Good morning, ladies and gentlemen, this is the operator speaking. Welcome to the NN Group's analyst conference call on its first half year 2024 results. The telephone lines will be in a listen-only mode during the company's presentation. The lines will then be open for a question and answer session. Before handing the conference call over to Mr. David Knibbe, Chief Executive Officer of NN Group, let me first give the following statement on behalf of the company. Today's comments are based on management's current views and assumptions, and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those projected in any forward-looking statements.
Such forward-looking statements may include future developments in NN Group's business, expectations for the future financial performance, and any other statements not involving a historical fact. Any forward-looking statements speak only as of the date they are made, and NN Group assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. Furthermore, nothing in today's comments constitutes an offer to sell or solicitation, or an offer to buy any securities. Reference is made to the legal information on the last page of the presentation. Good morning, Mr. Knibbe, over to you.
Yes, thank you, and good morning, everyone, and thank you for joining our conference call regarding NN Group's performance for the first half of 2024. With me today are Annemiek van Melick, our Chief Financial Officer, and Bernhard Kaufmann, our Chief Risk Officer. I'll begin with an overview of the key messages and then talk about some of the business achievements in the past half year. Next, Annemiek will give a detailed analysis of our capital position, financial results for the first half of 2024, and ongoing financial performance. Proceeding with the key points for today. To begin, our business results have been robust, with OCG reaching EUR 959 million for the first half of 2024. There's a minor decline compared to the same period last year, which saw lower claims in Netherlands Non-Life segment and within our reinsurance business.
With these results, we are well on track to meet our OCG target of EUR 1.9 billion for the year 2025. The second element I would like to emphasize is our robust balance sheet, with a group solvency ratio of 192%, which sits at the upper end of our comfort range of 150%-200%. I am also pleased with the commercial momentum. The value new business rose by 23%, driven by higher volumes in Central and Eastern Europe, as well as the Netherlands. The defined contribution pension business saw EUR 1.2 billion net inflow during the first half of 2024, which helped to further increase our total DC-related AUM to EUR 36 billion, already well ahead of our EUR 32 billion target for 2025.
Netherlands Non-Life kept its strong profitability with a combined ratio at 92.2%, around the midpoint of our 91%-93% guidance range. Today, we also announce a Capital Markets Day set for 27th of May in 2025, and I'm eager to see many of you there and talk about the updates of our strategy and targets. Our performance in returning capital since our IPO in 2014 is a testimony to our commitments, having given back over EUR 10 billion to our shareholders. The increase of the interim dividend announced today further demonstrates our dedication to our shareholder interests. Going forward, we expect the total dividend amount to increase in line with our ambition for a mid-single digit, long-term, free cash flow growth. Our policy of a minimum annual share buyback of EUR 300 million works as an additive feature to the DPS trajectory.
At our current valuation, combined, this should result in a dividend per share growth of around 7%-8% per annum. Despite the recent turmoil in financial markets, we remain comfortable in our ability to deliver on this capital return policy. In January 2024, we announced that we reached a final settlement with all unit-linked-related interest groups, ensuring clarity for involved customers. All legal proceedings will be discontinued, and no new legal proceedings may be initiated by the interest groups and affiliated partners. Additionally, customers have to consent to the settlement terms to receive any compensation. We already fully provisioned for the settlement in 2023. We're advancing well with carrying out the terms of the settlement and anticipate completion by the middle of 2025. In summary, we're glad with this settlement.
We can finally offer an outcome to all affected customers and close the unit-linked file. Once again, we have made significant progress in achieving our strategic KPIs, which are fundamentally linked to enhancing our financial results and delivering value for all our stakeholders. Our ambition is to be an industry leader known for customer engagement, talented people, and a positive contribution to society, including our efforts to tackle climate change. Allow me to outline some of these advancements. Our international markets have shown a further improvement in customer satisfaction, reflected through an increasing trend in our relational net promoter score. Further improving the customer experience remains our focus in all of our markets, with successful implementation of artificial intelligence tools within NN to advance support for both agents and employees.
In our ongoing commitment to a more sustainable economy and society, we have taken steps through our business initiatives and financial commitments. In February, we committed EUR 350 million towards a collaboration with Macquarie Asset Management, designated for financing a portfolio of assets dedicated to focus on climate change mitigation and adaptation, and the broader energy transition. During the first six months of 2024, our investments in climate solutions reached EUR 11.5 billion. In reaction to climate change, our Non-Life has enhanced its home insurance offerings with sustainable options. For example, if there's damage, we help policyholders in upgrading their homes with improved insulating glass and repair sustainable methods. We are confident in achieving our 2025 goals, thanks to the consistent performance in our home markets. Netherlands Life continues to deliver stable remittances.
Our dominant market position creates economies of scale, which may in turn draw in new customers. For the first half of 2024, net inflow into defined contribution amounted to EUR 1.2 billion, and I'm proud that we're once again top ranked by pension advisors. Our digital offerings, account management, and products are highly regarded by intermediaries. As I've noted previously, a high satisfaction score from pension advisors is crucial for our defined contribution offering. The pension reform is likely to increase the overall DC market, especially for insurance companies, and we iterate to expect a total of EUR 25 billion of AUM to come to the insurance markets via buyouts by 2028. As pension funds hand in their transition plans by year-end 2024, we should get better visibility on the size of this opportunity next year. We will maintain a disciplined approach with a double-digit IRR hurdle.
We expect the Non-Life segment to deliver growth over time and sustain its improved cash conversion at a level that is similar to the group. Despite relatively high fires in the first quarter of 2024, the H1 2024 combined ratio was 92.2, which is close to the middle of the 91-93 guidance range. We expect business performance to remain strong as it benefits from a mature and consolidated market, where we are overweight to fire and V&A , and underweight to motor P&C, which tends to be more sensitive to competitive actions. Bank continued its strong performance, enabling it to distribute dividends to the group, despite the step-up of the countercyclical buffer in 2023 and 2024. At our 2023 full year results, we raised our OCG group target for 2025 to EUR 1.9 billion from EUR 1.8 billion.
This was based on the expectation that both Non-Life and Bank would exceed their original 2025 OCG target. In addition, we see room for further upside coming from the segment Other and Insurance Europe, on which I will spend some time on the next slide, that can offset a potential shortfall of Netherlands Life. I'm particularly pleased with the sales momentum in Insurance Europe. Our strong positions in Central and Eastern Europe and Greece have helped deliver an APE and VNB growth of 15% and 21%, respectively, year-over-year in the first half of 2024. This will further bolster our OCG trajectory over time, which already shows a strong historic track record. We expect to reach the EUR 450 million target ahead of schedule by a year, even with pressure on investment results from reduced rates in the non-euro countries.
For Japan, we are still working our way through the improvement order that was effectuated in the first quarter of 2023. As such, our VNB came down further, and we do not expect to improve this before the beginning of 2025. OCG and remittances held up reasonably, despite significant further depreciation of the Japanese yen versus the euro. We expect that performance to remain robust. The recent financial instability in the global financial markets, especially in Japan, has had a minimal effect. Our equity exposure in Japan is very limited, and the yen's recent increase against the US dollar and euro has been beneficial for our Japanese business. We are delivering on our investor proposition that we enhanced with the full, full year 2023 results. Our capital remains robust at 192%.
I'm sure you will recall that last year we took significant steps to optimize and reduce the risk in our balance sheet, including two beneficial longevity reinsurance deals in December 2023, and resolving uncertainties around the unit-linked portfolio with the settlement this year. Together with a lower UFR benefit on the back of higher rates, this has significantly increased the quality of our capital. Our delivery in the first half of 2024 shows that our 2025 targets are realistic and feasible, and today we continue to deliver on our focus on shareholder returns by announcing an interim dividend of EUR 1.28 per share, 40% higher than last year and equal to 40% of last year's total dividend. With this, I would like to hand over to Annemiek, who will give further detail into our performance during the first half of 2024.
Thank you, David. Good morning, all. Let's have a look at the performance versus our financial targets. Our business performed well and generated an OCG of EUR 959 million in the first half, marking a small drop from last year, which benefited from favorable claims environment in Netherlands Non-Life and our reinsurance business. With this result, we're on track to deliver on our EUR 1.9 billion OCG target in 2025. We're also progressing towards our 2025 free cash flow target of EUR 1.6 billion, with our H1 free cash flow growing by 8% to just shy of EUR 900 million. Based on this free cash flow, our cash capital position increased to EUR 1.4 billion at the upper end of our EUR 0.5 billion-EUR 1.5 billion euro range.
Our balance sheet remains strong, with a group solvency ratio at 192%. As David said, since Q4 last year, we took significant steps to optimize and reduce the risk in our balance sheet, and together with a lower UFR benefit on the back of higher rates, this has significantly increased the quality of our capital. In this context, I'm also pleased to note that our real estate portfolio showed a slight positive revaluation in H1 2024, ahead of expectations, largely driven by our Dutch residential portfolio. The continued strong commercial and operating capital performance of the business reinforce our commitment to a capital return policy that includes a progressive dividend per share and a yearly buyback of EUR 300 million.
The raise of the interim dividend by 14% is a further sign of execution of this capital return promise and benefits from the additional dividend raise we communicated with the full year 2023 results. Now, let me give you some more insights into our OCG. As mentioned before, OCG decreased by 4% compared to the same period last year, a period which saw particularly low claims. OCG for Netherlands Life grew predominantly driven by a higher mortgage spread that led to a higher investment return. Netherlands Non-Life OCG decreased versus H1 2023. Last year, Non-Life benefited from benign weather conditions in P&C and positive claims environment experience in group income, whereas H1 2024 saw an increase in P&C claims, partly related to some large fire claims in the first quarter.
Despite this, we're confident that Non-Life can deliver on its run rate indicated at the full year 2023 results. OCG from Insurance Europe continues to grow and came in at EUR 229 million, primarily due to strong new business contribution, especially in Poland and Greece, and strong pension performance. In Japan, OCG remained broadly stable. Increased investment returns and decreased new business strain were offset by negative currency fluctuations. Banks OCG continued to grow. This was largely driven by reduced capital consumption due to lower portfolio growth and increasing property values, partially offset by a lower interest margin, which nonetheless stayed at an elevated level. Banks OCG of the first half of 2024 should not be seen as a run rate, as we would expect mortgage growth to be concentrated to H2 2024 and further NIM normalization fading in.
OCG in the segment Other remained strong, with our reinsurance business continuing to benefit from favorable claims, albeit not at the levels seen in the first half of 2023. Now, at our full year results, we increased our 2025 OCG target from EUR 1.8 billion to EUR 1.9 billion, driven by expected outperformance of Non-Life and Bank versus their original targets. Based on the first half of 2024, we can confirm this view. We would also like to flag the outperformance of Insurance Europe and the segment Other. As David said, Insurance Europe continues to grow and could reach its OCG target ahead of plan by one year. And segment Other did better than its targeted run rate of EUR 300 million in both 2023 and in the first half of 2024.
And we believe this trend will be partially sustainable towards 2025, based on better than foreseen pricing of the RT1 we issued in the first half, and better than expected return on holding company cash. So overall, our business continues to perform well and offers sufficient diversification to keep us on track to meet our OCG target of EUR 1.9 billion in 2025. Few words on IFRS on slide 13. Our operating result decreased slightly versus the first half of 2023, as strong business performance of Insurance Europe was more than offset by a lower investment result at Netherlands Life, a less favorable claims environment, experience at Non-Life, and lower interest result at Banking. In Netherlands Life, the decrease was largely driven by a lower investment result, which mainly related to reporting refinements.
The operating results for Netherlands Non-Life fell versus the first half of the year, which benefited from favorable claims. The combined ratio was 92.2% for the first half, aligning well within the guidance range of between 91%-93%. Insurance Europe increased, driven by business growth and strong pension performance. segment Other improved by an increased operating result of the reinsurance business, whereas NN Bank saw a small decline in its operational result due to a lower interest result versus H1 2023. Now back to solvency metrics, and let's go over to our capital walk. Over the first six months, we saw an increase of 11 percentage points in our solvency, primarily due to strong operating capital generation.
This more than covered the 7 percentage points impact of capital flows, which reflect the regular EUR 300 million share buyback program announced with the full year results, plus the interim dividend. The impact from markets was slightly positive overall, with tighter mortgage spreads and higher interest rates offsetting the effect of wider sovereign spreads. Other was predominantly related to regulatory changes we already flagged at the full year results, such as the reduction of the ultimate forward rate, the countercyclical buffer at the Bank, and an update to the volatility adjustment reference portfolio. It also contains smaller items, including some model and assumption changes and a capital strain from a pension buyout. Despite the impact of the aforementioned regulatory changes, NN Group solvency remained at the upper end of our comfort range with 192%.
Netherlands Life reported a solvency ratio of 190%. I'd like to say a bit about our real estate portfolio as well. As you know, we've a well-diversified, high-quality real estate portfolio of approximately EUR 12 billion. Our portfolio consists of 42% of residential exposure in the, largely in the Netherlands, 26% of industrials exposure, mainly within logistics. These are the key pillars of our real estate portfolio. Though initially anticipating a small negative rev, revaluation in the first half of 2024, an unexpected recovery in the Netherlands residential market, largely driven by the rapid increase in house prices, as you can also see on slide 15, positively impacted our EUR 3 billion exposure in that market.
The outcome of the pending legal issue regarding rent increase indexation in the Netherlands remains uncertain, but it did not negatively affect the value of our portfolio in H1 2024. Due to this earlier than anticipated recovery of residential real estate, our total real estate portfolio has started to recover in H1 already, and based on current markets, we would expect this trend to continue in the second half of 2024 and into 2025. Now, on cash. With our 2023 full year results, we introduce an explicit free cash flow target of EUR 1.6 billion, which is effectively EUR 100 million higher than the implicit target we had before.
In the first half, we made good progress to deliver on this target, with free cash flow close to EUR 900 million and a much more diversified, with stronger contribution from Netherlands Non-Life, from Bank and from NN Re. Free cash flow is particularly strong, as Belgium did not remit in relation to the renewal of the bancassurance agreement with ING. This in contrast to last year, where it remitted a one-off EUR 120 million on top of the regular dividend following a closed book transaction. This free cash flow growth contributed to an increase in cash capital to close to EUR 1.4 billion at half year, at the upper end of our target range, between EUR 0.5 billion-EUR 1.5 billion.
Please keep in mind, though, that remittances from the international units are typically skewed towards H1, whereas capital return outflows are higher in the second half of the year. With 17.8% leverage ratio, our leverage position continues to remain low, with comfortable tiering capacity. All in all, we're well on track to achieve the financial targets for both OCG and free cash flow that we upgraded earlier this year. I'd now like to pass the floor back to David to wrap up our session.
Yes, thanks, Annemiek. So to conclude today's presentation, our financial performance was strong, with OCG achieving EUR 959 million by the first half of 2024, and we're on course to reach our OCG goal of EUR 1.9 billion by 2025. Our capital position is robust, with a group solvency ratio at the high end of our target range of 150%-200%. Commercial momentum and business performance continues to propel us forward. And finally, we plan to share updates on our strategy and objectives during the Capital Markets Day set for May 27, 2025. But let me also take some time for the following. As you might have seen, this morning, we announced that our Chief Risk Officer, Bernhard Kaufmann, will leave NN Group as of September 30 to join the Swiss insurance group, Helvetia.
He will be succeeded by Wilbert Ouburg, currently our Chief Risk Officer of Nationale-Nederlanden Life and Pensions. With Wilbert, we are pleased to have found a strong internal successor, thanks to his extensive knowledge of the insurance industry, which will be valuable in taking our risk management culture and capabilities forward. At the same time, we're very happy, of course, for Bernhard, and this is a great opportunity for him. Bernhard has done a great job in further strengthening NN Risk's framework, which contributed to the strong financial position during a period characterized by many macroeconomic and geopolitical uncertainties. So thank you, Bernhard, for everything, and congratulations. And with that, operator, we would like to open up for Q&A.
Thank you. Ladies and gentlemen, we will now start the question and answer session. To register for the Q&A, please press star one one on your telephone. As a reminder, in the interest of time, we kindly ask you to limit the number of questions to two. Your questions will be answered in the order that they are received. Please press star one one for your question or remark. Please go ahead. We will now take our first question. One moment, please. Your first question comes from the line of Cor Kluis from ABN AMRO - ODDO BHF. Please go ahead.
Hello, good morning. Indeed, Cor Kluis with ABN AMRO - ODDO BHF. Couple of questions, maybe first on the OCG, yeah. You keep the EUR 1.5 billion OCG target for next year unchanged, but the composition seems to be a little bit adjusted, and Life a little bit lower, and Europe and other better. If we focus on Life, could you elaborate a little bit more why the Life OCG is a little bit lower? We heard things like de-risking speed, maybe some UFR drag, maybe something else. So could you elaborate a little bit more on exact figures for that adjustment?
And related to that, also, the de-risking plan, NN Group has less asset risk than, I think, quite some peers so it's logical that you will, re-risk it a bit and increase OCG going forward. Could you give some comments on the re-risking speed? What's the plan? Why don't you re-risk faster? Are you waiting for a certain stress moment in the market or like Berkshire Hathaway or, or something else? And my last question is, pension buyouts. At this moment, in the EUR 1.9 billion, of course, you don't have any, benefits for the, all the pension buyouts that you will probably, do the coming, the coming years.
Will you give the update, and in May, and also include the pension buyouts in the OCG, and give a little bit more of sensitivities? Yeah, what could be the impact on OCG or Solvency, too, or, and that, that's my question on the pension buyout. Because it's a big, big opportunity, of course, for you, and one peer already included it, and gave some extra benefits, which could be quite material. That's it from my side.
Okay, thanks, Cor. Let's take the question in this order. So Annemiek, on the OCG target of EUR 1.9 billion, and then Bernhard can cover the re-risking, and I will talk about the pension buyout market.
Thanks, Cor, for your question. You mentioned the EUR 1.5 billion OCG target, but I'm happy to confirm that that target-
1.9.
It's still 1.9. We're still working on that, on that 1.9. If we look at Life, we did EUR 1.025 billion in 2023, and we're on track to increase that in 2024 and also into 2025. The base that we have in H1 that we reported in H1 is a relatively clean base to look forward to work from. If you look towards the target of Life, it's obviously also a bit market dependent, right? What would happen to spreads in 2025, and it's a bit dependent on the selective re-risking that we're doing. But we're confident that the OCG of Life will continue to grow. Whether we will actually get to right the target, we have to see that in 2025, but we remain very confident on that.
Then on re-risking, I'm looking at Bernhard, who's pressing the button.
Yes, on your question on re-risking: so, if we look at our current asset portfolio, strategic asset allocation, we are mainly continuing to optimize our investment portfolio. And also comparing us to peers, we see we are at a very good state, also from a risk profile perspective. So we are mainly looking into refinements of the portfolios in the area of private loans, green bonds, investments, which takes some time. And therefore, it's a gradual shift that we are looking at. But, there are no larger steps envisaged.
Yes, thank you. Good morning, Cor. On, yeah, on the pension buyout market, huh? I think, I mean, there's a couple of impacts. There's obviously the DC inflow, and then there's the potential of buyouts. We've always said that we feel that the pension reform will be more back-end loaded. And that is because, you know, pension funds have a lot of governance and complex decisions that they will have to go through. They have to go through the regulator as well. Currently, there's around 170 pension funds that are left. You know, a rough expectation has been that 40-50 of these could liquidate themselves since they are below, let's say, EUR 4 billion-EUR 5 billion AUM.
So that means that another 120 need to then, in, in that scenario, would need to go through a, a transition, and that is theoretically spread out over, over 4 years. Now, quite a few pension funds you might have seen announce that they were planning on going through this transition, but also announced that, that they're running into, into delays. So it confirms our, our point, that we've always felt that, you know, the, the buyout market is more back-end, back-end loaded, so more in 2026 and, in 2027. Pension funds will have to deliver their transition plans at the end of this year, and then a, a full implementation plan in the summer of next year.
So I think next year we will get more insight into which fund is exactly gonna do what, so that will give us a better assessment of where we are. So today we just stick to the assessment that we've always had, which is that we would estimate that the market in total would be around EUR 25 billion. You know, we have a market share of 40%, so if we would do in that range, that would mean, for us, around EUR 10 billion. Your question on OCG, that would be then, given that we wanna make at least a double-digit return on it, the EUR 10 billion would give roughly EUR 100 million of OCG.
From the buyouts, today we have EUR 1.2 billion of inflow in defined contribution. You could expect that if these pension funds liquidate into a buyout, that the new accruals will go into the DC market, so it should also mean a further step-up of DC net inflows. And yes, we will be talking about that also at the capital markets day that comes up in May 27.
Okay, wonderful. Very clear. Thank you.
Thank you. Your next question comes from the line of David Barma, Bank of America. Please go ahead.
Good morning. Thanks for taking my questions. Firstly, on solvency, could you give us some indication of the market effects on the ratio of the group and Dutch Life so far in Q3, please? And linked to that, between the regulatory changes to come and the strain from the buyouts you're talking about, the solvency position of the Dutch Life unit could be under pressure in the next few periods. What level do you think is adequate for the Dutch Life unit to run at? Secondly, a question on Japan. Could you please talk about the implication from lower interest rates and lower equities on the recovery of your Japanese business? And then just a small third question on the OCG from the other segment. What was the contribution from reinsurance within that, please? Thank you.
Okay, thank you, David. These questions are all for Annemiek.
There are four questions. I hope I've remembered them all, David. Year-to-date impact on solvency from what we've seen happening in the market, we would expect solvency to be relatively stable since June. From a market perspective, if you would exclude the impact of mortgage spread, we've seen small negative from interest rates being offset by positive impacts on our mid-cap equity portfolio. We have a concentrated mid-cap equity portfolio. It's underweight tech, underweight financials, so we've benefited from that in the last couple of weeks. So without mortgages, you know, roughly stable solvency ratio. On June 30, mortgage spreads were actually below average. Since then, they've widened to beyond what we would consider a normalized level due to repricing dynamics.
Swap rates were down, and Banks over the summer holiday period did just not reprice that. Now, it depends a bit on the day on what the impact is, but if you would factor in kind of a widening to normalized level of mortgage spreads from the 30th of June, you'd probably have to take down roughly 3% or something of the group's solvency ratio. And the dynamics obviously for Life are similar, but a bit more pronounced given that the market impacts are there more pronounced. You asked about the Life potential to fund the buyouts. Life has a solvency ratio of 190%.
We think it's a solid base, especially if you look at the reduction of balance sheet risk that we've done following the longevity transaction and the unit link settlement. Buyouts are expected to be back end loaded, so there's no need to deploy capital today. In addition, decumulating benefits, which are more suitable for longevity reinsurance transactions, build up quickly over time. As such, we could also free up capital, as we go and move along in this buyout strategy, to fund part of that, if, if needed. We're not concerned from that, from that point of view. Impact of the recent market turmoil on, on Japan. We've seen an appreciation of the Japanese yen, which is beneficial for our Japanese business unit.
We've obviously also seen equity being hit, but we don't have equity in Japan, so we didn't really have an impact there. So net-net for our Japanese business, this has not been unfavorable, and an appreciation of the yen will just, will just help there. And then you had a question on what's in the bucket other in terms of reinsurance. We still had EUR 41 million of NN Re in the bucket other, and you would have to compare that versus a normal annual run rate of around EUR 50 million per year. Thank you.
Thank you.
Thank you. As a reminder, in the interest of time, we kindly ask you to limit the number of questions to two. We will now go to our next question. The next question comes from the line of Farooq Hanif from J.P. Morgan. Please go ahead.
Hi, everybody. I'll try and be good and do two questions. I'd like to come back on, you know, Life OCG, because your statement in the presentation is a little bit uncertain, say. So you're saying. You're not saying you won't get to the top, you're saying it's challenging. So could you just give, you know, a little bit more detail, you know, as Corey also asked, just about what are the parameters we should think about? Obviously, mortgage spreads are wider, for example, that's positive. So what are the parameters in terms of maybe interest rates or things we need to think about, in terms of deciding whether challenging means you get there or you miss it?
My second question is in the IFRS results, obviously, you've had some really good beats versus very good growth, basically. And one of the themes I've noticed is that you have really good technical results. So that sounds like, you know, a growth in the release of the, you know, the risk adjustment. Can you talk about the sustainability of some of that? So for example, in, you know, Insurance Europe, I think also in Japan. If you could give a bit more sort of commentary on the operating profit sustainability, that would be helpful. Thank you.
Okay. Thank you very much, Farooq. Annemiek?
Yeah, on your first question related to OCG of Life, it's really market related. As I said, we did EUR 1.025 billion of OCG last year. We would expect that OCG to continue to increase in both 2024 and also in 2025. There's nothing other underlying going on there. If we get to the 1.5, 1.5 target in 2025, is obviously also a bit dependent on market movements and spreads in 2025. But underlying, nothing wrong, and we can still actually get to that target, and we would still expect Life to just continue its strong remittance pattern as we've seen it. Now, on your questions on the technical results, bits and pieces everywhere,
It's a very strong technical result we had this year related to general business volatility. We had some windfalls in Japan. I wouldn't necessarily keep that run rate for the remainder going forward.
Okay, thank you. Thank you very much.
Thank you. Your next question comes from the line of Farquhar Murray from Autonomous. Please go ahead.
Morning, all, and obviously best wishes to you, Bernhard, on your new appointment. Just two questions from me. Apologies, I am gonna just come back to the NN Life OCG guidance. So I think what would help me there is really just understanding which market circumstances you might be referring to there in terms of challenging. And then just in terms of scale, obviously, if you're gonna beat last year, that frames it probably below 100. But if you could give us a sense of maybe the scale of what we're talking about. And then on the other side of that, on the positives, presumably for the Europe and other, I presume we're looking at a full offset in aggregate for the group level.
And then my second question really would be on Non-Life. Gross premiums are up about 2% year-on-year, which feels a little bit subdued. So I just wondered if you could split that between tariff and volume changes. And more generally, could you outline how tariff increases compare to claims inflation at present and the level of market discipline you're seeing? Thanks.
Yes. Thank you, Farquhar. Let me start with the Non-Life premium development, and then Annemiek can talk about the NN Life OCG, which, to be honest, I don't think we have much more to add, but we'll try. Non-Life. Yeah, so the Non-Life growth written premium in the first half year was 3% up. I think a couple elements play a role. First of all, we always said, you know, we prioritize margin over volume. So we have been in certain areas doing quite significant premium increases, both for fire, but especially for motor, and we'll continue to be very resilient on that.
If you look at the 3% growth that we've seen in the first half year, so there's a volume piece around 1.2%, and price increases was around 1.8%. So the indexation part was a bit more than the volume part. It also means that going forward, we continue to expect some premium growth. We've always said, you know, we expect a bit GDP plus, so GDP growth in the Netherlands plus, probably a little bit more. And that is on the back of not necessarily of market growth, but just of premium growth that we expect.
We expect for house and certainly also for motor, that premium increases will continue to be needed, also because, you know, there's some wage inflation and claim inflation that is coming through. Now, all of that, we do not just to get the premium up, but to make sure that we maintain within the 91%-93% range, and we're comfortable that, with what we're doing, that we'll be able to to deliver on that, on that commitment as well. Annemiek?
Yeah, I don't think there is more to add on the OCG question, right? As we've just said, we're confident that OCG will continue to rise for Life. We do flag that in 25, we would also have to look at what mortgage rates and some of the other sensitivities are. It mainly relates to mortgage spreads. But we're confident that it will increase. We're confident on the remittances, we're confident to get at or close to target. And we've just flagged that we've seen other really good results in Europe and also in the segment, other.
Okay, just to follow up on that then. So when you talk about market circumstances, you are largely referring to mortgage spreads volatility?
You can, you know, if you look at what are the biggest sensitivities that we have in OCG, then obviously mortgage is one of them.
Okay, many thanks.
Thank you. Your next question comes from the line of Nasib Ahmed from UBS. Please go ahead.
Thank you. Morning. First question on solvency reform benefit. What kind of solvency benefit do you expect, and what OCG impact do you expect from that? I know one of your peers has actually disclosed a benefit on that front. And then secondly, any update on M&A? There is a deal that is out there. I think previously there was on the process. Are you in the process for that one? Anything you can say on that? And I don't think your capacity for that has changed, Annemiek, but if you can just confirm that as well, that'd be great. Thank you.
Yes. Let me start with the M&A question, and then Bernhard can take the question on the Solvency II reform benefits. Yeah, so I think for M&A, to be honest, I don't really have an update. All the targets that we have shown and that we're giving are based on organic growth, so that continues to be our base case. If there's some opportunities out there, then we will take a look at it. I feel we have a very strong track record in M&A. I mean, all the M&A we have done, we've overachieved the targets that we announced. But it also means we set a very high hurdle, both strategically and financially, in order to keep that strong track record.
So, we'll see if anything comes along. But, like I said, all the targets and all the plans that we're talking about are based on organic growth. Your question on capacity of M&A, yes, we do have financial flexibility. Our leverage ratio is 17.8%, is relatively low, so we do have financial flexibility. But yeah, again, the point is not so much around financial flexibility, it's more about is there something to do that both meets our strict financial and strategic criteria, which has been the, you know, those have been the main criteria to decide on, on M&A. Bernhard, on the Solvency II reform.
Yes, Nasib, we expect that the long-term impact of the Solvency II 2020 review for NN Group will be broadly neutral, including also management actions. The impact on OCG, so best guess is also neutral. And good to be aware that the impact will not be in force before end of 2026, and there are still some moving parts, so some details are still outstanding, which also can have an impact, but that's the current assessment that we have.
Thank you.
Thank you. Your next question comes from the line of Anthony Yang from Goldman Sachs. Please go ahead.
Hi, good morning, and thanks for taking my questions. My first question is on slide 13. In the IFRS metric, I think you mentioned some lower technical margin in Netherlands Life. Maybe could you to elaborate more on that, and if this is one-off or something structural? And then the second question is on the Netherlands Non-Life. Could you quantify the impact of the fire claim in 1H, and how should we think about the OCG in 2H 2024 as a normal run rate? Thank you.
Yes, so let me start with the Non-Life question. Indeed, we've seen a bit higher claims in Q1, but to be honest, this is part of regular business. I mean, we've analyzed these claims and, you know, we don't see a pattern. It was also, you know, in Q2, we didn't see any elevated large fires that in our portfolio. So that's why, overall, I would say, you know, it was a good half year for the Non-Life.
I think the outlier was more last year, as we also flagged, that particularly in terms of claims and also the weather was especially favorable last year. So that's why, you know, you see the difference between last year and this year. I would argue that this is, in terms of, of results, are relatively, a normal, result for us. There's always volatility in Non-Life. Typically, on OCG outlook, there's a bit of, seasonal pattern, where normally the OCG of, the Non-Life business in the second half is a bit higher than in the, than in the first half. Then on IFRS, Annemiek?
Yeah. Just was still thinking a bit also on the, on the Non-Life question, where indeed, good to reiterate that we guided towards a run rate of EUR 370 million plus GDP growth at the full year results. And if we look at, at the current results and take that seasonality that, that David referred to, which is largely, driven by the group income business, if you take that into account, then, then we're confident that we would, that we would be at that run rate. Now on, our IFRS result, the, the operating result decreased, from H1 2024, versus, H1 2023, because of strong business performance in Insurance Europe was more than offset by the lower investment results at Netherlands Life.
Favorable, less favorable claims experience of Non-Life, and also the lower interest result at Banking. Now, if you would look at where was the largest decrease, then that's within the Life operating result, and that was largely driven by lower operating investment result, and that was mainly driven by two reporting refinements. They, they were basically related to two elements. One was related to a change between H1 2023 and H2 2023, which de facto led to an overstatement of H1 2023. And the other one was a real change in 2024, and IR can give you, the, the more technical background on it, but it was largely related to a refinement of what we call the operating investment result. Good to say here that the current IFRS operating investment result for Life is a better representation of the run rate here.
Can I follow up on the lower technical margin point in the Netherlands Life? What is causing that, and if that's something well or something underlying?
It's a mix, including a small negative claim variance for maturity and mortality. I wouldn't qualify that as an underlying sustainable item.
Cool. Thank you.
Thank you. Your next question comes from the line of Benoit Petrarque from Kepler Cheuvreux. Please go ahead.
Yes, good morning. So a couple of questions on my side. Just wanted to come back on this, balance between OCG and Dutch Life as you obviously OCG in Europe going up. How do you think that will translate into, in terms of gross remittances? Are you confident that this higher OCG coming from Insurance Europe will also translate into higher remittances? So that's question number one.
Question number two is on the OCG in Europe. So, obviously very strong level. Yeah, you have a very strong contribution from your business, and I was wondering in terms of how does that evolve potentially in a low interest rate environment? Is that sensitive to level of interest rates? Or do you, will you expect a pickup of mortgage-related insurance productions to offset potentially the drag there? And then, third question was just on the real estate. What do you expect actually in H2, based on what you see on the market and your current discussions with the specialists on the valuation side?
Just maybe there's a final, but it's more of a remark, but you don't take the new business strain from pension buyout in your OCG. Now, I mean, technically, that could translate into, you know, on the cash conversion, we have a pretty high level, on cash conversion of OCG, in the Dutch Life. But, you know, obviously if you generate pension buyouts, it tell me that your Solvency II could come down over time. So, you know, will you advise us to maybe lower a bit the cash conversion on Dutch Life OCG as basically the pension buyouts are kicking in? Thank you very much.
Yes, thank you, Benoit. Let me start on our outlook for Europe and then the other questions Annemiek will talk about. Yeah, so you're right. I mean, Europe has been doing well. As Annemiek was saying, I think it's possible that we already achieve the target of Europe a year ahead of plan, eh? So essentially, this year, the EUR 450. The new business growth or this new business contribution has been the big driver also for this. We continue to see very good opportunities in protection, eh, the under-penetration that we've talked about. You need to be able, as a company, to tap into that, and that requires very strong distribution channels.
We have strong, tied agent channels, and then the AI tooling that we have been using to guide our agents has been surely, certainly being successful there, and I'm sure we'll talk more about it at the Capital Markets Day. We've actually seen Banks selling less because, hey, I think you mentioned it also, less mortgage sales. So a second leg could be that once Banks start selling more, which we don't expect in the short term, but if they start selling more mortgages and loans, that will also mean more protection sales. There's pension sales that is doing well. Clearly in a lot of the Central and Eastern European markets, governments are, you know, restricted in how much pay-as-you-go pensions they're willing to pay.
Employers often prefer to just put money in salary and not in secondary benefits. So also, employers don't always offer very generous pension schemes. So that means there is a good market also for us to offer individual pension products. So yes, if rates would come down, that would have some impact on, let's say, on the new business. But we see also more than enough opportunities that we continue to be positive on the upside that can come out of Europe, and that upside is then driven by new business growth and the continued sales. lso, first half year, the value new business was up a bit more than 20%, which I think is a very good number. Then for the questions on the balance on OCG and Life, real estate and the new business trend from buyouts, Annemiek.
Yeah. On your question related to OCG growth and then also higher remittances from growth, we obviously set a very explicit free cash flow target of EUR 1.6 billion at the start of this year. We already captured in there that we would expect an increase of the European free cash flows. Also a bit more diversification within that. As I said, Belgium did not submit any dividend this year due to the contract with ING, whereas last year, the free cash flow out of Europe had a one-off dividend still in there from Belgium. We already factored those items in into this EUR 1.6 billion target that we have. Conceptually, over time, if OCG continues to grow for Europe, then free cash flow will also continue to grow.
And it's probably one of the key engines for that growth going forward as well. Your question on new business run-out of buyouts into the OCG, and whether you should also adjust solvency ratio then coming down for that. Probably good to repeat that what we said, we would expect the whole buyouts coming out of the pension reform to be rather back-end loaded. As we continue over time, we also build our defined benefit book, and we also have more room to do longevity transactions. If we would do such a transaction, that would obviously positively impact the solvency ratio, and that would have a slight negative impact on the OCG of Life once we do such transactions a bit later on.
So for now, I would just not factor it in into the OCG, nor would I factor it in on the long term on the, on the solvency. For the short term, if we would do some smaller buyouts later on this year, that may have a small impact on the solvency ratio. On real estate, your question on what to expect, for the second half, half of this year. Well, as we said, first half, we just turned the corner. We saw a positive, reval, which was largely driven by the rapid increase of house prices in the Netherlands, which led to our Dutch residential book doing particularly well. We would expect that trend to continue into the next half of,
into the next, into the second half of this year. Wouldn't overdo it in terms of expectations, but, you know, somewhere around the 1 percentage point would feel a good proxy for us, 1 to 1.5%, for the remainder of this year. Then we would see still further upside to come in the 2025. And the upside will largely come from residential and still from logistics, because we've seen very strong fundamentals there still. Thank you.
Thank you, thank you very much.
Thank you. We will now go to our next question. One moment, please. Your next question comes on the line of Steven Haywood from HSBC. Please go ahead.
Good morning. Thank you very much. Two questions then from me. On the pension buyouts, kind of following on from the previous question, you did a EUR 600 million, I believe, earlier this year, and you guided towards a 1 percentage points impact on the sort of capital strain on the solvency ratio. Is this, is that sort of the expected capital strain going forwards? And if you obviously do that sort of EUR 10 billion amount of buyouts, that would have a potentially up to 20 percentage points impact on the Solvency II ratio. Is that the sort of area and level of strain that we should expect?
And I obviously took into consideration no longevity transactions and how that could impact your solvency ratio later on in the medium term. And then the second question is on sort of the Solvency II changes, regulatory ones coming up. Can you give us an updated guidance on what we should be expecting in the second half and in 2025, any sort of known regulatory and other impacts coming through the Solvency II ratio? Thank you.
Yeah, thank you, thank you, Steven. Yeah, so if you look at the, let's say the capital strain, I think earlier we said that for, let's say, for a EUR 1 billion buyout, the capital strain would be around EUR 100 million-EUR 110 million. So we've been also publicly saying, we want a double-digit return. That has been, you know, initially we were also pricing a bit lower, so we have been increasing also our hurdle rate. So yeah, so a EUR 1 billion AUM would be roughly EUR 100 million or EUR 110 million of capital. So yeah, cumulative, that would add up, but again, we expect this, you know, to be spread out over a longer period than all obviously coming in one year.
Yeah, and probably also good to realize that that EUR 600 million was a rather large deal, and you shouldn't take the specifics of one deal for an overall book. As David said, you know, if we would get our 40% market share, we would roughly be talking about EUR 10 billion of technical provisions. Post reinsurance transaction on that, probably be talking about an SCR of around EUR 1 billion that we would have to absorb, which will then likely come rather back-end loaded.
Yep. Any regulatory other changes coming up, Bernhard?
Yes, Steven, on Solvency II, 2020 review, changes, potential changes, that is not before 2026, as I said. So in 2024, but also 2025, we do not see other regulatory imminent changes impacting our solvency or any net impact on solvency from model changes. So, that's the outlook.
Thanks very much for that.
Thank you. Your next question comes from the line of Iain Pearce from Exane BNP Paribas. Please go ahead.
Hi, morning, everybody. Thanks for taking my questions. The first one, obviously, there's been quite a few questions around the growth strain of the buyouts and NL Life solvency. Can you just confirm sort of what level of solvency you'd be comfortable running at in NL Life, and at what level of solvency you would have no concerns around that sort of upwards remittance profile from that division?
And the second one was just on the new business growth and the APE growth in the European market. It looks like you're taking share based on that level of growth. So I just wanted to understand sort of, if you are taking share, what's the main drivers of that? Or is it been a case that H1 has seen a bit of a stronger rebound across those markets? Just trying to really get towards the sort of underlying sort of APE and VNB growth for that division at the moment. Thank you.
Yes. Thanks, Ian. So let me take the question on growth in Europe and then the strain of potential strain of buyouts for Annemiek. Well, market share is not always the most helpful metric, because typically countries report market share for full life insurance, and that includes a lot of unit linked, a lot of single premiums, a lot of, you know, even traditional or products that have large ticket size. So a lot of premium, but typically very low margin. We operate mostly in the protection space, that has smaller ticket size, better margin, but also a much lower capital strain. So that's why, you know, market share is not always helpful to look at. But you're right.
Our sense is that, certainly in the protection space, we have been gaining some market share. We've focused on it since 2014. It takes quite some time to gear your distribution channels to sell protection, because they're often just used to selling unit-linked or guaranteed products. So I think we've been doing well in that space. And due to all those investments that we've done in the distribution channels, we also believe that we can continue to do that. So we continue to expect a positive development of value new business, and even more importantly, a new business contribution and OCG, therefore, in Europe. Annemiek?
Yeah, on your question on life, we obviously for group, we have a comfort range of between 150 to 200%, and life is a large unit within that. We don't have an explicit letter, but that gives you an indication of where we're comfortable.
Thank you.
Thank you. Your next question comes from the line of Jason Kalamboussis from ING. Please go ahead.
Yes, good morning, all. I just wanted to ask you, on Japan, you could give us a bit of an update on the redress order. Is it right that you expect it to end somewhere in the beginning of 2025? I would like to put that in perspective with the OCG of EUR 125 million that you expect by the end of 2025. Also, it will be helpful if from the OCG, you can tell us what the impact was in the first half 2024.
So essentially, if you can bridge the EUR 68 million last year to the EUR 65 million this year with FX, strain, et cetera. A very small question on Non-Life: Is the understanding correct that essentially fire costs you probably about one percentage point in the first half? Nat cats, you didn't have any, so essentially it was a neutral effect in the first half on the combined ratio? Thank you.
Yes. Thanks, Jason. Let me start with the, you know, with the H1 result of Non-Life. Yeah, as I was saying, I mean, let's not overdo these fires. There's small fires, bigger fires. We see that obviously in the retail space. I think what was noticeable in the first quarter, that there was a couple of larger fires. But like I said, we didn't see that in Q2. We've done a good analysis, and we don't think that that is, you know, this is not something that worries us. It's part of our regular business.
I think it sticks out a bit more because last year was particularly favorable, and that's why, you know, Non-Life maybe screens a little bit lower versus last year. But I would still argue, you know, with the, the fires that we've seen, 92.2% just means that we're, you know, we're well on track and, and good in the range that we have, that we have indicated. I think on, on Japan, very difficult to talk about. The business improvement order, we don't expect it to be lifted this year. But, you know, the... It's up to the regulator to decide when it will be, when it will be lifted. It's clear that it's impacting our new business contribution.
So our new business has been at a lower level, and so therefore, we also expect that this year, that will continue to be the case. Also, once the business improvement order is lifted, it will take some time to ramp sales back up. I mean, if we judge the market and the market opportunity, we do think we can get back to very good levels, but that will take time, and we first need to deal with this business improvement order with the regulator. In terms of OCG, we set a target of EUR 125 million. You know, the retention of the book is holding up well. The vast majority of the OCG is driven by this in-force book. That's why our expectation for 2025 is still at EUR 125 million target that we have set. Annemiek, on the Japan result?
Yeah, on the Japan result, was it a question on the OCG?
Yes, it was on the OCG, the effects, and the bridge from the 68 last year to the 65, you know, a couple of core elements.
Yeah, I think that the core elements there, typically you would expect on OCG, that given that there is no new business, that there is no new business strain, and that OCG would be a bit higher. Which if you would have looked at it like for like, on a like-for-like currency basis, would have been the case, but that was negatively impacted by in which we still saw H1, a devaluation of the yen. So if we would not have had that devaluation, then it would have been a bit of a higher result there, on Japan.
Okay, great.
Um, one
Thank you.
One additional point, not related to Japan, but some very good listeners caught up on that. On the buyout strain, we talked about roughly EUR 10 billion of asset management potentially coming in, and that would be a EUR 1 billion capital consumption, rather than a EUR 1 billion higher SCR, obviously.
Thank you. We will now take our final question for today, and your final question comes from the line of Michael Huttner from Berenberg. Please go ahead.
Fantastic. Thank you so much. The three, I'm really sorry, but they're really short. One is on the rental, the legal case. Can you give us... And I know you said there's probably no update, but can you remind us what the potential risk is in terms of financials? I think you were better than most, but I heard a figure. I just wanted to see, you know, if it's right, something like 60-odd million EUR potential impairment. The second is on Japan. Is there a risk to the value you put on the business because of this improvement order? So, you know, ultimately, low sales means your network's not doing much, so potentially the goodwill value comes down. And does that have an impact anywhere in capital solvency, anything?
The last one is on cash. I just wondered if you could walk us through to the year-end 2024 cash. I know it's a little bit cheeky, but the numbers I have, kind of based on what you've been saying, is EUR 600 million still cash to come in the second half, so that's EUR 1.4 billion assumption for the year. EUR 350 million is the interim dividend. I think about EUR 130 million of the buyback left. The number I'm missing is obviously the scrip dividend for the full year, for the final dividend and any other. It's just to get a feel for how much, how much is your war chest, your cash pile, whether you, we hit a bit EUR 1.5 billion or something. Thank you.
Yeah. Thanks, Michael. Let me start on the value of the business in Japan, and then Annemiek will take the other two questions. Yeah, obviously, I mean, if you have a business improvement order ongoing, that's not helpful. And clearly, it has an impact on sales. But we don't have a concern around, you know, that the risk of the value now is coming down. I think it is a quite a common phenomena in the Japanese market, these business improvement orders, unfortunately. And so, you know, all the energy for us is just to make sure that we get this behind us in a proper way, and then over time, sales will go back up. Annemiek?
Yeah, on the question, regarding the rental cases, and the legal debate that's taking place there. It's in a sense, a legal debate on whether you are allowed to use a clause that's in the contracts of Dutch residential real estate, which says that you can increase rent with CPI plus. And how much that plus is, that's a bit the debate that's going on. In a court case against another company, the lower court has asked some questions to the Dutch Supreme Court to get clarity on this. Now, we have EUR 3 billion of exposure to Dutch residential, which is a relatively small market share on the total market, probably just 1% or something.
The external partner that we use to manage this for us has historically been quite conservative when applying rate increases above CPI, so that was typically less than 1%. Now, in terms of status of the legal procedures, the attorney general has advised the Supreme Court that surplus increases of up to 3% are not generally unfair, but that's an advice. Now, we obviously would have to see what the Supreme Court will ultimately decide, but our historic increases have been well below that level. So from that perspective, we don't see a huge financial risk in this. If we then look at the...
Your question on cash flow, and also on where we would expect the cash capital position to end up, you know, probably fair to say that we would expect a slight negative build-up in the second half of the year, and that has two main reasons. One, we always see a bit of a skew of remittances towards the first half of the year. That's largely driven by the international units. Once they have their statutory GAAP results out, they remit the cash. And it's also related to the interim dividend, which is a cash outflow, plus the ongoing buybacks, both for the regular EUR 300 million buyback that we announced, but also, the buyback to neutralize last year's full year dividend, the scrip dividend that we had there. We would expect a slight negative build-up in the second half of the year.
Fantastic. That's very clear. Thank you so much.
Thank you. I will now hand the call back to Mr. David Knibbe for closing remarks.
Yes. Well, thank you very much all for your, for your questions. We had a lot of questions from your end. I think it's important for us to had to repeat. It was a strong half year. We're well on track to deliver the EUR 1.9 billion, and we see a very good commercial momentum in our, in our businesses, and that will continue to support also the the longer term growth of the company. And obviously, we'll share more strategic updates and and objectives at our Capital Markets Day in in May. So thank you for your time and, you know, for the rest, have a good summer.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.