market. That was your first question. Your second question was about the
Guidance on the banking
Yeah. On the banking, we have explicitly mentioned banking and asset management is moving towards the 20, but that's definitely not the number we will reach this year. We will reach that number probably in the area of distribution. There, the 20 will be feasible this year. Banking and asset management, we're still investing in the asset management business, so that could take up to two or maybe two and a half years.
Okay. Thank you.
The last question will come from Miss Farquhar Ogilvie, Deutsche Bank. Go ahead, please.
On what if the sell-down does not take place this year and next year?
Have come down to us.
Oh, let me.
Hello?
Sorry. I was just working on something else.
Okay.
Hi there. It's Adina from the credit side at Deutsche Bank. A follow-up question regarding the beautiful girls, please. Just wondering about your thoughts regarding the consolidation in the Dutch insurance market in general, and would appreciate if you could provide some color, at least where do you see opportunities and what size you would consider. As I see, you have about 750 room in the tier 2, tier 3 bucket, and you could issue easily senior given that your 30% leverage target. Any color would be appreciated. Thank you.
Okay, Adina. Thanks. We have always said in different statements that we are in favor of consolidation of the Dutch market. We have to be honest, the Dutch market is not a fast-growing market, and in such a market, it's normal that there is consolidation. Our preference has always been small bolts-on because we think we can integrate them in a very short time, so the market sees the results of such a consolidation. We also have always commented on a larger consolidation. If and when there are opportunities, we always will look at them. We've also commented that we will do that within our strict financial criteria. A consolidation because of consolidation is not on our mind. It has to make sense in terms of our business. It has to make sense in terms of what we have promised to our shareholders.
If and when there would be an opportunity, we definitely would look at it.
Okay. Thank you.
Well, I think we forgot one question of Bart, he asked what business-wise keeps us awake overnight. Well, I think a few remarks. Our ongoing business definitely does not keep us awake. A few things are at least on our minds. The interest rate environment and market movements do keep us awake because we can't influence them, they definitely will influence our business. Secondly, we see a change in customer behavior over time in the way how customers buy insurance. We're on that. We've invested in all kind of new developments in IT, we don't have a glass ball where we can see where the market is going to, that is definitely one of the things that is on the board table. Lastly, ASR is doing well. Everybody within ASR is aware of that.
Keeping everybody sharp that we not only deliver this year also over time is one of the things that us as a board keeps awake because it's easy to look at the results then to come up with, "Well, we don't need to save any cost anymore because we're doing quite well." Keeping everybody within ASR sharp on the delivery of the results as we have done until now is one of the things that is at least every week on the board's table. Thanks for attending this call. Thanks for all your questions. If there are any more questions, please address them to IR. To wrap it up, again, we are very happy with the strong operating performance we have shown over the first half year, especially because this was driven by the solid performance in all of our business segments.
Underwriting and claims handling skills combined with financial discipline drive market-leading and profitable combined ratio. I said each product line ahead of target. Life continues to represent an important part of earnings and organic capital generation. Robust solvency as said on 194% based on the standard formula, absorbing our re-risking and the share buybacks. Strong balance sheet enables us to pursue profitable growth organically inorganically, we still see opportunities there. As said, to finalize, we are considering an extra share buyback of EUR 100 million in a possible final placement of NLFI in the second half of the year. Having said that, I all wish you a very nice day.