Good afternoon and welcome to NN Group's deep dive webinar. I'm Jarmo Lonthecha. I'm the Head of Investor Relations. About a year ago we presented our targets and strategy at our Capital Markets Day. Since then we were able to talk to many of you.
And today we have 2 presentations on 2 topics that came up during many of those meetings. We start with a deep dive on non life which will be presented by Chirrut Boskloper and Maris Gauldmann. Chirrut is a management board member and responsible for non life banking and technology. Mauriz is the CEO of the non life company and has 20 years of non life experience and is able to tell you all about the day to day work in the non life business lines. After that we continue with a presentation by our Chief Risk Officer Bernard Kaufmann.
He will present on interest rate risk management. And finally, we have a Q and A session which allows you to ask all your questions that you have for Chirrut, Maurice and Bernard. Now let's get started and let me hand over to Chirrut to start his presentation on Moon Life.
Well, thank you, Jelmar, and good afternoon, everyone. Looking forward to presenting an update on the Non Life business together with Maurice, We've been the CEO of the Non Life company since about a year. Now last year I introduced myself with a passion for cycling. Now the main update there is that I've seen lots of wind and rain with the weather in the past months in the Netherlands. However, the good news for you today is that this is Fortunately, not the case for the story that we have to share on Non Life today.
So what we will talk about today? Well, first, I will talk you through the overall strategy and the progress we've made and later Maurice will do more of a deep dive on the product lines. So let's start with an overview of the Dutch Non Life market. After the acquisition of Delta Lloyd and Vivat, And then is now the clear market leader in non life with about €3,500,000,000 in gross written premium. Now the non life market itself is sizable With about €18,000,000,000 in gross written premium and moderately growing at a low to mid single digits.
The market itself is still hard And we expect this to continue in the coming 1 to 2 years. A lot of players have become more rational in pricing in recent years. Now we expect the Combined ratio of the Non Life market to remain attractive at about 97%. After the consolidation, NN is now in a good position to benefit from scale and to optimize margins. We have a strong track record In improving performance in recent years, we started in 2017 above 100%, but recently in the past 2 years We have posted a healthy combined ratio of about 95%.
And there we really benefited from a well diversified product portfolio Where the negative impact on D and A was offset by more positive results in P and C. And I'm also proud to say that it is not only due to our position, But also we really benefited from completing the Delta Lloyd integration, rationalizing a lot of products and systems, Restoring profitability of loss making products to strict pricing and underwriting measures. On the left, you can see some indicators. Healthy combined ratio, operating profits and growth within premium growth, but also OCG and remittances. And they were slightly depressed in 2020.
And for OCG, this was mainly due to a one off effect due to the lapse of the Mophi Reinsurance, which accounted for about €65,000,000 So consequently also our remittances in 2020 were lower. But the overall picture is a strong track record in improving both scale and combined ratio over the past 2 years. Now not only our product portfolio is well diversified, We're also the only player in the Dutch market that has a strong position in all relevant distribution channels. So in Bank Assurance, we do Exclusive business with 4 out of the 5 largest banks in the Netherlands. We are number 1 in the broker and mandated agent space where we also own our own broker Zicht.
Of course, we have our own direct label, ORA, where we are number 3 in the market. But it's also important to realize that this world is not static. So trends we observe are a large consolidation in the broker and mandated agent space, the rise of specialized service offerings And embedded insurance. That's why in our strategy we are also investing in these spaces to sustain our strong position in the future. Examples such as HES, ABW, but also the platform in the campers where we participate.
These are new engagement platforms that allow us to introduce new propositions and distribution options. Now Cowboy and Indy Campers are both examples of embedded insurance in midsized e commerce platforms focusing on e bikes and campers. And Mauriz will later on explain more about HES and ABW in his piece. But combined with the Nationale Nederlander brand Which has the highest brand awareness in the Dutch market and our large customer base this gives us really an unique distribution position in the Netherlands. Now our strategy is to benefit from our leading position along 5 priorities.
The first one, sustain our strong distribution position, brand and have an above average satisfaction for both brokers and customers. Invest in digital and data to improve Efficiency and Pricing and Underwriting is the 2nd priority. The 3rd, agility of our workforce to be able to attract and develop our talents. The 4th, of course, to financially deliver on our targets and to sustain our financial strength. And the 5th priority, I believe it's the fundament of our Non Life company in its contribution to society.
And this is, of course, our core business In handling customer claims in adverse situations, but also examples such as stimulating safe driving and burnout prevention. And again, later on, Maurice will give a couple of examples to bring this more to life to you. So let me share with you a short update on where we are in the execution Compared to our CMD commitments of last year and I will do this by looking at the OCG development from 2020 to 2023 And what drives this improvement? At the first, underwriting, there we have established a central team for pricing and underwriting, Pooled and standardized data from all our labels in the Netherlands and attracted data scientists that took numerous actions based on these insights. On the SAA, the strategic asset allocation, we've shifted the portfolio more towards credit and mortgages With already an uplift in OCG of about €15,000,000 that we can report today.
For Vivat, the integration, we are ahead of plan. So the legal merger was completed for the 1st January. We already completed more than 80% of the migrations if you look at the premiums. And we had in 2020 €45,000,000 of contribution to operating results. And both the expense reductions and the investments are ahead of plan.
On Delta Lloyd, of course, the integration was completed And now the focus is more on further expense reduction in the remaining business lines, which are to come from digitizing processes. And we've started these programs in all major product lines and all of them are well on track. Key issues that we are addressing, the individual disability portfolio of Movir, the effect of the low interest rate on the group D and A, Investing in future capabilities to stay ahead in the market. Now my take on this is that we are well aware of these issues. We've acted on them and with a price increase of 10% in individual disability per the 1st January, repricing of Group D and A on the lower interest rate, But also investing in new capabilities for our strategy.
So overall, I'm really proud on the progress that we've made in the past year. Now let me hand over to Maurice to do a bit more of a deep dive into the business lines. But before I do that let me quickly introduce Maurice. Now Maurice has about 20 years plus experience in Financial Services with the vast majority all kinds of different roles in non life And he brings especially very relevant experience from our direct label aura on digital pricing, but also all the nice frictionless processes that we have there And I'm very happy that he's now bringing that to the rest of the Non Life business. Mauriz,
it's over to you. Thank you, Thierd, And good afternoon to you all. In the next 15 minutes, I will explain what we are doing in the Non Life company and how we are transforming into a future proof business. Theod just explained how NN's strategic commitments are reflecting in our strategy. Now I will explain How this translates into the strategy of NN Non Life.
Our strategy is centered around simplicity and agility. This will ensure that our business is ready to anticipate and respond to any change coming our way. As a former football coach, I told my players that if they want to succeed on the pitch, they had to play on the toes. Resting on your heels means that you're always too late. And if you're on your toes, you'll be ready to respond to every change in the game.
On the following slides, I will explain what this means for our product lines as well for our organization. One of the enablers of this strategy is the integration of FIFA Non Life. As a former Head of the integration, I'm very proud to achieve What we do so far. We welcomed 400 talented FIFAAD employees to NN. We've successfully migrated around 90 percent of the FIFA premium to NAND systems and more than half of expected cost synergies have been achieved by the Q1 of 2021.
We expect to migrate FIFA Non Life to a partial internal model in the first half of twenty twenty two. Results of the FIFA Non Life in 2020 were better than expected and the contribution of FIFA to operating results was So, Tid already mentioned €45,000,000 We are confident that we are able to achieve the envisaged cost savings and free cash flow. Let's now take a close look at product portfolio of our non Life company starting with the P and C portfolio. Within P and C, our largest portfolio is, of course, the fire portfolio. NN is market leader in the fire market with more than 30% market share.
This is a very healthy stable portfolio with annual premiums of more than €1,000,000,000 And bearing some volatility in the SME portfolio, The results are generally solid. As Jens mentioned, we have a unique diversified distribution mix. With the larger mandated brokers, we are working on co creation of products, for example, by offering Affinity Business And this allows some moderated but profitable growth. In the retail business, fire insurance is typically sold When a customer moves to a new house and new submarkets, fire insurance is therefore a typical bank insurance product in which we have a very strong position With partnerships with ING, ABN AMRO, SNS and of course, NN Bank. The other attractive part of the fine insurance It's that the price tag is relatively modest, resulting in relatively sticky business.
In recent years, We have complemented our traditional insurance offering with services to help customers manage their risk. We're focusing on fixing the damage instead of paying the damage, solutions instead of money. And this leads to a higher customer satisfaction, lower claims expenses and higher customer retention. Let me show you how our technical expertise works in practice. In 2017, the SME5 portfolio was structurally loss making.
We saw too many claims coming in. We set up a task force to scrutinize the portfolio. And starting with the large risk, We work down the list and reevaluate each object. For specific types of objects, our in house technical experts revisit the object on-site. And by visiting OpEx you can truly inspect the risk of or demand additional prevention measure.
It took in total, we took more than 8,000 measures ranging from price increases to cancellation of policies And thereby decreasing the claims ratio. At the same time, we launched 2 new fire products for the SME market: A low cost package solution and a bespoke solution for more complex risk. The combination of reversing the negative trend And the new proposition proved to be very successful. The portfolio is profitable again, but also growing in size. We are now ready for additional selective growth of the business.
Let me now touch on the motor portfolio. NN is the number 2 in the market multi market with €900,000,000 of annual premium and more than 20% market share. We have made good progress improving the profitability of this portfolio. Thanks to applying strict underwriting criteria and very strong risk selection. We are now working to further strengthen our data and intelligence capabilities and this will further improve our underwriting.
With our experience and knowledge of this market, we see pockets of growth in certain segments. For example, in the SME business, The smaller car fleet segment is quite an attractive segment. These are car fleets up to 2 50 vehicles. And we're building up our presence in this market with ABW, a specialized broker in this segment, as well as Prodrive, a provider of training to car fleet owners. And this combination helps us to play a relevant role in a large part of the value chain By offering driver assistance tools and security training next to our traditional insurance.
And besides reducing claims, This also limits the number of accidents and therefore makes the Netherlands a little bit safer. In the Retail business, We're focusing on attracting the right risk in this mature and highly price sensitive market. To show you in practice how we price our products, On this slide you can see enhanced various labels in the Dutch market. All labels are very well positioned And attract different kinds of customer profiles depending on the average value of the car and the age of the customer. Our largest portfolio, Aura, has on average one of the higher price positions in the market, which is unattractive for new business.
However, for our preferred and target risk segment, Aura has the lowest price. While maintaining our profitability, the portfolio grows and lowers our expense ratio due to low marginal costs. Let's now continue with the 2nd segment in the Non Life company, which is Disability and Accident Business. Within D and A, we basically have 2 different segments: Group Income and Individual Disability. Group Income is a product aimed at employers.
The product cover the mandatory payment of salaries for employees that have fallen ill Or are permanently disabled. In summary, we offer 2 types of cover: Sickness benefit cover for the 1st 2 years that a person is ill and unfit for work cover for the following 10 years. These products are typically distributed by brokers. Individual disability is a product aimed at self employed professionals Such as lawyers, accountants. But most notably, we have a very strong position among medical professionals.
Our specialized label Mophie is market leader in this segment. This product covers the risk That a professional is unable to work for a longer period of time and the policy pays out until the insured person recovers or retires. D and A is a very attractive segment of the market. As margins are generally good, the value chain is relatively long And the long duration of liabilities gives an opportunity to earn on investment margins. And barriers for entry are relatively high.
It requires very specific expertise and experience as well as sufficient scale. Let's now look at the profitability of these products. Our D and A portfolio earns around €1,000,000,000 premium per year. Traditional margins in D and A have very attractive. However, 2020 was a different year.
In the Group Income portfolio, we faced pressure on results, Mainly due to COVID-nineteen and the reduction of the IFRS discount rate. We expect that claims experience will normalize when COVID-nineteen is behind us And the reduction of the discount rate is likely to be priced in these products over the coming years. As most of you know, For a while, the individual disability portfolio has been facing elevated inflows. This is the result of 2 factors. The first is the trend visible in the society as a whole, leading to an increased focus on mental illness such as burnout.
However, this trend is intensified by the composition of our portfolio. Due to strategic choices in the past, The portfolio is now is not as diversified as we want it to be. We are overexposed to medical professions And this led to higher claims in 2019 as well in 2020. Part of the claim was Our research agreement with Labs at the end of 2020. Going forward, all new claims will be fully reflected in the non Life results.
And to restore profitability, we have taken strict measures. Effective from January, We increased our premiums up to 10%. And in addition, we have made extra investments to prevent disability. We've launched a new product with updated terms and conditions and the legacy portfolio has been placed in runoff. It is encouraging to see that we already see early signs of improvement in the Q1 of 2021.
And this confirms our belief that we can restore the profitability of both portfolios sustainably. On the next slide, I will show you How we complement our insurance offering in D and A with recovery and well-being services. Similar to P and C, By offering prevention and reintegration services we avoid as well reduced claims. But maybe even more important, we increased engagement with our customers. And in addition, certain services are offered for a fee And which creates an attractive source of additional capital light fee income.
And for our Group Income business, We have entered in a strategic partnership with HCS. This is a leading and growing one stop shop in the field of vitality services. HES offers reintegration service to NN, but also to competitors. And for individual disability, The well-being services are instrumental in their offering. These services help professionals to excel in their career but also in their personal life.
Our focus is for example on professional development coaching, but also on me and my family or advice on overcoming sleeping problems. Our experience shows that professionals taking out prevention services
have a much smaller chance of suffering from example burnout. And with that, Let me now pass you back to Thierd for the wrap up. Well, thank you, Maurice. And let me now quickly wrap up for the key takeaways. So the Dutch market is sizable, growing moderately and has healthy combined ratios.
In this market we have a unique and leading position in Non Life In the Netherlands in both size and distribution profile where we believe that there is further potential to benefit from our scale in both efficiency and underwriting. We've made good progress and we have a good track record in delivering on our strategy and our targets of a combined ratio of 94% to 96% an OCG Of €225,000,000 and above and an admin expense ratio of below 10%. And I hope our presentation today was helpful in your understanding of our Non Life business and I also hope that you share my enthusiasm and confidence in the delivery of our strategy and targets. Thank you.
Hello, everyone. 1 year ago, soon after I joined NN Group, we presented our new strategy at the Capital Markets Day and I gave you an overview of our risk and solvency position and how we optimize risk and return profile. Today, I want to come back to one of the more Complex risk categories, which is very much in the spotlight these days, which is interest rate risk. And I want to give you more insight into how we manage interest rate risk at NN Group. Now what are the key points I want you to take I'm with you from this presentation.
First, our plan to shift to higher yielding assets is progressing well and there is room for further Risk return optimization in our investment portfolio. 2nd, interest rate risk is no problem for us as our strict 3rd, our remittance capacity is not impacted by changes in interest rate. And 4th, the cash flow matching approach for our pension business in the Netherlands supports the growth in operating capital generation Over the next years. The presentation is now structured in the following way. I will summarize Our approach to manage market and credit risk.
Then I will point out how we hedge and manage interest rate risk on an economic basis. And finally explain what is the impact from interest rates on our Solvency II balance sheet and especially on operating capital generation Or OCG. As you all know, we have a strong solvency position. Our solvency ratio end of year 2020 is at 210 Percent. Now if you compare our risk profile to peers, you see that we are relatively underweight Market and Credit Risk.
The main reason for this is our conservative approach to investment risk and especially to credit risk. Another reason is that due to our business model, we have a large exposure towards longevity risk That is dominating our insurance risk profile. We started to mitigate this risk and have the possibility to take additional steps. As we have seen last year, this has a very, very positive impact on our risk return profile. An essential part Of our NN Group strategy is to maintain a strong balance sheet.
And to ensure this, we will continue with our conservative At least €200,000,000 increase in OCG from the shift to higher yielding assets in 2023. And we are very well progressing on this route. How do we do this? We shift out of government bonds 2 more illiquid assets and corporate bonds as indicated in the chart of the left hand side of Slide 5. On this path, We will gradually continue also in the next years.
The main difference comparing our portfolio with the portfolio of other insurance companies is The allocation to Dutch Mortgages. The risk return profile of this asset class is very attractive and there's room To further increase the allocation over the next years, this will continue having a positive impact on our risk return profile. That already leads to the first takeaway that our plan to shift to higher yielding assets is progressing well And there's room for further risk return optimization also in our investment portfolio. So now let's deep dive Into interest rate risk management. What is our steering philosophy relating related to interest rate risk?
The pension business in the Netherlands delivers a very stable and predictable liability cash flow. We apply strict Cash flow matching and match our best estimate liabilities with fixed income assets up to year 30. So there's hardly any interest rate risk Resulting from net cash flow over the next 30 years. After year 30, we keep a small open position Due to liquidity, availability of instruments with some tactical leeway for active management and risk return consideration. And in principle, we see interest rate to be a non rewarding risk and therefore we do not make interest rate bets.
Please be aware that our focus already for some years is on writing life protection business Our defined contribution business without guarantees and therefore our very long liabilities from our pension business in the Netherlands We'll run off over time. The cash flow matching approach is in place since many years. And in addition, We manage the remaining interest rate risk very closely. And though there are limits, tolerances for all maturity It's in place and we also are well within our limits, which leaves room To react to certain market developments and the example on the right hand side, Slide 8 illustrates that We were managing the remaining position on an opportunistic basis. For example, we replaced Derivative positions with long term government bonds after yields became more attractive in the beginning of this year.
The one basis point sensitivity for the resulting economic position, best estimate liabilities versus matching financial instruments Was below €10,000,000 at the end of April 2021. So this also illustrates the limited impact of interest rate changes Given our technical provisions for this business are above €100,000,000,000 To summarize our approach and relating To the takeaway 23, economically, we are very well matched, Especially if we put this into perspective with our own funds, the resulting economic sensitivity is low. A 50 basis point interest rate shift at year end 2020 led to 0.6 €1,000,000,000 positive impact on our economic position. Also the resulting Solvency II ratio sensitivity is low. Solvency ratio goes up by 3 percentage points If rates rise by 50 basis points.
And why is this? Even so, the overall impact On the Solvency II owned funds is negative. If rates go up, Solvency capital requirements are decreasing as well. That means that in Solvency II there are stock and flow facts coming through that impact and they impact the own funds, But they also impact the capital requirements and OCG. But very important, the remittance capacity Of the group is not materially impacted by interest rate movements, as we take both stock and flow into account into our dividend Decision making and this leads to a sustainable and predictable cash return to shareholders.
So this is great. And to understand now the impact on operating capital generation and our solvency Ratio, especially if interest rates changes, I have to make some more general remarks first. An essential part of the business model of life insurance is to earn from investments is spread over time and This is a spread above risk free interest rates. But the valuation of liabilities in Solvency II and the Solvency II balance sheet is based on risk Free interest rate curves. So therefore Solvency II tries in the Solvency assessment to capture this essential part of the business model By introducing long term guarantee measures and uses an ultimate forward rate, UFR, for the long term interest rate curve To allow for partly recognition of spreads earned in a real world environment and liquidity of markets for longer maturities.
As a consequence, there is a benefit coming from these measures in the valuation of liabilities compared to blindly using the swap curve, Leading to a positive contributions in solvency to Own Funds. This benefit to the Own Funds for NN Group mainly Relates to the long term liabilities and the introduction of the ultimate forward range and therefore we refer to this as the UFR benefit. You can see this on the left chart, the orange part of the runoff pattern on Slide 12. These are the liabilities that are mainly impacted. As our long term liabilities run off over time because we write this Kind of business no longer, the UFR benefit for our own funds reduces.
And that means every year There's a reduction of this benefit related to our long term liabilities that are running off and we have a negative contribution coming from this referred to As CEO of Aartrecht. To illustrate this, we are showing the development of the main drivers over time on Slide 13. Because of the runoff of the liabilities of this specific book of business, we have every year a lower UFR drag over time and in addition A reduction in risk margin, a reduction in the solvency capital requirements and the investment return we earn. All of these items are developing in line with portfolio developments and the relevant point now is That the UFR drag runs off faster compared to investment return and risk margin and SCR reduction. And this means in total, we have a positive resulting net contribution to operating capital generation Over the next 10 to 15 years due to the runoff, we expect based on year end 2020 numbers to have an average We have on average an increase of OCG of around €40,000,000 per year until 2025, Which is a bit higher in earlier years and flattens out over time.
That means just because of the runoff Our long duration liabilities from the pension book in the Netherlands over time, we reduced the UFR benefit in our own funds And have a positive contribution to OCG every year coming from the net effect of this runoff. Therefore, our asset liability matching policy pays off as we have a tailwind for OCG over the next years. And as a final point, which is the masterclass section of this presentation. Now what happens if interest rate moves? On slide 14, the impact relating to a 50 basis points upward shift is shown.
This mainly reflects What the impacts from rising rates will be until today? And as I mentioned before, if interest rates go up, The impact on Solvency II owned funds is negative, but solvency capital requirements goes down as well Because we have less interest rate risk. And that means solvency ratio is impacted in a modest way. It's even positively impacted Rates go if rates go up for us for NN Group. And in addition, there's an immediate impact on OCG, which is positive.
And this is the shift from stock and flow in practice that I referred to before or in the Solvency II mechanics language, The ultimate forward rate benefit in our own funds that I showed on page 11 becomes smaller in a higher interest rate environment As a difference in discounting between Solvency II interest rate curve and the actual swap curve is smaller and therefore the UFR drag is lower for the coming years And therefore, positive OCG contribution goes up. Therefore, we expect for 2021 With an interest rate increase of 50 basis points and immediate positive impact on OCG of €245,000,000 And for the coming years until 2025, on average €20,000,000 annual contribution to OCG As a result of the runoff, what does it mean now for the OCG contribution to our €1,500,000,000 target for 2023 Coming from this. Well, OCG support from in force pension business in the Netherlands is one Also locked in drivers to reach the €1,500,000,000 target. In addition, main contributors are Regulatory annual UFR step downs until 2022. The inclusion of NN Bank Based on solvency contribution instead of remittances, which were 0 last year following COVID-nineteen restrictions, but also The full effect of the shift of to higher yielding assets from 2020 investments will come through.
All of this is contributing positively to OCG growth over the next years, which sums up to more than half of the OCG growth that we are targeting in the next years. In total, the locked in drivers will deliver more than half of the additional €500,000,000 step up of OCG From 2020 to the planned €1,500,000,000 in 2023. Other additional operating levers reflect Business improvements, they will come from the operating segments like what Thierd and Maurice pointed out for Non Life Business in the But also from the other segments. Operating capital generation depends also on markets And markets movements. And as markets move on a daily basis, year to date, we saw an increase Of interest rates supporting OCG in line with the sensitivities I just showed, but please note that we have also seen a material tightening of spreads, Dutch Mortgages, which negatively impacts the investment return.
So to summarize, our Shift to higher yielding assets is progressing and there's room for further risk return optimization. Our strict cash flow match up to year 30 leads to low interest rate sensitivities if interest rates go up or down. The remittance capacity is not really impacted by interest rate changes and our asset liability management of the pension book in the Netherlands Supports OCG growth, especially in an environment with rising interest rates. I hope I have convinced you that interest rates are really no problem for us. And with this, I hand it back to Jarmar.
So thank you, Bernard, and thank you, Chirrut and Maurice, for your presentations on non life and interest rate risk. We will now start with the Q and A session. Can I kindly ask you to focus your questions on the topics of the presentations and to limit yourself to 2 questions So that everybody gets a chance to participate and if you wish to ask a question you can now virtually raise your hand? So the first question is already there. It's from Cor Kluis from ABN AMRO.
Cor, please go ahead. Great to see you.
Good afternoon. That's ABN AMRO, although the chef nowadays. But a few questions. First To follow on the FIFA acquisition, the FIFA Non Life acquisition, I think based on the local reporting, FIFA Non Life in 2019 had a gross written premium of around €800,000,000 €790,000,000 or something. I think there is some cleaning in the portfolio like you did presented today, which you have been doing.
What is the current Premium of the acquired business. So basically the question is how much which amount of premium did you remove or Cleaned or became more selective in that respect. So that's my first question. And my second question is on the Partial internal model, I see that you want to have a partial internal model in the second half of the first half of twenty twenty two. Could you give for the Non Life business, could you give some idea behind the technicalities and then maybe already some indication of Contribution to the solvency ratio of the Non Life business because it should probably be quite material or material else you would not Spent your time and effort on that.
And my last question is on the risk side. It's a technical presentation, but very well explained. Thank you for that. The question is on the stock and flow part. You basically said that if interest rates go up 50 basis points, it's minus €900,000,000 for the owned funds.
And if you only take stock and flow element is minus 1.5%, could you also have this split out for the OCG part? Because the OCG part was Plus 245,000,000. What is only the stock and flow element, if you would isolate that? It's probably larger, but can you help us with that figure as well?
Thank you, Cor. So let us start with the question on FIFAAT. I think, Mauricio, you are probably best placed to answer that question. You were the former lead of that integration. And then maybe, Thierry, you can follow-up on the non life question on the PIM.
Yes. Werner, you could end with a question on OCG.
Yeah. Thank you, Cor, for your question. Yeah, of course, it's a big topic. Of course, if you move portfolios to other systems And it's all about retention. We are very pleased with the retention rates so far.
We see that we have 700 of 800 already in the NN systems at this moment. The remaining is the coming months of course. We of course see some small outflow because yes it's changing which are offset by some growth in other lines. But on balance broadly it's neutral and we are pleased with the progress especially because we have A lot of experience with the Delta migration and we're now following with the FIFA migration. So we are very pleased with the retention so far.
Thank
you. Jyrd from the PIM? Yes. So thanks, Cor. So on the PIM, Partial internal model.
So you're indeed correct that Vivat was on standard formula and still is. And we're in the process of bringing Vivat to our partial internal model. This is a process with the regulator where you go through various steps of assurance interactions and then once you Submitted, the regulator has 6 months to come with a formal approval. So this is typically a process that takes a bit longer because it's so technical. We indeed expect a positive impact from this major model change or the bringing VIVA to the yes, Partial Internal Model.
The magnitude of that impact is too early to disclose as it is obviously dependent on the final conclusion that we reach Yes, in this process with the regulator and the other stakeholders.
And on your last question on OCG, stock and flow Related to a 50 basis point upward shift, in 2021, if interest rates stay as they are, so really this 50 basis points upward shift. The expectation is that we see in the OCG of 2021 a positive contribution of €245,000,000 And then in the following years from the regular runoff and also because the UFR benefit is reduced, We will also then see a €20,000,000 on average positive impact until 2025. So that is the, let's say, sensitivity always compared to end of 2020 If interest rates go up 50 basis points.
Yes. Okay.
And The question was more focused on this stock and flow part because I think on Slide 9 of C9, you show the stock and flow part separately Because the total head on the own funds is minus 0.9, and the stock and flow part is minus 1.5. So that's good. I've never seen that figures. But also do you have that for that €245,000,000 if you would only take the stock and flow part Without the other elements.
Well Well, don't you add
that, Jose?
Yes, yes. So the 245,000,000 is really coming from this fundamental shift in the yield Curve year 2020 plus and so it's really a one time impact that would then Go through OCG or we would show in the P and L, but I think that is a let's say the stock part you're looking for Because this is really the equivalent to the minus €900,000,000 Own Funds movement. And then the flow part is really about this €20,000,000 annual on average until 2025 I was referring to That would come then in the later years.
Okay. Okay. Yes. Thanks.
Okay. Very clear. Thank you.
Thank you, Cor. Okay. The next question is from Robin van den Broek from Mediobanca. Let us set up the connection with Robin. I think we have him on the screen.
Hi, Robin. Good to see you. Please go ahead. Do you hear us, Robin? I don't think I think your mic is on mute maybe.
On the upper left hand corner of the screen, you probably can see an unmute button.
This is still not the most famous sentence from corona times. You're on mute.
Yes. Okay. Let us then maybe try again in a minute with Robin and Move forward to the next question from Michael van Weijken.
Yes, good afternoon, guys.
Hey, Michael. Good to see you and good to hear you. Yes, go ahead.
Okay. Hey, guys. Yes. Just two quick questions on the non life side. I guess the first one would be follow-up on the PIM.
Maybe too early to disclose the total impact. I guess, assuming that it's a material impact, can we Discuss a little bit on how we should think that perhaps influences remittances or benefit to Holdco cash or is it likely Whatever the impact would be to stay within the non life Dutch legal entity. That's question number 1. And question number 2, Wanted to go back to the slides around the motor portfolio. I think you showed a 96.5 And combined ratio for 2020, obviously, there's a COVID frequency benefit in that number.
And therefore, that to me without knowing the actual impact suggests that the combined ratio probably underlying Was still at best 100 or possibly above that. So that to me doesn't sound like a part of the book that is performing that great yet. So how can we think about the performance of that improvement there going forward? And why are you therefore Looking to grow the car fleet portfolio because if I remember correctly, that was a problem book maybe 7, 8 years ago Where you aggressively pulled away, so maybe you can give some color around that. Thank you.
Yes. Good questions, Michael. Maybe, Thierry, you can maybe start on both. First, maybe on the PIM and then on the Motor segment and then Probably, Maurice can add some color from your view on
On car fleet. Motor and car fleet. Yes. So let me start with the first question on the Partial Internal Model. So indeed we expect a positive benefit Coming from the PIM, but obviously too early to indicate the magnitude.
Typically, we have the non life company capitalized At a very efficient level, with the current reported Solvency II level of 124%. So yes, normally, if there are, let's say, minuses, as you've always also seen in 'nineteen 'twenty, For instance, we were anticipating the Vivot acquisitions. So Vivot were partly lower or there was the lapse of the internal reinsurance that could affect remittances. Now this could be one that is more on the positive side. So there we would upstream more to the group.
And then obviously it's within our group capital policy that Also Bernard has explained how much we distribute to shareholders. But if indeed there will be a positive Then and there is room for the yes, local business unit remittance or dividend recommendation to support such remittance to group, And that is something that indeed could be expected as a one off. And whether that will be distributed to shareholders is a different question, right? So that It's in line I think with what Bernard could comment on. Yes, on Motor and then yes, maybe specifically on Car Fleets, me cover
that one and then you can
give some color on the motor portfolio, Maurice. So Car Fleets, we indeed aggressively Pulled away from the unprofitable segment. We were in large car fleets that were moving from 1 insurer to the other and they were not very And we didn't believe that there would be a good path to continue. So we're still of the same view today. However, we have embarked on A new approach towards mid sized car fleets up to 250 vehicles where we combine the expertise of ABW Which is a broker where we have a minority participation that is specialized in this segment, has prevention services, knows the good risks And there we're selectively seeing how we can participate in that growth.
So it's not a shift in strategy. It's just a new profitable segment that we believe that we are well positioned for to capture. Yes, so in general on the motor portfolio, Maurice, Maybe you can share some color on the health of the motor portfolio?
Yes. Good question, Michael. Of course, Molter is always a challenging market in the Netherlands. We see, however, that If you're focusing on pricing, especially on data gathering and pricing on the right segments, Then there is room for profitability in the Motor segment. You see Of course, that the market is from is a hard market.
So it's more room for price increases, but also our own Actions with strict underwriting and we learned a lot of course from our direct label aura. We Take that into the other labels. We are well positioned to have structurally good profit on the motor portfolio. Especially if you combine it, you see that with the SME portfolio with prevention and of course servicing That helps a lot in improving our motor business. So that's why we believe in profitable portfolio.
Great. Thank you, guys.
Thank you, Michael. Then next question by email from Michael Huttner from Berenberg. I think three questions. So please also a kind reminder to all of you to limit yourself to 2 questions so that everybody has a chance to ask his questions. First question from Michael is on the D and A business.
How quickly we would expect it to return to profit Pricing or portfolio problem and do we need to acquire a business to Diversifying away from the concentration in the medical sector. Good question, I think, focused on individual disability. Then secondly, a question on inflation. If higher inflation is structural, what is the impact for back book reserving? What actions can you take?
And maybe also a question on Non Life, but maybe Bernard also interesting for you to give your perspective from a group level on your view on impact of inflation. And then thirdly from Michael, the question on the current levels of profitability of FIFA's DNA and Non Life in the Q1 of 2021. While we obviously have not disclosed our numbers For the Q1, we will disclose our first half year numbers in August, but maybe, Thierry, you can maybe add some color on what we've seen in 2020 already and Friends. Tier 2, do you want to start on individual disability?
Yes. So first question, Disability and Accident, how quickly will it turn to profit? So we always separate The disability and accident business in group and in individual. So with regards to group, which is about 2 thirds of our portfolio, The main impacts that we've seen there in 2020 is COVID, specifically related to the sickness portfolio And the effects of the lower IFRS discount rate both of which we would Back to return to the normal healthy profitability levels rather quickly because COVID we would expect to go away And also return to normal sickness levels in companies and the lower IFRS discount rate we've priced in In Group D and A also again for the 1st January, so there we would see the recovery of Group D and A to be rather quickly. For individual disability, so this is 1 third of our portfolio, where in the NN portfolio, we had an exposure to a specific Medical segment where the burnout rates were higher than in other parts of the portfolio.
So there we've taken actions as Maurice explained to us. So we had a price increase of 10%. We launched a conversion product. We did stricter underwriting criteria. And there we see already the first signs that we believe that we can restore profitability over the longer term.
So we're Very happy to see that progress. However, for this 1 third of the portfolio, it takes longer to return to the healthy profitability levels. And that is more a couple of years than let's say the shorter term for group D and A to recover. Yes. On your last question, so should we diversify away by acquiring another book?
We did. So we acquired Vivob Business. So Vivad had a similar sized portfolio as ourselves and they were not exposed to the medical segment so much. They were much more in white color. So that diversification benefit And the individual DNA is obviously also helping ourselves and there's no need from that perspective to acquire an extra book that's already in the current book.
So the second question was on inflation. Inflation, Yes. The impact on the backroom preserving for non Life business is typically priced in. So it's a very short term business. So we renew contracts rather quickly most of them in 1 year or in 3 years.
And for the longer term business, we've typically priced this in. Yes, so maybe bear on it on inflation, you can say something on the rest Rupert for Non Life, yes, this is not a very material problem. And
the last question? Last question was on the The
current profitability level indeed of the Q1. So indeed as Jarmar We do not disclose the Q1, so the second half results will of course follow. So what I can say is that in 2020, We had the D and A business at a combined ratio of 102.6 percent. And let's say P and C much lower and the overall Combined ratio we had was 95.3 percent. With the effects on D and A that I just explained in my first answer, so this is partly elevated due to COVID.
And P&C, especially the motor business, obviously had lower claims frequency, where we ended up with a healthy 95.3 Now for the Q1, we would expect, let's say, the trend on D and A to improve with the measures that we've taken and that we have announced. And for the Q1 as COVID is still in place you could expect claims frequency to be similar in than we saw in the COVID Q4 of last year. Post COVID, we would expect the claims frequency to also normalize for the motor business. And obviously the continued effects on the improvements actions that we've taken on D and A. So that gives you a bit of Color on how we see this year developing.
Thank you, Thierry. Maybe Bernard, could you share your views on the inflation Risk from a group perspective?
Yes. 2 or 3 remarks from a group perspective. So first one, Looking at our Life and Pension business, most of the liabilities are nominal liabilities, defined benefit kind of liabilities That are not exposed to inflation and inflation risk. And where we have books of business where there is a link to inflation, we explicitly hedge it. So from Life and Pension, there's no exposure coming through.
And In general, higher inflationary environment also means higher interest rate environment typically. There I think I pointed out that this is an environment which is also supporting our business model, especially Life and Pension business Because then certain products are then more profitable. Also there are more business cases That are depending on interest rate levels, so that is favorable for us. And being the Chief Risk Officer, of course, I have to point out to the risks. And they relate to expense risk that we have to manage, but which again we have in our hands And the economic environment may lead to suppression of risk premiums of investments for some time.
So that would be then the economic outlook that may be Then on the negative side, but in general, again, higher inflation or higher interest rate environment is positive for us.
Thank you, Bernard. Okay. Then the next question from Benoit Petrarque from Kepler. Let's wait a second to set up the connection with Benoit. I think he is coming in.
Please. Hello, can you hear me? Yes. We can hear you, Benoit. We cannot see you, but we can hear you.
Okay, good. Now basically two questions on my side. The first one was on the comments you made around data analytics In Non Life, I mean, this is a tool used to improve the underwritings. And I was trying to understand How much potential do you see in terms of potential impact on combined ratio? How much potential do you see in the future?
And how much you've achieved so far On that, so have you done a lot already? Or you consider that you still room to go in terms of analysis on data analytics? That's the first one. On the second one, it's moderating to the risk. And I think you mentioned that there's room for rerisking.
And you've got this kind of €200,000,000 uplift in OCG. I just wanted to get a feeling about How much is still left you think on the kind of 2, 3 years time horizon? And you touched base on this margin on mortgages. And I was wondering if Clearly, there have been some pressure recently. And whether you see that as temporary or that's something we should kind of plug in the model for For the longer run, if you're happy to still be on this market with much lower margins on mortgages.
Thank you.
Yes. Thank you, Benoit. Clear questions. Thierry, would you like to start on data analytics? Maybe, Mauricio, can add your color on And specific experience you might have from Ora.
And then Bernard, would you like to take the question on rerisking? Geert, would you like to start?
Yes. So thanks very much Benoit for your question. So As you can imagine, we were NN. We acquired Delta Lloyd with a non life business. We acquired Vivot with a non business within NAND.
We already had a direct label with bank insurance labels. So we in our strategy identified A real potential to pull all the data from all the different labels from direct, from bank insurance, from brokers and reach it Also with external data and then when you have all the data combined in one pool with a data scientist analyzing it And coming up with either retention models or looking at bodily injury specifically, there are a lot of different things that you can do with it. It's really a core capability For a non life company, always has been, but with new technologies and these new data capabilities, we believe that this is our largest driver for Value Creation. On the Non Life side, so if you see our OCG improvement slide towards the target of 225,000,000 this is the first one we mentioned. There's a lot of actions that we've already taken and Maurice mentioned some of them in his presentation.
So have we started with this? Absolutely. So we did lots of actions. I think it's really 100 and sometimes even 1000 of small actions that we take on different product lines. So yes, we have started and we see already some of those actions bearing fruits in our portfolio.
But we also believe that towards 2023 there's a lot of further value that we believe that we can capture To reach of course the target of 225 with OCG. And Mauriz, you can give a couple of examples and then maybe quickly go to Bernard.
Yes. A good question. And it's for Non Life, of course, a key topic and very important. From Aura, I've experienced that data is the foundation of your company. Within Aura, we I did a lot of data analytics, especially on behavior of customers, especially if they use your portals.
You can by analytics, you can predict customer behavior and that's crucial. For instance, To increase your retention rates, but also topics like fraud detection, Pricing is of course the main topic. So data and data analytics is here to stay And we see a lot of opportunities in different kinds of segments. And as for us as a non life organization crucial, And we have a lot of experience, but the developments go so fast that there are a lot of opportunities in this area.
Thank you both. Very clear. Bernard, on the rerisking?
Yes. On your rerisking question, Benoit, First, well, re risking as part of our strategy to achieve the €1,500,000,000 target in 2023 And we are well on track, like I pointed out. And from the €200,000,000 that we targeted, we have achieved already €170,000,000 That will contribute in 2021 fully to OCG. That means €120,000,000 were already reflected last year and €50,000,000 in addition also now are coming through in €1,000,000 in addition also now are coming through in 2021. But Please be aware that in 2020 was a special year.
We were able to take advantage of the market, the turmoils and the market developments To especially invest in the more liquid public markets. And this year, we are continuing with a more gradual slower shift of our assets into more the illiquid space, Mortgages Real Estate. And that, of course, will not have the same pace as we have seen in 2020 and or the beginning of this year. Now on mortgages, we still see that this is a very Attractive asset classes, even so the spreads have tightened. And you're right, they have tightened Really materially in the beginning of this year.
But given the low risk profile, the our Very strong sourcing and underwriting capabilities. The spreads are still attractive from a risk return perspective. And we also see that after the client rates have stayed stable over the last month, While interest rates went up, so spreads went down, now client rates start to move. And typically there's a timing effect Between interest rates moving and clients' rate moving and so we expect that the spreads will also catch up and that we will also get Back to better spread levels also in the next time.
Yes. Thank you. Very clear. Then the next question I think is coming from Ashik Musaddi From JPMorgan, we're setting up the connection with Ashik. Just waiting a second for him to get into the virtual room.
It's always interesting these days whether it is working or not. I think, Ashik, you're at least visible to us. I hope that you can hear us.
I can hear you. Can you hear me?
Yes. We can hear you as well. Great. Good to see you. And please go ahead.
Thank you. Good to see you. Thank you. And I have like a couple of questions you can help me. First of all, I want to understand that OCGN interest rate sensitivity point again.
So what I want to understand is $1,500,000,000 is your guidance. And then interest rates this year have moved, let's say, by 45 basis Let's just say 50 basis points. So how do the numbers move for next year, year after? So are we talking about 1,500,000,000 1,750,000,000 and then moving 20,000,000 from there on? Or are we talking about 1,500,000,000 becoming 1.7 $5,000,000 And then dropping again back to $1,500,000 And then moving $20,000,000 So just need a bit of clarity that Extra €245,000,000 that you mentioned, is that going to stay here or is that going to drop off?
So that's the first question. The second thing I would say is how do we think about the P and C business? I mean, sorry, Longevity Reinsurance. I mean, clearly, you mentioned that longevity reinsurance is a topic that you would consider Going forward, but what needs to happen for you to do longevity reinsurance? I mean, your capital position is good.
If you do longevity reinsurance, at some point, you have to put money on the table for the taker as well. Why would you do that? So that's the second question I have. And thirdly is you mentioned that OCG benefit from higher rates We'll be offset by tighter spreads on mortgages. Now possible that's possible mortgage spreads would have tighter, but That should also benefit the solvency ratio as well.
So can you give us some clarity on what has happened to mortgage spreads So that we can understand what has happened to solvency to ratio as well this year because of spreads. Thank you.
Yes, yes. Very clear and good points, Ashik. I think all questions for you, Bernard. So that is also easy. It's Up to you how you want to take it.
Yes. In which order?
I will have a drink.
You have a drink.
Good luck. Thank you, And I start with longevity because longevity risk is still one Not one. It's our peak risk in insurance and business in the business risk, so in our risk profile. From a strategic point of view, It makes sense to reduce this peak exposure over time. And this mainly is if you look at risk return Consideration, Ben, it is attractive for also shareholders Because simply the amount of capital that we can set free, so that is relieved, is disproportional to the Return that we give up for the reinsurance premium.
So and that is still we are not still in the sweet spot where this was changed. And therefore, this is the main consideration behind it. Are we under time pressure? No, Because we have the risk bearing capacity, we have the solvency, so we can take it really also slowly and opportunistically. We could look At the portfolio and see where there are interesting opportunities and that's exactly how we do it And how we are progressing with long termity risk.
Maybe then linking it to The last question on solvency. Yes, there are some moving pieces, but Expectation is that currently our solvency ratio is at around 210%. So the main so mainly the same Number as year end 2020, and there have been share buyback and step Down of ultimate forward rates that were negatively positively was the rise in interest rates, but the spread tightening you mentioned It's also in the market development a negative position. But if you take all of them together, Then more or less they all level out so that we are estimating that we are around the same solvency position that we were end of 2020. Now the first one on the Impact of a 50 basis point interest rate shift.
Well, first of all, we have a target which is €1,500,000,000 for 2023 and that will not change. So that's our target. The impact of interest rates going up now is what I would summarize as part of market development And no spreads as they have a negative or had a negative impact already in the Q1 It's compensating. So these are the moving or fluctuating parts around, let's say, our path to the €1,500,000,000 That we see. This maybe now to the point of How to interpret the €245,000,000 If you see this as a contribution Because it's lowering the UFR drag mainly and that means the Through the runoff, there's a higher contribution every year, positive contribution coming through.
Well then, it's Really a positive contribution to be expected as a one time impact, Which helps in 2021 and then in the next years this €20,000,000 I indicated are then The positive impact coming through on an annual basis, but what you have deduct to deduct are the €40,000,000 that I showed are the Over the expectation end of year 2020, that was the base case that we had end of last year. And these €40,000,000 per annum, they would you have to deduct from the kind of projection in the coming years. So it's really to interpret as a Fluctuation around this growth path to the €1,500,000,000 coming from market developments, interest rate and spreads That you see and unless we are really seeing a substantially higher interest rate environment for longer time, I would also see no need to reconsider here any kind of target.
Yes. Maybe, Ashik, We are also able to catch up after this call to walk through all the details in more detail through all the numbers in Brazil. Thank you. Thanks. Okay.
Then we go to the next question, which is a question by Email from Robin Vandenbroek. Apologies, Robin, that apparently the connection was not up to standards to make it work. Your first question, are you able to increase remittances or dividends to shareholders now that OCG is increasing on the back of higher rates? That is very much in line with what we just discussed with Ashik. And then secondly, what is the impact of tighter mortgage spreads on OCG?
I think again two questions for you Bernard. I think we kind of touched upon
Yes.
I think I can be quick, But I think very much to the point that The remittance capacity and I try to show that this is not really impacted by interest rate changes, interest rates going up or down. And that's mainly because of these moving bits and pieces between stock and flow that we already take into If spreads or if interest rates are really higher for longer and if the environment is In the way that we see a higher interest rate environment, then again, it's positive for our business model. And therefore, Then in the long run also higher OCG will translate into a higher potential for Remittances and our remittancy capacity will be strengthened. So I think that's it in a nutshell. And The impact of tighter mortgage spreads on OCG, while we Have a sensitivity that we also published.
The 50 basis points sensitivity of Mortgages is around €120,000,000 impact on OCG. So around this order of magnitude, I would assume the impact just from tightening. And if you compare this to the €245,000,000 Of interest rates, then you get to a good estimate of the total market impact that we saw until year to date.
We have a short follow-up question from Robin I see, which is with higher Solvency II ratio than peers and interest rates going up, When does this become more fungible? Well, I think at our Capital Markets Day, we talked about the priority of having a strong and Brazilian Balance Sheet, but maybe Bernard you can add some color.
Yes. I think you summarized it already very well, Jarmar, because the Again, the environment that we are in and also the sensitivities We see in this environment makes us comfortable with our current position. If we are entering another economic environment And there may be changes and this would be something to reconsider, but I would also see For the next time that we have no additional aspect, not that we will take into account Coming from just this kind of interest rate movements.
Thanks. Clear. Okay. Then we go to our next A live question from Farkar Murey from Autonomous. Fager, we can see you and hopefully you can hear us as well.
I can hear you. Can you hear me? We can hear you too. Great. Good to see you.
Go ahead.
All right. Lovely to see everyone. And just two quick questions from me. Just starting on the Non Life side, so to Maurice, I think. With regards to this kind of disability legacy portfolio, I just wondered if you could give us some color around the scope of that, size of it And also maybe perhaps how about the duration of that runoff exercise and reserving around it?
And then secondly, just to Bernard on the interest rate side, You mentioned I kind of moved from swaps into long bonds during the quarter. I just wondered if that had any impacts at all in terms of the modeling Of solvency or capital generation at all? I presume not. Thanks.
Okay. Maybe on the D and A, Geert, would you like to start with some Views on portfolio of individual disability? Yes.
So, the individual disability Policy conditions are up to retirement. So in that sense, it's quite comparable to individual life So there is a right of the policy holder to keep that Policy in place for that period of time and obviously there are some rights on the insurer side to increase prices Introduce new products reflect underwriting criteria, but this is the way that individual disability is structured. In practice, of course, these are a lot of freelancers and people that are not covered by the government scheme of Disability and Excellence, so it's a private choice to have such a policy in place for this target market. And yes, we do also see if people switch jobs or their employment conditions change, how do people cancel their policy? So Yes.
The average duration, I would say, is more sort of 6 to 7 years, but there can be somewhat longer Tail especially for smaller book of business and especially if there would be Let's say a more problematic part of the portfolio, the runoff can take longer in such a situation, but normally it would be in that range.
And the total size of the portfolio is around €300,000,000 to €400,000,000 I think?
Yes. The total individual disability is around €300,000,000 And the Movir book is about half of that. And Movir is the book where the medical professionals are represented. Okay.
And maybe for you Bernard, the question on the actions that you took on the interest rates risk? Yes.
There are mainly Two impacts on, yeah, solvency or on OCG. First one is Moving into government bonds has a positive contribution to OCG. It's in the order of a low two digit million number. But on the other side, the credit spread risk goes up. So the SCR consumption goes up.
So that means solvency capital requirements are impacted, but also in a Not really material way, but in a way that you see it, but not really changing our position.
We don't hear you properly, Farker. Can you maybe repeat your question?
Can I ask a follow on question just on that one? Yes, sure. Okay. Just bringing all those elements together, so higher interest rates, narrower Brad, so now obviously that kind of shift into longer bonds. I mean that €1,500,000,000 target in 2023, is it easier Or more difficult.
I get the sense it's kind of a much, much.
I think especially from The impacts we discussed around market credits, investments and interest rates, There we are really well progressing. And I think that it's right that you got this notion. But there are some parts in the strategy where we are working on where we have to deliver, which will take 2021, 2, and 3, like for non life, but also in the in some of the elements I was pointing to like the The tailwind coming from the runoff in OCG from interest rates, also this is an impact that comes through every year, contributes every year. So it's 2021 will be, especially compared to then base 2020, really a good step forward. But then still of course there's a lot of homework to do.
Okay. Great. Thanks guys.
Thank you, Fakir. Then the next question is also by video from Stephen Haywood from HSBC. Stephen, We are setting up the connection with you. Just waiting a second. Yes, I think we see Stephen come here.
We can see you, Stephen. I hope that you can hear us.
Hi. Hi, Stephen. Hi.
Good afternoon. Can you hear me?
Yes. We can hear you. So please go ahead.
Excellent. Thank you very much. Two questions, 1 on Non Life and 1 on Solvency. You mentioned right at the beginning that it's a hardening market, I think. And I would like to know more specifically what level of price increases are you putting through In the major fire and motor lines, what sort of average price increases and how much claims inflation You know, it's coming through, so we can get a sense of what the delta is between the 2.
And then on the solvency, I'd like to know What Bernard's view is on the risk margin and whether you'd like to see this change in the future, whether With us, the Iover can potentially look at adjusting it somehow. What would you like them to do to the risk margin? Thank you.
Wow, that is potentially a nice conversation that you could have, Bernard, with Stephen on the risk margin. Try to keep it short. And then, Gerard, can you then afterwards talk about the hardening market in Non Life. Would you like to start, Bernard?
Yes, very much. Yes, Stephen, that really goes to the heart of the discussion around the Solvency II 2020 Review and what is now under review because there the risk margin is Now also on the table and up for discussion, there are some suggestions that would lower the risk margin. And I think that's very welcome by the industry, but also by us. And also in my view, if I just look at our balance sheet for Our longevity risk, we have a standalone SCR of €5,000,000,000 and we have a risk margin of €8,000,000,000 So it's An amount of capital, if it's solvency capital requirement or if it's an additional reserve that we hold, it's very high. And To recalibrate this and to come to a regime where this is more in line with Really what is risk adequate, I could not welcome it more.
Okay. Then, Thierry, would you like to say something about the hardening market?
Yes. So thank you for your question, Stephen. So indeed the market has been hard over the past 2 years And we were very pleased with that because having to complete major migrations from Delta Lloyd and VWAD in a harder market is, of course, easier than if there's a lot of competition going on. So that made it helpful to keep the retention rates up And also to take action on portfolios where we saw the need. We don't have a cross book approach where we say, well, let's increase prices across All books we have quite a segmented approach.
So for instance for individual disability we did a maximum increase on that particular book of 10%. On mandated agents, it's not been just price increases over the past years, but also discussions And of course on expenses. So yes, in motor, we've indeed increased prices. So the average Rate of increase was around 5% in past years on motor for instance. So, yes, in general, I think you're trying to get at What is the improvement that you could expect on the combined ratio coming from price increases?
So I would Rather put it as the target of 94% to 96% that we have envisioned for the non life company in 2023 through the cycle. This is The range that we are targeting and that includes underwriting improvements, the OCG rerisking, price increases, all the It's from data. So all of that combined brings us into the range of that target. But yes, we do expect the market Yes, to be hard. Still in the coming 1 to 2 years, we see also other players to be rational and disciplined in pricing.
Yes. And I think on a longer outlook, non life is typically a cyclical market that is hard to predict and nobody has a glass ball for. But that will be sort of my guidance
for you. Thank you, Thierd. That's very helpful. Just a small note from my end. We aim to finish in around 15 minutes.
So let's try to answer as many questions as possible. 1 of our peers is also starting with a presentation at I think 4 p. M. CET. So Let's aim for another 50 minutes approximately.
Next question is from, I think, Hadley Cohen from Deutsche Bank by e mail. Two questions I can see. First one is on the assumptions that we included in the €245,000,000 uplift from OCG relating to higher interest rates, whether there's anything else in that scenario apart from interest rates impacting that number. And then secondly, the question on remittance capacity. If that remittance capacity is not affected by interest rate changes, What about the link between OCG and free cash flow, which we also talked about at the CMD?
Werner, would you be able to talk about them?
Yes. And the so the first question On the assumptions behind the €245,000,000 it's interest rate only. I Already pointed to the negative impact I expect from market developments coming from tightening of the mortgage spreads in the Netherlands or the Dutch mortgage Of around €100,000,000 to €150,000,000 So this is what you would have to take into account to come to the full Market developments, if you look at the year to date changes on our OCG, So that are the main two drivers to consider coming from market developments. And now remittances, I try to point out that I would always differentiate between a short and a longer term Horizon, if it comes to interest rates. The short term impact Yes, where I said, well, this has no impact on our remittance capacities because the short term impact very much relates To just being able to digest market volatility, market developments, interest spread moves And not having to react with this in our dividend or share buyback policy, I think that is one of our And that is also what our solvency position is signaling And it's also enabling.
Longer term, again, if interest rate rises and we are in a higher interest rate environment, Then there will be additional contribution to OCG. It will take some time until this then comes through and Also the ability to really pay out the cash and have the remittances going forward, but that is Mainly then the question on sustainability of the interest rate level for the time To come and then also the time lag until this really is showing up into free cash flow on holding level That we can then use for potential remittances.
Yes. Okay. That Makes total sense. Let's then move to a follow-up question from Robin van den Broek by e mail. Impact of higher rates on excess return of real estate and equities.
Will the fully Absolute yields make its way into OCG. We indeed use assumptions for both categories. And then the second question is, what is the saturation point of mortgages in your asset mix? Does potentially low LTV On your current book Help, I think related to higher house prices. Are you able to talk about
Yes. Yes, yes. Yes, Robin. So to the first question,
the
For Real Estate and Equities, we have risk Premium assumptions that we use that are long term looking back over some years And those we are not changing frequently, but that would really be a more fundamental shift in the market That would trigger to revisit them. So therefore, they are stable and they are not impacted by interest rate level, meaning also that has no impact On the contribution on OCG, just beside the market value Of the respective positions. Now saturation point for mortgages. So Yes, the loan to value ratio is coming down, which is good. In the Netherlands, we are now at 65% to 66%.
So that's really good. And that makes the Asset class from a risk return perspective even more attractive. And what we do is that in our strategic asset allocation in the optimization, We look at what are percentage allocations in the different asset classes And here then Dutch mortgages with this development are getting more attractive because they simply consume less risk capital If loan to value goes down and that is an, let's say, implicit effect that via this route We take then up into our allocation. And for the next years, we see also additional possibility To grow in this asset class. Yes.
Okay. Thank you, Bernard. Then the next question is from Andrew Baker, Also by email, first question on non life, are you still open in the M and A non life sector Or does your high market share prevent this? And then second question on the current spread levels, can you give a sense of the difference in return on SCR for Corporate Bonds, Mortgages and Coffees. Maybe qualitatively Bernard you could add some color on that.
But Thierry would you like to start on M and A in Non Life?
Yeah. Yes. So we're very pleased with the 2 acquisitions we've done in non life. So Delta Lloyd and Vivat were very Substantial acquisitions in the non life part that we're currently integrating. So Delta Lloyd, of course, already being And Vivot, we're making a lot of progress.
So building that scale and exploiting that scale in our strategy, As we have explained today is what we're doing for the coming 2 years. That also made us the number 1. And yes, If you are the number one, then obviously, if you would look at other, let's say, non life manufacturing opportunities, Yes. Compared to M and A, we're always disciplined and rational. We would look at it, but really our base case is organic.
We're very happy with the position of Ryn. We're happy with the acquisitions. And our strategy, yes, is to obtain the value from those two acquisitions. So, yes, an opportunity comes by. We will look at it, but we're very pleased with the position we have.
Okay. Andrew, and on your question, the difference In risk return view on the asset classes, clearly, Dutch mortgages stand out because of the low risk Profile and for very good reasons with the whole institutional framework that we have at the Netherlands, but also Now our underwriting capabilities that we can use in sourcing at our own bank, LTV, we just discussed. So it's that's the main driver that this is outstanding. Then It's to jump from the leader in risk return to The one that we are most concerned with that's mainly government bonds. So to move out of government bonds is Also if you look at this on a longer time horizon, the way we want to go and that's mainly also simply because Once being not attractive from a risk return profile and corporate bonds as a whole spectrum in between Where last year's spread levels were very attractive for especially investment grade single headed, for example, Investment grade corporate bonds, but they are have tightened again.
Now other niche segments are still attractive from our perspective. But this is where we are more selective and therefore also it takes more time to build up exposure and that we are taking now The smaller steps in being a little bit more selective building up the portfolio.
Okay. Very clear. Then the last question of the session today is from Benoit Petrarque, which is hopefully A video question.
Yes, hi.
Hey, Benoit. Well, not a video, but at least Virtual Air Attendants.
I don't know if it's
just coming
back on the Solvency II ratio, you just mentioned that it was kind of stable To turn, I looked at it end of April, maybe something happened in May, but I had impression that the mortgage spreads tightening was very positive at about 8 percentage points. And also large positive on equity and then you have the capital generation. I mean you add So the payment, the share buyback and the UFR drag, but it's I'm a bit surprised that it's actually flat given the mortgage spread is a big positive on the stock. Did you see anything special on the government bond spread in the month of May? Or trying To understand why it's actually flat since the beginning of the year.
Yes. Yes. Thank you, Benoit. I think, Bernard, final question for you.
Yes. You're right. The negative impact I was referring to was The OCG. So and if you now switch to Solvency II, the tightening is positive. Also Equity Developments, they also contributed positively, but there were other Market Development.
On government bonds, I know you saw a tightening of the spreads in Corporate bonds a little bit. So smaller movements, but adding them all up leads to a small positive Impact from market developments. And then I pointed to the other ones like share buyback, Inclusion, ultimate forward rates, step down, which were negative. And then on the positive side, in addition, business development, until now Also positively contributed to the solvency ratio. So these are the Main contributors to the kind of flattish development.
Thank you, Benoit. Thank you, Bernard. Okay. So I think we are now about to close this session. We have come to an end of the webinar.
Thank you, Thierry. Thank you, Maris. Thank you, Bernard. And of course, all of you for attending this webinar. Stay safe and healthy, and we hope to see you all again soon and then hopefully in person.
Thank you.