Good morning, ladies and gentlemen. This is the operator speaking. Welcome to NN Group's analyst conference call on its first half-year 2022 results. The telephone lines will be in listen-only mode during the company's presentation. The lines will then be opened for a question and answer session. Before handing this conference call over to Mr. David Knibbe, Chief Executive Officer of NN Group, let me first give you 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 statement. 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 assumes 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 a 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. Good morning, everyone, and welcome to our conference call to discuss NN Group's results for the first half of 2022. Joining me today on the call are Annemiek van Melick for her first NN Group results call as our new Chief Financial Officer, and Bernhard Kaufmann, our Chief Risk Officer. I will start off this presentation by looking at the financial and other strategic highlights in the first half of the year. Annemiek will then talk in more detail about our capital position, capital generation, and the financial results of the group. After wrapping up the presentation, we will open up the call for Q&A. Let's start on slide three. Let me first take you back to the core of our strategy, and that is to create value for all stakeholders.
Our commitments to customers, employees, and society at large are measured against a set of targets to ensure that we are meeting our ambitions towards these stakeholders. The full list of those targets and our scores in the first half of the year can be found in the appendix. Let me just give you a couple of highlights here. As an insurer, it's our purpose to be there for our customers when it matters most. For example, by increasing our customer service capacity during the February storm in the Netherlands to ensure that claims could be filed and settled as quickly as possible. We aim for all of our insurance units to score an above market average Net Promoter Score by 2023 as evidence of customer satisfaction. Currently, four of our 11 business units scored an above average market NPS versus five at the end of 2021.
Clearly more work needs to be done, and this continues to be a key priority for us. We aim to be a company that attracts and retains talent while labor markets remain tight. We are especially pleased to see that the engagement of our NN colleagues remained at high 7.7 in the first half of the year. Other priority is playing our role in tackling climate change and achieving a net zero proprietary investment portfolio by 2050. One of our interim targets is to invest an additional amount of at least EUR 6 billion in climate solutions by 2030. We have recently announced a couple of initiatives that will contribute to this with investments in a venture to build sustainable and affordable housing in the Netherlands and in a fund investing in climate change solutions.
The conflict in Ukraine has shocked us all and has had several humanitarian consequences in the region. As a large insurer active in Central and Eastern Europe, we have provided multiple forms of support. For example, by extending medical care cover for refugees in Poland, Slovakia, and Hungary, as well as donating EUR 1.5 million to local and international aid organizations. The next slide shows our financial performance for the first half of the year. The major geopolitical developments that we saw in the first half of the year and the resulting impact on the macroeconomic environment, such as a sharp rise in inflation, as well as significant volatility in the financial markets, is being felt on many fronts. Despite the turbulent period, we are reporting strong capital generation and solid business results for the first half of 2022.
Operating capital generation was up 15% at EUR 899 million in the first half of the year, reflecting solid business performance by most units, in particular Netherlands Life, as well as our international insurance businesses. This is despite the roughly EUR 60 million post-tax impact of the storm that hit the Netherlands in February, and the inclusion of just one quarter of results for the asset management segment following the sale of NNIP in April. The exceptionally volatile market conditions, in particular the widening of mortgage spreads and lower equity markets, did impact our solvency ratio, which stood at 196% at the end of June. At the same time, our capital generation and investment returns are expected to continue to benefit from this higher spread environment and current interest rate levels.
One of the cornerstones of our strategy is to maintain a resilient balance sheet, which allows us to weather such volatile markets and safeguard a solid capital position. Cash capital at the holding was at EUR 2.5 billion at the end of June, and we have announced today an interim dividend of EUR 1 per share. More details on the solvency position and capital generation will be covered by Annemiek later in this presentation. Let's now move to slide five. For our insurance units, value of new business or VNB, is an indication of our commercial performance.
In the first half of 2022, total VNB was up almost 5% compared with the same period last year, mainly driven by a higher volume of group pension contracts at the Netherlands Life. Despite the small drop in the first half of the year, VNB at Insurance Europe showed resilience, especially given recent market volatility and uncertainty in the region, as well as the sale of the Bulgarian unit last year. In Japan, we saw lower sales of financial solutions product, although this was partly offset by improved margins as a result of repricing and expense discipline. One of the growth drivers in the Netherlands is the ongoing shift to defined contribution pensions. We saw new inflows of EUR 900 million into DC assets under management in the first half of the year.
Although the negative market performance offset this so that the total DC assets under management came to EUR 27 billion at the end of June. The non-life business has been repricing its products from the beginning of the year, partly in anticipation of the rise of inflation, while at the same time retaining its leading position in the Dutch market. The combined ratio is at a healthy level of 96.1%. NN Bank and Woonnu originated EUR 4.9 billion of mortgages in the first half of the year. Customer mortgage rates increased during the period following the rise in market rates, and as a result, we saw margins on the new origination increasing. With an average loan to value of 55% and low historical loan losses, this is a good quality asset class. Now turning to slide six.
We continue to deliver on our policy of attractive capital returns to shareholders, comprising of a progressive dividend per share and a minimum annual share buyback of EUR 250 million. NN Group announced today that it will pay an interim dividend of EUR 1 per ordinary share, or approximately EUR 294 million in total, based on the current number of outstanding shares. The calculation of the interim dividend is in line with our dividend policy, so 40% of the 2021 full year dividend per ordinary share. This dividend will be payable on the seventh of September. We are also currently executing the announced regular buyback of EUR 250 million, plus the additional buyback of EUR 750 million following the completion of the sale of NNIP.
To date, about 55% of the program has been done, and we expect them to be completed by March next year. I would like now, like, to hand over to Annemiek to take you through the capital position and the financial results.
Thanks, David, and good morning, everyone. Although I only started as CFO of NN on the first of July, I've met many of you before and I'm very much looking forward to continue our dialogue. As these dialogues tend to be content driven anyway, I suggest we go straight into the solvency position of NN on slide 8. As you are aware, we've witnessed very volatile markets throughout the first half of the year, straight into the last week of June. Despite the strong capital generation in the period, this was more than offset by the combination of the market impact related to this volatility and the capital outflows. As a result, the solvency ratio reduced from 213% at year-end to 196% at the end of June. Now let me take you through some of the main items.
As said, strong capital generation, up 15% versus the same period last year, added 10 percentage points to the ratio. I will elaborate on the drivers for this on the next slide. The impact from markets lowered the ratio by 12 percentage points, mainly reflecting negative equity revaluations, changes from credit spreads, and higher interest rates, which were partly offset by a positive impact from flattening of the longer end of the curve. Within credit spreads, we obviously saw the positive impact of increased corporate spreads and the corresponding VOLA uplift, but this could not fully mitigate the negative impact from mortgage spread widening. Note that the impact of higher rates and increased mortgage spread reduce our stock, but will be earned back through a higher OCG over time.
The bucket other includes the reduction of the UFR to 3.45% and several other items such as the implementation of the contract boundaries at individual disability and a recalculation of transitional measures. These were almost entirely offset by the net positive impact of M&A, reflecting the sale of NNIP and the acquisition of MetLife Poland and Greece. This year, we've announced to return EUR 1.3 billion or 14% solvency points of capital to shareholders, reflecting the regular share buyback of EUR 250 million and the additional share buyback of EUR 750 million announced in February, as well as the 2022 interim dividend of EUR 294 million announced today. This is all deducted from the capital ratio you see on this slide. Our balance sheet remains resilient with a leverage ratio of 21.7%.
We have ample tiering headroom, and we're comfortable with the 196 solvency ratio after having absorbed the large volatility in H1, as it is based on strong underlying operating capital generation and a continued high-quality investment portfolio. We have provided some insights into our investment portfolio on the next slide. NN's investment portfolio largely consists of high-quality fixed income securities, mainly double A and higher rated government bonds, as well as high-quality Dutch mortgages. The combined exposure to real estate and equities is relatively small and is well diversified. In 2020 in particular, we took advantage of the opportunities in the market to accelerate the shift to higher yielding assets. We currently take a more gradual approach whereby we favor asset quality over asset returns. Now let me say a few words on mortgages, given the recent volatility in that market.
On mortgages, we've seen a significant widening of spreads in H1 as lenders started to price in the interest rate increases, especially in June. We've therefore actually seen that the partial reversal of interest rates increases did not yet lead to tariff adjustments in June and July, as mortgage providers haven't lowered their rates yet. Since August, we do see some of the tariff lowerings coming in, and at the same time we've seen interest rates rise again. As indicated on the earlier slide, the spread widening that we'd seen in H1 had a negative impact on our solvency ratio and a positive impact on our OCG. It's a stock versus flow element, and it doesn't change our view on the quality of Dutch mortgages.
The quality has always been high, with historically low losses driven by strong payment morale of Dutch borrowers, partially driven by the strong social security benefits in the event of unemployment and a strong legal position of lenders in case of default. Continued tightening of the underwriting rules since 2013, combined with the house price increases over the last couple of years, significantly lowered the LTVs. NN Group's mortgage portfolio consists of 27% of state-guaranteed NHG mortgages. The average LTV decreased further to 55%, and actual loan losses are less than one basis point. Given the large demand for 20-year + durations that we saw during the last few years, around 83% of NN Group's mortgages still have over six years of fixed rate periods. Now let's move from the investment portfolio to the operating capital generation.
Operating capital generation came in strong at EUR 899 million, an increase of EUR 119 million versus the first half of 2021, despite the fact that it only included one quarter of asset management contribution following the sale of NNIP in April. The main drivers for this increase in OCG are obviously a lower UFR drag due to higher interest rates, but also a positive life experience variances in both Netherlands Life and Insurance Europe, and increased investment return, mainly resulting from positive real estate revaluations and higher interest rates, and following the shift to higher yielding assets in the past few years. This was partly offset by a lower contribution from Netherlands Non-Life and Banking.
Netherlands Non-Life showed good results despite the impact from the February storm, as reserve releases in P&C related to prior year and higher D&A underwriting results still led to a small positive experience variance. This was less compared to the strong uplift in experience variances witnessed last year, which still contained more P&C COVID frequency benefits. The lower OCG for the bank mainly reflects higher risk-weighted assets following mortgage portfolio growth and less energy inflow, as well as a lower income. All in all, OCG came in 15% stronger than in the first half of 2021, predominantly driven by Netherlands Life and to a lesser extent, Insurance Europe and Japan Life.
However, please do take into account that we won't see a contribution from NNIP going forward, that the first half year included some favorable experience variances in Netherlands Life and Europe, as well as strong business development in Netherlands Life, which is typically skewed towards H1. Now let's move to the remittances and cash capital at holding on the next slide. Holding company cash capital was close to EUR 2.5 billion at the end of June, up from EUR 2 billion at the end of 2021. Total remittances received from subsidiaries amounted to EUR 960 million in the period, bringing free cash flow to EUR 735 million. As usual, details of the remittances upstreamed by each segment can be found in the appendix of this presentation.
We received the divestment proceeds of EUR 1.6 billion following the sale of NNIP, while we paid EUR 524 million for acquisitions, mainly related to the acquisition of MetLife Poland and Greece. In addition, capital flows to shareholders were paid out of the holding cash, reflecting the cash portion of the 2021 final dividend of EUR 251 million in June this year, as well as the shares repurchased under the current buyback programs of EUR 517 million. Lastly, in March, we repaid EUR 600 million of senior notes financed by the issuance in November last year. Moving on to the next slide, I will now take you through the IFRS financial results of the group.
The left-hand chart shows the operating result, which came in EUR 983 million, down from EUR 1.1 billion in the same period last year. This mainly reflects the impact of the February storm, as well as the inclusion of just one quarter of results for the asset management segment following the sale of NNIP in April. The gain on sale of NNIP amounted to just over EUR 1 billion, which we account for below the line as a result on divestments. You can see this in the middle chart, as one of the main drivers of the net result of EUR 2 billion. Now let me take you through the operating performance of the individual segments on the next slide. Starting with Netherlands Life, the operating result increased to EUR 552 million compared with the first half of 2021.
The current period includes higher fees on DC assets under management, higher investment income following the optimization of the portfolio, and lower expenses. The operating result of Netherlands Non-Life was impacted by the claims related to the February storm for an amount of EUR 82 million, partly offset by favorable claims development in prior years and higher underwriting results in D&A. On balance, the result decreased to EUR 127 million from EUR 189 million in the first half of last year, which included lower claims due to COVID. The combined ratio came to 96.1% versus 92% a year ago. The operating result of Insurance Europe increased to EUR 176 million, up from EUR 161 million in the first half of 2021, which is up 9.3% on a constant currency basis.
This reflects higher life fees across the region and a higher technical margin, partly offset by higher debt amortization and trail commissions and higher administrative expenses. The result of the acquired MetLife business in Greece is included for one quarter, and there will be a catch-up for both Greece and Poland in the second half of the year. At Japan Life, the operating result was EUR 130 million, which excluding currency effects is a decrease of roughly 15%. This mainly reflects lower fees and premium-based revenues and a lower technical margin, partly offset by higher investment margin and lower expenses. Following the sale of NNIP in April, we've included the operating result for the asset management segment for the first quarter of this year only, which was at EUR 38 million.
The operating result of banking decreased to EUR 48 million from EUR 79 million in the first half of 2021, mainly due to lower interest and commission income as well as higher expenses. The operating result of the segment auto was -EUR 88 million versus -EUR 76 million in the first half of last year, mainly due to lower operating results of the reinsurance business, which also included a claim related to the February storm. With that, I'll now pass you back to David for the wrap-up.
Yes. Thank you, Annemiek. We have today reported a strong capital generation of EUR 899 million for the first half of 2022, as our individual units show a solid business performance. These results were achieved against a backdrop of a turbulent period and volatile market conditions. We are distributing EUR 1.3 billion of capital to shareholders, consisting of the regular EUR 250 million share buyback and the additional EUR 750 million program announced in February 2022, as well as the interim dividend of EUR 294 million announced today. We remain disciplined when it comes to delivering on our commitments of attractive capital returns to shareholders. The exceptionally volatile market condition in the first half of the year impacted our solvency ratio, which stood at 196% at the end of June.
However, the same market movements will lead to a higher operating capital generation going forward over time. With a Solvency II ratio of 196%, a leverage ratio of 21.7%, and a cash capital position of EUR 2.5 billion, our balance sheet is resilient. I'm also pleased that our commercial performance held up well. Sales remained resilient across the group in a more challenging environment, and we saw net inflows in our defined contribution pension products. We remain well-positioned to benefit from the long-term growth trends in our market and are on track to deliver on our financial and other strategic targets. With that, I will ask the operator to open up the call for Q&A.
Thank you, Mr. Knibbe. Ladies and gentlemen, we will now start the question-and-answer session. To register for the Q&A, please press star 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 for your question or remark. Go ahead, please. Your first question comes from the line of Andrew Baker from Citi. Your line is open.
Great. Thank you for taking my questions. The first is on OCG. Obviously there's a lot of market movements to think about as we look into the second half, which should be positive. Just wondering if you could give your outlook for the second half based on where markets are today and some of the moving pieces there would be helpful. Then secondly, can you just talk us through how you're thinking about capital return in the context of sort of a lower solvency ratio from historical levels, especially when you take into account the lower or the debt reduction that you've also announced today, but then also higher capital generation. I appreciate the stock versus flow argument, but how does that play into how you're thinking around capital return? Thank you.
Yes. Thank you, Andrew. I'll start with the question on capital return, and Annemiek can talk about the OCG, including the outlook. I think on capital return, you know our policy that our regular capital returns is a progressive dividend and a share buyback of at least EUR 250 million. This is well covered by the operational capital generation that we generate. Of course this year was special. We had another EUR 750 million due to the divestment of NNIP. Also, of course, any additional capital we will also give back to shareholders unless we see value-creating opportunities.
This is something obviously that we will have to judge in Q1 when both share buybacks of the EUR 250 and the EUR 750 are ending. You can count on us to remain disciplined on our capital return also in the context of the strong capital generation. The OCG outlook, Annemiek?
Yeah. Hi, Andrew. Let me help you a bit on OCG here. Two things. I think, you know, for H2, we have to look a little bit at the basis of H1, and then I'll also give some indication on how we consider the market impact as we would have seen in June for that second half of the year. Now, if you look at the base, OCG came in strong with EUR 899 in H1. Please take into account that that contains various favorable elements like the positive life experience variances both in Life and Insurance Europe. It also contains seasonality in the high new business contribution from NL, and obviously it included one quarter of asset management, which we will not see in the second half of the year.
For market impact, obviously the most important ones are the higher rates and the mortgage spreads. If we look at those, we would, based on rates, the slope of the curve, and the mortgage spreads as we've seen them on the thirtieth of June, we would actually expect an uplift of OCG in the second half of the year of around EUR 150 million related to those interest rates and mortgage spreads.
Great. Thank you.
Your next question comes from the line of David Barma from BNP Exane. Your line is open.
Thank you. Good morning. Just to clarify your last comment, Annemiek, the 150 is based on end of June data. Is that correct? Taking this into account and the underlying, which is quite strong still, do you still stick to your 2023 OCG targets? That's my first question, please. Then secondly on non-life, putting aside net cats, profitability seems to remain quite resilient. What's your outlook for P&C and D&A in the second half, please?
Yes. Thank you. Annemiek, first a question on EUR 150 million.
Yeah, David, the EUR 150 million indeed is based on the rates, the slope of the curve and the mortgage spread as we've seen them at the end of June. You know, all in all, combined with the positive base that we saw in the first half, which includes some favorable elements, as I just said, obviously we're pretty upbeat on the 2022 OCG. I think we all know that OCG is quite dependent on market movements as well. I think it's too early to say anything about new targets for 2023. I'll just stick to the guidance that we've just given on H2.
Yes. Then, David, on non-life profitability. Yeah, so indeed, the first half year was a good year for the non-life business, especially if you take into account that the large storm that happened. Going forward, what we see is still a relatively hard market, so we are preparing ourselves for that. More inflation will come through. Around 50% of our P&C book is sensitive to inflation. That's why we already took some measures and will continue to do some of the repricing. Also, we did some strengthening of reserving in D&A because we expect also there some upward pressure due to wage inflation. All in all, that led to a combined ratio of 96%.
Now, given everything we see and some of the upward pressure from inflation, we continue to guide our non-life business between 94% and 96%.
Thank you. Just one thing if I may. You mentioned some one-off reserve releases in non-life in 1H. How much were those, please?
Annemiek?
I think we mentioned those releases related to prior year predominantly on the P&C side, and I think it's fair to say that, you know, they did quite some mitigating towards the impact of the February storm that we've seen. To the extent that a large part of that storm was also mitigated by that release of provisions related to earlier years.
Okay. Thank you.
Your next question comes from the line of Benoit Petrarque from Kepler Cheuvreux. Please ask your question.
Yes. Good morning. The first question is, maybe thinking about the pension reform and the long-term prospects and also in combination with higher rates, you know, do you see more appetite for group pensions or maybe pension funds coming back to you to negotiate a transfer of liabilities? Next to that, we saw a very strong value new business also in Netherlands Life in H1.
I mean, obviously there's seasonality, but this was higher than last year, and I was wondering if we should consider that as one-off or non-recurring, or is there an element of, well, basically more long-term trend here also looking at the interest rate level, maybe positive for the value new business going forward? Then the second one is, well, first of all, could you maybe split the 150 between rates and spreads? That would be useful. Thinking about the mortgage spreads, I think they are up again, well, sharply in this third quarter. What do you expect also at the current spreads, you know? Do you expect more positive effects potentially, maybe in 2023?
Thinking about the mortgage market, I mean, there's a big slowdown on the volume side because rates went up pretty sharply. Are you confident that you can originate enough mortgages to basically maintain your mortgage portfolio stable in 2023 in a scenario where volumes will drop sharply? That's the last question. Thank you very much for that.
Yes. Thank you for your questions. Let me start with the pension reform, including the VNB. I'll say something also on the mortgages. Annemiek will elaborate on the split of EUR 150 million. On the pension, yeah, I think there's two items here happening. The pension reform has been announced but is not implemented. It's not sure it will be implemented actually January 1, 2023. That will depend on parliament. Now, assuming that will happen, the expectation is there will be a grace period of five years.
There is an expectation that a lot of the relatively smaller pension funds, so we're talking about funds that are probably below EUR 2 or 3 billion of assets. They might join an insurance company and do a buyout. That would create a market. This is again not a short-term thing because the pension reform still needs to take place. Currently, also pension funds are hesitant to do buyouts because of inflation. Inflation is high up, wages are not keeping up. The pension is not able to keep up with this high inflation. It makes them a bit more hesitant to right now look at buyouts. It is an expectation that that will come in the coming years after the pension reforms take place.
Now, in terms of new business, it also means that not just the smaller pension fund, but also the larger pension funds, they will have to choose between the two systems. The expectation is that quite a few might actually go for what is called the flexible option, which is very close to the DC that we offer. I think also apart from buyouts, I think in the coming years, we do expect a further increase of the DC market, not just because of the shift from DB to DC, but also more pension funds actually moving from being a pension fund to joining an insurance company for the new accruals. That is a new business opportunity.
This year or the first half year, we saw EUR 900 million of inflow in DC, which I think a net inflow, which is of course a positive, but that is not related to the pension reform. That is just related to the shift to DB and also our strong market position, which is around 40%. On the VNB and NN Life, that is related to some renewals of DB contracts but also indexation. Now clearly that is helped a bit by higher interest rates. I would treat that, first of all, it's seasonality because almost all of these renewals take place in the first quarter, so I would definitely not expect it in the second half. Then the question on would that be for next year? These things are lumpy.
They are large DB contracts that for renewal obviously helped by now by interest rates. It is these are lumpy items. The core of our business is the DC business, which is not reflected in this VNB number, but is reflected in the assets under management that I just mentioned. Now on the mortgages, yes, we expect the market to slow down. Given higher rates, there's probably less refinancing and also there's a relative shortage of houses in the Netherlands, so we do expect volumes to come down. Is that an issue for us? No, because in terms of our strategic asset allocation, we are quite close to our appetite on mortgages.
As you know, we have been increasing our exposure in the last few years, but we are quite close to our strategic asset allocation. That is not an issue for us. Annemiek, question on the EUR 150 million.
Also to add to David, what you said on the mortgages, we do indeed expect origination to come down, but at the same time, due to the increase in interest rates, we've also seen lower CPRs, so prepayment is also coming down. You know, that mitigates to some extent the lack of origination that you could get if markets get down there a bit. On the EUR 150 million, if I would have to split that between rates and spread, around two-thirds would be related to rates and around one-third would be related to mortgage spreads. On those spreads, as said, you know, we've taken the 30 June numbers for this EUR 150 million guidance.
It's actually a bit too early to say what the post-holiday spread on mortgages will be because we've seen various movements, right? In June and also July, we obviously saw interest rates coming down and we didn't yet see a lot of tariffs on mortgages, client rates being adjusted down, which is typical because during the summer holiday period, these don't tend to be adjusted a lot. Over the last weeks, we do actually see the client rates come down, and at the same time, we've seen a partial reversal obviously of that interest rate. Spreads have improved a bit versus where they were in July and now in August.
I think all in all, since the thirtieth of June, it's fair to say that spreads have still widened a bit, but the extent of that widening that we've seen in July has come back and has been reduced in August.
Thank you very much.
As a reminder, if you wish to ask a question, please press star and one on your telephone keypad. Your next question comes from the line of Michael Huttner from Berenberg. Please ask your question.
Fantastic. Thank you very much. I had two questions. The first one, you spoke about a catch-up for Greece and Poland in H2. I just wondered if you could give an indication of what you're thinking of and how big it is. Then, this convergence of cash and OCG. Now, please forgive me because I've forgotten from when you first presented these concepts, but if I look at the numbers in H1, we have EUR 899 million of OCG, and I think EUR 960 million of remittances. And of course, I'm probably looking at numbers which are not quite comparable. But can you talk a little bit about this topic, given that OCG is looking better than I previously thought?
What could this mean for cash? Thank you.
Yes. Thank you, Michael. Let me start with your question on how the relationship between OCG and free cash flow. Then Annemiek can talk about the Greece and Poland effect of, I assume you're talking about MetLife here. Our approach to interest rate risk management is that we closely cash flow match our assets and liabilities. As a result, the economic sensitivity of our interest rate changes is limited. It also means that an increase in interest rates leads to an increase of OCG. Please note that a higher OCG from higher rates is UFR driven and therefore noneconomic.
When we're assessing dividend capacity or free cash flow, we look at long-term projections and take a long-term view on the dividend capacity. We also take into account, of course, the impact of markets, spreads, and rates. If this would lead to a sustainably higher OCG over a prolonged period of time, then obviously this could trigger a reassessment of the dividend. It's also the case that so far Netherlands Life has been paying a stable dividend over the last years, and that approach has worked very well for us. On Greece and Poland, Annemiek.
Yeah. On the MetLife acquisition, we've always guided that we would expect a gradual increase of OCG to around EUR 50 million in 2024. I think we've seen mid-single digits of that in the first half. We've seen around EUR 10 million in the first half of H1. We would expect some more to come through in H2. We actually only saw one quarter in H1.
The figure in H1 was?
Around 10.
Around 10. Okay.
Yes.
When you say catch up and.
Yes.
Sorry, I'm interrupting you, say.
Yeah. Because it only contains 1 quarter in H1. Yeah, obviously there are only 2.
Okay.
It's only Greece in H1.
Lovely. Thank you.
Yeah. Greece closed earlier than Poland, huh? That's why you see the Greek numbers in there. Poland closed later. That's why there is a catch-up effect.
That's very clear. Thank you.
Your next question comes from the line of Robin van den Broek from Mediobanca. Please ask your question.
Yes. Good morning, everybody. Thank you for taking my questions. The first one is on the quarter to date Solvency II ratio. You've highlighted the refinancing of the subordinated debt that will fall out, but I think you're also sort of implying that mortgage margins are further down, credit spreads are down. There's quite a few elements that are seemingly negatively affecting your capital position. In relation to that, I was wondering to what extent can you do reinsurance deals or refinance the subordinated debt basically to fix those issues? Maybe also in relation to refinancing the subordinated debt. I know you've said you're super comfortable on your IFRS leverage ratio, but IFRS 17 presumably will lower your equity.
Could that be a factor in not refinancing that subordinate debt? Thank you.
Yeah. Thank you, Robin. Annemiek.
Thanks, Robin, for the question. First related to the Tier 2 that we actually indicated today that we would be exercising the first call date. That's all Tier 2 outstanding with a coupon of 9%. As you know, we would also take a look at the market. We would take an opportunistic view and see if we can further optimize our hybrid portfolio. Calling that Tier 2 seems like a good thing to do now, and we will continue to look at the market and see if there are attractive opportunities to potentially refinance that at some point in time. Your question on the quarter-to-date Solvency II ratio.
You know, obviously we started off at 196% at the group that we're comfortable with, also given the leverage ratio, the cash capital position, the tiering headroom, et cetera, that we have. Since June, we would expect our solvency to react in line with the sensitivities that we've provided, which basically on interest rates, government and corporate bonds have come down since year-end sensitivities, while sensitivities from mortgage spreads as well as equity remained unchanged. Now, after June, we did see a lot of volatility with rates down in July, up in August. We've seen a bit of steepening of the curve, which was compensated by equity increases as well as corporate spreads coming in, whilst mortgage spreads have widened a bit, as I said earlier.
All in all, there has been some further pressure on our ratio since the end of June. On IFRS 17 and lower equity, you know, it would be a factor to take into account if we would expect that would become an issue. At this point in time, we don't.
Okay. Thank you very much.
Your next question comes from the line of Michele Ballatore from KBW. Please ask your question.
Yes, thank you for taking my question. My first question is about the overall sensitivity of both your solvency and your operating capital generation. I don't know if you see any room. I mean, if you are satisfied with it, and if you see any room to improve this kind of sensitivity, to lower this kind of sensitivity overall, especially on the market factors. The second question is about your sustainability efforts, especially on the investment side. I don't know. What kind of progress you intend to make in terms of what kind of assets you are looking for in terms of, you know, sustainable investments and, yeah, what is the outlook on that front? Thank you.
Yes. Thank you, Michela. Let me answer the question on sustainability efforts, and Bernhard will talk about the sensitivities around solvency and OCG. On sustainability, as you probably know, we have a high ambition here, so we align with the Paris Agreement, but we also set interim targets for carbon reduction of 25% in 2025, and 45% by 2030. That means that on the one hand, we are actively engaging with companies on their carbon footprint. We have a policy where we try to engage as much as possible and stimulate them and support them in the transition to reduce the carbon footprints.
We combine that with extra investments in sustainability of energy sources. We allocated EUR 6 billion for that. In the past six months, we invested EUR 500 million in a fund that supports sustainable housing, yeah. Obviously, housing is also a big topic on how we can further make houses sustainable, so we allocated EUR 500 million for that. Another EUR 125 million that we invested in a fund that is supporting the energy transition, where obviously there's still a lot of funding needed to do that. If you look at our overall investment portfolio, as I said earlier, we're comfortable with our current positioning. We had a good uplift in OCG of EUR 200 million.
We are not looking really to upscale that. We favor asset quality over asset returns in this stage. Sustainability is an area where we are still looking for attractive investments. On the sensitivity around solvency and OCG.
Yeah, Michele, on your question on sensitivities. We are comfortable with our solvency position, and we are also comfortable with the sensitivities. They reflect economic steering that's underlying our business and are all well within the risk appetites. That's made it.
Thank you.
We have another question from the line of Robin van den Broek from ING Bank. Please ask your question.
Yes. Sorry to come back in the queue, guys. I just wanna come back on the financial convergence. I appreciate what you said, that rates are hedged out, and it's not economic. I think at the deep dive, you did say that if rates are structurally higher than at the time, that there would be potential for higher remittances. I think at the very least we can say we've moved away from a negative base rate in Europe, which should probably change your longer-term view on interest rates altogether. I'm just wondering, if you do this longer-term assessment on dividend capacity, whether this can be a factor to actually see an uptick in remittances from rates. That's it. Thank you.
Yeah. Yeah. Thank you, Robin van den Broek. I think maybe I didn't express myself clearly enough, but indeed. When I was talking about dividend capacity, I said we looked at long-term projections and obviously we take a long-term view on dividend capacity. We do take into account the impact of markets. If markets or rates are leading to a sustainably higher OCG, for example, because of rates, and that is over a prolonged period, that could indeed trigger a reassessment of the dividend capacity. As I said, right now we're in a situation where Netherlands Life has been paying a stable dividend, and that has worked as well.
You are right in the sense that if, you know, if this is over a longer period and we would sustainably higher OCG, then that could indeed trigger a reassessment of this then.
Okay. Thank you very much for that clarification.
Okay. I understand from the operator that this was the last question. Thank you very much for all your questions and for the discussion, and have a good day.
That does conclude our conference for today. Thank you for participating. You may all disconnect.