Earnings Call: Q1 2017

May 31, 2017

Good day, and welcome to the ASR Conference Call on the Q1 2017 Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michel Hilterz, Head of Investor Relations at ASR. Please go ahead, sir. Good afternoon, everybody, and good morning for those of you listening in from the U. S. Welcome to the ASR conference call on our Q1 results. With me here today is Chrissie Hay, our CFO, and he will talk you through the numbers that we have published this morning, and we'll be happy to take all your questions you have after that. Before I give the floor to Chris, I would like to point out the disclaimer that we have in the back of the presentation and would appreciate if you would take a minute or 2 to review that after the presentation. So having said that, Chris, it's yours. Very good. Michel, thanks very much. Good afternoon and good morning, everyone, on the call. Very pleased to walk you through the Q1 results of ASR in 2017. We have provided you with a small presentation that will walk you through that slide by slide with some further comments and color and of course, time for questions afterwards. To start, as you are aware, we're only giving a trading update. Insurance is a long term business. We're in this with our long term strategy. So we believe in the interim quarters, it's only appropriate to give trading updates and fully audited figures and full numbers as per half year basis. The current quarter, however, trading was good. We have a very solid and benign quarter behind us. Strong financial performance and improvement in earnings quality in the Q1. Page 2 talks you through the key figures. An operating result in the Q1 of €191,000,000 Operating result means a result before taxes, but also before capital gains and before incidentals, up 38% versus the Q1 of last year, corresponding to a very attractive 17.3% operating ROE. Operating result, 191,000,000 operating return on equity, 17.3%, well above the target that we set ourselves at IPO. A Solvency II ratio according to the standard formula of 188%, down 1 percentage point versus the end of last year. But please note that in that delta, we've absorbed a share buyback in January as part of the government sell down of 2%, and we allocated capital to market risk about 5 percentage points as well. So the delta in the solvency assumes full absorption of a 2 percentage point a 2 ratio point share buyback and about a 5 ratio points additional market risk allocation. If you adjust for that, the underlying accretion, the underlying growth in our solvency was about 6 percentage points. So in a sense, for us, a very decent number. This is a trading update, and the business was trading well as evidenced by our combined ratio of 92.1% in our Non Life business, ahead of target ahead of last year. So we believe that the quality and quantity of earnings have further improved in the Q1. Let me walk you through the details, go to Page 3, talking to you about the premium levels. In understanding the premium developments versus last year, have to adjust for a few factors. One is last year, we had the results or the premiums from Nivo. We had a portfolio transfer of a funeral business called Nivo of CHF 333,000,000 Those are the or a one off transfer. That was in those numbers last year. So for comparison purposes, you'd take it out. And this year, we had a slightly different methodology of recognizing premiums in disability, especially premiums in the mandatory agent channel where we change the recognition of those premiums. That's a delta of about €50,000,000 that one has to actually estimated €50,000,000 to speak that one has to adjust for in comparing premium to premiums. If you look through those adjustments, you find that the life premiums effectively stayed stable at €561,000,000 and that our nonlife premiums went up from 8.41 €8.84. So our premiums increased about 2.9% compared to last year, mainly in property and casualty and premiums and life effectively stable. On the cost side, Page 4, an increase in our cost base from €129,000,000 to €137,000,000 6.2 percent up. A couple of points to note. The increase in cost is to 1 part driven by additional cost basis of acquired companies. Last year, we acquired SuperHeral, Corvus and B&G Asset Management. They were not in last year's cost base. It are in this year's cost base. So the acquired cost basis explained part of the cost increase. Some cost increase are linked to the buildup of our asset management business, most notably the Dutch mobile office funds. Last year, we acquired the portfolio from the Dutch Railways. This year, we went to the effort of marketing and equity raising that fund. And I'll talk a bit more about it during the page on asset allocation. But there is a cost to launching and raising that fund. And finally, additional pension charges due to the fact that we have an annual pension cost. The official term is the current net service cost that went up because of the interest rate that was used last year. We fixed the current net service cost at the end of last year at a lower rate than the year before, which means that this year, we have to deal with a higher regular contribution to our pension obligations. That could be a temporary phenomenon. If rates stay where they are this year, then in 2018, that decline or that increase will be reversed and the current net service cost will decline again. So it's a function of fluctuation in interest rates. The underlying cost development in the group is still attractive, in line with our long term cost reduction objectives. To give you a bit of color for what we're doing on the cost side, in the Q1, we have started to consolidate a number of head office functions leading to the reduction of jobs in our head office by bundling together services oriented functions in head office. We're on the way and we'll go further in integrating our P and C platforms. Remember, we have a broker based P and C platform. We have a travel and leisure insurance platform. We have a direct insurance platform. And on the back end of those platforms, we have started to integrate and we'll integrate further to further save costs. And finally, the life migration plans are still progressing according to plan. We've once more completed a pretty challenging migration, so the 2018 completion time stable still looks realistic. And in funeral, we have commenced the integration of this nivo book. We added the portfolio last year. We first finalized integration of Accent and now we commenced the integration of the nivo operations. So underlying cost the operational cost developments are in line with plans, and a number of additional initiatives have been taken. If you look at the operating result on Page 5, we're pleased to report that all segments witnessed an increase in operating results. Non life, life, also the smaller ones, banking, as I mentioned, distribution, all went up for an operating result of €191,000,000 This is a pretty safe and stable number. It is not a profit before trouble type of metric. It's all included, excluding capital gains, excluding incidentals, but there were hardly any incidentals during the quarter. We do not report an IFRS profit number. We do not report a net profit number during the quarter. But if we have to produce 1, think of a number around the 1.80 ish mark for a net profit. So again, operating profit number that to our view is stable and robust, although there were some slight headwinds in the Q1 that caused it to be very, very attractive. Those tailwinds bring me to our Non Life business, Page 6. In Non Life, the operating result went up from €32,000,000 to €54,000,000 in this quarter compared to Q1 last year. Premiums went up. Most notably, we observed a premium increase, underlying premium increase in P and C, about 6% from 3.25% to 3.45 In disability, the increase that you're seeing that you're witnessing is, to some extent, adjusted or affected by the different calculation or recognition of our mandatory agent premiums. If you adjust for that, the €50,000,000 which we what we estimate to be the effect of the different recognition pattern, there's a stable to slight decline in the disability book, which is a function of the Bezaha product. Last year, we announced that the government would privatize or attempt to privatize part of the Social Security system. But the UVE, the government agency, is still active. And we've seen some of our clients moving back into the public sector, which ultimately cost us some premium in the beginning of this year. But we believe that in the long run, those clients will flow back to the private sector as the advantage that the government has will effectively run out in a couple of years' time. What we're actually more interested in is the combined ratios as we steer our business on value of a volume, on margins over volume. In disability, we're able to hold on or even improve a tiny bit, a very strong combined ratio at 91.2, so continue to be strong. Health combined ratio improved to 93.3. There was a small benefit from the health equalization system, about €7,000,000 Excluding that, the health combined ratio would be around the 96% mark, which I think is slightly more representative of the underlying performance of the health business. And finally, in Property and Casualty, our combined ratio moved to 91.8%. There's an internal competition between P&C and disability who will have the lowest combined ratio. Well, the P&C guys are catching up. So let's see what next quarter brings us. We're very pleased with a 91.8 combined ratio in Property and Casualty. Now honestly, we need to give a few bit of color to this. In the Q1, everything that went well or could have gone well actually went well. It was Murphy's Law we venged. We had no storms, no frost, no snow and also no large, we call calamities, no large claims. So the 91.8% is an actual number. We did book in 91.8. But again, we have to be honest to ourselves, we were just having a bit of tailwind as well. Had we had the normal set of storms, the normal set of large claims, so the stuff we budget for, the underlying combined ratio of P and C would have been around the 95% mark. So we're very pleased with a very strong quarter in Non Life operating profit from 32% up to 54%. If you look at the underlying performance, I think it was between €10,000,000 €15,000,000 of additional results that we actually booked in Health and in P and C that may have a one off nature or may have a temporary nature. At some point, larger claims will kick in. But it's something we'll have to see during the year. For us, we look back at a very strong quarter with continued strong, uniquely strong combined ratio and visibility, improving combined ratio health with some support from the equalization system and a significant improvement in the combined ratio of P and C, possibly one of the better ones in the country with some tailwinds from the benign winter. Overall, premiums increased as well. And we want to take note of the fact that in P and C, our volumes grew by 6% and the combined ratio improved to 91.8%. So we see that's a very healthy development in our non Life business. Moving on to Life, which takes us to Page 7. Further improvement in performance. Operating results up from 121 to 149. Premium levels down a bit because of the fact that last year, there was a one off portfolio transfer that did not reoccur. If you correct for that, premiums are actually stable, profits up. Profits up mostly from higher investment results, both really direct results and increased contribution from the capital gains reserve, a. K. A. Shadow accounting capital gains release. The direct results from the investment portfolio were at group level across all businesses, life and non life, about €44,000,000 increased direct results, €18,000,000 real cash income, coupons, dividends, what have you, €5,000,000 reduced depreciation on swaptions prices, and additional increase or an increase in the capital gains reserve release of €21,000,000 So as a group level, €44,000,000 of increased direct investment income, again CHF 18 direct yields, CHF 5 less depreciation on swaptions cost price and CHF 21,000,000 increase in a increase in capital gains reserve. The bulk of this is reflected in the life insurance business as most of the assets are in life. So our life insurance profit up due to increased direct investment results, offset to a small extent by lower mortality results and lower cost results. On the mortality side, as you remember, we have a significant funeral book, and there was a wave of influenza in the Q1 that causes increased amount of casualties and deaths, increasing our funeral payout. So, our lower mortality costs Q1 this year versus Q1 last year due to the increase in influenza observations in the Q1 and gradually some pressure on the cost result in our Life business as the business the volumes gradually decline. We're very pleased that the investment income, the direct cash investment income definitely held up and overcame any downward pressures on mortality results, giving us a very solid handle to the life insurance profitability. We did add some more capital market risks, as we said in our opening. Page 8 shows you a bit more on that market risk developments. In January, we kicked off a review after our annual strategic asset allocation, whether we we're optimally using the capital base that we have. And we initiated a small but not but meaningful reallocation of capital to market risks. Effectively, what we did, we allocated more to equities. We allocated a bit more to real estate, allocated more to mortgages and credits at the expense of governments. The equity rerisking program is basically complete. We've done that. That has run its course. We are where we want to be. On real estate, last year, we acquired a office portfolio of the Dutch Railways. At that point in time, there was accounted for as a small overweight in real estate. The reallocation of capital now shows it is actually the level of capital where we want it to be. So the overweight in real estate became the target weight in real estate. And we allocated more to mortgages and credits. The mortgage reallocation is about 70% underway, executed the credit reallocation about 60%, 70% executed. So that means we're nearly done on rerisking some small activities still flew over into the Q2. On this real estate portfolio, as you remember last year, we added $275,000,000 of equity of real estate capital. That was in a fund on offices. In January, we sold $60,000,000 of noncore assets. And during the first half, we've been very busy signing up external customers. And without giving undue information, I wouldn't be surprised if at the end of the second quarter, we show you that we will be sold out on this fund as well because there appears to be significant interest from institutional investors to participate in this fund. So in summary, reallocation of assets to a more risky asset. On equities, dollars 300,000,000 tonne. On real estate, last year's overweight is now our target weight, which will be reduced a bit if new customers sign up. Mortgage and credits, about 60%, 70% underway in achieving our target weight. And to preempt one of your questions, how did French government bonds feature into your solvency? We did have a portfolio of small government bonds, about €1,100,000,000 in OATs, but they tend to be smaller, short duration French government bonds. So the spread widening and the run up to the French elections had a very small impact on our valuations, had a very small impact on our solvency. So we were not concerned about it at all. Also we continued or we rounded off the swaps for trades that we announced last year. We traded about €400,000,000 in government bonds and moved them into long dated swaps to finalize the hedging of our swaps exposure. All in all, the reallocation of assets to more risky assets, the completion of the swap spread trade will, in the long run, support the annual capital generation. Think about the number around €15,000,000 to €20,000,000 on annualized basis. In terms of your models, we believe it's fair to have that additional number kick in, in the course of the year, so not so much for 1, 1st of Jan. But in the course of the year, the run rate capital generation will go up. Think about an annualized number of about $15,000,000 to $20,000,000 because of this rerisking, of course, depending on your return and spread assumptions. Solvency, Page number 9. Eligible owned funds and required capital both increased for a net delta in our solvency ratio from €189,000,000 to €188,000,000 The required capital up €133,000,000 That £133,000,000 is made up of roughly £144,000,000 increase in market risk, dollars 33,000,000 in insurance risk and dollars 21,000,000 in counterparty risk, shows you market risk up, insurance risk up because of portfolio growth, counterparty risk up due to mortgage allocation and you subtract some of that diversification benefits and the Laggedy T effect of the higher SCR gives you net net an increase in required capital of €133,000,000 But we're very pleased against that a very robust and solid increase in the eligible owned funds of $240,000,000 So net net, owned funds up to $40,000,000 required capital up €133,000,000 Now we're very pleased that we're, even in a challenging rate environment, able to continue to grow our own funds and add $240,000,000 owned funds in the quarter. And it's consistent with an underlying increase in solvency of about 6 points in the last quarter. Please note that Tier 1 capital, very strong, 85% of the owned funds. We have no restrictions on tiering. Restricted the scope for Tier 1, we over 1,100,000,000 euros Tier 2 and Tier 3 room, euros 725,000,000 We do not have any tiered capital usage. Actually, we ended last year with a DTA, small DTA of €11,000,000 That's flipped out and now it's become a DTL in the Q1. So we're very pleased that the solvency level is strong, the accretion is strong, but also the buildup is strong with a significant portion of Tier 1 capital and no tiering restrictions, actually headroom in Tier 1 and Tier 2 and Tier 3, which makes this a very safe and stable and solid number. Also like to note, if you look at for those of you who have a history of ASR, the quarterly solvency numbers, I mean, I looked it up yesterday evening. Between the Q1 of 2016 and the Q1 of this year, there have been 5 quarterly numbers. Our solvency ratio actually fluctuated between 186% and 191% in those quarters. So on a quarterly basis, the fluctuations tend to be very small and manageable and have been very, very stable. Actually, if you exclude last year's Q1, we've always managed we've put about 4 quarters in a row at a solvency between 188, So very stable and robust setup of solvency numbers. That brings me to the conclusion to the end of our presentation. Although not before I said that our solvency at a UFR of 2.2, we've talked about it before as an interesting level of solvency, a more economic type of solvency level, that is now 143%. So at a UFR point at 2.2%, our solvency ratio would be 143%. So significantly above 100%, significantly above 120%, showing you again a pretty robust solvency level. So to conclude, strong financial performance in the Q1, great operating profits, strong operating ROE, some tailwinds, especially in nonlife. Estimating the amount of tailwinds is is judgment. I would personally estimate that if you exclude those tailwinds, the underlying operating profit was in the €175,000,000 mark, which still corresponds to a 15.5% to 16% ROE. So the actual delivery is 191%, excluding a bit of luck, it's 175%. And that's a pretty robust and solid underlying number. And still an ROE of 15% to 16% and above the quarters of last year, above Q1 last year and above the last quarter of last year. So we feel that Q1 was a strong and solid quarter in which CSR demonstrated continue to that discipline underwriting ultimately will bear fruit and that the generation of capital also allows us to allocate capital to more risk bearing assets and further support our our profits. We've just come out of the AGM this morning where all resolutions have been accepted, most notably also the fact we are now allowed to buy back shares up to 10% of the outstanding shares. So we now have a market conformist buyback mandate, but also all the other resolutions have been approved. It took us 3 hours, but it was 3 hours well spent. With that, I'd like to end our presentation on the Q1 numbers. Hope to have given you some color and some feel about what happened and leave the floor open for questions. Ladies and gentlemen, we will start the question and answer session now. First question is from Mr. Cor Kluis, ABN AMRO. Go ahead please. Good afternoon. Cor Kluis, ABN. I've got a few questions. First of all, about the share buyback, the 10% share buyback approval. Can you remind us how much of share buybacks you could do this year taking into account the return targets that you have mentioned, so which part of the 10% for 2017? And second question is about P and C, 6% premium growth. So it seems that you have been winning some market share. Can you indicate where which product lines is that? Is it across the board or fire or motor or could you give us comfort that this is high quality business? And my last question is more than unchecked if I fully understand it on the rerisking and the effect on the earningscash flow. I thought you mentioned that the rerisking was around 18,000,000 positive operating result pretax for 1 quarter. And you said the thought for the full year, it's EUR 15,000,000 to EUR 20,000,000 higher for the full year. How can we relate after tax, of course, how can we relate those 2 figures? Those were my questions. Cor, thank you very much. On the share buybacks, so we've got a market consistent mandate of about 10% of the outstanding share capital. It's not to mean that we're going to spend it tomorrow, but it's good to have a decent mandate. We always say we think it's fair that the especially in a year where the shareholder may be willing to exit and has been demonstrating to be willing to exit to support sell downs with share buybacks. We think that's a wise way to allocate capital. We've said also as a long term plan, it's fair to assume that the maximum capital distribution you do in any year on average could be the annual capital generation, could be a bit more, could be a bit less depending on the circumstances, depending on the year. But that's a good guidance, which means mentally we have a share buyback budget up to 100,000,000 euros If and how and where we'll spend it, it depends. We have the headroom. We think it's fair to assume to spend some of it during the year to support and help management sell downs, especially if they come at a discount. We find the ROE on buying our own shares at discount relatively attractive. But it depends on the time. But in the long run, we believe annual capital generation is a good guidance for what you can return to shareholders in the long run. And again, on top of that, depends also on other allocations, other means of deploying capital. But we surely we're not going to be capital hoarders just sitting on capital. We will think about what's the best way to spend and allocate it. On Property and Casualty, it appears that we have been winning some market share. We don't have the full market data, but 6% growth in P and C appears to be ahead of general market growth. Where did it take place? It's very much retail business. It's retail business in brokers, fifty-fifty split between the provincial broker and the mandatory agents. The bulk of the retail growth actually is in packages. So customers sell or acquire motor home fire, so a combination of products. So it's a combi product that tends to grow pretty well. So we feel that this is quality business becomes it could come through brokers that we know. A lot of it is a provincial intermediary, retail combi package, which tends to be historically has been highest quality business. Please rest assured that every performance review that we have as a Board, as a management Board with the P and C team started the question, what about margins, what about underwriting criteria? And we're comfortable that growth that's coming in is not at the expense of underwriting criteria. The underwriting criteria are as strict as ever. We actually decline more business than we write than we accept. And we don't accept the business that we feel is actually value creating. Finally, on the rerisking. What you're pointing alluding to, Kare, are 2 different metrics. The CHF 18,000,000 is a direct cash investment income. So coupons, rents, dividends received in the Q1. They were up versus last quarter. Now this is actually when they come in. And coupon and dividend quarter, dividends tend to take place in the first half of the year rather than the second half of the year. I mean most companies pay dividends in Q1 or in Q2. So this is actually upon receipt, you book these results. The €20,000,000 is the increase in long term investment results according to the OCC definition. So in our operational organic capital generation, we have a number of long term spreads that we assume. The €20,000,000 basically multiplies the delta nest allocation times the long run spreads. So the first is actual the actual received have actually received coupons, dividends and rental incomes. The latter is really the modeled long term investment income that we'd expect. Very clear. Thank you. Next question, Albert Bloch, ING Bank. Go ahead please. Good afternoon, everyone. Thanks for taking my questions. The first question I have is re risked the investment portfolio by around 70%, 75%. So something extra could still come. So how sustainable is this run rate? I mean, can we basically start annualizing this number? Or do you think there's still some seasonal element in there or some underlying pressure that makes that conclusion maybe a bit too optimistic? The second question I had is on the individual life book. You mentioned that due to the shrinking that you have some cost overrun basically. Does this also make you actually more eager and willing maybe to look for some small bolt ons in this space as well? And my final question is on the rerisking budget. So is it fair to assume that in the Q2, there might be further drag from market risk of around 2, maybe max 3 percentage points? Thank you. On the Life business, we believe the run rate is pretty sustainable. I mean, this is the increase is due to direct investment income and an increase in our capital gains reserve. So this appears to be a pretty sustainable number. As I said, the tailwind was more in nonlife than in life. So there will always be some fluctuations in your investment results, operating investment results in the life business due to the fluctuation of when the actual direct investment incomes will occur. But there is nothing peculiar or particular dimension around volatility in this number. So it appears to be pretty stable number. On the cost side in Life, there's not so much a cost overrun. We don't have a cost overrun in Life, let me be clear. But the cost margin, we have a positive margin on costs. So we make a result on costs, but the result on costs is gradually declining as the book declines and as the cost coverage declines. So we saw a positive result on cost, but less than a year ago. Our response against that is to verbalize our cost base and to move cost policies on external platforms. We're paying on a cost per policy basis. That program will be completed in the beginning of 2018. At this point, the program is ongoing and so we're making programming cost or is it migration costs. So what you're seeing today is that the cost coverage from the book is gradually declining. And the measures to counter that create a number of 1 off migration costs that we'll have to absorb. Net net, at this point, the cost margin, the cost benefit actually is actually gradually declining and should be stabilizing as of 2018 and possibly grow a bit again. In terms of life consolidation, what we think it is good for the industry, good for the life insurance sector as life books generally consolidate because this after all is a scale game, so more scale in Life is actually good. Does not mean we're going we're about to go on acquisitions free in Life. But in general, consolidation of Life books on single platforms to absorb the declining cost basis, but declining coverage basis is actually a good idea. In terms of rerisking, there's some small rerisking to be done. I said mostly on the mortgage side and on the credit side. Will that be a capital drag less? First of all, these are the lesser capital intensive instruments. So equities and real estate consume much more capital than mortgages and spread products. Secondly, if and when we reduce some of our equity exposure to clients if they participate in the office front that will look for that will create some capital relief. So in Q2, the amount of additional drag or additional allocation of capital to market risk net net is expected to be very limited. And can I maybe one follow-up on the share buyback program from core earlier? You mentioned clearly to have preference to participate in sell downs. Of course, that depends on your intentions of your shareholder in the end. So is it fair to assume that you will first wait their decisions and not start, let's say, normal underlying buyback program beforehand? Yes, that's fair to say. Look, it's fair to say, in terms of our capital policy, we want to create value for our shareholders organically, inorganically or by buying back shares or paying dividends, right? We believe it's fair that with the ROE that we have today, we think we demonstrate that we're doing good stuff with shareholder funds. If you look at the Q1, the operating ROE was 17%. One can debate the cost of capital, but unlikely to exceed 17%. So we think we've created value to shareholders. We believe the sell down of the government prevent or create a unique situation to support shareholders and buyback some of the shares. And it's a unique situation where, of course, especially if your existing shareholder wants to reduce overhang, does so at a discount, it's a great moment for a company to support that. So, the sell down of the NLVIA is a special moment, a special situation that actually makes it very attractive for us to hand back cash to shareholders through share buybacks. Is this then the ultimate program that will last forever? No. It really is centered around the share buyback program of the government. And we're living on the assumption that they're going to sell until the last share is sold. So it's probably wiser to wait for additional capital distributions and participate in their programs than launch anything on top of that. Okay. Very clear. Next question, Stephen Haygood, HSBC. Go ahead please. Good afternoon, gentlemen. Could you split up on the walk through of the Solvency II capital generation? I know you disclosed those organic capital generation business and market developments, but if you could sort of split that 6 percentage points up between the 3 or any model adjustments or other assumption changes? That would be very helpful to us. And then on your 45% to 55% payout ratio target range for your dividend, how fixed is this range? Or are you willing to pay slightly above and below? And then finally, you mentioned your sort of Q1 adjusted operating profit around the €175,000,000 maybe €180,000,000 mark. If you analyze that, obviously, you get to about €700,000,000 and then you take away the perpetual coupon and also tax, you get to around €500,000,000 net operating profit. Is this sort of the run rate we should expect for the rest of the year and ongoing? Or maybe you can't answer that question. On the first question on solvency II, we believe that the operational cap generation we find actually the delta and solvency the most interesting element of it, just how much own funds does one create minus how much required capital does one actually absorb. The market is used to or is asking to bucket it into an organic capital generation and other, right? We believe that SME should not follow so much on a quarterly basis, more on a semiannual to an annual basis because that is more in line with the long term nature of the insurance industry. If you look at what happened in this quarter, the 6%, the effective 6% accretion in capital, there were no benefits from actually modeling changes. So we didn't model up our solvency. We definitely did not. So there were no changes in there. So the 6% is a function of organic to underwriting results, long term investment results and these and capital gains and capital appreciation of the investment book. So we don't really split it, formally disclose it to the different sectors. But let's assume the 6% divided by 2, half of it is extraordinary market development in the first half of first quarter, which are good, they're booked in. And the other half is more long term on the run capital generation that we have based on underwriting and reasonable assumptions on investment returns. But again, there was no modeling benefits. We didn't model up the solvency. It really was all owned funds based on underwriting results and markets. And we have to acknowledge the markets were pretty good in the Q1. Splitting those fifty-fifty is probably a reasonable amount. In terms of our payout ratio, we have an official policy that specifies 45 to 55. The terms of us going below that, I would find that pretty slim. Actually, it would be real strange. It would be below that number. Above that, we think if we get in a situation that we feel that we want to distribute more, we would have sufficient flexibility between special dividends or buybacks. So the ordinary dividends will be between 45% 55%. It is reasonable to assume that we'll stick to that policy and have just been approved by the AGM. Dropping below that, highly, highly unlikely. Going above that, we have sufficient means to distribute capital if that is relevant. In terms of giving guidance for the year, we hear your calculation. Does not seem unreasonable to us. But at the same time, we're only 1 quarter underway, and we do make a policy not giving guidance. So it's too early for us to give formal guidance. But the numbers are well noted. Excellent. Thank you very much for your help. Next question, Nadine van der Moller from Morgan Stanley. Go ahead please. Good afternoon and thank you for taking my questions. Firstly, the underlying operational ROE that you mentioned of 15%, 16%, can you remind us why you're guiding for ROE of up to 12% given your track record so far? And the second question is to have a bit of a better understanding of the income support from the amortization of the current realized gains reserve. Could you remind us or give an update on what the realized gains reserve now is, but also what is the shadow accounting reserve? Because I think you last disclosed that at the 1H results, it was just over SEK 6,000,000,000. But if you can give us an indication how volatile that is or where that is now? And lastly, given your capital generation and particularly given your comments just now of sort of 3 percentage points longer term, I assume that, that includes the EUR 15,000,000 to EUR 20,000,000 increase from the rerisking. So given that level, if you annualize that, that's quite significant and you have a very solid sales ratio as it is. Can you comment on your plans to grow? I mean, in the past, you've done successful small scale acquisitions. What are the areas that you're particularly interested in? Or is there anything in the pipeline on the distribution side, funeral and asset management? But do you also consider participating in the Dutch Life consolidation as well? That's it. On the operating ROE, I said the achieved ROE was 17%. We believe the underlying ROE is tipping out towards between 15.5% 16%. We are aware that at the IPO, we guided for something that goes up to 12%. That was the average of what we achieved in the years in the run up to the IPO. It was a reasonable mechanical assessment. We understand the challenge of the markets. That's something that we are actually reviewing and thinking about, although it's less than a year since our IPO. So it might be early days to give new formal guidance about the ROE. But again, we feel comfortable with the current trading that we have. In terms of shadow accounting and capital gains reserve, I need to be a bit careful. Those are official IFRS type of numbers. And we're not supposed to show IFRS numbers in a trading update. But if you go back to last year's annual report, it's fair to assume that the capital gains reserve stayed remarkably stable for where it was at the end of last year. And the shadow accounting reserve, which is the underwriting realized portion, obviously, it fluctuates more. It fluctuates more with interest rates. But I don't think someone will kill me and say, it's still a 4 digit number and it still starts with a 3. That's about as far as I can go without going too far into the IFRS domain. But again, cap gains reserve, very stable, shadow accounting fluctuates more with interest rates. In terms of capital generation, we think about the 6% accretion fifty-fifty, half of it is more longer term direct ish replicable yield. The other half is great capital market runs. And they may continue, they may not. In those 3%, there is some benefit of the rerisking, but not all of it because the 3% which is realized during the first quarter, so the actual influx of solvency in Q1. And the rerisking was executed during Q1. It wasn't completely completed. So you may see some support going forward from that number. And finally, Niddie, how to spend that money? Do we participate in M and A? As I said, as part of our strategy, we always like to deploy capital in a most effective manner. We, of course, do look at M and A situations. But honestly, Nadine, in terms of communication, when it comes to M and A, there are 2 communication regimes. Regime A says there's nothing to say. Regime B says there actually is something to say. And we're still very much in regime A mode. And if we shift to regime B, you guys will be the 1st to know. So I'm saying we always look at files. We're very disciplined. Actually, we turned down more files than we've accepted in the last year because we have very strict criteria. Operating ROE needs to be met, need to explain to our shareholders that we actually meet or at least can stand up in the face of a share buyback as an alternative. And rest assured, that's something we will apply in any future transaction. And again, there's nothing to say until there is something to say. Thank you. Next question, Benoit Petrarque, Kepler Cheuvreux. Go ahead please. Yes, good afternoon. A couple of questions on my side. The first one will be on the rerisking budget. Sounds like a 2017 budget, which has been executed in the Q1 and you will be done in Q2. But what about kind of the long term rerisking strategy, kind of long term asset allocation strategy? Are you going to review that again in January 2018? Is there more rerisking potential beyond what you have done? And obviously, linked to that, your Solvency II ratio is at 190, good level, low leverage, standard formula. I mean, so long you will kind of have a kind of good level on Solvency II, can we expect kind of more rerisking going forward? And linked to that, have you seen any compression or tightening on the expected investment returns in the Q1? But also in Q2, I mean, do you see something special on mortgages, for example? Do you see something on other asset class as well? 2nd question will be on the combined ratio. I was just wondering if you have seen any prior year's provision releases in your combined ratio in the Q1, something unusual. And then the last one was on the Asset Management business. I think you are targeting a growth of your 3rd party business. You have been you clearly invest a lot to push the business. How much has been the inflow so far in the year and how much you expect for the rest of the year? Thanks. Benoit, thank you. In terms of rerisking, we run an annual strategic asset allocation process every year. We do that in the autumn of every year. And last year, we ran the escalation process. And we actually felt in November, December that there was room to do more. And so we continued the work, the analytical work on asset allocation into January, at which point we concluded there was room to allocate a little bit more budget to market risks. At this point, we feel very comfortable with the target allocation. As said, where there is some room to do, some runway to go in the credit and mortgage side. Then we have an asset allocation that we feel very comfortable with. Will we re risk more over time? Honestly, I don't know. It depends on how market developments develops, how spreads develop, how the available capital develop. We run a process every year. So the next run will be in November in our regular annual strategic asset allocation program. And for now, it's probably safe to assume that this is a reasonable deceleration is where we want to be in the long run. If our book grows, suppose we grow our asset base, then it will grow in these proportions. Further allocation to market risk, we feel comfortable with where we are. How do we look at spreads in the Q1? Obviously, on the equity side, we've seen a great run. Whether equities are cheap or dear or rich, hard to me to express an opinion. Dividend yields appear to be holding up reasonably well. Credit spreads have been holding up also reasonably well. We've seen some signs of compression on the mortgage market. So competition in the mortgage market is still pretty strong. So there's some sign of mortgage compression. At the same time, mortgage losses are nil. I mean, I had a chat with the head of our bank. We have a small bank. They run €800,000,000 to €1,000,000,000 mortgage book. They have literally €18,000, €18,000 of foreclosure losses on the entire €1,000,000,000 book last year. So we're seeing some compression in spreads, but also a complete evaporation of credit losses on the market side. So net spread is still attractive. We believe that the spreads that we're making and are able to generate are still very safe and sound as compared to our long term investment assumptions. So and that gives us some comfort around these numbers. In terms of combined ratio, I can assure you there were no releases, no reserve releases in this book except real regular when you close a file and you may have reserved a bit more than you actually need to settle the claim, but certainly no extraordinary reserve releases. Also no notations. They were very clean a clean quarter. In asset management, the inflow of new asset management was between €300,000,000 €400,000,000 of AUM in the Q1. We have just launched our mortgage fund, our mortgage product in the Q1. That's what we expect to see inflows. We would expect to see some inflows in our credit proposition, credit proposal, and we expect to see inflows in the real estate office fund during the year. So we believe that $300,000,000 in the Q1 is a good run rate for the year. Can you multiply it by 4? Ask me again in Q4, but it seems to be ongoing well. Great. Thank you very much. Next question, Ruben van den Broek, Mediobanca. Go ahead please. Yes, good afternoon gentlemen. First question is coming back again to the mental budget you mentioned for share buyback. I think the last sell down of NLFI had a 60 day blackout period of lockup period. That's going to end soon. And if they keep that 60 days intact going forward, they could basically sell down in full probably this year already. Would you then still stick to that €100,000,000 budget in that scenario because that's only 2.5% roughly of market cap and you've just asked and received approval for 10%. So to me, also given your statements that your return on equity, it's a sensible investment basically. I would appreciate some more color on that. Secondly, on capital generation, you mentioned that there's an uplift from rerisking of €15,000,000 to €20,000,000 I guess we should look at the full year 2016 run rate of 3.50 to compare that. But then again, I think you also mentioned that the 3 percentage point in the Q1 is not fully reflecting that re risking. And if I would look at 12% each point of capital accrual in the year, you would get to over €400,000,000 for the full year. So I'm still a little bit in the dark on how I should look at capital generation for ASR this year. Those are my questions. Thank you. Okay, Robin. In terms of the mental budget, we said like given the dividend that we paid out, given the shares we bought back in January, if you link it to the $350,000,000 cow generation we realized last year, the mental budget between €80,000,000 €100,000,000 If, how, where we spend it, it depends on the situation. First of all, I don't know, honestly, if, when and where the government is going to execute next sell down and to what stake. Really, it's not our decision to make. We're only followers of that. We would like to make sure that we want to participate. You can count on us participating in a next move. How much? It depends. It really depends. And also we think that a share buyback as part of a government sell down should be in line with the amount of shares offered. So were the government to sell its entire stake before the summer, we made to think carefully how we participate in that. But to be seen at this point, we believe if there's a reasonable gradual rundown, the number we mentioned is probably fair to assume. And we have there could be upside on that depending on the situation. In terms of capital generation, indeed, 3% of the Q1 times 4 is 12%. That will be a significantly high number. At the same time, we said, look, in the Q1, some things went really well. The number of the P and C returns were quite strong, and we need to see how sustainable they are. So it's fair to assume that the €15,000,000 to €20,000,000 is an annual run rate. You could compare it to the €348,000,000 to €346,000,000 we generated last year. What the actual number will be during the year also depends where the exceptional P and C performance will continue. So far, things are looking good. Even the 1st month in Q2 appear to be okay. But again, we still have 8 or 9 months to go before the full year is over. But we feel comfortable with the guidance we've given before on capital generation. We feel comfortable that rerisking will contribute to that. And we feel comfortable that the Q1 actually we're trading at the level that was above that. If, how and when that will continue, we can only tell when the year progresses. Okay. Thank you. Next question, Syed Anil Akbar, Kempen and Go. Go ahead please. I have two quick questions. One of them is about the potential share buyback. Will you guys act in open market? Or would you guys be waiting for an NLFI placement? The second question is on the non life market. So in the motor insurance market, this might be a bit specific, but yes, I just wanted some color on this. So in the motor insurance market, we've seen that you guys are the most aggressive when it comes to pricing compared to your peers. And what are the trends that seeing over there because the market is quite heated up? Do you see this kind of pricing going forward? Or do you see something else happening over there? And lastly, on the Tier 1 like Tier 1 instruments and subordinate debt, Are you looking for increasing this part? Because you have quite a lot of room in this space. Thank you very much. When it comes to deploying share buyback as a technique to return capital to shareholders, We believe sell down events should take center stage here. So buying back shares in the open market, if you're sure that there will be sell down events going forward, how many, we don't know. What blocks? We don't know. But that they will come. That's pretty sure. So we think it makes most sense to wait for those events as opposed to buying back in the open market. I mean, it would be a waste of capital and shareholder returns if you buy something in the open market, if next to that, in a Leviathan event would take place. So think about centering those around sell down moments. In terms of Non Life, we actually do not see us as the most aggressive in motor. Actually, the opposite. I think if you compare us to peers, we're probably one of our most conservative prices. We have 2 actually, we have 2 product lines or brands, 2 attacker brands that are based on the mandatory agents and really focused on Internet only called Click and Go and Budgeo. It's fair to say those who experience pretty hefty price increases in the coming months actually, we're going to use the current benign trading environment to focus on margin expansion. So you may see in the Q2 actually we're going to further strengthen our pricing positioning in the motor market by holding or changing the pricing on 2 of our most 2 of our more aggressive channels. Although in general, we believe we are definitely not the most aggressive in motor pricing. Therefore, peers and players who actually have much more sharper pricing than we have. But again, our focus will be further margin expansion over volume. In Tier 1 instruments, look, we are pretty safe and sound when it comes to capital. We're very pleased with the headroom that we have. Do we look at issuing restricted capital instruments? Always. We always assess the opportunity to attract capital at very favorable terms. And it's very important. We're very pleased with the fact that we do not have any tiering restrictions, no Tier 2, no Tier 3 restrictions. And those can come in handy in various situations. So if it comes to raising capital, we will make sure that we'll always protect the Tier 2 and Tier 3 headrooms that we have. So, we're looking at capital instruments all the time and always. We're also aware that there has been no Tier 1 instrument in euros issued yet, at least not in the public market. I've seen something between a holding company and a life insurance subsidiary, but I'm not sure we want to replicate that example. But we do look at instruments out there. And if we do something, we'll definitely protect and make sure there is remaining headroom in Tier 2 and Tier 3. Okay. Thank you very much. Last question, Eyal van Zijn, UBS. Go ahead please. Thank you. My operational questions have been answered. I just have a quick question on the unlinked miss selling that there's been a bit more press, particularly there was an article today about 2 of the main claimant organizations joining forces and encouraged by one of the rulings against you in Denbaz last month. So I'm just curious, could you give us an update as to how you're looking at the situation? And then maybe give some numbers around where the number of policies were in 2,006, where they are today, ongoing outreach programs, etcetera? Thank you. Okay. When it comes to the mis selling situation, there have been a few rulings from Kvit, the unbuck in the Q1. They have been generally positive for us, the Kvit rulings. There has been one court case about the Wolf's case in Den Bos, which has been a negative for us. To be quite frank, when we look at it, when our lawyers look at it, we are bewildered by the logic it has been followed. And we're still assessing whether we'll take it to the Supreme Court. We haven't made up our mind yet what we do and how we deal with it. But we deeply disagree with the outcome and when we question the legal logic that has been applied. And how we deal with it going forward is something that has not been decided yet. For the rest, no further cases. Any case we've seen have been postponed, but they were planned have been postponed further. So there's nothing coming up in the very short run. Next cases are scheduled for July, but they may be postponed again in that time at this point. So it's too early to say if there's anything meaningful meaningfully changing except for this one court case where we're still assessing what to do with that outcome. In terms of the number of policies, as indications, the number of active UnisLink policies has fallen back to around 220,000. We started with over 1,000,000 in 2008. With April, we did we had the compensation arrangements. Today, there are less than 220,000 policies still active and the rest has either been settled or has been left. But rest, no real news on this topic rather than some press noise, but no real material changes. Understood. And then the 220 is so actively having an average program to those to reduce that further? Yes. They will either automatically lapse. Some of them will lapse as part of the compensation program. And finally, for all the policy, we followed the AFM program of customer activation. So AFM asked us, if you have a customer that may have a disarmed policy, activate the customer so that he or she is aware and that he or she makes a conscious decision to either lapse the policy or continue the policy. And they were completely in line with AFM regulations. There are no further questions. Please continue. Well, that leads me to the end of this call. I say thank you very much for your interest and for your questions. Again, we look back at a very strong Q1, actually a record profit and a record ROE. And if you strip out some of the tailwinds, still a very strong, possibly even a record still a record quarter and still a very high ROE. So whichever way you look at it, a very benign quarter. Again, it's a result without reserve releases, without undue elements. It is just by doing honest insurance business, I would say solvency underlying growth was 6 points, invested into sharing back with our shareholders and investing into market risk, which will eventually again feed into new capital, feed into profits. And with that, growth in market share in P and C is very favorable underwriting criteria. So we look back at a good quarter. We look back at a solid quarter. As you know from us, we do not get carried away by 1 quarter. So we stay firmly sober and realistic. But the year couldn't have started better. Very good. Thank you very much for your attention. And we hope to see you soon on the road. Very good. Ladies and gentlemen, this concludes the ASR conference call. You may now disconnect your line. Thank you.