Good afternoon, ladies and gentlemen. Welcome to the ASR annual results 2015 call. At this time, all participants are in the listen-only mode. Today's call will be hosted by Mr. Chris Figee, CFO, and Mr. Jack Julicher, CIO. The call will start with presentations by the 2 hosts, followed by a Q&A session. At this time, I would now like to hand the call over to Mr. Chris Figee, CFO. Go ahead, please, sir.
Very good. Good afternoon, ladies and gentlemen. Welcome to the ASR annual results presentation. I'm here joined by Jack Julicher. As is customary, Jack, who heads up our financial market and asset management business, and myself, CFO, will guide you through the results of ASR over 2015. Before we start, I'd like to make two points of order. As you may be aware, the Minister of Finance, our shareholder, has made a decision on the privatization process of ASR, which has been endorsed by Parliament. That process is ongoing, and we have agreed not to, at this point, comment on that very process. There will be a time and a place for that, but today is not the time or the place. We cannot and will not give any comment on that very process.
Secondly, you will understand, in the light of that process, we cannot and will not give any forward-looking statements. Again, there we will be very strict in our answers in the Q&A, and we hope and trust you understand that. My final forward-looking statement for today is that I will make no forward-looking statements in this call. Having said that, I'd like to start with the presentation and walk you through the numbers. My lawyer suggests me to read to you page number two, but I leave that to you to do it in your own time. Let's move to page number three, where you find the key messages on the ASR results. The operating result of the group increased to EUR 521 million from last year, up about 25% from last year. The operating ROE of the group is up 13.9%.
The net result increased to a little over EUR 600 million, up from EUR 423 last year. The difference between the two, you may or may not recall, is first of all, capital gains and fair value changes, and secondly, incidentals and one-offs that do not relate to the insurance business. The fact that the IFRS result exceeds the operating results is a reflection of the significant capital gains and fair value changes we realized or we achieved during the year. Both measures are up significantly to a very healthy set of levels. The group solvency estimated at 185 post-dividend. We will talk a lot more about it in the course of the presentation. We apply a certainty or uncertainty bandwidth around 10 percentage points, plus or minus around that. We will elaborate much more on that in the presentation, but solvency after dividends of 185.
For comparison purposes, it was 190 before dividends. End of year, 190 before dividends, 185 after dividends. Solvency I, we'll miss our little friend, Solvency I, we go out on a bang with a Solvency I level of 305%. Premiums, roughly stable. In non-life, stable at EUR 2.4 billion. In life segment, stable at EUR 1.8 billion, where this year the significant pension buyout we closed last year, was part of last year's new production, was reflected in the growth written premiums of the life business this year. Operating expenses up to EUR 575 million, primarily because we acquired new cost bases. The bulk of the increase in cost was due to acquisitions. We just acquired new businesses that brought staff and brought existing cost base. The remainder of the cost increase can be explained by one-off projects, mostly from a strategic or regulatory nature.
What makes me most proud is the step-up in the pace of our balance sheet and portfolio optimization. We made a series of acquisitions during the year, we optimized our balance sheet. If you actually look from a distance at our numbers, I'm proud of what I call the triangle between a high ROE, an operating ROE of about 14%, Solvency II, about 185%, double leverage back to 102%. To me, it's a combination of a high ROE, a high Solvency, low double leverage that make ASR stand out. It makes me as a CFO very proud and very pleased with the results that we actually achieved in the last year. Let's turn to page four when we go into the operating result development.
Here you can see the difference between the IFRS profit and the operating result in 2014 and 2015. Again, let me stress, our operating result is a very clean and neat result. It is actually the result in the insurance business, excluding capital gains. It is not a profit before trouble. It is not a profit before misery. All the insurance effects are in there, we take out incidentals that do not relate to our core business. We take out fair value changes and capital gains because we believe this number is the best reflection of the underlying delivery we achieved in 2015. As you can see in this chart, how in 2015, the before-tax IFRS profit of EUR 780, we take out EUR 371 of capital gains and fair value changes.
The bulk of it, compared to last year, is actually a large capital gain realized in H1 when we rebalanced the equity portfolio. As you may recall, the value of the portfolio drifted upwards. We brought back in line with our strategic investment policy, doing that, we realized a capital gain. The bulk of the increase versus last year is a capital gain on the equities portfolio. We take out incidentals. Last year it was a write-off of the VOBA, which we found not to be core to the insurance business. This year, the biggest incidental actually is a EUR 91 million notation to a provision for real estate development business. On top of that, there are social plan costs and spend on M&A, on strategic projects. The remainder, EUR 521, really is in the earnings that are core to the insurance group.
Here you can see operating result up EUR 104 million versus last year. The key figures summarized again on page five. You can see the operating result and the operating ROE and a net result and a net ROE. The operating result of EUR 521 translates into an operating ROE of 13.9%, and here we apply the simple statutory tax rate of 25%. The detailed calculations are found in the appendix. Operating ROE of 13.9% ex capital gains and net income ROE of 17.2%, including capital gains. Two numbers that we are quite proud of that represent a very strong delivery in 2015. Dividends at EUR 170 million, up 22% in last year. Agreed upon with our shareholder, taking into account our mind the operating result level and operating result improvement.
Finally, the Solvency II, according to the standard model, which I will elaborate more on later in this project, on this discussion. Solvency II, 185% midpoint estimate, and for certainty purposes, a small modeling related bandwidth of ±10%. ASR is known for its strategy to contain costs on a regular basis. Page six shows you the continued containment of the underlying cost base. On the left-hand side, you can see the gradual decline in our cost base from EUR 614 in 2011 to EUR 519 today or EUR 575, including one-offs. The bulk of the cost increase, as I said, was acquired new businesses. We made a number of acquisitions and we added FTEs and cost base to the group.
If you strip for that, what remains is a small increase that can fully be explained by incidentals and one-offs, M&A projects, strategic projects, and some additional spending on regulatory developments. With that, the underlying cost decline is ongoing, which is best reflected if you look at the FTEs. The FTEs of the group keep on being reduced. Productivity keeps on increasing. Even this year, if you strip out acquisitions, the amount of people dropped by 200 people, 200 FTEs in our group, whilst overall profit and premium levels stayed the same. The signal of continuous gradual improvement in productivity. I will dive into and go into the returns by the different business lines. Before that, we felt it was good to give you on page seven the overview.
How does the result stack up between the various business lines, both on an operating basis or on a net basis? On this chart, you can see how the EUR 521 in 2015 breaks down into a non-life profit, a life profit, small segments, and holding and other eliminations. Here you can see the difference between operating result and net results because the left-hand chart does not contain real estate development. We consider that non-operating. The right-hand chart does contain real estate development. Secondly, you can see on the life side the difference between the operating result and the net result, which is the capital gains that were mostly realized in the life business segment. Again, you can see how the different lines together stack up and how the total profit of EUR 521 or EUR 601 is being built up. Let me talk you through the businesses.
First, going to non-life. The absolute profit in non-life this year amounted to EUR 169 million. We're very proud of that number. It's a significant positive and large number. We are a significant and profitable non-life operator with a stable and predictable and high operating profit in non-life. Our premiums were roughly stable, reflecting an increase in health, small decline in disability, and increase in P&C. In disability, last year in 2014, we understood that our market share increased by the declining market, our market share increased. In 2015, we cannot say yes at this point in time because the market figure is not available. We are pretty comfortable with the numbers that we actually produced. In P&C, our total volume went up. Our premium levels went up whilst writing a 98% combined ratio.
The combination of a small increase in premiums whilst maintaining a 98 combined to us is very satisfactory. The group combined ratio was stable at 95%, which you can see on this page. If you zoom in on disability, our combined ratio improved to 89%. As a matter of fact, our disability business, excluding the WGA effect, we have had a combined ratio below 100 since 2010. If you look at individual quarters, about eight out of 12 quarters, our combined ratio has been safely below the numbers that you're seeing here. It's a continuously profitable business. Our P&C combined ratio went up from 95 to 98. Two reasons. One is we actually price for around 98. That is the long-term combined ratio that we price our products for and have priced our products for.
Secondly, in 2015, there were a number of storms, especially the storm at the end of August. The hail storm caused quite some damages. Effectively, the five storms together in the last year represent about a one in five year event. We had a number of fires, we had a number of small reserve releases. If you add that all up, the whole complex of storms, large fires, and reserve releases pushed up our claims ratio about 0.5%. If I analyze last year's figures, take into account the exceptional storms, the exceptional fires, plus the benefit of my new reserve methodology, together my combined was pushed up by almost 0.5%. If you look back at the P&C business, in the last nine out of 11 quarters, the claims ratio was below 65%.
To us, we run a very healthy P&C business with continued low claims ratios, the occasional spike from storms or large fires, sustainably below 100. We're very pleased with the achievement what we realized last year. In health, a combined ratio of 95.5, predominantly due to some positive results on the health equalization system. In summary, in the non-life business, an absolute profit of EUR 169 up from EUR 155, a very solid absolute number. Secondly, we're able to run a P&C business at a combined of 98 and still grow volumes. We have been able to keep our market share and disability historically stable to up with a combined of sustainably low last year below 90%. A very satisfactory and strong performance in the non-life space.
If you move into our life business, you can see the operating result in life up from EUR 349 to EUR 434. The increase may be explained by two factors. One, last year in 2014, we made a notation to a provision to compensate customers for surrender value floor payouts in the past. That compensation, that provision did not recur, so there was a one-off negative in 2014 that not reoccurred in 2015. Secondly, you may note we run an accounting system called shadow accounting, where the results of fixed income securities that tied to the life liabilities actually are reflected in our balance sheet, and only capital gains out of those are added to the investment margin. Last year, we realized some capital gains in the life business in this matched book. In our accounting methodology, these are amortized over the lifetime of the securities.
That also led to an increase in the life result. Our matching portfolio added sustainably to the 2015 result. That increase explains the operating result increase. We've been relatively restrained in writing new business. You can see new production down from EUR 140 to EUR 92. That is to a large extent deliberate because we feel in the current interest rate environment, there's no point in changing large amount of volumes. We're holding back on new business volumes. Last year we had in the APE a large pension buyout. This year there was one similar type of contract that is in the numbers but of a much smaller magnitude than last year. Premiums up, that was because the buyout of last year was in the premiums of this year.
Finally, operating costs are up, but that's mainly because the acquired businesses, the acquired cost basis, land in the life business. We acquired Axent, we acquired De Eendragt. Those businesses are accounted for in the life segment, that explains the bulk of the cost increase. In summary, life result up significantly, partially because of a non-recurrence of a negative last year, partially because of a capital gains reserve that now amortize over the lifetime of the book related to the matching portfolio. Secondly, very much pricing oriented, value-oriented pricing holds us back on new business, and that is deliberate. Let me talk about the strategic acquisitions. We made a number of acquisitions, I'm turning to page 10 at this point in time.
We made a number of acquisitions last year, it is important to show, to talk to you how they actually hold together, how the consistency between those acquisitions. In the top end of page 10, you can see De Eendragt, Axent, and NIVO. De Eendragt is a pension operation, AUM of EUR 1.8 billion. Axent is a funeral business, AUM of EUR 1.7 billion, and NIVO is a funeral business that we acquired using buyout technology. Together, this represents a significant increase in scale and volume in the life and pensions field, but with a balanced mortality and longevity book. As a matter of fact, the mortality-oriented assets from Axent and NIVO exceed the longevity-oriented assets. We do add scale to the business, but we do that in a very balanced and measured way. On the bottom page, you can see BNG Vermogensbeheer.
We acquired the asset management function of Bank Nederlandse Gemeenten. We believe the pension market has actually developed in the last year towards more of an asset management market, and we feel it's good to position ourselves in that field and to add a professional asset management, a third-party asset management firm to our group to build on the existing asset management skills. There you can see a little arrow. The asset management skills that we have will help or these have helped us support the clients of De Eendragt. Secondly, we acquired two distribution businesses, Van Kampen and Dutch ID, also called Boval. Those are service providers that service different intermediaries in the country. Van Kampen in the P&C space and Boval in the disability space. Those add to our distribution skills. They do two things. They add basic fees.
It's a fee-based business, so they make money in their own right. Secondly, they help us put our ear to the ground and be much closer to the actual field, intermediary field in disability and P&C. Our ear to the ground, and we hear every tremble through those acquisitions. Together, you can see the consistency between the various acquisitions. On the right-hand side, we do discontinue operations. We sold SOS International. We are not the best owner of an emergency call center. That sale was announced as relatively recently, and the sale of real estate development that we announced is ongoing. That process is ongoing at this point in time. You can see how we strengthen scale and volume in non-life and life, but in a very measured fashion.
We add distribution skills to our non-life areas so we can actually run our factory but add volumes there. Finally, we strengthen our asset management business through the acquisition of BNG. I turn to the non-insured activities, and I would ask you to read page 11 and 12 more or less simultaneously. I hope and trust you can. We have a number of sub-segments. In this field, we opened up the former segment, other, into categories 1, bank and asset management, a segment distribution, holding other, and a segment real estate development. Banking and asset management is core to the group. The operating result increased from EUR 7 million to EUR 12 million in the year. On the bank, who by the way, runs about 2% of our capital base, has a core Tier 1 ratio of about 20%, so a safe and solid savings bank.
Saving deposits increased by 14% to EUR 1.1 billion. The group originated about EUR 1.4 billion in mortgages, and a total mortgage portfolio is now about EUR 6.5 billion in size. If you look at the newly added mortgages, about 60% was NHG, and of the remainder, 20% had a loan to value of less than 85%. We continue to write very conservative and prudent level of mortgages. In distribution and services, we added Van Kampen and Boval. The effect of those acquisitions was small because they came in during the year. Boval as late as November. We reclassified SOS International as discontinued, which you can see clearly on page number 12. In the holding, the operating result improved from negative EUR 102 million to a negative EUR 93 million. These are the holding costs, pension expenses, and a number of other costs.
What is particularly important, some small increase in operational expenses, mainly due to specific projects around regulatory issues, around M&A, and also around Solvency II implementation. To compensate, we had lower costs for our pension expenses in the group. Finally, in real estate development, we broke down the real estate business into a run-off business and a discontinued business. We have a business in run-off where we have ongoing commitments to build Leidsche Rijn Centrum predominantly, which we will and shall and will live up to, but we provided for those costs to businesses to make sure we're as conservative, as prudent as we can. Total provisions about EUR 173 million now cumulative on an NPV basis.
With that, we have provided for the business really significantly, and the remainder is up for sale and the sales process is ongoing, and we further marked down the values of those assets to realizable sale value. The right-hand column of page 12 gives the total. In summary, we broke up, we opened up the non-insurance business into a number of segments. Two are core and are continued. There we can see an increase in operating results, a gradual decrease in holding costs, and a careful and very prudent provision on the real estate development side, both for the run-off piece and for the discontinued piece. With that, I'm closing off the presentation on the business development. We talked about life, non-life, and non-insurance. I'd like to hand it over to Jack to talk about the investment portfolio.
Thank you, Chris. When we turn to slide number 13, we see an overview of the investment portfolio. Last year's economic environment was characterized by upcoming optimism around economic recovery, extremely low interest rates, and uncertainty about the growth in China. Despite the increase of interest rates after historic lows at the end of the first quarter, the investment portfolio showed a satisfactory and solid performance with all asset categories outperforming the benchmarks. The composition of the portfolio remained unchanged, and the investment results delivered a stable contribution to the performance and a strong capital position of the group. Total investment income amounted to EUR 1.25 billion, of which about EUR 350 million can be attributed to indirect investment income. The direct or running yield, including releases of the provision shadow accounting, was 3.2%, which is well above the average level of the guarantees on the life products.
The strategic asset allocation is based on a partial internal ECAP model, which is more granulated than the standard model and is fully compliant with Solvency II requirements. The total investment portfolio increased as a consequence of the acquisition of funeral insurer Axent and pension insurer De Eendragt. The reasons for the satisfactory performance are as follows. In the first place, in the second quarter, equities were sold and capital gains were realized. Secondly, the movement from liquid assets to less liquid assets, like residential mortgages, has been continued. Thirdly, additional investments were made in corporate bonds and lower Tier 2 bonds. In the fourth place, we took advantage of the weakening of the euro against USD by taking a tactical position in USD-denominated credits. To summarize, the asset base remained resilient and robust, showed good performance, and contributed to the strong capital position of ASR.
Let me turn to the next slide number 14, with an overview of the fixed income portfolio. The value of the fixed income portfolio went up by 2%. The increase of EUR 2.5 billion of the fixed income portfolio related to the acquisition of Axent and De Eendragt was, for the most part, compensated by a drop in value of the derivatives portfolio and the overvalue impact of the net increase of interest rates. The high quality of the portfolio is reflected in the rating distribution, as was presented on the previous sheet. 70% of the bond portfolio is invested in Dutch and German government bonds, only 5% is below investment grade or not rated. The share of AAA increased due to the upgrade of the Netherlands from a AA to a AAA status.
The exposure to EU peripheral countries has been reduced in the second quarter due to the uncertainty around Greece. Last year, the volatility adjustment has been introduced under Solvency II. As you know, the volatility adjustment is an additional spread that is added to the Solvency II discount rate and is derived from a reference portfolio of an average insurance company. Compared to the volatility adjustment reference portfolio, our fixed income portfolio is overweighted AAA sovereigns, overweighted non-financial corporates, underrated EU peripheral government bonds and financials. Given this deviation, in a flight to safety scenario, when spreads widen, the VA spreads widens more than the spread on our fixed income asset base. The consequence of that is that our own funds go up, that has a positive impact on the Solvency II ratio.
In the current low interest rate environment, the dilemma is whether to hedge the interest rate risk in the regulatory environment, including UFR, or to hedge based on the economic environment, excluding the ultimate forward rate. ASR decided to immunize the SCR ratio from rates movement based on the curve, including UFR. A boundary condition is that the SCR ratio excluding UFR does not drop below 100%. As a consequence of this policy, the interest rate hedge was reduced by shifting to payer swaps and swaptions, that resulted in a lower value of the derivatives portfolio together with the overall increase of interest rates. In order to protect the running yield from dropping too quickly, the controlled shift from liquid assets to less liquid assets was continued.
That is illustrated by a net increase of the residential mortgage portfolio with EUR 1 billion and an increase of the corporate portfolio with EUR 1.2 billion. The risk-return profile of the financials portfolio improved. Within the financials portfolio, the share of lower Tier 2 bonds and senior bonds has been increased at the cost of Tier 1 bonds. The Tier 1 portfolio is 1% of the total fixed income portfolio. Let's turn to the mortgage portfolio. The residential mortgage portfolio remains of a solid credit quality. About 90% of the portfolio has a loan-to-foreclosure value lower than 100%, or is NHG guaranteed. Under Solvency II, residential mortgages are classified under counterparty risk, the average charge is between 5%-7%. Due to the tightening of spreads, the market value of the mortgage portfolio went up with EUR 240 million.
The decision of the supervisor not to grant a beneficial treatment to NHG guaranteed mortgages had no impact, as these mortgages were not treated differently from non-guaranteed mortgages. The conclusion is that the risk return profile of the fixed income portfolio and the mortgages portfolio remained solid and showed further improvement. A controlled shift to less liquid assets has been continued to protect the running yield, and immunizing the SCR ratio, including UFR, has been given priority. That brings me to slide number 15, with the equities portfolio and the real estate portfolio. During the first quarter, the available budget for equity risk, which is one of the components of market risk, went down as a consequence of the drop of interest rate to the lowest levels ever. In such an extreme rate environment, the boundary condition of SCR, excluding UFR, became restrictive.
The consequence was that we sold EUR 500 million of equities to remain within the risk tolerance levels and realize the cap gain of EUR 150 million. As interest rates recovered, we started to reinvest in equities and real estate funds in the completely de-risked portfolios of Axent and Eendragt. Including unrealized value changes during the year and additional net investments in other insurance companies, the equity portfolio increased with EUR 700 million to EUR 2.7 billion. We continued the policy of downward protection of the less liquid part of the equity portfolio by a put option hedge, and the amount hedged was about EUR 700 million. The equity portfolio showed a strong performance, and that was mainly attributable to the 5% participations. We have applied the transitional rule that defines a 22% downward shock instead of a 39% downward shock.
We have applied that for the equities held as of the end of 2015. Furthermore, in accordance with Solvency II regulation, the look-through principle has been applied for participations in investment funds. Let's move to the real estate portfolio. The real estate exposure has been reduced. A sale of participations in the Dutch Prime Retail Fund and the Dutch Core Residential Fund to three pension funds, one Dutch insurance company, and one Japanese bank, resulted in a decrease of the portfolio with EUR 369 million. In addition, properties with a market value of EUR 102 million were sold. Total acquisitions of rural and retail premises and our own office building amounted to EUR 170 million. Indirect investment income from real estate amounted to EUR 145 million, mainly attributable to revaluations of rural real estate and residential real estate.
Exposure to commercial offices, where vacancy rates went up, remained limited, and almost 50% of this portfolio consists of own-use properties. The performance of all real estate categories was better than the IPD benchmark. The portfolio remains of high quality, and that is driven by our dynamic acquisition and de-investment policy. Vacancy rates for retail and residential remained low. Impairments on the properties that were leased to the defaulted retail store, V&D, were EUR 15 million. As Chris explained, asset management is an important non-insurance segment. Managing portfolios on the basis of the characteristics of liabilities has been one of our core skills for a long time. We have built a track record in management of real estate funds for third parties, and we attracted funds from institutional investors. ASR manages funds on behalf of policyholders and separated accounts. The total assets under management amounted to EUR 44 billion.
During the last year, we invested in our asset management skills to be able to offer to institutional clients and to the ASR general pension fund, the ASR APF, an integrated fiduciary management proposition. The acquisition of BNG asset management with a specialized asset management team, can be seen as supportive to this strategy. In summary, the real estate exposure has been reduced, and we reinvested in equities, and equities showed strong performance, and the performance of real estate was good as well. That brings me to the overall conclusions. Firstly, the asset base remained of high quality and proved to be resilient, and the performance contributed to a strong capital position. Secondly, the controlled movement to less liquid assets has been continued to protect the running yield.
Thirdly, real estate exposure has been reduced, and we reinvested in equities related to the de-risking of the acquired portfolios of Axent and Eendragt . We continued to invest in our asset management skills to be able to offer the ASR APF and institutional clients an integrated proposition. That brings me to the end of the presentation of the investment portfolio. Chris, I want to hand over to you.
Okay. Jack, thank you. Ladies and gentlemen, let's turn to page 16 on solvency and balance sheet management. It's my understanding that this day and age, most investors look at insurance capital the way Winnie-the-Pooh looks at honey. With lots of interest and lots of excitement. That's why we're spending a considerable amount of time on Solvency II, and really further boosted our disclosure in this field. I'm going to talk about the level of solvency, the level of SCR. I'm going to talk about the movements in our solvency ratio. I'm going to talk about the sensitivities of our solvency ratio. My conclusion is, over the past year, we've achieved a lot of progress, and our approach and numbers are consistent.
You will find, or at least we find over the past year, consistency between the level of solvency, the sensitivity of solvency, and the management ladder by which we'd actually operate. Bear with me as we walk through these detailed pages. Page 17. Some people call me old-fashioned, but I'd like to look at book values over multi-year periods. The development of book values, own funds over a multi-year period of time often give a good indicator of underlying trends. On this page number 17, you can see the IFRS equity, the Solvency II own funds, and our ECAP own funds. A little note on the latter, we have an ECAP model. It's an internal model, but we have not applied that model for regulatory purposes. We have not applied the model for approval for Solvency II.
We have only used it so far to steer our own asset allocation. The main difference between the SCR and ECAP is in our own model. We model risk factors differently, we model correlations differently, and we model tax treatment differently. Historically speaking, rule of thumb, there is a 20-point difference between the two. That varies over time, but historically has always been around 20 points. This year, our SCR last year to this year went up by 15 points. ECAP went up by 20 points. The difference mainly is the treatment of taxes, the LAC-DT, but we will talk about it later. In the SCR, we provide for a markdown on the LAC-DT. In ECAP, we have not, because the SCR world tells us there is no such thing as fiscal unity. As a fact, in practice, there is.
The ECAP model does contain the reality of fiscal unity where the SCR does not. Again, back to this page. All numbers go up. Whether you include hybrids or exclude hybrids, the way you look at the numbers, we see growth in IFRS equity, SCR own funds, and ECAP own funds. That to me is a good signal of the underlying trend of the business. If we then zoom in on our Solvency II SCR calculation, please turn to page 18. Page 18 has the SCR according to the standard model. You can see the own funds and the required capital, the numerator and the denominator. In the own funds, the unrestricted Tier 1, common equity and retained earnings, is about 84% of own funds. Not only in our view do we have a large amount of capital, we also have a high quality of capital.
84% of the fund is Tier 1. As a matter of fact, if you do the numbers Tier 1 over SCR, you would get an SCR ratio of about almost 160%. The Tier 1 capital alone represents about 160% of our SCR. That is not a target. We do not manage by that, but it is something I would like to have a look at and tells me a bit about the quality of the capital. We have significant headroom available. Tier 1 headroom. Basically, Tier 1 is defined as 20% of total available capital. That is the max. If you take 20% of the total available capital minus what we have, the Tier 1 headroom is a little over EUR 1 billion. In Tier 2, we have headroom of EUR 656, and Tier 2 headroom you calculate is about 50% of the SCR, 50% of the required capital.
If you run the numbers, you get to EUR 656 available headroom for Tier 2. We had one security reclassified or grandfathered as Tier 1. That is the old perpetual that was issued in 2008 or 2009. The remainder was classified as Tier 2, and we did not go into a large debate with the regulator whether they should or should not be reclassified as or grandfathered. We treated the new securities, the ones we issued in the last two years, all as Tier 2. Again, available own funds EUR 6.1 billion. Required capital, EUR 2.3 billion in market risk, EUR 2.4 billion in insurance risk. I am very pleased with the fact that the insurance capital still exceeds the market risk. We are an insurance company. A market risk is an important element of our business, an important contributor to P&L, but the insurance risk still exceeds the market risk. We are underwriters.
You can see the other elements. I'd like you to point to the diversification benefit, EUR 1.6 billion diversification benefit. That's due to the fact that we are, even if we're only active in one country, a well-diversified business. We have, roughly speaking, over the years, a 50/50 life, non-life mix. It changes over time due to large one-off contracts, it changes over time to acquisitions. When you look at the bigger bird's eye view, we're a 50/50 life non-life business, and that diversification benefit shows up in our capital. Zooming in, market risk, the main factor in market is spread risk, followed by equity and real estate. The main risk factor in insurance is longevity risk, followed by lapses. Again, the longevity risk diversifies away neatly with the mortality risk, which then shows up in the EUR 1.6 diversification benefits.
Overall, a solvency ratio of 185% after dividends, 190% before dividends, that we were pleased with. For those of you who would like to tick boxes on treatment of various measures, yes, we do use the volatility adjuster. We do not use matching adjustment. We have limited use of grandfathering. Only EUR 200 million of securities grandfather was Tier 1, we did apply the transitional rule for equities, we'll talk about it in a minute. All in all, we believe it's a very prudent way, conservative way to estimate and to calculate your Solvency II. Again, the 185 is a certain bandwidth. We're finalizing the numbers in the beginning of this year when 2016 SCR is the official number. There's some work to be done on interpretation of the delegated acts, for security purposes, we apply a ±10% bandwidth around the number.
Even with that, 175%-195% standard formula is a very robust and healthy level of solvency. Let me turn to the next page 19. This is something we're proud of. You can see on this page our management lever. You can see on this page the Solvency II development and our ROE. The management lever on the left-hand side is how we manage our capital base. 100% is the SCR. Below 100%, you're effectively out of business or at least having difficulty maintaining your license. 120% is our official risk appetite, which means if our Solvency II would drop below 120%, we'd immediately go into recovery mode. Recovery mode means cut spending, fire people, stop new production, get back to 120% as quickly as you can. It's a formal trigger level. 140% as we defined the cash dividend level.
That means at 140% SCR Solvency II standard formula, we'd still be able to pay cash dividends. If we had a small drop below 140%, we might be able to pay dividends, today we use 140% and we have used 140% as a trigger for cash dividends. 160% is a level that we manage on. Above 160%, we're in what we'd call the comfort zone. As we are above 160%, you can invest in your business, you can grow the business, you can make the occasional acquisition, pay dividends and are able to absorb potential negatives. The 160%-plus range is where we feel comfortable in managing the business. On the right-hand side, you can see the ROE, you can see the ROE walk up the business from 8.9% all the way to 13.9% this year on an operating basis.
Our operating ROE has been increasing while our Solvency II level also has been increasing. Jointly, that makes to us a very strong performance over the past years. How did solvency develop over time? Page 20 shows the bridge between the 170 last year and 185 this year. Please remember, last year, we estimated solvency as 175. That was before dividends. Take out the dividends paid out, you get to 170. Add to that the organic growth of 9%. By organic growth, we specifically defined this year as basically the performance of the business from the unwind of the Solvency II curve plus new business initiatives. Effectively, it is assumed that the investments make the returns in the Solvency II curve, which is swap plus VA minus credit risk margin, ultimately moving towards UFR.
The organic growth assumes the investments return the Solvency II curve, plus underwriting profits, plus new business, minus new business trends. The market developments are any returns we make over and above that. The returns we make over and above the Solvency II curve. The first is 9%, the second is 16%. One could argue, given the fact that we deliberately, strategically have run a re-risk, a yieldy investment book, that part of the market movements should be part of the organic business, right? If you run a yieldy book, if you run a risk-bearing book, you would expect in the long run to outperform the Solvency II curve. For the sake of clarity and simplicity, we decided to not make a split between these numbers, between the 16%.
Here's what the business performed over and above Solvency II, and we can leave to anyone's guess how you would allocate it. For simplicity purposes, we've got the operating return, which is the S2 curve, and the rest is what we actually achieved on top of that. There was a contribution from hybrids and acquisitions. At 11%, we issued a EUR 500 million hybrid this year, anyone with a calculator can figure out what the net contribution was or net investment was in acquisitions, mainly EUR 500 minus what it takes to finish up the 11% number. In business developments, basically was the implication or calculation of the results from review of our longevity and mortality factors, lapse factors and profit sharing. Business developments deducted about 10% of our solvency. There's a block of what we call methodology changes.
To many of us, I'd say methodology changes in Solvency II are a bit like the Eurovision Song Contest. You really don't want to be part of it, but you stay up late to watch the outcome. In this presentation, I will deep dive into these numbers to show you what we've actually done in this field for full transparency purposes. We marked down our LAC-DT assumption to 50% recoverability. We applied a transitional rule for equities. We implemented a full-fledged look-through, and finally, we reviewed the cost allocation in life. Net-net, these methodology changes took out about 14% of our solvency. Finally, the concept of other, basically application of a different curve in our liabilities. We had an IAS 19 pension liability, where we applied the proper curve, the Solvency II curve, and there was a dividend that we paid out.
Together, this explains the walk from the 170 last year to 185 this year. Organic growth at nine, market development at 16, hybrid and acquisitions at 11. Total significant organic increase in the business. With this year, we really looked carefully at all our liabilities. We kicked the tires of our Solvency calculations and strengthened where we felt it was new or useful and tried to be as prudent and conservative as possible. Let me talk you through some of those. The transitional measure. We applied the transitional measure for equities, which effectively means that for a certain class of equities, eligible equities, you can reduce a downward shock. The shock officially in Solvency II is 39%. We applied 22% over time or last year. This will run out in seven years.
It added 15 points to our Solvency base, but that will run out over time. We applied the look-through approach. The look-through approach stipulates that if you invest in an investment fund, we should look at the underlying lines for specific risks in those investment funds. Currency risk, spread risk, or equities risk. We applied the look-through very thoroughly and very diligently on all the individual investment funds. That made us specify and deep dive on the various risk factors. That took about seven points of our Solvency. LAC-DT, the loss absorbing capacity of deferred taxes. This is a highly debated topic in the insurance industry these days. We decided, for prudency purposes, to take a very conservative approach. We've used a 50% recoverability of the tax sector. Let me explain how this works. One, in Solvency II, you absorb a shock.
Solvency II is a shock-based system, a stress-based system. If you suffer losses in such a shock, you should be able to recover some of the losses through taxes. Losses are tax-deductible. The question is: Can you recover the tax deductibility in full or in part? In order to recover such a tax loss or the tax deductibility, you either have a deferred tax liability, you have current year profits, and you've got future profits. 4 components are marked on this slide. Heavy debate, how big and how heavily could you weigh component 4? Could you assume that post-shock, your earnings will recover sufficiently, so in a tax loss carry forward, you can actually recover tax benefit from this one-off loss. One thing that we took in mind is that if you depend very heavily on component 4, the LAC-DT could actually act as an amplifier.
For example, if I have a great year, I make great profits and have great perspective on future profits, my LAC-DT goes up. Because I make profits, I've got more tax loss carry forward. Simultaneously, if I have a very bad year, I make low profits, my outlook goes down, and therefore my LAC-DT goes down. If you apply this factor naively, your LAC-DT acts as an amplifier. It helps Solvency on the way up, but hurts Solvency on the way down considerably. What we did last year, took a very conservative approach to this model, to this method. We felt we don't want to have an amplifier, and certainly in this very complicated modeling field, we don't want to be too aggressive. Effectively, we went through all those 4 components.
We took components two and three and a small portion of component four, where we applied very much haircuts and prudential measures to end up with a LAC-DT that was a little over 50%, and then we marked it down to 50%. Now we've assumed a 50% tax recoverability factor from LAC-DT. That took a significant portion of our capital, but we felt that at this point in time, it's the most appropriate and most conservative thing to do to make sure that we're pretty prudent and well reserved in this field. The one thing to look out for is a DTL, deferred tax liability. This year, we took out taxable profits and a small portion of component four to end up at a 50% tax recoverability. Page 23, expenses and technical provisions.
The delegated acts stipulate that insurers should take into account the costs that are made to service policies in the future. In our country, the life books inevitably are in decline. The life books are all, maybe not falling in one-off, but there is no growth in the life business. Over time, the volume, the scale of the books intent are expected to decline. This poses a challenge for your cost base, because how will we serve life insurance policies in the future? What does it mean for fixed and variable costs? That has various relevance when you forecast the cost base going forward. What we did with last year, we reviewed our cost allocation methodology, and we decided that it's proper and prudent and conservative to assume that a fixed cost portion stays fixed and stays on for longer.
As you can see on this page, we actually assume that on life, the fixed cost base stays stable per policy, the fixed cost share in pension doubles, and the fixed cost share in funeral triples. It actually model out as if the fixed cost portion in a per policy base actually increases over time. We almost model that we hardly variabilize our cost base. At this point, we feel that's the most appropriate and prudent perspective you can take in modeling out your cost base and in modeling out your liabilities. Furthermore, we have not included cost per policy synergies from the recent acquisitions. We think they first need to materialize before you actually can take them out and project them into the future. Again, here we've taken a very conservative and prudent approach to cost allocation. Finally, the volatility adjuster.
You can see on this page the relative position of ASR versus the VA reference portfolio. Jack already talked about it. We're overweight AAAs, underweight low-rated securities. We're overweight govies, overweight corporates, and underweight financials, effectively saying we are protected by the VA in a flight to quality safe haven scenario because we're overweight AAA governments, overweight corporates, and underweight financials and underweight peripherals. For us, the volatility adjuster is not something we try to manage, not something we mimic, but the organic design of the asset portfolio, has a side effect that the VA helps us when we need it most, namely in a flight to quality scenario. This brings me then to the sensitivities on page 26. You can see the management letter on the left-hand side. You can see a horizontal line with different sensitivities, and it crosses at 185.
The 185 does not show on the page, but if you extend the lines, you can see there's a cross point 185, is where we are post-dividends. You can see the sensitivities. If the UFR would be lowered by 100 basis points, we estimate we'd lose 17, one seven point of SCR. A manageable amount. Last year, we would have lost 70 percentage points SCR if the UFR would have been declined by 100 basis points. You can see on the equity side, we would have lost 5%. Ex transition rule would have been 9%. We would have lost 5% if the equity markets dropped by 10%, by 20%, and so on and so forth. You can see the beneficial effect of the VA. If the credit spreads generally widen, the VA works for us.
Actually, a widening effect supports us because the VA does its work by widening more than the VA, than the widening of our own asset portfolio. You can see the interest rate sensitivity as well. Finally, on the right-hand side, we've depicted the modeling bandwidth, plus or minus 10%. What's in there? It's a final interpretation and finalization of the delegated acts and some of the analysis that we're doing. For example, refinement of the LAC DT. We've taken a very conservative approach. Refinement of the cost assumptions, especially for those businesses not yet integrated. It has to do with the application of (unbundling our way, this ability), but also with very technical things like applying the VA in determining the risk margin or spread risk modules in segregated accounts.
I will not bore you with those details. There's a whole range of little things and bigger things we need to work through. Safely saying, let's use a bandwidth of plus or minus 10% around those numbers. Even if you apply those, the 185 would effectively be 175-195. Still a very solid number and very safe in our management range. Again, all numbers as per December last year. Finally, balance sheet management. Operational remittance. The page 26 shows the amount of capital remitted to the group. Operational remittance up EUR 200 to EUR 245 million, and incidental remittance up as well. Operational remittance is a remittance for holding expenses, inter expenses and what have you. Incidental remittances were for M&A holding cash. One-off remittances.
You can see a solid increase in remittances. You could actually do your own numbers and relate, for example, the remittance level to the operating profit last year, or you could relate the remittance level to the organic capital creation. You can all see that is in line and pretty safe and solid. If you look at the underlying businesses, we manage our group on a segment level on life and non-life. In aggregate, all segments are able to remit capital to the future. Integral base is the life segment meets the target SCR and the non-life segment meets the target SCR and ECAP. All segments underneath meet the targets required to submit further capital to the whole. At least they met it at the end of last year. Let me make sure, I stated correctly.
In this field, we have remitted capital to the holding. We have had no impediments to remit capital to the holding, and our operating entities, on segment level, are all sufficiently capitalized, so that by end of last year, we could have remitted even more to the holding. This brings me to the financial risk indicators, page 27. They remain at a very strong level. Leverage, 25.1%, almost exactly where we want it to be. We aimed at 25%, in line exactly where we want the leverage to be. We hoped to achieve below 30. We achieved 25% last year. Interest cover headline 14.6 times last year. On an operating basis, we ended last year with 9.8 times interest cover, holding rating triple B plus, and we managed to bring down double leverage from 121 to 102 as per the end of last year.
A very safe and sound balance sheet from our perspective. This brings me to the final chart of this presentation. If I look back at 2015, what we realized, we had a number of objectives. One, to further improve and differentiate on the financial performance. We believe with a delivery of EUR 521 million operating profit, 13.9% operating ROE, that objective was met. A solid, outstanding, operational and financial performance. We enhanced financial disclosure both in segments and hopefully you will agree with me in this round also on Solvency II. We strengthened the competitive position of the group, continued organic reduction on FTEs and workforce, continued increase in productivity, and a series of operating improvements and changes in the business, which you can see a few examples on this page. We further optimized our balance sheet. We enhanced capital management.
Solvency II standard formula, very strong, midpoint estimate 185 after dividends, ECAP at about 205 after dividends, a balance sheet further optimized with leverage interest cover and double leverage all ended last year in very safe and effective territories. Finally, last year, we strengthened the business portfolio of the group. We added scale in life and pensions whilst maintaining the risk balance. We added volumes and scale in distribution services. We strengthened third-party asset management in the run-up to an APF as a business model. We divested business where we are not the most effective owner. With that, I would like to conclude this presentation and leave the room for questions and answers.
Thank you, Chairman. Ladies and gentlemen, we are starting the question and answer session now. If you have a question or remark, please press star one. Star one for your questions or remarks. Go ahead, please. Our first question is from Mr. Cor Kluis from the Rabobank. Go ahead, please.
Good afternoon, Cor Kluis, Rabobank. Got a few questions. First of all, about interest rate sensitivity on Solvency II. You mentioned that if interest rates rise or decline by 100 basis points, that in both scenarios it will be 5% positive for your Solvency II ratio. That's not the key thing, of course. Could you also indicate what the effect would be on the Solvency II ratio, excluding the ultimate forward rate, like you have been disclosing under the old Solvency I regime? Also on the interest rate hedge, which you mentioned that you reduced the interest rate hedge in 2015. When was that exactly, and how is the current situation? Second question about exposure. Could you indicate what your exposure is on the asset side towards energy and towards the CoCos? Probably small, but could you at least give some indication on that?
My last question is about your remittances. The remittances, operational remittances, at least, were around EUR 245 million. That's around 7.5% of your SCR. You mentioned in the past that the SCR growth every year would be around 12%-18%. How do we have to relate that? Did you remit less or do we also have to take the non-operational part as part of the normal remittances? Those were my questions.
Cor, it's Chris. I will ask this question with Jack. Jack will go into details on the hedging program. One point on Solvency II ex UFR, we do not disclose S2 ex UFR. We believe as midpoint time, the UFR as such is an integral part of Solvency II. It makes sense to estimate sensitivities. You can see them on the page. We show sensitivity, what happened if the UFR is marked down. Estimating Solvency II ex UFR is a pretty hazardous exercise because it depends on what curve you assume, in or ex credit risk margin. What do you do in extending the curve for those areas where there are no market developments? Is it a constant zero, constant spot, constant forward? In terms of the world ex UFR, it's not something we feel it's appropriate to disclose. But we do disclose sensitivity against UFR.
In terms of rate sensitivity, I think Jack can talk about the effect that you mentioned.
Yeah. With respect to, let's say the sensitivity in upward and downward interest scenario, both +5. What is important to understand that in first place, the convexity profile of the asset differs from the convexity profile of the liabilities. That has an impact on the own funds. Secondly, there is also an impact through the required capital, because also the required capital is interest sensitive. For example, when you look to longevity risk, there is interest sensitivity. When you add all those impacts and all those effects, intuitively, the peculiar impact is that in both scenarios, there is a plus in the sensitivity.
Okay. Yeah.
Concerning your question on exposure to energy and CoCos. What I can say with respect to energy is that we are underweighted in the energy sector. Grosso modo, you can say the weight in our portfolio is about half of the weight of the indexes that we apply. The CoCos exposure is limited. It is around EUR 50 million-EUR 60 million.
Okay. Very small. Yeah.
Okay. Cor, it's Chris again. On the remittances. Last year, indeed, we mentioned a number, but that was about capital generation, not so much capital remittance. If you strip the two, the capital remittances here, operational remittance was EUR 245. Historically, over the last year, we had a policy where we remitted if and when needed. Whenever there was a bill to be paid, an expense to be paid, hybrid cost to be paid, we remitted. We remitted on an if and when needed basis. That number we realized last year was EUR 245. In terms of the capital that we generated last year, on page 20, the organic growth was 9%, the market development was 16%. Together, that was 25%. We can debate to what extent the market movements are natural.
The numbers we mentioned last year were basically all inclusive, to include organic growth and a set of capital of market movements. The answer to your question is, comparing the 1% to one option per month and the operational remittance is apples and oranges. The one is actually remittance, the other is capital generated. If you want to compare that, take page 20 and compare to the 9% and the 16%, and you can see we're still in line with that statement that we made last year.
Okay. Wonderful. Good disclosure. Thank you.
Very good. Thank you.
The next question is from Mr. Matthias De Bidt from KBC. Go ahead, please.
Yes, good afternoon. Also a number of questions from my side. Could you first of all, on Solvency II, provide the breakdown in the movement in the full year Solvency II ratio, but also maybe in H2 and even Q4, breakdown between market movements. Also M&A is relevant, I think, organic capital generation, more for the second half in Q4. That's my first question. Secondly is regarding the ECAP and possible application for an internal model. Do you have any plans to apply now that some of your peers have approved internal models, or is it not on the agenda? Then maybe a last question on the cost assumptions. What are you exactly assuming now? Is it rising unit cost versus flat unit cost previously? Is that a correct understanding?
Your ability to cut the fixed cost is presumably also linked to the pace of the run-off of the individual book. Could you provide any indication or update on how fast it will run off? In this respect, I also wondered, you guided for a doubling of fixed costs per policy in the pension business. I thought this was more treated as a going concern, not really as a run-off book. Do you see this as a run-off, and could you also provide some insight into the pace of the run-off of presumably the DB pension book? Thank you.
Hi, Matthias. Thank you. In answering your questions, I'll be very careful not to make any forward-looking statements. I can only reflect on what we did in the past, bear with me, Matthias, in my answers.
In terms of the development of solvency over time by quarter. Honestly, that’s actually less relevant. I think it’s my estimate that the organic growth is roughly equally spread quarter by quarter. The market movements as well, although the bulk or the great markets were in the first half of the year, the second half of the year were more challenging markets. The exact split I don’t know, but roughly speaking, I think it’d be little over half was in the first half of the year, the other portion in the second half of the year. The methodology changes all occurred in Q4. If you’d look at the solvency in Q4 headline, you would see that we didn’t add that much solvency in Q4 because that’s when we did all the work on the methodology changes.
From our perspective, if I look back at last year, looking it on a quarter-by-quarter basis is less relevant because the methodology changes peaked in one certain season.
Yeah. If you just look at the Q4 movement, and you strip out the methodology changes, could you provide any indication of the movement, maybe directionally?
Well, I would say take the organic growth divided by four, and market developments. If I make a rough estimate over last year, I would take 65% of that was in H1, 35 in H2, and you can divide it by month. That’s roughly what I’d estimate looking back.
Okay. With the volatility now in Q1, like the first month, so January, and first weeks, any update based on sensitivities you could provide?
Well, you understand, I can only refer you to page 25. There are the sensitivities, they will enable you to make your own estimate at this point in time.
Okay.
In terms of the impact of the acquisitions, We issued a EUR 500 million hybrid. If you look at an 11% growth out of roughly a EUR 3 billion capital base, you can easily back out the acquisitions, that effectively is net cash out for capital contribution and/or diversification benefits. The net capital effective acquisition is sometimes a cash out, sometimes it's a capital injection for a business that we acquired for very little cash out or it's effectively mitigated by capital relief by diversification. If you take EUR 500 million minus 11% times the capital base, you get a pretty good feel for the net effect of the acquisitions, which is around 45% of solvency that we spend effectively across all deals together in acquisitions.
On the ECAP model, I need to be very careful with any forward-looking statements, historically, we have not applied for an internal model. Up to the last minute of last year, we have not applied for an internal model. We've used the standard model. In terms of the cost situation, effectively what you assume is that the fixed cost base grows, the fixed cost proportion grows. In life, the book has declined, it's fair to assume, if there is no new business in this country, the books tend to develop together with what's generally expected in the industry. There we work on a fixed cost per policy assumption.
In the pension market, we have witnessed in the past a shift from DB to DC, from DB products to DC and asset management products, which means that the DB book has declined, but the asset management book has actually grown. The DC book has grown considerably. Going forward, we've assumed that the fixed cost portion on the per policy basis actually goes up which effectively means that the cost per policy in this modeling is assumed to go up over time. That might be mitigated if we indeed deliver on further variabilization, outsourcing of costs. In the last year, we've outsourced our pension business to Infosys. We have outsourced part of the life business to LeanApps/Keylane. If we continue to deliver on that would further support the fixed variable cost assumption.
In the past, we felt it at the end of last year, prudent to assume at this point in time, actually an increased fixed portion of the traditional life and pension business.
Thank you.
The next question is from Jan Willem Knoll from ABN AMRO. Go ahead, please. Mr. Knoll, you can open your line now and ask your question.
Yeah, sorry about that. I was on mute. Good afternoon. Thanks for taking my questions. On Solvency II, first on the LAC DT, you've marked down to 50% recoverability. Was this guided for by the regulator or was this your own decision? If this was your own decision, aren't there scenarios possible where you would increase the recoverability percentage again? You obviously found one. On available capital, what do you regard as an optimal capital composition as you have significant Tier 2 capacity? Are you planning to use this anytime soon? What's sort of your current core Tier 1 or your Tier 1 capitals percentage of total available capital is roughly 80%. Is that to you an optimal percentage, or could it be 70?
Some clarity on that will be helpful. On non-life, you reported again a very strong combined ratio. Were there any prior year reserve releases in the numbers we should be aware of? More generically, what are the pricing and claims trends in the different business lines? Some color there would be very helpful. More specifically on disability, do you see any benefit from the economic recovery in your claims trends? Your claims trends have been moving down nicely. Some insights there would be helpful as well. Thanks.
Jan Willem, thank you. Those are four questions in one. On LAC DT, you asked whether we kind of solved to lower the LAC DT. Well, let me tell you, there are very few insurance companies who solve for lower solvency these days. We've actually worked very hard on the LAC DT. There are a couple of components. The guidance that the regulator has sent out in the industry has said, "Be very careful in using component 4." Component 1, 2, and 3 are hard. DTL is a tangible thing. A profit last year and this year is a tangible thing. Component 4, profits after a shock is a weak component in substantiating underpinning your LAC DT.
That was more or less translated in, if you cannot and should not assume that after a shock you can recapitalize and use the earnings on the pro forma to be received recapitalization as a substantiation of your LAC DT. With that in mind, we went through our LAC DT and calculated it. Roughly speaking, we do not have a deferred tax asset on our life balance sheet at this point in time. We used the taxes in previous years and a small portion from the earnings post-shock in future years. In what we did in component 4, we took our own multi-year budget. You marked it down after a shock, mark it down by saying, like after shock, we have to de-risk the business.
After a shock, we have to assume that margins are less. We have to assume that actually we applied a haircut to that to be conservative, and then we translated operating earnings into fiscal earnings. That turns into an Excel model of 500,000 lines to actually get to a number. Applying that gave us a very conservative LAC-DT approach. We didn't solve for 50%, but we've rounded down to 50% because we felt at this point in time that would be the right thing to do to be conservative and prudent around it. Had we had last year a deferred tax liability, that would have made life a lot easier. I cannot at this point speculate on future scenarios. I think that's not appropriate for this call. I sort of leave it with that.
Just may I just jump in on that. There has been soft guidance from the regulator on component 4. You have, let's say, interpreted that in a quite conservative way, in my own words, and that's how you got to this rounded sort of 50% number.
That's a good way of summarizing it, yes. In terms of capital, yes, we have a conservative capital base. We have headroom in Tier 1 and Tier 2. How have we thought about it in the last year? We issued a Tier 2 instrument last year. We had Tier 2 remaining capital. At this point, we have looked at our capital in relationship to the return on capital. The number that we had fell into our comfort zone, and we realized an ROE of about 13.9%. Together, we feel very comfortable with that. We've looked at the capital headroom that we had also from a safety valve perspective. If and when needed, we could have raised additional capital as a safety valve if something happens.
We ended last year comfortable with the buildup of the capital, knowing that there is headroom available, but also knowing that the capital that we have today yields sufficient ROE. We can talk about the various scenarios looking back. We are comfortable with the conservative buildup and the headroom that we have, the safety valve it produces, and the significant ROE. In terms of non-life, we had a small reserve release last year, basically from changing our reservation methodology that added about one percentage point to the combined ratio. It supported the core by one point. Again, we also had a number of storms. You may remember the August storms, which see much more significant than the past. We had a number of large fires.
From our perspective, the three one-offs is increased hail and storm activity in the summer, making it effectively a slightly exceptional year. We had large claims and a small reserve release together, that pushed up actually upwards combined by 0.5 percentage point. In terms of pricing, at the end of last year, we have witnessed an improvement in pricing, especially in the motor field. We have observed players in the market increasing their prices a bit. That's something that we watch, and that's a market development that we actually prefer to see. Last year, we've witnessed some margin support at the end of the year in terms of especially the motor markets. I will not disclose our competitive strategy here in detail, but something we actually like to see.
In disability, the funny thing is you asked the question, did you see economic developments feed into your combined ratio? Actually, we have not, but also we never saw downturn developments into our disability combined ratio. If you look back at the past, the combined ratio in our disability business has proven to be relatively inelastic versus general trends in the economy. There is always a factor, but the way we've priced claims and the way we've managed claims has enabled us to have a more absolute return inelastic combined than you'd expect. Yes, the numbers there may have been some support from the economy, but again, if you look back, the fluctuations in the economy in the past have not correlated well with the combined ratio because we've been below 100 for the last five years, since 2010.
From my perspective, if I look back at our business, the way we run the business makes us relatively inelastic for economic developments.
Okay. Very clear. Thanks a lot.
The next question is from Albert Ploeg from ING Bank. Go ahead, please.
Yes. Thank you for taking my questions. First of all, many thanks for the good presentation on Solvency II. I've got a question on two slides, number 20 and number 26, basically. On slide 26, where you talk about the operational remittance and already some remarks were made on difference with the operational capital generation. If I look at that operational capital generation comments with more links than to slide 20 and the components of organic growth in the market movements. Basically also your operating result concept. I know that last one is on a pre-tax basis.
Do you believe basically that your operational result, if we as analysts look at that one over 2015 and compare that with the operational capital generation, that they are quite closely linked and that as a result, we can, for example look at the EUR 245 million, let's say, the remittance, and link that a little bit to the operational result, that we get a reasonable feeling for what the payout ratio or the remittance ratio has been. That's my first question. My second question is on slide 20. If I look at the organic growth in the market developments, I understand your comments that maybe part of the 16 points is also somewhat organic related as well.
Is there basically also already some form of relief of the release, maybe of some individual books in there, or is this purely, let's say, over 2015, really the organic generation of the insurance business, so to speak? Thank you.
Albert, thank you. On the first question, the link between remittance, capital generation, and operating profit. In the last years, yes, they were linked, but not one-on-one. The biggest gap between the two is the release from the shadow accounting provision. Our shadow accounting methodology says fixed income investments, backing life liabilities are linked to those liabilities. Any market movements in those assets are reflected in the provisions on our balance sheet. That's the accounting methodology. If you realize a capital gain by, for example, trading those securities and optimizing your hedge, that capital gain is added to a capital gains reserve and amortized over time. That does feed into your operating profit, right?
However, the capital gains, Solvency II is a market value balance sheet. The capital gain is already reflected in your Solvency II balance sheet. The operating profit does not lead one-to-one or has not led one-to-one in terms of operating profit is capital release, because part of the operating profit is a capital gain, which was already in the Solvency II figure. You cannot translate EUR 1 operating profit in life is not EUR 1 capital generation. What you can do, if you look at the numbers that we've provided, the operating profit for the last year was EUR 521. Take out taxes, you get to EUR 390.
You could actually compare the organic growth, 9% over EUR 3 billion capital base to the EUR 390 after-tax operating profit, you will get a fair feel how over the last year, the operating profit translated to capital generation. If you then compare the remittance to it, you can see the consistency between operating profits and the organic capital growth and the capital remittance. In order to make the full translation, you'd have to take out the contribution from capital gains reserve, shadow accounting in life to get to the operating profits. If I can make one forward-looking statement, at some point in the future, we will disclose more about this, but this may not be the day to really go into that. Your other question was on the organic growth.
In fact, the business strain effect was in the organic growth. It's the unwind of the liabilities against the Solvency II curve, including new business. The 9% includes a net effect of the unwind of the lifebook, but also the increase in business in, for example, the P&C business. It's my estimate that last year there was a small contribution in the nine from the capital on capital. It would be a small contribution from capital relief from running off books in last year.
Okay, that's very helpful. Thank you.
Yeah.
The next question is from Mr. William Hawkins from KBW. Go ahead, please.
Hi. Thank you very much for taking my call, thanks for the presentation. Could you help me again, Chris, on slide nine, your life segment. You've already mentioned this, but I'm still getting a bit confused. Can you just be a bit clearer about the increase in the operating result from 349 to 434? You mentioned some rather big items, but I'm not quite sure what those numbers are and then what's going on an underlying basis. Also, if you can just maybe help me. If I take that slide and I add the operating expenses back to the operating result, your revenue is something like EUR 650 million last year. Is there any chance you could give a hint of how that would break down between investment margin fees and technical result?
Secondly, the EUR 170 million dividend that you're paying, would you consider that a normal dividend as part of normal capital management processes? Or are you still sort of in what you would consider abnormal circumstances, given your ownership structure? Around that, how did you exactly arrive at EUR 170 million? Just as a range, why wasn't it EUR 150 or EUR 200, for the sake of argument?
William, it's Chris. Thanks. On the life side, turning to page 9, the operating result increased from EUR 349 to EUR 434. The most important component was the non-recurrence of a provision we made last year. That number is around EUR 40 million, made in 2014. Second element was additional cost, or basically a reserve release to fund effectively project cost and pension spending, about EUR 10 million-EUR 12 million. The remainder is other, plus the increase contribution to the P&L from the capital gains reserve. EUR 40 million in non-recurrence of donations to provisions, EUR 12 million of a release of a provision made in 2014, released in 2015, that we used to spend on regulatory projects. The remainder is by and large the increased contribution from the capital gains reserve.
I'm sorry. Excuse me, butting in. I may be getting confused, but this time last year, there was a EUR 93 million VOBA charge. Is that outside the operating result line?
Yes. Outside. That does not feed into it at all.
Cool.
Yes.
Thanks.
In the investment margin, if you continue to talk on that, the investment margin therefore is an important factor that increases the life results, right? The underlying increase is basically due to the higher amortization of realized gains and lower cost of swaptions. Basically, gains on the shadow accounting and the swaptions, that portion really is the increase in the investment margin of the business. That's how you should see that the delta between EUR 349 and EUR 434. A significant portion is really an increase in the investment margin from the capital gains reserves from the shadow accounting release. As far as the dividend, the EUR 170 million was determined between us and the shareholder, in that we took into account the level of operating profit, the growth in the profit.
At this point in time, William, all I can say about it was carefully considered by all due parties to reflect the underlying trends in the business. At the end of this magical calculation, this was the number that came out. There will be a time and a place in which we will give more clarity on our future dividend policy. Again, this is not the time and place. The EUR 170 was agreed between us and the shareholder, taking into account the developments in the business.
That's helpful for now. Thank you.
Yeah.
The next question is from Marcus Poppe from Twelve Capital. Go ahead, please.
Good afternoon, everybody. A couple questions from me. Chris, first of all, could you help us out, please, on the seasonality in the holding and the other line? I think at half year it's about 61, and I think full year around 93. What's a more typical half year run rate, please? Secondly, on the real estate development, again, looking at my notes, I think you took a charge back in 2013 of just over EUR 100 million on this portfolio, and you're taking another charge today. Could you give a sense of why you're comfortable, maybe that's it, if it's done now, or whether there's more to come there? The third question for me is on, again, the Solvency II chart. The business development's a negative 10 points.
Is that a normal level of adjustment we should expect to see, does it really relate to, if you're thinking in embedded value terms, assumption changes on the business? Then just a final one. Again, you've been pretty active in buying businesses like the funeral business. How has that helped you in terms of Does that really help you support the diversification credit? Are you done there as well or do you think there's more? I know this might be a forward-looking statement. I am just trying to think, if you're looking backwards at the size and shape of the group, are you happy with the diversification of it within Netherlands and maybe could it be improved? Thanks.
All right, Marcus. A couple of questions into one. Let me first comment on the real estate development business. Indeed, over the past years, we've made significant contributions to the provisions for that business. We felt at the year comfortable with the provisioning that we made. We look at the business from a couple of perspectives. We do look at the work in progress and guarantees. That's what we could call the total exposure. We run worst case scenarios. With that in mind, we provisioned, we provided for the business in careful agreement with the auditor. It's a level of provision that at this point we feel comfortable and we feel we can actually substantiate. I can't make any statements on the future, but at the end of last year, we felt comfortable that really a significant portion of that business was actually provided for.
On an NPV basis, the provision was EUR 173 million. Those are the facts. I'll come back to you on the holding cost. There are some looking up that needs to be done. In terms of the business developments, we have characterized that in the past year as one-offs. It was a one-off lapse update, was a one-off profit-sharing update, a one-off mortality and longevity update. Last year, we have classified it as a one-off deduction from our solvency, where we wanted to make sure by the end of last year, we were rock solid in all our assumptions.
We wouldn't expect to see that sort of movement, you think. Oh, I see. It's getting trapped into looking forward statement. This is one-off in nature. Okay.
Last year, we have actually taken a one-off perspective and make sure that end of the year we were rock solid. In terms of diversification benefit, we are very pleased with the diversification of our business. I can't say anything about potential future acquisitions, as you are aware, but we are very pleased with the acquisitions that we made. The strategy that we pursued was let's add scale in life and non-life whilst maintaining mortality and longevity. Secondly, add distribution skills to support what intrinsically is a very good underwriting machine. That's how we looked at the acquisitions last year, and that's all I can say at this point, as you understand.
Okay.
In terms of holding expenses, what you see in the holding expenses fluctuations is the operating expenses in the holding tend to run relatively stable over time. Where you can see fluctuations is pension charges that run through the year, sometimes because of interest rate developments. There are changes of one-off costs. For example, the implementation of Solvency II, or for example, M&A projects, strategic projects. If you run an M&A project, we did more in the first half year and less in the second half year. The heavy ones were done in the first half year. That's where you can see those costs emerge. Secondly, in the second half of the year, we issued another hybrid Tier 2 instrument whose expenses actually run through the holding.
Various factors play a role, but the underlying operating expenses, the cost of running head office, the board, audits, communication, et cetera, are running relatively stably over time. The final number gets amplified by projects, by pension costs, and by the hybrid expenses that started to add to the holding cost base after September.
Brilliant. Can I just quickly, I know you mentioned about the running yield on your life book, about just over 3%. Where are you investing new money today, please?
Jack?
What I mentioned was that running yield of 3.2%, and that it was well above the guarantees on the life products. We reinvested on the basis of our strategic asset allocation, so our general investment policy. That means, in general, you can say when you look to the composition of the investment portfolio as it is, what's still important is that we, in the past, always reinvested based on the composition of the investment portfolio. That is what I can say about it. For the future, I'm not in a position that I can comment on that.
You may say roughly where you were investing at the end of 2015 at then? If not-
Where we are investing is the majority, of course, in the fixed income instruments. That's the majority because we have a match book. About 16%-18% in mortgages, a small part in equities, and also a small share in real estate.
Marcus, I think at the end of last year, as Jack said, we invested into credits, into mortgages, into real estate and equities. If you look at the direct yields of those instruments, it is hard work to stay above 2%. I think by the end of last year, we're still able to stay above 2% in new money direct yields. As you are aware, it's hard work these days to find these instruments.
Indeed. Thank you very much.
The next question is from Steven Haywood from HSBC. Go ahead, please.
Hello, everyone. I just wondered if you could answer a couple more questions on the investment portfolio as well. Do you have an estimate or a rough guide of what sort of average duration your fixed income portfolio is? Could you also relate that to the average duration of your life and pensions liabilities? You've spoken about the running yield being higher than the guarantee average. If you can provide us with the average guarantee on your life and pensions back book, that would be very helpful. Thank you.
Yeah. To start with the first question, in last year, the average yield was, as I said, running yield to 3.2%, and the average guarantee level at 2.6%. When you look to duration versus liabilities, we have a match book, a long-term match book. When you look to last year, duration levels were around 16 at liability side and 14 at the asset side.
Okay, that's perfect. Thank you.
It is important to take into consideration also the convexity, because only looking to liabilities is not indicating really the interest sensitivity.
We have no further questions, sir.
Very good. Well, if there are no further questions, that leaves me to close off this call. As I would say, from ASR perspective, we are proud and pleased with what we've achieved. I guess the triangle of ROE, Solvency II, and balance sheet strength is something that we think has shown this group is able to deliver, has delivered in 2015. We're very pleased the step-up in pace of strategic activity that we've achieved in 2015. With that, we're very pleased with the results. I hope we've given you further insight into Solvency II, especially the methodology behind it. It was sometimes boring and complicated. Sorry about that, but that's just a given for all of us. Hopefully, we've given you more disclosure, more clarity on how solvency works and how we've applied it, and how we try to be as prudent as possible.
I'd like to thank you for your questions, and especially for your understanding on what we can and cannot answer at this point in time. I would like to thank you for your understanding and the disciplined way you've asked your questions. The one forward-looking statement I can make, I hope we see each other in the future. Thank you very much for your time, and I wish you all a fantastic day. Thanks so much. Bye-bye.
Ladies and gentlemen, this concludes this telephone conference. On behalf of ASR, thank you for attending. You can disconnect your line now.