ASR Nederland N.V. (AMS:ASRNL)

Earnings Call: H2 2016

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Feb 22, 2017

Good day, ladies and gentlemen, and welcome to the ISA Conference Call on the 2016 Annual Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Michel Holters, Head of Investor Relations at Aizair. Please go ahead, sir. Thank you, operator. Good afternoon and good morning to those of you listening in from the U. S. Thank you for joining this conference call on ASR full year 2016 results. Presenting today are Jos Baader, CEO and Chris Viegay, CFO. Jos will start today's call with a summary of the full year results and he will also discuss some strategic highlights and business progress. Chris will then provide further detail on the financials and he will talk you through solvency and capital as well. Following these presentations, we'll have ample opportunity for Q and A. But please also have a look at the disclaimer in the back of the presentation for your perusal. Now having said that, Joss, you are on. Thanks, Michel. Ladies and gentlemen, 2016 was to our opinion, without doubt a successful year for ASR. Our strategy of value over volume delivered on its promises, and we are proud to report a very strong set of financial results for 2016. Throughout the year, we have been able to keep our business momentum at a high level, and our full year performance is in line or sometimes even better than our medium term targets. But make no mistake, these targets are challenging and it's hard work to get these results and we will continue to work hard and that's a promise. We will discuss our financial performance and strategic developments in more detail, but let me start off with an overview of some of our key metrics and those are on Slide 2. The highlights on this slide clearly show that our performance in 2016 has been strong on almost every key metric. Our Solvency II ratio is robust at 189. This is based on the standard formula as you may know and after deduction of the proposed dividend already. Before dividend, the ratio by the way was 194. The quality of our capital remains high as well, with Tier 1 capital alone representing almost 160 of the SCR. And then there is still plenty headroom to maneuver in both terms of Tier 1 over €1,000,000,000 and Tier 2 almost €700,000,000 Our operating result was up 11.5% to almost €600,000,000 and this yielded an operating return of more than 14% compared to our targets of up to 12%. The strong capital position combined with the business operating results and the return on equity above target show the strength of our franchise. This performance triangle is key in assessing how well we are doing. We are particularly proud on the combination of a solid return on equity, robust solvency and low leverage. Then the operating expenses, those went down by 1%. And this already includes the absorbed regular cost base of €13,000,000 from the business that we acquired as well as IPO related costs. The focus on continuous expense reduction delivers results. In our Non Life segment, we've been able to keep the combined ratio in the 95% range ahead of target of 97%. Please bear in mind that this combined ratio already includes the significant claims from hail and water damages in the first half year of twenty sixteen. We noticed recent comments in the industry on exposure to bodily injury claims. We have only limited exposure to this, with reserves amounting up to almost €400,000,000 I. E. Less than 2 thirds from our annual operating profit. We do not expect any adverse development from this. Our business generated more than €300,000,000 organic capital in 2016. This is in line with the guidance we gave at our IPO and is still based on our original investment return assumptions. For your reference, in 2015, we generated €264,000,000 of organic capital. When we also take into account the additional capital generated by excess investment returns and operational efficiencies, the total capital accretion amounted to €475,000,000 Chris will come back to this later. This last number is, of course, before dividends. Our strong solvency position enables us to remain entrepreneurial. As we have said everything above 160 makes us to be an entrepreneurial to pursue profitable growth and pay an attractive dividend to our shareholders. Now talking about dividend, this is significantly up to. Driven by strong financial performance and confidence that we have in our business, we have decided to raise the dividend to €187,000,000 This is up from the €170,000,000 last year and also exceeds the guidance at IPO of discretionary dividend for 2016 of 1.75 Our strong solvency enabled us to also participate in the recent sell down from the Dutch state. We purchased 3,000,000 shares in this transaction, roughly 66,000,000. Euros In doing so, we reached the limit of our current mandate to buy back shares. And as already sorry, as already said several times, at the upcoming Annual General Meeting, we will request a new market consistent mandate to buy back our shares. This may provide us the flexibility to participate in further shelldowns by the state. So let's now turn to our business portfolio and show some strategic developments during the past year. In Slide 3 this is Slide 3. In 2016, we have also made considerable progress in executing our strategy and optimizing our business portfolio. I'm sure you're familiar with this matrix in which we plot our businesses, and this slide highlights some important developments and achievements. In the top left of this slide in Box A are our businesses that provide stable cash flows and here we focus on organic growth. Visibility is a key product line in this segment and a proposition that combines visibility and health, the so called DORHAM proposition is gaining traction. An advantage from this combined offering is the increased retention levels of the profitable disability products. Both in disability and P and C, we were able to grow our premium levels. Market share data is not available yet, but we believe that we have been able to grow our market share significantly, whilst at the same time maintaining a very healthy combined ratio. Our funeral business has successfully completed the integration of Oksent. This was executed very well ahead of schedule and we've been able to absorb the business with minimal additional headcount. When we acquired the business, headcount was 62 FTE and we now run the same portfolio with only 29 FTE. Now it is integrated, we actually can achieve the cost benefits from the migration to our low cost platform. Our funeral business will now turn into integrating Nivo, which was acquired at the beginning of last year. This should be done at the latest in the Q1 of 2018. Further on, we remain interested in funeral books. However, it may take some time before a book becomes available. In the Capital Lights space, that's in Box C at Slide 3, we have made further progress as well. We've acquired B&G Asset Management and the integration and acquisition in the meantime has been completed. So the business today is fully integrated in our own business. Another example is the launch of the Dutch Mobility Office Fund. In December last year, we bought the office portfolio from NS, the Dutch Railways. This portfolio comprised 15 offices and 9 offices were included in the newly founded ASR Dutch Mobility Office Fund. In February, we sold the other six offices. Clearly, we have strengthened our position in asset management and fee income business as promised at our IPO. Thirdly, in this segment, C, we are also pleased to see organic growth in DC Business. This has been accelerated over the last year. Assets under management in DC more than tripled and sales doubled. And finally, the acquisition of Supergavant and Corvents have been completed and together with the existing distribution activities, we expect this to show further traction in 2017. In Box B, left angle down are the large service books that we manage. Maintaining a low cost base is crucial. With expected declines in particular in the individual life portfolio roughly 50% in the next 10 years, we are variabilizing the cost base so that our costs keep pace with the declines of the book. We are on track in realizing the medium term cost decrease. Finally, Box D. As you already know, we also dare to take tough decision in divesting businesses. And last year, we divested SOSS International and stopped our real estate development business and divested some of the real estate development projects. So finalizing this slide, the heart of our equity story is about capital generation, reflecting in an accretive solvency number, which we can invest in our business and to pay attractive dividends. We're very disciplined in deploying our capital in areas where our skills and expertise allows us to offer customers good value in products and services, while achieving attractive returns for our shareholders. We are not capital borrowers. So let's now turn to the next slide, slide of the operating results. The operating results increased €62,000,000 to 5.99 dollars Lower earnings in the Non Life segment was more than offset by an increase of €110,000,000 in our Life segment. While the combined ratio remained strong at 95.6 percent in 2016, exceeding the target of 97 percent, the operating results in Non Life was mainly impacted by lower direct investment income, the hailstorms in June and lower contribution from the acquisition system in Health. The lower contribution was, by the way, €16,000,000 The P and C business performed well, including the absorption of the hail and water damage claims, which impacted us by 25 €1,000,000 earlier in the year. The increase of €110,000,000 earnings in Life is primarily related to the positive contribution of the acquired companies €22,000,000 and a higher investment related result on Swapsion's. The increased release of realized gains reserve compensated the lower direct investment income as you may notice. The operating result of non insurance activities showed a decline of €15,000,000 mainly due to higher interest expense in the holding of €17,000,000 This is related to the issuance of the Tier 2 subordinated debt of €500,000,000 in September 2015. Acquisitions contributed to an increase of the operating results by €8,000,000 in the Distribution and Services segment. So let's now turn to Slide 5. Not only the full year went well, also the quarter by quarter developments show the strengths of ASR. I'm especially proud of the quarter on quarter combined ratio. This is already the 12th consecutive quarter that our combined is below 100. This in combination with the organic growth of our Non Life business shows that structural underwriting loss making Non Life business is not necessary to grow our top line. On slide 6, on cost. One of the key drivers of solid operating earnings and long term value creation is our ongoing focus on cost, discipline which has become part of our culture and daily operations. In non life, the expense ratio improved from 8.9 to 8.3. In life, the expense ratio was also better 11.7 instead of the 12.3% of 2015. All in all, operating expenses decreased from 5.75 percent to 5.69 percent, a decline of 1%. This picture, by the way, is actually somewhat distorted by the acquisitions we've done in 2015 2016. On a like for like basis, that means including the full annual cost base of all of the acquisitions, the 2015 comparative cost level would have been €604,000,000 and this would then result in a decline of €35,000,000 So we are able we have been able to absorb the full cost base of the acquired businesses. Measures taken to reduce our cost base are fully on track and on target. So let's now turn to the Non Life segment, which is on Slide 7, and let's have a closer look on this segment. In the Non Life segment, our underwriting expertise is market leading. All Non Life product lines showed combined ratios below 100 and we're proud of that. Even including the impact of hail and water damage claims, we've been able to keep the combined ratio in a 95 ish range better than the target of 97. Also noteworthy is the favorable development in our expense ratio as I already mentioned. Market developments towards more rational prices allowed us to both grow our top line with an overall growth 6% in the P and C and Disability business. Operating result in the Non Life segment continues to be strong. The exceptional hail and damage hail and water damage led to a specific claim cost of €25,000,000 after reinsurance. We also, by the way, experienced an increase in the number of large claims, roughly 7,000,000 relative to multiyear historic averages, which have been covered in part by reinsurance countries by the way. Even after those, our P and C combined ratio has remained strong without unduly relying on reserve releases. The underwriting results of the disability business improved. This is driven by growing business volumes reflecting the recovery of the economy in combination with the expertise in claims handling prevention and reintegration. Our health insurance businesses reported lower earnings due to lower benefits in combination with higher claims estimation from the Dutch National Healthcare Institution. In addition, we also experienced higher dentist claims for supplementary health insurance. The total effect amounts to a decrease of €25,000,000 but still delivering at the IPO target of 99% combined ratio. So now let's turn to our Life segment. That's on Slide 8. As you may know, our Life segment comprises 3 major product lines: individual life, which is 40% pensions, which is 50% in terms of reserves and finally funeral insurance which is 10%. Although by the very nature of the product, we would expect funeral to increase gradually in the future. Gross written premiums of the life total life segment rose by 10% to more than €2,000,000,000 The decrease in the individual life portfolio was more than offset by the growth in the funeral business, including the acquisition of Aksand and Evo. And our pension business due to the acquisition of the Eindracht, The DC pension also contributed to the growth, including customer switching as a result of the commercial integration of Eindracht. Single premiums in the Life segment increased by €162,000,000 to €734,000,000 The increase includes the transfer from the funeral portfolio of Nivo and the pension contract for AstraZeneca. New business went up by 60,000,000 to 152,000,000 in 20 16. Excluding Nivo, by the way, the underlying growth of the Life segment was €8,000,000 In the pension business, the shift from capital intensive defined benefits products to capital light products is making progress. We, as already mentioned, noticed a doubling of new business. From an earnings perspective, and I'm on Slide 9, the Life segment is a major contributor to the overall group earnings. The operating result rose by €110,000,000 driven by higher income from, 1st of all, the realized gains reserve, shadow accounting, from a higher contribution from acquired businesses as well and from a higher investment related result on swaptions whose gains also feed through our capital gains reserve. We also benefited from some portfolio management decisions, and Chris will discuss those later. Important to note, as the bar chart on the top shows, the lower direct investment income is offset by higher regular contribution from the realized gains reserve on the under shadow accounting. This shows the stabilizing effect from the shadow accounting method under our interest rate hedging program. Operating expenses in the Life business including the additional costs of acquisitions, which by the way were 8 in the Life segment decreased by €2,000,000 to €203,000,000 Due to the successful integration of the acquired businesses into ASR ICT platform, we were able to capture scale benefits. As a result, the cost premium ratio improved 6 percentage points to 11 point 7%. During 2016, further steps were taken to achieve cost savings ambitions. As discussed, this includes the migration of several product and system combinations into a new single platform. Overall, the Life segment delivers very good returns. The operating return on equity increased to 11.9%, while the Life insurance margin rose to 3.7% being 3.4% in 2015. Turning to Slide 5 to the various activities in non insurance. These are performing broadly in line with expectations. In the Distribution and Services segment, we have acquired Superground and Corance and we expect them together with the existing distribution entities of Van Campo Hoop and Dutch ID to gain further traction this year. In the Banking and Asset Management segment, the acquisition and integration of B&G Asset Management has been completed and showed early success in winning an asset management mandate of €1,700,000,000 The operating result of ASR Bank was lower than expected, reflecting actions to further improve the organization. So now let's move to the comparison with our IPO targets. I believe in the past year, we have delivered the proof that we are executing our strategy diligently and consistently without with our equity story. Our one quote in the reports we've seen this morning summarized it even better. And the quote was ASR continues ASR continued undisturbed on its path of over delivering on its IPO promises and we couldn't have said it in a better way. Our financial results are strong and profitable and our balance sheet is robust. As I mentioned in the beginning of the call, make no mistake, it is hard work to get these results and these targets are challenging in the Dutch insurance environment. And I'm confident that our ambition stands high in any fair comparison in the Dutch market. And on Slide 12 to finalize, year on year, we achieved better financial results driven by strong business performance. And a steady increase of operating results has enabled us to also increase the returns to our shareholders. Over the past years, we have built a solid track record of paying dividends. The proposed cash dividend of €1.27 per share is an increase of 12% compared to last year. The return of cash to shareholders is also underpinned by our recent share buyback of 3,000,000 shares in the sell down of the Dutch state. This year in 2017, a new dividend policy has become effective. The annual dividend will be based on payout ratio of 45% to 55% of the net operating result attributable to shareholders, I. E. Net of hybrid costs. We apply, by the way, as you know, a boundary condition based on our Solvency II position where we would not consider to pay a cash dividend should the Solvency II ratio fall below 140. The proposed dividend of €187,000,000 is fully in line with the new dividend policy. And now for more financial detail and further information on our solvency position in capital generation, I will hand over to Chris. He will continue to build momentum towards Slides 2223. Okay. Thank you, Joss. Over to the financial update and continuing on the momentum that characterizes our funds or our stock actually for our company. We'll move to Page 13 to Page 25. I will take a few pages that I'll talk shortly about and a few pages that I will elaborate more. Starting with the financial update that is Page number 14. As you can see the increase in operating results, whether we look at the IFRS results, which is up 4% or the operating result, which is up 11.5%, we're seeing an increase in results. Details are in the appendices A to E. Just a reminder on this page, the difference between operating result and IFRS result are the capital gains and incidentals. On the investment side, we this year had a more normal year in terms of capital gains of around SEK 170,000,000 which is kind of where we were in the long run-in terms of capital gains. You might argue it's slightly lower than normal because we created a bit less in our land portfolio. And last year, we had exceptionally high capital gains as we rebalanced our equities portfolio. In terms of incidentals, last year, we had a negative €93,000,000 incidental relating to the provision for real estate development. This year, we had SEK 100,000,000 plus positive incidental from the finalization of the modernization of our pension scheme, we already bought off the previous unconditional inflation commitment. This elimination of inflation exposure led to EUR 100,000,000 reduction of the defined benefit obligation, so a plus. Overall, IFRS results up about 4%, operating result up about 11.5%. Operating ROE this year, 14.1%, similar to the 14.5% operating ROE we had last year. Actually, the decline in the ROE was solely due to the higher base. In the appendix, Appendix C, you can see the ROE calculation. The denominator in the ROE calculation moves up from €2,500,000,000 to 2.9 billion. So the small decline in ROE simply because the denominator went up. Had we had the same denominator as last year, our ROE would have been 16%, 16%. Moving on to the investment portfolio, page number 15. The portfolio increased in value to about SEK 57,000,000,000. Details are provided for the Appendix H and I, where you can find breakdowns by asset class and by sub asset classes. Couple of points to make. During the year, we made a set of tweaks to the portfolio to further optimize our return on capital, especially in a Solvency II context. And we basically continue to rotate out of equities and shifted to credits to mortgages and real estate. In this move, the direct investment income of our book went actually up 3% despite lower interest rates. The direct yield to direct IFRS yield to the speak is about 2% to 3%, 2.5%. If we include release from shadow account in the capital gains reserve, the direct yield is still safely above 3% and appears to stay there for the planned periods. Highlighting mortgages and real estate, our mortgage book is now 18% 18.6% of the total asset base. Gross mortgage production was €1,300,000,000 the net increase €700,000,000 mortgages. Our book is now fifty-fifty splits between government guaranteed and non government guaranteed. And we'd like to point that about 75, threefour of our mortgage book either has a government guarantee or loan to value of below 75%. Given this high quality nature, you understand that the performance is good, that the book is developing very healthily. The arrears numbers, mortgages in arrears, 90 days arrears are less than 1.5 percent of the mortgage portfolio and the actual default or foreclosure costs are less than 1.5 basis points. So a very healthy solid mortgage book. There's actually quite a lot of client demand from institutional investors. Wanting or desiring to invest in our mortgages and we're turning it into a mortgage product. In terms of real estate, just already alluded to the fact that we acquired the office portfolio of the Dutch Railways, NOK 275,000,000. Effectively, we warehouse these assets over the year end. We bought them in December and they're on our balance sheet. In January, we sold €60,000,000 of non core assets. We placed €20,000,000 already in funds for 3rd party clients. The remainder, about €200,000,000 will be part on our own book and part managed for 3rd parties in a new fund. So please note that €275,000,000 office acquisition in real estate is actually a step towards another asset management, real estate asset management solution. And real estate, please note about 40% of our real estate portfolio is in land. And as people say, they don't make that stuff anymore. So we after vacancies in our real estate portfolio is 4.3%. After vacancies in our real estate portfolio is 4.3%. For those of you with a more black perspective on the world and on our risks, The exposure to Italian banks is €130,000,000 all in fixed income, all in what we see as high quality institutions. Exposure to Monte di Baski is SEK 7,000,000 only in a senior bond. So the amount of direct risks from some of the remainders of the crisis is very, very limited. Finally, we made a number of changes in our liquidity portfolio to deal with swap spread exposure and to lock in our swap spreads, but we'll talk more about that when we get to Page 25. Now let's first turn to Page 17, when we kick off the discussion on capital, key developments in cash and capital. This is one of the pages that I'll talk about very shortly because Joss has gone through the numbers. Solvency II standard model 189 post the foreseeable dividend here's €194,000,000 pre dividend. Compare that to 180% in our day 1 report means a total accretion of capital since the beginning of the year of 14 percentage points. Organic capital creation came out at 9%, in line with the IPO guidance. During the year, we had numerous comments and suggestions to harmonize and update our definition. We'll talk about it later. Important to mention that the 9% is pretty existing, the old methodology. So we met our targets not by changing the model, but by delivering on our goals. Dividend at €1.27 per share, if you add back the cash dividends or we add up the cash dividends of €1.87 plus the 66,000,000 shares we bought back or value of shares we bought back in January, the total cash return since IPO is 253,000,000 or 8.7 percent of the IPO valuation. So we hope and trust that those who had confidence in our stock at IPO were duly rewarded. Moving on to Page 18, continuing to build momentum on SCR development. Some people call me old fashioned, but I sometimes like to look at book values. In this chart, you can see the IFRS equity book values and the solvency eligible owned funds. IFRS equity moved up from €4,200,000,000 to €4,400,000,000 if we exclude the hybrids from €3,600,000,000 to €3,800,000,000 So an increase in book value ex hybrids about 6% over the year. If you look at the equity base that we use for ROE calculation, which you can find in the appendix, moved up by 5% during the year. Eligible own funds, up to SEK 6,300,000,000 excluding hybrids moved up by 4%. So if you take different book value lenses, whether it's sol and c owned funds, whether it's IFRS, single ex linked hybrids or with and without realized capital gains, all by all means the book value of the group went up. And we think in the long run, despite volatility, in the long run, book values are good guidance for the development of any company. So we're pleased with the continuous accretion of funds of book value. Page 19, scroupe solvency figures. Page 19 depicts the owned funds and the required capital, eligible owned funds of SEK 6,300,000,000, required capital SEK 3,300,000,000, divide 1 by the other, you get 189 percent post dividend solvency. Couple of points mentioning worth on stock. Tier 1, as you said, 84% of total funds, Tier 1 ratio alone, 1, 81, 58%. So a pretty solid construction of solvency, significant headroom available. We've noticed some discussion in the market around Tier 3 and Tier 3 capacity and tiering risks. Our DTA of the group is €11,000,000 which compares to the total gross headroom of €5 1 for Tier 3 capital. So the net headroom in Tier 3 capital is 490, 501 minuteus 11. That means even if our DTA goes up, even if interest rates move, the Tier 3 capacity or Tier 3 tiering is not at risk. Of course, when you if you were to use the Tier 2, Tier 3 space, you need to think about your ability to absorb any changes. But at this point in time, no tiering risk to the solvency of ASR. In terms of eligible owned funds, in the year, we observed a decline in the volatility adjuster, which moved from 21 basis points in the beginning of the year to 18 per half year and 30 at the end of the year. So effectively a drag or a headwind of around 9 points in solvency. So when you compare the 180 day 1 to 194 pre dividend, please note that it's after absorption of a 9 point VA drag, so to speak. Just give it a color around the underlying accretive capacity of the group. Double clicking or zooming in on the required capital, in the appendix, Appendix G, we've got a bit more intelligence or data on the sources of the change in capital. If you go on market risk, our market risk is still 49% of the pre diversification required capital, where we want it to be. Remember, we're an insurance company of an investment fund. So we believe that market risk should hover around 50%, could be a bit above, a bit below, but not too far off. And 50% is a number we feel very comfortable with. Inside the market risk buckets, during the year, we lowered allocation or capital allocation to equities, We lowered capital allocation to currency risks and we increased capital allocation to spread risks and to real estate risk. That actually is a reflection of the portfolio choices we made. And there was a slight increase in allocation to the long term interest rate shock, which is technical phenomenon as the curve changed during the year, the curve steepened during the year, the interest shock, the capital charge for a shock in Solvency II went up. But by and large, out of equities, out of currencies, into corporate credits and into real estate. That's the delta behind the market risk number. Other capital components, the life risk charge went down for the year. In the life bucket, we had an increased charge of longevity, mainly which is a second order effect from the change in interest rates, offset by reduced lapse risk, remember our Maersk Labs insurance and due to lower cost risk, which is a benefit from the integration of Accent. So in life, an increase in longevity more than offset by a decrease in lapse and cost charges. Counterparty risk went up due to the allocation of mortgages and lagged it, a small support to capital from Delta and lagged it and we'll come to talk more about it later and no doubt in your questions. So in summary, when you look at the capital requirements, we had reductions in required capital or an increase in availability of capital if you wish through reduced charges for less risk, cost, equity, currency risk and lag DT and we allocated more required capital to spread risk, real estate risk, counterparty risk and in our business P and C to some extent longevity risk. And please note, real estate reflected the €275,000,000 effective warehousing we did on real estate for the office front. So in summary, looking at our numbers, we believe we've got a rock solid solvency number, strong tiering, no tiering risks, and we are pleased with the level and the quality of our solvency. And again, from our perspective, well controlled measured developments in the underlying solvency components where we continue to assess the sources and uses of capital to optimize our balance sheet and to provide good returns to all our shareholders. Page 20, organic capital creation. Let's go into the delta of our solvency developments. As per the half year, we'd like to break down the delta solvency and underlying components. Now one word of caution here. Any breakdown in the delta solvency is judgmental by its nature, right? The industry, the insurance industry is still trying to find stable ground here. We aim to run at the forefront of capital disclosure and share how we think, but any bucketing of delta capital has an element of judgment to it. So we'll follow on the approach we took last year by defining organic capital generation, organic capital creation in 3 buckets, operational, net release of capital and technical movements. And the remainder, the category other, is called market and operational developments. Let's start with the technical movements, work our way from right to left. The box technical movements contains the UFR unwind and equity transitionals. The UFR unwind for the year was $110,000,000 or about 3.3% of SCR. Also, it includes in this metric, the equity traditional, the amortization of traditional growth for equities. After diversification, it's about 0.7 SCR points. So the total technical movement, the technical track is 4%. Please note, again, this has nothing to do with management skills or whatsoever. This purely is a technical shift between stock and between flow. It's almost like running up on a downward moving stairway on a running escalator. You'd have to run faster than the stairway to make progress. The annual drag from these points was about 4 percentage points in the last year. 2nd bucket, net release of capital. This consumes or contains the release of SCR, the release of risk margin and investment in the new business. The resulting number here is 5.7%. Think about SCR minus new business and risk margin of equal size. So the 5.7%, you can divide it to 2. Half of it is the release of the risk margin and half of it is release of SCR minus new business investments. The SCR release was tilted up a bit because the lapses on our nominal life book has moved up a bit during the year. In our country, people redeem or have redeemed their mortgages more than they used to do. So, we used to run at unnatural unexpected lapses about 50 basis points a quarter that has moved up to 60 basis points a quarter and has been stable throughout the year. So some acceleration of release of capital through the redemption of mortgages, but again pretty well sustainable, 5.7% in terms of net raise of capital, fifty-fifty between risk margin release and SCR minus new business. And then we've got the operational capital generation that is comprised of excess returns, technical results, the fees and then holding costs and hybrid costs. In total, 7.2% of day 1 capital, with excess returns the largest component and the technical results exceeding the holding cost. So this gives an approach where our business generates about 7% of capital plus release of capital of 6%, eaten up partially by a 4% technical drag in stock and flow. Measured in euros, it gives €301,000,000 of organic capital creation or 9% of day 1 solvency, which is in line with our guidance and expectation. The 301, you can break down into own funds and SCR charges on average CHF 240,000,000 in increase in own funds and CHF 38,000,000 in lower SCR charges. The bucket other market and operational developments, it's for the 2nd year in a row, it's now a plus. So that we outperform, we add we have added for the last 2 years over and above the organic capital creation. In this bucket, you've got a number of pluses. You have excess returns over and above the assumption in the OCC. The cost benefits, lapse insurance, lack of T positives are a plus. Negatives would be the decline in the volatility adjuster. Negatives would be increased, for example, allocation to interest rate and to real estate. And finally, some modeling changes, but all modeling changes together have basically canceled out. So where does this leave us? Compared to the model we choose at the beginning of the year, we have delivered on our guidance, 9%, CHF 300,000,000 capital creation, up from CHF 264,000,000 last year in what was not an easy environment. 2nd important point to note, the operational capital generation exceeds the release from our book. The business generates more than the release from the book. This is the way we manage our company. We are a book, a business about capital generation, not just capital release. And in the way we manage our company, the effect of other was again a plus over and above the OCC. To give you a little more color, we have moved to Page 21. You can see the movements in numerator and denominator, the delta in own funds and the delta in required capital. I will not spend too much time talking about it, it's more for your perusal. But again, you can see about SEK230,000,000 net increase in owned funds and a SEK38,000,000 benefits in required capital. You multiply the SEK38 1,000,000 by the average solvency of SEK1.84 million during the year, you get to the SEK301 OCC. Again, here it shows that operational capital generation 242 is the largest component of what we deliver in terms of organic capital increase. And finally, please note, market and operational developments, the required capital element of that is only €2,000,000 so €2,000,000 in required capital for market and operational developments. That is kind of actuarial speak for there were no major net modeling changes to speak of. So, it is a modeling changes, anything that all canceled out and did not lead to a massive increase of the required capital. So Page 21, it elaborates further of the organic capital generation. Now CapGen going forward, I would ask you to move to Page 22, the division going forward. As said in our interaction with investors and analysts, we've got lots of feedback on the way we calculate the OCC. We have been challenged if we were not too conservative, especially in the assessment in the long term spreads. We have conducted a very thorough analysis to use some external support and looked at UFR unwinds, traditional spread assumptions and what have you. And with that, we've updated our models. Again, not with the purpose to meet our goals, but with the purpose to be market consistent in our assessments of organic capital generation. After the assessment, we've noted better to move the transitional rule for equities like others do to the buckets market and operational and we've adapted our spreads. Most notably, we moved up the spreads in mortgages, equities and real estate. We stratified our bond spreads. We have differentiates between core copies and non core governments. And also let's be true and responsible, liquidity does come at a price. We observed some industry participants to plot a 0 spread for government bonds, but in these days in age, that is not realistic. Government bonds do provide a drag compared to the solvency curve. We estimate for the medium term, spreads on core sovereigns are minus 20 basis points. Using this, we get a refined number of 348 for capital generation in 2016. So on a market consistent methodology, market consistent way of measurement, we get to SEK348 1,000,000 of capital. The delta, think of it like this, take the starting OCC of SEK 301, add about SEK 40,000,000 from excess spreads, deduct $15,000,000 from the negative drag from government bonds and add $24,000,000 on a full year basis from the reclassification of transitionals. That will give you about SEK 348,000,000 to SEK 350,000,000 for the year. Going forward, we'll work with this definition. The long term investment margins are what they are, long term investment margins. So we tend to keep them stable from now on. The one thing we will continue to assess is, of course, the government bond spread as interest rate swap curves move. At this point in time, it's fair to assume that there is a drag from anyone, any insurance company holding government bonds. That is roughly the price for holding liquidity. Page 23, an alternative view on capital accretion. As we said before, OCC, organic capital creation, is just one way to slice and dice your delta insolvency. In reality, of course, this is a number of Hinge and LTM assumption on assumptions you make on spreads. We've shown you how we define it, once we're fully transparent, but the definitions make the number. The number that can't be changed is the number at the beginning of the year and number at the end of the year. Those are hard numbers, are audited numbers. In order to give full disclosure, and we'd like to lead the pack here, we've also provided you with an alternative view on solvency developments, namely through sources and the uses of SCR. Again, this is the number based on the audit figures starting the year, ending of the year solvency. And if we include all the relevant elements, the sources of capital were SEK674,000,000 and the uses of capital SEK386,000,000 out of which SEK 241,000,000 was returned to capital providers, namely dividends €187,000,000 and hybrids €54,000,000 So €674,000,000 minus €386,000,000 gives an accretion after dividend of 2.88 and the total returns to capital provided in this is 241. Why do we believe this model is important? Because this reflects the way we run our business. We strive to outperform the long term investment margin. Access returns don't show up in OCC, they show up in the bucket of other. And the bucket of other may therefore sometimes have a structural component to it. So we strive to outperform the LTIM. That's what we're mandated to do and it shows up of course in sources of capital. Secondly, we run a life book that's effectively closed growth through M and A. Post M and A, we'll restructure the acquired business. We take out costs. When costs are out of an acquired business and taken out, that adds solvency, not through OCC, but in the bucket other, namely to lower costs. For example, the integration of Accent and we expect the integration of Nivo will lead to cost savings that will show up in the component of other. And actually, it is a source of capital. So we believe assumptions change in business developments do contain some things which are the heart of our business model, but cannot be captured in the OCC number. So that means that the capital accretion of the group bucketing source of use of funds is a good way of looking at how this business develops, how we run our shop and it was CHF 288,000,000 or CHF 465,000,000 pre dividend. And as you remember in January, we used a large chunk of this buying back €66,000,000 of shares. So we think it's only fair to complement our company traditional capital generation numbers with capital accretion sources and uses of funds. I understand you all are getting tired. So it's a few more slides to go. Hang in there. It's almost like a game of cricket. Once you understand the rules, you're ready for tea. So 2 more pages to go. Interest rates, as you can see on this page, impact of interest rates on stock and flow. Interest rate sensitivity is limited, stable, not so much because we changed our hedging policy, but because the increase in interest rates in the last half year, last month of the year reduced the convexity of our business and the convexity change reduced interest rate sensitivity. More importantly is actually the sensitivity of SCR to a lower UFR. On this page, you can see the solvency ratio, but different levels of UFR. 189 is where we are today, 178,000,000 that used to be or 178,000,000 at 3.7,000,000 the number that used to be contemplated by IOPA and a number of other figures. Please note the bottom end of 2.2%. In our industry, everybody, participants, regulators are all struggling to define what is the long term across the cycle UFR? What's the right rate to use? And there's a long debate whether 4.2 is a relevant number to plug in as a UFR. Internally, we started to take another view. So what if we plugged in the long term investment yield that we're making today? And the base of it is, you should not discount your long term liabilities at a rate that's higher than you make today because then you eat up your insolvency or at the rate, it's lower than you make today because then you understate your solvency, I. E, what do we plug in, in UFR that's related to your investment yields? Would you then still have a solvency that's safely above 100%. The IFRS yield on our book is around 2.3%, 2.5%. So in today's market, the long term direct yield is probably somewhere between 2% and 2.5% ex capital gains. Of course, if rates move, this thing moves up. So what we did was we plugged in a 2.2% UFR and asked ourselves the question, would at that level, which is somewhere close to where the long term direct yield is, would we still be safety above 100% because that means we could freely distribute cash or invest in future ventures. And again, we found a solvency level after SCR shock, after tiering of 142%. So that means with this level, we can have responsible, thoughtful financial management and feel confident on future distributions. We have developed a fairly advanced set of modeling technologies to analyze and test this and play around with different numbers. We will adjust the rates move, but for us a UFR that is linked to your investment yield should give you a more economic view in the standard model. Although we understand that maybe it could be a contradiction in Terminus, but the economic view in the standard model is what we strive for. And we believe this is the way forward for the industry. This is not our formal policy, not an internal model, but a way to think about economic solvency. Also in this page for your perusal and by popular demand, we have plotted the impact of different UFR levels on capital generation. As you can see, lowering the UFR to the IOPA ambition level would reduce our solvency bit, but also make us still stay above the hurdles and also increase the annual flow, the annual capital generation. So you can see the move between stock and flow and various solvency levels. Needless to say, strategically, we wouldn't mind if the UFR would be lowered a bit. Again, you can also see the impact of government bond spreads and a SEK 7,700,000,000 core government bond book, a spread in the EOC of 20 basis points, the cost of interest rates is a €15,000,000 drag a year. That is the cost of liquidity. Page 25, some final observations on LEPPT and on swap spreads. A lot has been said on LEPPT. I guess a lot will be said on Lagged BP, a few points of bias. Our regulators put a new guidance in February about how to think about the LACTIT and how to model it. Remember last year this time around, we as a group marked down our LACTIT considerably out of prudence, out of anticipation and we wanted to limit the dependence on future fiscal profits. We further developed the model during the year. We received feedback on our day 1 model and moved on. To the best of our abilities, the D and B guidance that is supposed to be implemented by June has been reflected in our models. Some points may require some further clarification, but our models appear to be fully in line. We do not expect any major negatives. Actually, some points could be a small positive, depending on how we interpret some of the more complicated elements of the guidance. For full year 2016, we've got our LACTITI on the life business at 60%, non life at 75%, basic health at 0%, supplementary health at 25%, which is in line with the model that we used and although as far as we can see is consistent with DNB guidance. It has very limited use on component 4 on future fiscal profits and is robust against fiscal year 2015 historical fiscal years falling out of the equation. So, we believe when it comes to the complex world of Solvency II in combination with taxes, it's better to be lucky than to be smart. But we believe when you plan well, when you anticipate well, you increase the odds of being lucky. So this development shows that in the industry, in this first full year of Solvency II, things are still in discovery mode. From our perspective, laxity has been implemented and very limited to no material downside. On swap spread hedging, please note, in Solvency II, your liabilities are discounted on the basis of swaps. Any assets comprised a large of investments that are not swap related or at least priced on the base of the government curve, I. E, an almost SEK 8,000,000,000 of government bond portfolio or liquidity book. In this space, the swap spread widening, which as we've seen in the last years, has supported solvency across the industry. Also, we have benefited from this. Given market developments, we have decided to lock in some of these benefits whilst maintaining the liquidity thresholds in our portfolio. On a relative basis, you sell government bonds and increase swap exposure. In total, we trade about SEK 4,000,000,000 in transactions. Effectively, we sold long dated core government bonds, buying back short dated credits, short- and medium term government bonds from France, Belgium, Spain and Ireland plus some of the receiver swaps. With this, we intend to lock in the swap spread benefit. At this point and after a few last weeks in January, we believe the swaps spread exposure of the group has been halved. That means at least half of the swap spread benefit has been locked in and the swap spread exposure has been halved significantly. We think it's a way to be ahead of any changes in interest rates, ahead of any changes in swaps for developments. So in summary, Solvency II is and will be a complicated world. Market value effects, tax effects, second order effects all playing a role. In our risk management, we aim to identify opportunities and threats early and anticipate. This means that our group is well prepared for any changes in LaggedyT and is well prepared for any changes in the world of swab threats. Finally, Page 26, the numbers. I will not repeat them to you anymore. We hope this presentation has shown you that our performance in 20 16 has been strong on nearly every metric. We delivered on our promises and especially we're proud of the combination of operating performance and solid ROE or market consistent capital generation or capital accretion, very pleased with solvency levels, up to 189% standard model with no tiering risk. Not just capital gains, underpinned by strong technical results from our business, the combined ratio in the 95% range and low financial and double leverage, which you'll find in the appendix. And again, the increased dividend to US1.27 dollars per share shows the confidence we have in ASR's operations and our willingness and ability to share the good fortunes of our group with our shareholders. That concludes our presentation. Giving back the floor for questions. Ladies and gentlemen, we will start the question and answer session now. The first question is coming from Mr. Cor Kluis, ABN AMRO. Go ahead please. Good afternoon. Cor Kluis, ABN. A few questions. First of all, on disability insurance, the Bezalp legislation, can you already give kind of an idea what the impact might be on the premiums for 2017 2018? Because last year, your disability premium went up 4%, but this could be somewhat more material positive. And second question is about the internal model. Could you give an idea what the impact would be if you put your own internal model there? How much higher would the Solvency II ratio be then? And third question is about the EGM. I thought you asked for a share buyback request of a maximum of 10%. Why given the share overhang and the possible and your very strong capital position and cash flow, why are you not asking for a larger share buyback possibility? And last question is about, it's more a technical thing, the size of the realized capital gain reserve. What's the size at the end of 2016 of that figure? Those were the questions. Thanks, Cor. Let me start with the question on disability. It is too early to give final guidance on how the season went. But a first view on it is that a lot of smaller companies decided to return to the public system. So in terms of number of customers that returned to the public system, we've seen more going to that system than expected. In terms of premium, so in terms of new business, we see a neutral effect until today. So probably we will not fully meet the expectation we had for the medium term, but this was only the 1st year. And we think it may require a little bit more time to meet the top line growth targets. But those are only the first views on it because numbers are not final yet and new business is still coming in. And the main reason for that is that we have kept to be disciplined in our underwriting and premium. We could have done more if we had wanted, But we as we have done before said to the disability management, you are allowed to do as lot of business as you want as long as you stick to the underwriting principles. And we have seen a fairly disciplined market, but not everybody was as disciplined as the market in general. So some participants have been fairly aggressive, and we've decided not to take part in the aggressive pricing. That's so that's on disability. Then the question on why don't we ask for more than 10%. Well, in our view, we have every year an AGM, so we can every year ask for a new 10%. And in our view, there should be a balance between the year on year generated capital and the capital return. So from our point of view, given the developments in solvency, the uncertainty where IOPA ends up with the UFR, we have said well that the total return of capital should be balanced with the capital generation. And then to our opinion, 10% should be sufficient on a year on year basis. On your question, Kare, on the internal model where do we send, we do not have an internal model, right? An internal model is a pretty complex beast. The closest thing we have is an ECAP model. The ratio of the ECAP model is 226%. But please, this is not a model that's gone through the same rigorous validation process as the Solvency II standard model has. On your question, will we move to an internal model? At this point, we have no plan. Reason is, we believe the regulator will always look at both models when it comes to distributing cash and capital to shareholders. And if I look at the banking sector, I'm not sure the banking sector will provide guidance, but there we can see like a harmonization or internal movements and obviously internal model and standard models move towards each other. Internal models with a floor and I find an internal model with a floor just becomes a very expensive version of a standard model. So, we believe at this point in time, it's not sure whether it's the best way to spend shareholder money to go through all the lengths in validating and approving the ECAB model if the solvency is what it is because we are already at pretty safe level. You had a 4th question and I can't even read my own handwriting. What was your point again? The realized capital gain reserve side. Realized capital gain reserve at the end of the year is about €3,600,000,000 Actually, it was still a net addition to that reserve. And to give you some color, we believe that the release from that realized capital gains reserve in the plan periods, assuming rates stay relatively where they are, will be similar in the next 3 years as it was last year. So if I look at the amortization schedule, amortization pattern of that SEK 3,600,000,000 if rates stay roughly where they are today, the contribution of that will be same, but actually the planned period as it was last year. Okay, very clear. Thank you very much. The next question comes from Mr. Albert Ploegh, ING. Go ahead please. Yes. Thank you for taking my questions. I've got basically a few on the capital generation. First one to be clear on the new methodology on Slide 22. You mentioned you've moved the transitional equity rule to the operational variance and market bucket, so to speak. First of all, I thought it was something like €45,000,000 per annum. And is it then correct that in the €348,000,000 that's printed on the slide on the new definition that it is then not including that drag, while the EUR 301,000,000 did include it, so to have that at least clear. The second question I have on the capital generation is a little bit on the non core sovereign bonds at the minus 20 basis points. I think on Slide 24, you mentioned that that basically has a drag of EUR 15,000,000 or so on capital generation. But how to square that with the actions taken to basically lock in the spread because on the that you also mentioned in your opening remarks. So is basically the starting point for 2017 already meaning that maybe that the EUR 50,000,000 drag is already reduced by 50%? And I'll leave this for now for there. Okay. Albert, on the transitional rule, the in the movement from €301,000,000 to €348,000,000 with a plus of €23,000,000 from the transitional rule that was moved out. So there was a negative in the 3 zero one that no longer occurred in the 3 48,000,000. It was reduced during the year. Two effects, one is diversification kicked in. Due to the portfolio developments, the impact of the traditional role post diversification was a bit less. Secondly, we sold some equities, reduced equities. Part of the equities that we actually divested will subject to the transitional rule. So there's less to amortize if you've got those equities. So partially it's technical, it's a diversification effect. Secondly, the equity base that was subject to traditional was lower. In terms of non core spreads, the €15,000,000 drag is going forward. It's actually a bit less than last year, I agree with that, because the government portfolio government bond portfolio will decline. So we removed the SEK 7,700,000,000 is the portfolio that we have roughly where we are today. That's a small decline. And in terms of what does the swap spread has to do, the swap spread has basically is not so much to lock in the spreads, but lock in, I would say, the delta in these spreads. I mean, the spread widened in the last years, the swap spreads. That supported our solvency levels. I mean, you discount your liabilities at a higher rate than you discount your assets. And we wanted to lock in that benefit. So that means if swap spreads reverse and the spread declines, you don't lose that benefit. So the swap spread chain itself does not do too much on organic capital creation, but it protects it aims to protect the stock of solvency that we have. Okay. Fair clear. The next question is coming from Mr. Stephen Heywood, HSBC. Go ahead please. Thank you very much for the presentation. Just a couple of questions. Can you go back to your sort of core and non core sovereigns? I know obviously one is now minus 20 basis points excess spread and the other is plus 50 basis points. Can in reference to Slide 36, can you define which bonds are core and which ones are non core? And then secondly, when you talk about the UFR changes on Slide 24, I just want to know your opinion about what you think is most appropriate to use, whether you should use the direct yield or the total yield, including gains. So whether you'd use the sort of 2.2% or whether you'd use over 3% as your assumed UFR? Thank you. Core, we define German and Dutch and German government bonds as core. All the remaining in Europe is actually non core. So Dutch and Germans are core, the rest is non core. In terms of what is the right level to use, I mean, look, the direct yields, which is cap which is coupons, dividends, rents, etcetera, it's between 2% and 2.5% ex share accounting release. The actual yield that we make on our portfolio is larger. We made last year SEK 170,000,000 capital gains. If you look at the average of the last 3 to 4 years, it has always been in the €170,000,000 to €200,000,000 range of capital gains. So the actual yield one makes is over 3%. So if you think about a fully economic U of R, probably a number over 3% is justifiable. However, capital gains fluctuate over time. You may have a bad year in which there are capital losses. So we thought from a long term prudent perspective, we'd like to work with direct deals. But we could understand that you could that it's arguably that you could move it over 3, including a fair amount of capital gains. That's kind of a judgment call that one can make. We believe in terms of being prudent and being fair to our policyholders, The direct yields is something we can observe and bearing defaults that will happen year on year on year. So we can actually you can bank on that. But your point is valid. You could argue that the yield you make, the return you make is probably above 3. Yes. That's great. Thanks very much. The next question comes from Mr. Faqar Murey, Autonomous. Go ahead please. When was the I think you may have given this on the call, but when was the broad timing of when you did swap spread lock in, I. E, the €4,000,000,000 transaction? And more generally, how has that increased your spread sensitivity to the Belgian and French sovereigns? I kind of presume it does. Actually, are you able to give the kind of sovereign spread sensitivity overall for the group? And then finally, can you give any indication on how Solvency II has developed so far this year given we've seen some quite significant sovereign moves overall? Thanks. Farquhar, thanks. In terms of when do we execute the swap threat change in steps since September? It was actually done in Q3, Q4 in Q4 and the remainder actually in January. So there was a series of trades. Also, we started doing this by shorting 30 year bond futures. It's the most efficient and liquid way to doing it. We found liquidity in the market was too limited. At some point, we owned too big a share of that market. So we moved to a peripherals cross swaps. It did expose increased exposure to those to non core bonds, paid 36, you can see the holdings in French govies went up from SEK 800,000,000 to SEK 1,400,000,000 Belgium from SEK 600,000,000 to SEK 1,200,000,000. So basically, an increase of almost SEK 800,000,000 SEK 900,000,000 in government bonds from Belgium and France. We still feel very comfortable holding those government bonds, especially if they have a midterm maturity. We do not yet disclose sovereign spreads sensitivities, something to pick up and to think about going forward. There is no issue around it. We just haven't disclosed. We have no tracked it that much. But you can see on Page 30, 60 changes in the portfolio. And on your last question, the development of Solvency during the 1st 6 to 7 weeks of the year, without giving any numbers, we have seen a fairly stable development until now. Okay. Brilliant. Thanks so much indeed. The next question is coming from Mr. Matthias De Wit, KBC Securities. Go ahead please. Yes, hi, good afternoon. I would like to start with a small follow-up question on the equity transitional. Could you comment what the remaining benefit is to the Solvency II ratio at this point in time and how that benefit amortizes over time? Then secondly, I had a question on the organic capital generation of 348 for 2016. I guess this is based on the start of the year balance sheet or averages, whereas there are some changes in mix and rates in the meanwhile. So just eager to get your comments on how that number could develop into 20 17. 17. So how we should think about capital generation in 20 17? And then my last question is on LAG DT. I noticed that the benefit to SER increased to 586 from around 500 at the end of H1. So what is exactly the key driver behind that Life business where you move from 50% to 60%? And is there any conservatism left in your current approach? Or do you think it's currently a fair taking into account some regulatory risk that might remain? Thanks. Matthias, on the acquisition, let me look at it. I don't have that number on top of my head. We'll look it up. We'll feed it back through IRQ and to you. Yes. In terms of the OCC, that was defined on the beginning of year asset mix last year in 2016. To use the beginning of the year asset mix. And for 2017, we'll also use the beginning of the year asset mix. In terms of where are we on that number, one thing we learned throughout 2016 is a number, especially interest rate components pretty sensitive to interest rate movements. In 2016, we saw a V shaped long term yield development and especially the UFR unwind, of course, is pretty volatile and sensitive to rate moves. What I can say today is the business performance that underpins that is behind or underneath this OCC, we feel very comfortable with the performance of our business. I mean the year 2017 is only a couple of weeks old, but has kicked off in the same notion as we ended last year. So in terms of business wise, this company is still performing at the same level as we ended last year. Rates have stayed stable, moved up a bit in the first half of the year, but we need to see how the development OCC is a number that is very young, vulnerable to interest rates, not so much a total solvency numbers, but delta solvency relatively stable. But in the slicing and dicing, the OCC has a rate volatility, which could be a headwind, could be a tailwind. So we find it hard to give at this point major guidance on this number, but safe to say that the business trading has gone off to a good start. The investment portfolio hasn't changed much during the year. So that gives you some clue going forward and we just need to see how rates develop. Just give you a feel for sensitivity, for example, one point of combined ratio better or worse is about €5,000,000 to €6,000,000 in OCC. So when you go out when you go and want to model this, that's kind of where the sensitivity is and the rest is really all about great movements. In terms of lagDT, Laggedt on P and C business remained stable at 75%. There were no use yet of the famous component 4, so no use of future fiscal profits. On the 60% in life has very limited, I think it's 58% of the 60% is DTLs and historical profits, no future profits. So it's a pretty stable solid number. The use of component 4 of future fiscal profits has been limited substantially by the DNB regulation or basically have to make pretty strong assumptions to substantiate significant use of component 4. That's something that we will look into and will require a bit of work and dialogue in the industry to understand exactly how to interpret some of the rules. Some points we may have interpreted conservatively. We believe the 60% is well supported. Is there conservative left in the number? There's no realism left in the number. That's one thing for sure. I still think it's a responsible number. Downside risks to that extent are limited from our point of view. Okay. That's very clear. And if I could just follow-up on the organic capital generation. I also have a bit of difficulties in analyzing how or in getting a sense of a sustainable recurring SER release because there were a lot changes in the organic numbers. So is there anything you could say in that respect? I think on the SCR release, the number we provided you for the full year was about 6%. If you look at the first half year, it was about 3.5%. So the total release of capital first half year was 3.5% and 5.7% for the full year. The difference between the two is an increase in new business. You may see our numbers our P and C volumes have grown by €80,000,000, disability has grown by €20 odd,000,000,000 and the growth in our non life business took place in the second half of the year. So we believe something like a 6% release of capital is not a strange number, but the main driver actually is how much new business we write. And again, from H1 to H2, you can saw an increase in volumes in what we see as profitable non life business. So we were happy to spend some capital release in organic growth in our business. But I think the number we've produced so far has been relatively stable and you could apply it going forward. The key driver here is amount of P and C and disability volume we're able to attract. All right. Very good. Thanks, Chris. The next question is coming from Mr. Bart Horsten, Company and Co. Go ahead please. Yes, good afternoon. I have a bit of a bad line, so hopefully you can hear me well enough. Also on capital generation, if I may. You gave an indication, I think, in your guidance on net operating life results of 75% to 85% translating into capital generation generated within Life. Is that bandwidth still valid? Or do you think that would move upward as well? And I was wondering to you'll be revising assumptions on the excess churn. Is that on the impairment? Is that a periodic schedule? So that's on that topic. Second one, you said that your life insurance margin went up from 3.4% to 3.7. I recall that during the IPO, you already stated expected the life insurance margin to go up. It went up higher than I had anticipated. Is that a level which you expect to assume going forward? Or do you see further improvements? And my final question relates to the right to buyback shares. I think the lockup of the NOI will end at April 17. And your AGM, it will be in May. Suppose the NLFI will sell down before your AGM. Do you have an opportunity to participate? Or will you can only do that after the AGM? Thank you. Marc, thank you. On the life insurance business, the capital conversion ratio from life to profits or to cap generation, it is a bit lower than we thought simply because the share of capital gains reserve, share of accounting contribution to the life business was higher than last year. So going forward, it's probably easier to model off the OCC number than to model of the life profit conversion figure. But the chunk of the share of capital gains release in Life was higher than last year. So the conversion ratio this year is in the lower end of the bandwidth that we provided simply because there was larger capital gains. I think going forward, it's better to model off the absolute number OCC. So the life insurance margin, it moved up to 3.7%. It moved up faster and more than we guided to anticipated at IPO. This appears to be a reasonably stable number. If I look at the life insurance business, I have no reason to doubt that this thing will change materially. So the plateau at where we are appears to be sustainable. In terms of assumptions, we tend to have Q3 as the assumptions quarter. So normally, we have once a year when we update all our non economic assumptions, cost assumption, lapse assumptions tend to take place in Q3 with some overflow in Q4. Unless there is during the course of the year, a really striking phenomenon that you have to take into account. But normally, as for most insurance companies, Q3 is assumption season in our actuarial family. That's when we tend to do tends to happen. Okay. And on your last question, do we still have room to maneuver if and when NLVIA would decide to further sell down before the next AGM and after the lockup period has ended? Well, the answer is as simple as clear. We've used our full capacity with the 1st buyback opportunity because we wanted to give a strong signal to the market. So if and when NLVIA would decide to do a further sell down before the next AGM, we will not have room to maneuver in terms of buying back shares. And that there is not the limitation. It's not our capital position or the unwillingness to do so, but just we're just not allowed to do so. Okay. Okay. Is it probably fair to say that we do have the intention to participate in placings during the year, as we've done in the past. The magnitude the timing is kind of out of our control, something for our shareholders to decide. The magnitude depends on the time at hand, But it's our intention to support the sell down by the state as we've done in the past. Okay. Thank you. And if I may, just found one other question I would like to ask and that's on your development of your DC business. It's moving quite okay, tripled in assets and doubled. Could you tell us what the recent dynamics are? And is there also some capital release already shown in from this move from TB to TC if I assume that these were mainly existing clients which you had? The increase in our DC portfolio were mainly new customers. So we were happy with welcoming new customers. So that didn't lead to significant releases in the DB book. And the main driver behind that is our improved product. And I think some of the other market participants decided not to be as active in this market as they were before. Today, we see 3 to 4 active pension insurance companies in the Netherlands active involved in new business. So I think the market becomes pretty small in terms of number of providers and that's helpful in acquiring new business. Okay. Thank you very much. The next question is coming from Mr. Kunal Saferi, JPMorgan. Go ahead please. Kunal, you're asking question. I'm not on your line. Hello? Hello? There is a bit of confusion. This is Ashik Musali from JPMorgan. Just a few questions. First of all, can you give us a bit of color about UFR drag? Because if I understand correctly and if I remember correctly, at first half, it was 2.2 points and at full year, it's 3 point something, 3.5 points or something. So your capital UFR drag in second half went down compared to first half whereas given what interest rates have done, it should have gone up materially UFR drag. So what's going on there? That's number 1. Secondly, going back to Slide 22, you're using some spread of core sovereign bonds of minus 20 basis points and non core of 50 basis points. I mean, what's your thought process behind it? Because if I look on Bloomberg at the moment, I mean, year end spreads for, say, Germany was 60 basis point minus. For France it was 40 basis point minus. So your core sovereign spread should be like minus 50 range as well as your non core sovereign. I mean, if I look at say France, Belgium, Austria, Super National, everything was negative and you're assuming 50 basis point positive. What's the rationale behind using this because these are like market consistent data which we can track up every day on Bloomberg? So that's the second one. And third, like can you give us some color about your life earnings, which there is on slide number 9, is something called additional investment results. Now looking at the slide, it looks like it's roughly $60,000,000 which includes M and A as well. And in the previous slide, you mentioned M and A is $20,000,000 So that means additional investment income is $40,000,000 That's a big jump from $440,000,000 to $480,000,000 What's driving that? Because majority of the asset allocation shift you have done is like in second half. So any thoughts on that would be great. Thank you. Very good. In terms of the UFR drag, we do cap rates in every period from the beginning of the period interest rate and the ending of the period interest rate. So we looked at the U of R contribution as per Jan 1 and the U of R contribution as for 31 December. And that is the number we use in our analysis. So rates during the year had a V shaped development. So beginning of the year, end of the year rates we put into our model. We use the constant zero model. We've seen other people doing a funny averaging method. We've used a constant zero model using beginning of the year and end of the year solvency. That reflects where we believe the right way the UFR drag developments. It does front load some of the UFR drag instead of averaging it over time. But we're using end of the year, end of the year numbers. In terms of the long term investment spreads, this is, as I said, we slice and dice, we slice the delta solvency over time. The number that's hardest is beginning of the year solvency, end of the year solvency. And then you've got the solvency accretion, which is a number that you can't argue with, adjusted delta in solvency that you achieved. OCC is a way of bucketing into what is a sustainable replicable net level of capital generation and even with the June long term investment margins are reasonably stable across the cycle. And again, some of these numbers are a bit more optimistic. In real estate, the direct investment yield is still 4.3%. I think in if you look at the numbers, it comes out 3.7% applying our spreads. On equities, we use 3%. The actual return you make on equities is larger. So the spreads we make is actually a blend of direct income plus capital gains across the cycle, where we believe in terms of core government bonds, there is a clear drag today of holding those, Others, they may yield better. And again, in other categories, for example, re decited equities, we still have a fair degree of conservatism. Across the whole across all categories, we believe in the long run, this is a bankable set of indicators, especially if you take into account the capital appreciation of some of the other investments. Our mortgages are at 110, the actual spread is higher, the default cost is virtually nil and we will also absorb those not completely in the numbers. The $110,000,000 is also reasonably conservative. So across the numbers, we feel this is a sustainable, defendable, bankable number across the cycle. In terms of the live earnings Page number 9, let me give you there's a shaded sort of shaded bars. Let me just give you the numbers that are in those bars. In 2015, the top number is 4.41. If you go down, you add 15 for swaptions, 146 for shadow accounting release, 173 for investments and 107 for other. That fills that chart. If you go to 2016, the $551,000,000 breaks down in $57,000,000 which is the shadow account release from Schwabtions valuation, 65 from M and A and additional investment result, M and A acquired businesses, 212 from regular shadow accounting release and 105 from investment results. If you look at those numbers, investment results plus the regular release was 3.19 last year, 3.17 this year, so a pretty stable number. On top of that is additional results in M and A of EUR 65,000,000 and EUR 57,000,000 contribution of earnings from capital amortization of the capital gains on the swaptions portfolio. That's very clear. But that's what I was trying to get some clue about is this €65,000,000 the 2nd bucket in 2016. I mean, if I look at Slide 8, for example, it mentioned that operating results from your acquisition was $22,000,000 Actually, by the way, this was same at first half as well. So I don't understand how this happened as well. And number at first half unchanged at second half as well. So anyway, even if we say EUR 22,000,000 of acquisition benefit, that still means that additional investment result is like plus $43,000,000 That's quite a lot on a base of $440,000,000 dollars I mean, what's driving that? Is it asset re risking or is it some sort of capital gains, which may or may not disappear? Any thoughts on that? Because the only thing I'm trying to understand is this $40,000,000 number sounds a bit large given the base of 400,000,000 EUR 30,000,000 may sound large on the base of EUR 400,000,000. But on the basis of a EUR 30 odd 1,000,000,000 investment portfolio, you're actually talking about something like 10, 13 basis points of additional returns. So the €40 odd 1,000,000 is the right number, €65,000,000 minus €22,000,000 gives 43,000,000 dollars The $43,000,000 is a reflection of few things, some increase in shadow accounting release. Secondly, you may recall in our half year result that post Brexit, we re risked our portfolio a bit. We took advantage of widened spreads at that point in time to take a bit more risk. So in the second half of the year, we added more risk to our investment portfolio, partially by buying then what we saw underpriced UK bonds, we allocated a bit more to equities and to mortgages. So during the year, the re risking paid off and indeed $40,000,000 is a lot against $400,000,000 but against a $30 odd 1,000,000,000 investment portfolio, you're looking at about a 10 basis points to 15 basis points additional return. So that puts things in perspective from our point of view. And so this is recurring for next whatever is the life cycle of the business basically. It's not like a one off something like that. No, we believe that this is if I look at our midyear plans, at least with the plant period that we can foresee is a fairly sustainable number. And so just going back to UFR, I mean, so how should we think about UFR because if you take a mid I mean, starting and ending and in between interest rate remains 0, then is that the right way of reflecting the UFR drag or yes, anyways, I don't know the answer as well, but just any because the thing is that interest rates went down in second half. Second half interest rates were definitely much lower than first half and your drag was actually lower. So I just got a bit confused here. Right. Kunal, this is Michel. Can we take this offline and I'll Yes, sure, sure. That's good. Thank you. Thanks a lot for your answers. The next question is coming from Mr. O'Neill Van Veen, UBS. Go ahead please. Thank you. Just a couple of follow-up questions. Firstly, it doesn't sound like the LAC DT change you made to be in line with the new guidance is particularly material. So if you can give a bit of color on that. And secondly, you gave us a lot of very clear guidance or commentary around the buyback. But can you also maybe give a bit of color around you did a couple of bolt ons during 2016. What's the outlook for potentially more bolt ons going forward? Thank you. Anit, I think we're actually very pleased that the lack of T guidance of VNB was not material to us. There's certainly no material negative. There was a small positive, a couple of points that it added to our capital. But that was if you look at the way our capital develops kind of offsets by the warehousing of the real estate portfolio. So net net impact on our capital is limited. But again, I guess our key messages here is, the likelihood is not materially negative impact our business. Actually, it's a small positive, More to come, who knows? That depends on how the market and we will interpret the number. But it's certainly no negative on the on the on the equity to us. The on the on the on the on the on the on the on the on the on the on the on the on the on the on the on the on the we are open for business. Our solvency position is strong. We continue to look for options. On the other hand, we have very strict investment criteria. And if we look at businesses to acquire, they should at least meet our financial criteria. So we more often have said no to options over the last 2 years than we've said yes. If you take a look at Slide 3, where we show our portfolio, we would be willing to look at options in the Non Life area. If there would be a Non Life book for sale, then we definitely would have a look at it as long as it comes at the right price. We're very interested in Funeral business because it hatches with our longevity. And in the area of business enhancement opportunities, the fee business, in terms of distribution, we are I think for the time being, we are done. And we are particularly looking at business that can strengthen our assets under management, our fee business. And in Sector B, we're in the middle of converting our own portfolios to a software as a service book. We're halfway. And if that's done, then we also would be in consolidating the Dutch life insurance business market, especially the smaller insurance company. So we're open for business. We have a very strict valuation in terms of finance metrics, and we never comment on particular deals where we are looking in at the moment. That's very clear. And thank you for your additional solvency disclosure. It's market leading and particularly Slide 24 is very helpful. Thank you. The next question is coming from Mr. Matias De Wit, KBC Securities. Go ahead please. Yes. Thank you. I just have some small follow ups. On Solvency II, you stated that part of the increase in the ratio in 2016 was linked to cost savings. Just wondering if that's positive variances or is this more linked to changes to your cost assumptions? And then secondly, on the risk margin release, just wondering if you could provide somewhat more color on the amortization pattern of that release because I think it could yes, it could be quite long in nature. And then lastly, on Bank and Asset Management, the numbers the operating results dropped quite significantly. But I guess it's mainly linked to start up costs, so and integration costs. So could you confirm whether that's the case? And also going forward, what could we expect from this business line in 2017 2018? Thanks. Okay. On the cost savings, there really was the integration of the Accent Funeral business at Adanta. And we are we believe and we're pretty convinced and I believe that we're the lowest cost operator in the funeral business. Remember in our Q3 call, we said there were a number of FTEs that came in, a number of FTEs that were left. I think we do this with much, much less people from 60, 70 people to less than 30 people for the same portfolio. That is reflected in the cost lower cost charges in your best estimate liabilities. So, that provides a capital uplift. In the solvency model that shows up actually in the buckets variances and other. So market and other, that's where it shows up in terms of sorry, it shows actually up in the capital charge in the life business. In the delta capital, it shows up in the buckets variances and other. So in terms of stock, it's lower life capital charge. In terms of flow, it shows up in the bucket of other. So in terms of the run off of the risk margin, let me look at it. It's a risk margin release is something that happens over a significant period of time. So over the coming years, we believe that, that is still risk margin release to come. It is somewhat, I think, front loaded. So it's not an equal number over the entire period. So the 1st years will be a bit higher than the latter years as the individual life book runs off. So, well, the exact pattern is not something I can have at hand here, but please But I guess for the UFR benefit, it's the other way around, I guess. So it starts high and gets lower over time or So you get the UFR unwinds, the UFR drag is higher in the 1st period and moves down over time. And the offsetting risk margin release is higher and lowers over time. So there's a plus and a minus that are both higher in the early years. In terms of Banking and Asset Management, that segment, 2 things at play. In our bank, we have a rather small bank. And the profit of the bank this year was more a financial profit and operating profit. They were more in the shape of capital gains on a fixed income book. So you can see the IFRS profit in the segment actually keeping up reasonably well, but the operating profit lower. And in terms of the business, we believe that asset management is a growth business, but we made costs in terms of launching the offices fund. We made costs in terms of hiring people. We had integration costs of B and G without the full year results kicking in. So there's really more cost preceding returns. It's the investment rather than underlying performance issue. We believe that if our funds kick off and if our goals materialize, this will be a solid profit contributor going forward. Okay, very clear. Thanks a lot. There's an additional question from Mr. Robin van den Broek, Mediobanca. Go ahead please. Yes, good afternoon. Just one question to clarify probably an answer given before, but the EUR 348,000,000 of capital generation, you've indicated that you're locking in some core spreads during H2 and then early 2017. But does that effectively mean that half of that portfolio should be assigned a 50 bps excess return rather than a minus 20 bps excess return, which is basically inflating that 348 further or not? That's why I understand your question, Froben. Could you please elaborate? Well, on Slide 25, you indicated SEK 3 800,000,000 has moved from basically core to short dated noncore sovereigns. And I assume the EUR 348,000,000 you reported on the new framework, yes, takes into account the average mix of the portfolio in 2016. So the fact that the mix now is more towards noncore sovereign, although it is very short term paper, but it's still non core sovereign. Should we assume that that is an incremental excess return compared to the 348? Well, the 348x is based on the beginning of the year portfolios, the beginning of the year 2016. So compared to portfolio at the beginning of the year, you will see a relative decline of core versus non core. So it's actually the swaps spread trade should support results should actually support the operating cash generation rather than diluted, because the $3.48 was based on the Jan 1 portfolio and now we have a portfolio that has more yieldy assets. Okay. So your answer is yes basically? Yes. Okay. That's very clear. Thank you. Mr. Chairman, there are no further questions. Well, thanks for the time you took to listen to our story. And hopefully, we were able to reflect on all your questions in a proper way To close this call, again, we were very happy with the results we could present today. We delivered upon our promises. And as said in my introduction, it was hard work, and we intend to keep on doing so to deliver at least in line with our promises also in 20 6 in 2017 and hope to see you all in person somewhere over the next period. Thanks and have a good day. Ladies and gentlemen, this will conclude the ASR conference call on the 2016 annual results. You may now disconnect your line.

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