Good day, and thank you for standing by. Welcome to the ASR Half Year 2023 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Michel Hülters. Please go ahead.
Thank you, operator. Good morning, ladies and gentlemen. Thank you for joining us today. Welcome to the ASR conference call on our results for the first half year of 2023. On the call with me are Jos Baeten, our CEO, and Ewout Hollegien, our CFO, and Jos will kick it off with highlights of our financial results, a brief update on the Aegon transaction, and we'll discuss the business performance. Ewout will then talk about the developments of our capital and solvency position, and he will also discuss some key points of the transition towards IFRS 17. After that, we will open up for Q&A. We have a full hour plan for this call, but we'll stop sharply at 10:30 A.M. to allow you to tune in to the Ageas call on time as well.
Please observe a limit of two questions so everybody gets a turn to ask questions. Finally, as usual, please review the disclaimer that we have in the back of the presentation on any forward-looking statements. Having said that, Jos, the floor is yours.
Thank you, Michel, and good morning, everyone. Thank you for joining us on the call. I hope that everyone has been able to enjoy a relaxing vacation and is ready for the upcoming season. Today is the first time we present our numbers under IFRS 17, and the same time, this is the last occasion to talk to you about ASR performance on a standalone basis. Last half year was special in the first place because we successfully closed the transaction to combine ASR and Aegon the Netherlands. In the meantime, we have continued to service our customers, as you would expect from ASR, and we've been able to deliver a very strong set of results and maintain a robust balance sheet.
We've laid the foundation for the leading insurer in the Netherlands, being able to capture market opportunities to enable growth, and we are now executing a thorough and detailed integration plan. As this is the first set of results on IFRS 17 from ASR, we have published a separate deck of slides to provide some further clarification on the transition from IFRS 4. Ewout will later on highlight some key choices we have made on the methods and provide a bridge from operating results to OCC. Let's turn to slide two for the highlights. I'm sure you've been able to review the presentation this morning already, so let me just briefly discuss the key achievements. We continue to experience strong commercial momentum.
Premiums received in the non-life segment increased by 19.19%, driven by organic growth in all product lines. The total inflow in the life segment remained fairly stable, of which total inflow in DC products rose by almost 8%, offsetting the natural decline in the individual life and pension DB service books. Operating results increased to EUR 460 million, based on strong financial performance of all segments, offsetting the additional Tier 2 hybrid expenses. Underlying our Organic Capital Creation improved in the first half of 2023, when excluding the impact of the additional Tier 2 hybrid expenses to pre-finance the Aegon Netherlands transaction. Taking the additional expense into account, our OCC amounted to EUR 414 million, a touch lower compared to last year.
Ewout will provide further detail on the moving parts of the OCC. Our solvency ratio remained flat, compared to year-end, if we were to adjust for transaction-related items. Like minus three percentage points from the higher interim dividend, because the shares that we issued to Aegon as part of the transaction are also entitled to the interim dividend, and a minus three percentage points due to the impact of counterparty default risk for the cash consideration. At the end of June, our solvency stood at 215%. This is after the interim dividend, which had a total impact of minus seven points, resulting in a robust balance sheet for a standalone, for ASR standalone on the Standard Formula, providing for a strong foundation for the Aegon Nederland integration.
Our operating return on equity increased 1.5 percentage point to 13.5, so we continued to deliver solid returns on the equity capital allocated to our businesses. Interim dividend of EUR 1.08 per share is 40% of the 2022 dividend per share, that already included a 12% step-up. Let's go to the next slide and look how we are progressing on our non-financial KPIs. We are very pleased with the progress we made this half year in delivering sustainable value to all of our stakeholders. The objective of 65% reduction of the CO2 footprint from our investment portfolio has already been achieved well before the targeted date. Further improvements from these levels may come at a lower pace because of the increased economic activities post COVID-19 period.
Our impact investment increased with EUR 500 million to EUR 3.3 billion. Our employee engagement remains quite strong. Our annual employee Denison Survey showed a score of 89, exceeding the target of 85. All our efforts to be a leading sustainable insurer is receiving more recognition among the Dutch population. Our reputation as a sustainable insurer rose with one percentage point to 38. I'm sure you all noticed that the NPS-r KPI is missing on this page. Now, rest assured, we remain focused on becoming the best financial service provider, but this KPI is only measured once a year. External recognition from the international ESG indices and benchmarks increased as well. On top of the existing leading positions, we have now also become a double A rated by MSCI.
Just the other week, we got confirmation from FTSE4 Good that we received top scores in all the subcategories. We scored five out of five. According to Sustainalytics, ASR is the second most sustainable insurance company in the world. Let's turn to slide five, slide four, and talk about our progress on the business combination of ASR and Aegon NL. We are proud that we, within the earliest possible timelines, could fulfill the conditions needed for a successful completion of the transaction with Aegon. In closing this transaction, and with the preparation that we have done in the first half of this year, we have laid the foundation for a leading insurance company in the Netherlands. We started with the execution of the integration plans immediately after closing of the transaction.
With the implementation of a management board, the appointment of the leadership teams, to manage the various business units, and a formalization of the conditional appointment of two additional members of the supervisory board, we now have the governance structure in place for the next phase. The labor unions, in the meantime, approved the conditions of the employee protocol for Aegon Nederland employees, that enables us to merge the employer entity at, as a first next step. Based on detailed integration plans, we are confident that we can execute the integration in the timelines we shared during the announcement, and that we, at least will deliver on the value announcements of the business combinations, being at least EUR 185 million of synergies, and, in the third years after, closing the 1.3 billion of OCC.
A major milestone in the coming months is the merger of the employee legal entities. We plan to complete the merger and integration of our non-life businesses and the group staff functions before the end of 2024, and migrate our IT, our non-life IT environment to the most cost-efficient system across the organization and close locations no later than 2025. In the meantime, we will work on our PIM to expand the Aegon model to ASR Life. When development and approval process is completed, we expect to merge the live operations in 2025. Thereafter, the PIM model can be broadened with additional models to capture further capital benefits. More details on our integration activities and planning will come available during our investor update on the thirtieth of November next. Let's turn to slide 5 and talk about the non-life business performance.
I'm pleased to see that a strong commercial momentum was reflected in growth of premiums received with almost 19% in all product lines, primarily a result of growing sales volumes. The non-life operating result went up with EUR 10 million in the first half year, mostly due to the absence of weather-related claims, and a higher Operating Investment and Finance Result in the first half of 2023. This more than offset adverse claims experience in disability and health. The combined ratio in P&C of 90.7 showed a strong underlying performance, the absence of weather-related claims, and the benefit of a higher discounting impacted from higher interest rates compared to the first six months in 2022. In disability, the combined ratio increased to 94.4.
The increase is mostly related to a one-off strengthening of provisioning in the group disability due to the alignment of non-economic assumptions between sub-portfolios and some adverse claims development in the self-employed portfolio. Excluding this one-off of approximately EUR 30 million, the combined ratio of disability would be closer to the 90% level. Health benefited from the enhanced cost coverage due to significant premium growth from an increase of over 200,000 new customers during the last renewal season. Combined ratio increased to 99.5% due to adverse claim development on the supplementary health cover. Though happy with attracting many young customers, growth was higher than anticipated when setting pricing. So let's now go to slide 6 about the life business. We're happy with the organic growth and the commercial performance of our pension products.
The premiums received and DC inflow in the life segment remained overall fairly stable at EUR 1.1 billion. Our DC products, Werknemers Pensioen and Doen pensioen, were up 16% and 6% respectively, to a total inflow in DC of EUR 729 million. This largely offset the decrease in the service book portfolio of individual life and pension DB. Funeral premiums increased slightly compared to last year. Operating result of the life segment increased EUR 19 million to EUR 310 million, driven by EUR 15 million higher operating investment and finance results, reflecting a positive impact of lower UFR drag due to higher interest rates.
Operating Insurance Service Result increased by EUR 49 million due to a reclassification of EUR 46 million between OISR and other results, which was not reflected in the first half year results of 2022. Corrected for this reclassification, the OISR increased by EUR 4 million. The expected insurance service result, consisting of the regular CSM and the risk adjustment release into the results, remained stable, with a slightly higher CSM release, offset by a decreased risk adjustment release, mainly driven by higher interest rates. The experience variation improved EUR 5 million. So let's go to slide 7. The operating result of the two fee-generating segments, asset management and distribution services, combined amount to EUR 35 million, remains stable compared to the first half of 2022.
Asset management benefited from organic business growth and a higher fee income from increased third-party assets under management. Total assets under management for third parties increased by EUR 2.3 billion to almost EUR 31 billion as a result of asset growth in the ASR DC products and a higher third-party assets under management in the real estate, partially offset by lower real estate valuations. Mortgage origination decreased EUR 2.3 billion to EUR 1.4 billion due to a lower demand of as a result of rising mortgage rates. Our market share, however, remained stable. Fee income and distribution and services increased as a result of organic growth and small acquisitions. Despite a solid operational performance, the operating result decreased due to a higher one-off expense related to previous years and higher interest expenses.
Now, in the second half year, the portfolio mix of this segment will see some changes concerning asset management by handing over mortgage funds, adding a larger mortgage business, and two new complementing distribution and services businesses, Robidus and Nedasco. Having said that, I would like to hand over to Ewout. He will talk about solvency, OCC, the investment portfolio, and the balance sheet, and of course, IFRS 17. The floor is yours.
Thank you, Jos, and good morning to everyone on the call. So happy to run you through all of the items that Jos just mentioned. And it's the last time we will talk about ASR as it was till the third of July. And I'm sure you will, we'll all recognize that we have provided you with a predictable set of numbers and that we have a strong financial foundation on which we can onboard Aegon NL. We will also provide you today with some information on how the financials of the combinations looks like. So with this cliffhanger in mind, let us start with slide nine, which shows the movement within our solvency. As mentioned earlier, the solvency position remains on a robust level of 215%.
This is still ASR standalone on a standard formula, formula basis, and it's actually the last time that this is the case. The group ratio going forward will be a combination of standard formula and a Partial Internal Model. Just to be sure that we are on the same page, this number still excludes the EUR 1 billion Tier 2 we issued to pre-finance the Aegon NL transaction, because recognizing it as capital is contingent on the closing of the transaction, which was not yet the case by the end of H1. We started the year at a solvency level of 221%, and excluding the transaction impacts, the ratio remains flat. The transaction took out 6% additional solvency points.
The interim dividend that we pay out in September, and is included in the standalone ratio of ASR per H1, will be paid out over 76 million additional shares coming from the ABB and the placement at the Aegon Group. Because of this, the interim dividend impact on the balance sheet is 7%, instead of the more regular 4% that you know from us. Additionally, we had EUR 2.25 billion of cash on the bank account per 30th of June, for which we need to hold counterparty default risk. That brings additional -3% solvency impact, which is on this part, a slight part of market and operational developments. The other market movements are driven by the impact from higher equity markets, some spread widening, revaluations in real estate and inflation, for which is for a smaller part compensated by a higher VA.
The operational movements reflect some model adjustments being compensated by somewhat higher elected effects of our life, driven by improved profitability in the life segment. The OCC added 12 points to our solvency ratio and compensated for the regular dividend and the market movements that I just mentioned. The ratio is a strong position for adding Aegon NL balance sheet. During the transaction announcement, we disclosed a pro forma solvency ratio, post-transaction and financing, based on information that we had back in October 2022. Following the closing of the transaction on the fourth of July, we now provide an updated pro forma solvency ratio being over 185%, just a fraction lower than the number we mentioned when we announced the transaction last year.
The slightly lower number reflects primarily impact from market developments and is a strong starting position. Let's now have a closer look at our OCC presented on slide ten . The OCC came in at EUR 440 million. As said, a touch below last year at EUR 428 million, but it includes the interest expenses from the EUR one billion Tier 2 instrument, which is EUR 26 million after tax for half a year. In business capital generation, we see similar effects as just mentioned from the operating results compared to last year, with high contribution from P&C, offsetting the lower contribution from disability, which is driven by the one-off provision strengthening and health in the business capital generation. The interest rate development have been very favorable, and this leads to a lower UFR impact, which is still positive for our OCC.
For the first half year, this resulted in roughly EUR 30 million favorable impact on the UFR drag, compared to the same period last year. However, higher interest rates also resulted in a lower market risk SCR release, which was offset by higher capital release of our businesses, despite a higher new business strain in health, and led to an overall neutral impact of the net capital release compared to last year. I can imagine that you are looking for some guidance for H2, and let's cut this in three pieces. Firstly, the a.s.r. standalone part; secondly, impact of the transaction; and thirdly, a number for the Aegon NL business. Starting with a.s.r. standalone, which I provide excluding the EUR 26 million Tier 2 expenses.
So given the seasonality between the first and the second half of the year, it's best to take H2 of last year as a starting point. The OCC of H2 last year was around EUR 225 million. To this number, we should add EUR 30 million because of the lower VA, lower UFR drag at current rate, and there are, of course, some other small pluses and minuses. So a.s.r. standalone could deliver approximately EUR 260 million in H2, and therefore EUR 700 million for the full year.
The transaction-related items are roughly EUR 50 million for the Tier 2 hybrid expenses for the full year and around EUR 25 million for the half year, consisting of a number of items being the bridge financing, which we use to finance the remaining EUR 175 million, the loss of mortgage funds as a consequence of the asset management agreement with Aegon Group, and the negative impact of a lower effective Solvency ratio, which we use to determine the contribution of capital release. Then third part, Aegon NL contribution. We expect in H2 an OCC of roughly EUR 300 million-EUR 325 million. So when we bring this all together, that will bring us to around EUR 925 million-EUR 950 million for the full year.
If you would use this as the basis for your roll forward, then there are two larger items to take into account. Firstly, you should, of course, also add the first half of the OCC contribution from Aegon NL, and secondly, adjust for the extraordinary interest margin in the bank, sorry, let's say EUR 75 million to EUR 100 million p.a. Now, we are, of course, also on a path of growing our business and realizing synergies. Looking ahead, we expect to generate OCC well in excess of dividends, and the OCC that we retain will enable us to build a strong balance sheet and to participate in any sell downs that Aegon may initiate in the future, sorry. And on top of that, we will maintain our financial discipline, discipline, and aim to deploy capital rationally and economically as to make attractive returns.
Let's go to slide eleven to talk about the investment portfolio. The investment portfolio remains robust and well-diversified, with a strong skew to quality. The asset allocation remains relatively stable in the last half year. A decrease in the value of fixed income portfolio was mainly due to the planned short sale of short-term government bonds to fund the Aegon NL consideration. The EUR 5.1 billion real estate portfolio is well-diversified, as you know. Roughly 40% of the real estate investment is in rural property, which significantly mitigates the overall impact on lower revaluation, which primarily took place in the residential property.
Over the first half year, the weighted average revaluation of our real estate portfolio was -3.7%, which was broadly in line with the expectation that we had in the beginning of this year, and also mentioned earlier. The lower valuation of real estate reflects the general market developments. The revaluation on residential real estate includes a one-off impact on, of transfer tax for investors from 8%-10%, which came in place on the first of January this year. Our investments in renewables are largely windmills, where the low energy prices cause us an unfavorable revaluation, offsetting the positive revaluation of the year before. And recent price developments appear to show improving conditions in the Dutch housing market, and the outlook for rural real estate remains stable to slightly positive.
That is why we expect no major deviations in the valuation of the real estate portfolio for the second half of the year. Let's turn to slide 12 to discuss the flexibility of the balance sheet. The balance sheet is a strong foundation for the combination of a.s.r. and Aegon NL. Unrestricted Tier 1, so the UT1 capital represents 74% of own funds and 158% of the SCR. Financial leverage amounts to 26.3%, including the issued shares as part of equity and the EUR 1 billion Tier 2 bonds issued to pre-finance business combination with Aegon NL, it is 32.1%. The interest coverage ratio is at an excellent level, even when including the Tier 2 hybrid debt expenses. Pleased to see that our S&P single A rating was confirmed in July.
Our debt and maturity profile, as you can see, is nicely stacked, and the first call date is in the second half of 2024. Let's move to slide 13. The holding liquidity was at a record level of EUR 2.7 billion, but excluding the financing of the transaction for the business combination, the liquidity position stood at EUR 581 million, which is in line with a.s.r.'s policy of maintaining capital at the operating companies and upstream cash to cover dividends, coupons, and holdings expenses for the current year. Regular remittances amounts EUR 145 million for life and EUR 68 million for non-life, and the solvency position of legal entities improved to 165% for life and decreased slightly to 155% for non-life after remittances.
Cash upstream for the Aegon transaction from life and non-life of in total EUR 500 million was already included in the Solvency II ratio at 2022 year-end, as foreseeable dividends. Let's then go to slide 14 and enter into the IFRS 17 highlights. Next to the presentation on the H1 numbers, we disclosed this morning a supplement with explanatory notes to guide you to the key differences between IFRS 4 and IFRS 17 methodologies, Solvency II. I know that there are so IFRS 17 lovers and haters, and for the haters, I have not so good news. Because in the second half this year, we have to add Aegon NL and harmonize differences in choices between the two organizations, meaning that the numbers might change again going forward.
You can imagine that the finance teams of both organizations, which really did a great job to produce these IFRS 17 numbers, were not really happy with the timing of the deal. Having said that, it's also a great opportunity to further optimize choices, but let me take you where a.s.r. stands today in their key methodology choices and to take you to the distinctive features of our approach. For a.s.r. standalone, we choose to apply fair value through P&L for most of the asset categories, with an exception for equities, as these assets are not directly matched with the liabilities. As default, we've applied the general model approach, which relates to pensions, individual life, funeral, and also disability. This is a large part of our portfolio, with longer-dated contracts and with disability, also recurring premiums.
Together with the contracts, which have direct participating features like unit-linked and DC products, where we apply the VFA approach, this contributes to the CSM and risk adjustments we present in this presentation. The retrospective approach is applied for around 30% of our portfolio, which is quite an achievement. For the transition of our funeral portfolio, we went even back to contracts of 2002. We think this is a thorough approach and leads to a fair presentation of CSM. Unfortunately, for the self-employed portfolio of disability, we had to apply the fair value approach, which resulted in lower CSM than the real profitability of these older policies, and because of lower CSM release, also a higher combined ratio than we have seen under IFRS four.
Let's now turn to the next slide to have a closer look to the to the CSM development. Slide 16, please. As you can see, the CSM increased by 8% in the first half of this year, mainly due to the addition of the new profitability production. The new business CSM of disability was EUR 108 million, benefiting from adjusting pricing of our products and the higher interest rates at the start of 2023, compared to 2022, being a key element in the valuation. Please note that there's a timing difference compared to OCC.
The disability new business for a new year is part of the new business CSM per the first of January, and released over the period of the contract, mostly being one year, where the new business strain in OCC is already reflected in Q4, causing the seasonality pattern of new business strain in H2 of OCC that you all know. Life contributed to the new business CSM of EUR 65 million, partly due to the indexation of funeral policies in the beginning of the year. The highest CSM in a half year, 2023, is also reflected in a higher release compared to last year, as the new business CSM of disability, partly featuring one-year contracts, releases within one year.
We expect CSM release of the Aegon's portfolio to be around 6%-8% per annum in life, but at the same time, we are also adding new CSM. The net release we expect to be around 4%-5% per annum in the life segment. Looking at the CSM development in 2022, the changes in estimates mainly reflect rising inflation in that year. Let's now turn to the next slide, operating results versus OCC. During the implementation of IFRS 17, we aimed to stay as close as possible to the Solvency II framework to enable comparability. However, while IFRS 17 is more aligned to Solvency II, differences between operating results and OCC remain. For educational purposes, let's look to the main differences. The most distinctive difference comes from the application of different interest rate curve.
ASR applies a similar approach to Solvency II, incorporating 20-30 years market observations in the explanation from a 20-year smoothing first point. Other parameters, like the liability and liquidity premium, the LIP versus Solvency II VA, the level of the CRA, which IFRS 17 is doing economically and Solvency applies a corridor, are different and therefore leading to valuation difference, differences in the UFR drag and excess returns. IFRS 17 in itself does not have the concept of SCR release, and while the underlying methodology of the risk adjustment and the risk margins are similar, the different input parameter can lead to differences. Next to that, and as mentioned earlier, timing differences on the recognition, recognition of new business and release of profits will lead to differences.
Solvency II profitability is added at the end of the year, while IFRS 17 recognize it during the year thereafter, which is the actual period that we insure clients. This concludes my part, and now back to Jos, to you, Jos, for the wrap-up.
Thank you, Ewout, and for that wrap-up, please turn to page 19. As said, with the completion of the transaction, we have laid a foundation for a leading insurance company in the Netherlands. We now started the execution of the integration plans and are committed to deliver to the value enhancements of the combined organization. ASR delivered over the first half year a very solid performance, and we have maintained a strong balance sheet. IFRS changes reporting, but does not change our plans and direction, nor our capacity to grow the company and to pay dividends. I'm confident about the momentum of our businesses and our ability to deliver on the plans.
On that basis, we are comfortable to guide to a full year OCC of around EUR 925 million-EUR 950 million for the combined businesses in 2023. Going forward, we expect to generate OCC well in excess of the dividends. The OCC that we retain will enable us to build the capital position to participate in any sell downs that Aegon may initiate in the future. As mentioned earlier, we intend to participate in sell downs to the extent that it ensures and facilitates successful placements. Just to get the expectations right on this topic, we do not aim to buy all of the shares that Aegon may sell in at some point in the future. It surely will be attractive to an ASR shareholder.
Decisions on timing and amounts of any additional capital returns will be dependent on the overall strategic plans of the combined entities and the ability to deploy capital in attractive growth opportunities. If it takes longer for Aegon to go out, we have the possibility to do a share buyback. We expect to share our integral view on capital deployment during the CMD, ten months from now. But today, in the here and now, our agenda in the near time is clearly focused to successfully integrate the businesses and bring the value that we promised. A lot of work needs to be done, and I'm confident we will deliver on this, as ASR foundation is strong to onboard Aegon NL.
We will organize an investor update, 13 November in London, to provide you an update on progress that we are making with the integration. So over the next 10 months, we will have two CMDs, one on the progress of the integration, and in June next year, we will come with the new targets and an update on capital management. Thank you, and I now, I am happy to hand over for your questions.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. In the interest of time, we will be concluding this event at 10:30 CET time. We will take our first question. Your first question comes from the line of Cor Kluis from ABN AMRO Oddo BHF. Please go ahead. Your line is open.
Hello, good morning, and thanks for the questions. First question is about the solvency ratio, how that developed from a market point of view since the end of Q2. We saw some market effects, so could you give an update how that changed, specifically for the market effects? So that's one. Secondly, also thank you that you provided the performance solvency ratio for including Aegon, and that's helpful. You say above 185%. Could you give a little bit more clarity? You have a reputation to be quite conservative, so yeah, please give some comments on that one. And also the numerator and the denominator that you use to basically add to your own firms and your own SCR.
What do you include for that, for that? And last question is on the synergies, or at least the integration presentation that you have on the thirteenth of November. Could you give a little bit clarity that we have the right expectation? What kind of agenda, what kind of items can we expect during that presentation? For my questions. Thank you.
On the first two waves.
Yes, thank you, Cor, for your questions. Let's start with the Solvency II development since end of Q2. I think a few developments that we have seen since that moment. One is that mortgage spread tightened a bit, which is a positive for our solvency ratio. Secondly, what we have seen is that the equity markets came down. Yeah, the funny thing is always, and it's also what you've seen in the solvency development of H1, is then when equity markets go up, actually our solvency is impacted negatively and the other way around. So also there, a few points, solvency points for that item.
And thirdly, what we have seen is that the VA, so the volatility adjustment came down, a couple of basis points. So when you sum that all up, I would expect the ratio to be a bit higher, let's say, low to mid-single digit number. Then on your question on the, on the 185, so what is then the expectation on the 185, of, above 185, what is then the exact number? Let's say that it's somewhere between 185 and, and 190. That is something that, that we, that we can, that we, that we expect it to be, or that we have actually calculated to be.
And on the nominal numerator and the denominator, I think there we see the same developments as we have seen in the solvency ratio of both a.s.r. and Aegon NL, that the required capital came down a bit, and that the influence also came down a bit, compared to what we have assessed when we announced the transaction. So both were a bit lower, but the ratio in itself didn't change materially.
On your third questions, we are still preparing the agenda for the third years of November, but, we will present, in more detail the integration plans, the benefits from the integration plans, the timing from the, from the integration. We will zoom in a bit more in, in the cost synergies. At that moment in time, we probably will have more in-depth insight on, on all the developments. So, so we, we probably will update that too, and, and give some more, view on the, on the, total financials of the combination. We now aim to have four presenters by then. Ewout will be the last one and round it all up, in a, in a financial, way.
The two COOs will present the detailed integration plans going forward, and I will kick it off with a summary of what we expect out of the total integration of the combination. So, it's gonna be quite interesting and useful to join us in London.
Absolutely. Thank you very much. Thank you. We will take our next question. Your next question comes from the line of Andrew Baker from Citi. Please go ahead. Your line is open.
Great. Thanks for taking my questions. So both are actually related to CSM growth. First, obviously, first half, very strong growth. You pointed out the seasonality, new business. Are you able just to give us a sense of what percentage of the full year 2023 new business for CSM do you think is already included in the first half? And then secondly, are you able to give us anything on the CSM and the run-off profile of Aegon Nederland, and how this might impact the group dynamics and some of the growth that we've seen? Thank you.
Yes, on the CSM growth for the second half, I think the majority will be recognized in H1, Andrew. That's related to the disability business, for example, but what we also discussed. So actually, per the first of January, you recognize the CSM of the new business in the CSM development. And a large part of that will also be released during the year and then renewed actually per the first of January. So there you will see that it's coming and going from CSM annually.
I think on the life segment, we saw that a large part of the CSM that we have that we created was related to the indexation of the funeral policies, and we also do that once a year. So also there you see a pattern that is actually mostly focused in the beginning of the year, and that you see the release more gradually during the year. So the new business accretion is more in the beginning of the year. The release is more a stable pattern during the year.
That's why I said I expect that the net release on the accretion minus the release will be roughly 4%-5% on an annual basis. And that also reflects the fact that the CSM accretion was already recognized in H1. Then second... Hopefully, this helps. Then secondly, your question on the impact of the CSM from Aegon NL and the run-off pattern. And what we will know is that we will increase, of that we will add a significant portion of CSM coming from the Aegon NL business, which over time might also further increase due to the synergies that we realize in the life segment.
So that, I think, will bring a lot of CSM going forward. It is too early days to say something about the release pattern. That is something that we, that we also have to look how that plays out when we harmonize, for example, the policies, so the reporting policies that we have in place, and what will that mean for the run-off pattern. So a bit too early to say something about the run-off pattern of the combination. What we can say is that the combination together will have a different amount of CSM than ASR has today, and that will probably also positively develop in the coming years due to the synergies that we realize and capitalize in our segment.
Great. Thank you.
Thank you. We will take our next question. Your next question comes from the line of David Barma from Bank of America. Please go ahead. Your line is open.
Good morning. two questions on OCC, please. Firstly, on the contribution from Aegon in the second half, that's a nice uplift from the previous number you've given. Can you explain where that is coming from? Is it simply UFR related, or are you also accounting for changes in the asset allocation that have taken place since June 2022?
...And then secondly, we're all struggling a bit here to understand the different drivers of your segment result under the new IFRS regime, but we do have OCC. So are you able to give us an idea of the contribution by division on your OCC for the period, please?
Yeah, so let's start with the OCC here. So where is it coming from? So what we actually see, so we do take into account the actual investment portfolio of Aegon NL, and indeed, I think that's a bit more favorable than we have seen when per H1 2022, which was the basis for the OCC expectation, and that we used when we announced the transaction. So a bit positive from that. What we also see is that, and I mentioned that, the bank is contributing positively. So yes, there's some upside compared to what we assessed when we announced the transaction.
Furthermore, we actually see that we are broadly—that is broadly in line with our expectations, so we see that it's developed, developing very well, in line with what we expected when we did the due diligence. Then on the segmental OCC, I think that's something that we don't have today. We are thinking about how we can incorporate that going forward, given the fact that OCC and SOC2 are more in line. So that is something that we are considering, but we can't do everything at the same day, so it's something that we will come back on at a later moment.
Thank you.
Thank you. We will take our next question. Your next question comes from the line of Nasib Ahmed from UBS. Please go ahead. Your line is open.
Thanks, and morning. So you know what, just coming back to the top end of the OCC bridge that you gave us, let's say EUR 950 million, including Aegon, and then adding another half of Aegon Netherlands, EUR 300 million. And you said for Aegon Bank, you get a higher uplift from the NIM, let's say another EUR 100 million. So you get to EUR 1.3 billion already for full year 2023. I know that's the top end of the ranges that you provided. Am I correct in that math? So you're at EUR 1.3 billion already of full year 2023, and your target was EUR 1.3 billion post-integration by 2026. So just a question there, whether my math is correct. And then secondly, you've got debt call dates over the period until 2026.
Have you thought about whether you're going to call them, and whether the higher interest, debt cost would be baked into the EUR 1.3 billion already? I think it's not. And whether you want to offset that with some uplift on the synergy estimates. Thanks. Those are my two questions.
Okay. Thanks, thanks, Nasib. Jos is looking angry to me because he doesn't receive any questions. Let me answer-
I can answer the first one, but if you want to.
No, I think a bit too positive on the first, on the bridge that you provided. So yes, we at the second half year of Aegon, Aegon NL, but I think what you missed is the Tier 2 expenses, so the Tier 2 expenses of EUR 50 million, but also the other items, what I mentioned there, so the bridge financing, which we used to finance the remaining 175 million, the loss of mortgage and the somewhat lower ratio. So that was EUR 25 million. We expect that to be EUR 25 million for the second half year. When you do that, when you multiply that by two, then it's, that's also 50. So 50 plus 50 is 100 million.
For the rest, I can, I can follow you.
No.
In the bank,
The bank, yeah. He added it.
Yeah, yeah. And the bank is, so it's, I think there you see that there were extraordinary interest margin in bank of, let's say, EUR 75 million-EUR 100 million.
Understood. Yep, got it.
Yeah.
Thank you. We will take our next question.
No, sorry, there was still one question left on the-
Apologies. Please go ahead.
One question left on the call date. So let's first start with our, our views that we, that you should not surprise the market negatively on the call date. This is something that is not part of the OCC expectation going forward, to refinance that with higher rates. But the full thinking about capital deployment is something that we will also take into account when we do the Capital Markets Day in May. And then we will also think about how to refinance, if we want to refinance and how to refinance this.
Thank you. We will take our next question. The question comes from the line of Michael Huttner from Berenberg. Please go ahead. Your line is open.
Thank you. The first one is just a repeat of the bridge. I'm very confused because there's so many numbers. If you could just state it really clearly and really slowly, both to 2023, so the second half of this year, and also what it would be on a normalized basis, including Aegon on a full year basis, that would be so helpful. And then the other question is the EUR 1.3 billion target of three years after closing. Does that mean 2025 or 2026? Thank you.
We closed the transaction mid-2023, and-
... if you put that number into your spreadsheet and add three years, you will end up at the mid of 2026. So it will be in 2026.
Okay.
And the bridge
Yeah, so, so let me, let me reiterate, that one. Sorry for not being, for not being clear. So what we said is, for, for a.s.r. standalone, we expect, this year to end up somewhere in, in the EUR 700 million range. What we see as in-- so that's one part of the, of the, of the bridge. The second part of the bridge is that we expect that the transaction-related items for 2023 is EUR 75 million, so EUR 50 million from the Tier 2, so the full year Tier 2 expenses, because we, we added up in the, in the EUR 700 million. So now we should deduct it fully for the, for the, for the, for the transaction impact.
So EUR 50 million from the Tier 2 expenses, EUR 25 million from some smaller items like loss of mortgage fees, lower and the lower capital ratio. So EUR 700 million minus EUR 75 million. And for Aegon NL, we expect to add EUR 300 million-EUR 325 million. That brings us to around EUR 925 million-EUR 950 million for the year. Then to go to the... Well, if you want to use this as a roll forward, for 2024, I think it's good to add Aegon NL also for the first half year. So let's say another EUR 300 million-EUR 325 million.
But it's also good to mention that, in addition, that the bank has extraordinary interest margins, and that's a normalization of EUR 75 million-EUR 100 million is not strange when you do that. And in addition, so the EUR 25 million that I mentioned from the other items, that is only for the second half year, and that should also be multiplied by two. And I think then you are more or less in line with the view that we have ourselves.
So just, just to be clear, the EUR 75 million-EUR 100 million, which you mentioned on the bank, do I add it or do I subtract it?
Subtract.
No, subtract it. Sorry.
Subtract it.
So the contribution from the bank in the results of 2023, so that should be subtracted.
Subtracted.
We assume that there is some overperformance, given the current rate environment for the bank, and it's not certain that that will continue over the next couple of years. So that's why we wanna be careful with that number.
That's brilliant. Thank you so much. Thank you.
Thank you. We will take our next question. Your next question comes from the line of Benoit Pétrarque from Kepler Cheuvreux. Please go ahead. Your line is open.
Yes, good morning. So talking about the bank, I mean, do you still have a plan to sell the bank? And is that the reason why we need to take the profit out on the OCC still? And also on the capital distribution, like additional capital distribution, in the past, you talked about target of 175% Solvency II ratio. Given that you are in a well integration phase, at which type of Solvency II level will you be thinking to kind of execute a share buyback? What will be a good level for you to think about excess capital returns? Thank you.
Yeah. To your first question, the bank is part of the parameter that we acquired and has currently the position like it was within Aegon Group. And from time to time, we will always review any business within ASR, and if that leads to other conclusion, we will come up with that. But as from closing, it is part of the parameter. So the reason that we said you have to take out the EUR 75 million-EUR 100 million of OCC is not that we are envisaging to sell the bank, but that we expect that the result of the bank over time will normalize a bit more.
The bank is doing quite well at the moment, but it's not reasonable to expect that that will continue at the same level, and that's why we wanna be careful and mention that the EUR 75-100 million OCC. On your second question, Benoit, maybe to summarize our view on capital deployment, the 175 as a minimum solvency to think about additional capital, sorry, buybacks, is still the 175. We haven't changed that. Having said that all, we now start with the integration. In 10 months from now, we will come up with further details on how we look at capital.
The way we look at it today is we will generate more capital than we pay out in terms of dividend. That puts us in a position that even when Aegon decides to start to sell down the position, to take part of that sell down, and that's a way of buyback shares, but specifically from one shareholder. That proves that we are confident that we are able to build up that capital, even when the sell down of Aegon would take longer than the buildup of the capital, then, and that, on that, we will in ten months from now, we will provide more detail.
If that is going to take more time, then we definitely will look into the capital returns. And I said before, historically, we are always on 70%-75% of OCC, and also, for the medium term, we expect that as soon as the capital is built up, that we will return to a return of roughly 70%-75% of the OCC, and we will get there gradually.
Great. Thank you very much.
Thank you. We will take our next question. The next question comes from the line of Iain Pearce from Exane BNP Paribas. Please go ahead. Your line is open.
Hi. Morning. Thanks for taking my question. It's just a couple on the disability business. I was just hoping you could provide a bit more color on some of the adverse claims experience you've had in the disability business. Even if you sort of strip out that one-off, it does look like the claims experience has deteriorated somewhat there. And then similarly, in the CSM, you're flagging strong new business in disability, yet sort of flagging some adverse claims experience in the P&L . So just trying to, trying to square those two facts, if you could. Be really useful. Thank you.
Well, on the if we take out the roughly EUR 30 million of the one-off, we have seen, especially in the first quarter, we have seen growth over the last couple of years, especially in the area of the white collar. And there we have seen an increase in the insured salaries. And especially in the first quarter, and that could have been due to more flu, et cetera. We have seen more incoming people that called in sick, that normalized already over the second quarter. So we are now already back to the normal. So it was specifically in the first quarter that we have seen an adverse development in the individual.
So it's worried us by then, but given the fact that it has been normalized and that we are on top of it, it's not something that we expect that will continue for the second half of the year.
Yes, and then, the one on the CSM. So indeed. So actually, the profitability of the new business is indeed very, very favorable. So that's the CSM that you see, that we, that we have added in the, for the first of, of January. To the point on the loss of profitability by the strengthening of the provisioning, that is actually related to the in-force portfolio. So to the in-force claims portfolio. I have to put it like that. So the claims that we already had in the books, there we saw actually the provision strengthening. Maybe it's good to give some color on what happened during with the provision strengthening.
Actually, already in 2022, we changed the model for the intermediary portfolio, how we calculate the provision for the... So the technical provision for the collective portfolio. So the people that call in sick, of the people, the claims that we pay after two years of sickness, and we harmonize that with the authorized agents portfolio. So we just harmonize actually the methodology that we applied for the intermediary portfolio with the authorized agent portfolio. It's not something that we have actually seen happening, but it's more kind of a methodology harmonization that we have done, and that's actually the normalization.
Although, that's actually the one-off that we have had needed to put in the numbers, but that was all related to the already existing claims in the portfolio. And that's why you don't see it in the new business CSM, but you do see it in your profitability. Thank you.
Thank you. We will take a final question. Your final question comes from the line of Michele Ballatore from KBW. Please go ahead. Your line is open.
Yes, thank you. So two questions. So first, on the new business trends from the growth in P&C and disability, I mean, I'm just referring to the up to which point are we gonna see, let's say, material, let's say strain because of this growth? So, I guess I want to know basically the, the, how the release of capital will develop the next, let's say, three years, in particular with reference to the, to the growth in, in P&C and disability. The second question, sorry, is maybe a clarification. In terms of the shareholding or Aegon shareholding, so, Aegon stake on, on the new, on the new business, on the new company, let's say, the, the new perimeter.
Do you expect Aegon to start to sell after the synergies, the validation of the synergies? Are there any restrictions, let's say, in the medium term, for Aegon to do that? What is your view? Because I'm a bit confused about this point. Thank you.
Okay, maybe you can take the first one, Ewout. I will cover the last one.
Yes. No, more than happy to take the first one. No, I think what, so there are, there are two items to mention on the, on the, when it comes to when do you see actually the growth also kicking in in the profitability? I think we already see that in the operating profit. So in the operating profit, it's actually already increasing. But what you also see in, under OCC is that when you add, when you grow your business, you also, the new business strain also increases. And with that, you actually don't see that immediately kicking in in the OCC, so the extra profitability that you have... Because there's also a new business thing opposite to it. So in operating profits, yes, you see some growth.
In a few—yes, you see the growth of the profitability from the growing book. In the OCC, you see it coming, but it's also, you also have a new business thing which kind of offset the extra profitability. But you have, of course, a much larger book. So when the portfolio will normalize and you don't grow further, then you will see that kicking in.
And to your second-
Sorry, when do we expect this to-
Sorry. No, go ahead.
Sorry.
Can you repeat that, Michael? The last part.
Yeah. When do we expect this to normalize? Let's say this kind of portfolio.
Well, we still have the ambition of a 3%-5% growth in the P&C and disability space. Because we do see that we have attractive return on capital in that business area. So it's definitely a growth area for us. So we hope we don't see that kicking in too early. But I think the strong increase in premiums that we have seen over the last couple of years, especially in disability, that will slow down. That's our expectation.
To your second question, also, given the time and the promise that we made to Ageas, we do only have one limitation for Aegon, and that is there is a lockup until the end of this year. After that, they are free to start to sell down. And whether they are going to wait or not, that's up to them. If you have any questions on that, I think IR of Aegon is the best to ask to.
We prepare ourselves that as soon as they start to sell down, if they decide to sell down, that we have the capital available to take part in such a sell down, like we have done when the government started to sell down their position, and that was very helpful to investors in our stock. So we wanna be prepared, and I said, if and when it will not be in due time, then we will look at other ways to deploy the capital and to give it back to shareholders, even when we can't use it for further growth of the business. Having said that, I think, in the meantime, the Ageas call will start, or already has started.
Thanks for joining us, and hope to see most of you next Friday when we have a breakfast with the analyst community in London. Thanks for joining, and we see you on Friday.
This concludes t oday's conference call. Thank you for participating. You may now disconnect.