Good morning, ladies and gentlemen, this is the operator speaking. Welcome to NN Group's Analyst Conference Call on its Full Year 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. Beforehand, in this 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 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 and 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, operator, and good morning, everyone. Thank you for joining our conference call to discuss NN Group's Performance for the Full Year 2025. I'm excited to be here with you today, and with me are Annemiek van Melick, our Chief Financial Officer, and Wilbert Ouburg, our Chief Risk Officer. I'll begin with an overview of the key messages and dive into the excellent commercial momentum we have witnessed in our growth segments, as well as our tangible progress on our Future Ready program. Next, Annemiek will give a detailed analysis of the strong progression of our capital position and financial performance over 2025. After my concluding remarks, we will move over to the Q&A.
I'm excited to share that we have not only exceeded our 2025 targets, but also delivered a very strong Solvency II ratio of 220%, giving us an even stronger foundation to deliver on our Future Ready growth targets. I am also pleased to see our growth segment deliver significant increases in new business values for international, and a growth-written premium growth of 6% in non-life, which is now surpassing the EUR 4 billion mark for the first time. Next to this, we saw increased DC inflows of EUR 2.6 billion at Netherlands Life. These results demonstrate a continuing shift towards high quality fee and underwriting income. And we are making meaningful progress on our Future Ready program, where I will share some compelling AI use cases later.
And finally, on the back of our solid business performance and outlook, robust cash generation, and healthy capital levels, we are further enhancing our promise to shareholders by stepping up our capital return commitments by EUR 100 million, with a EUR 50 million step-up in our annual share buyback and a EUR 50 million increase in our dividend above the regular progressive increase. As I mentioned, we have exceeded our key financial targets for 2025, with an OCG of EUR 2.1 billion coming in well ahead of the targeted EUR 1.9 billion, and our free cash flow slightly above the target of EUR 1.6 billion, a growth rate of 7% per annum for both metrics. These impressive numbers are further evidence of our ability to deliver on our business plans and a further testimony that we can drive profitable growth, which is good for all stakeholders.
Our capital position has significantly improved, as has the underlying quality of capital, with several tail risks being addressed, as pointed out on the slide. Annemiek will provide the details on our financials later. The strong business performance, as well as comfortable cash and capital levels, have allowed us to increase capital return by EUR 100 million above our typical progressive dividend, splitting this evenly between a step-up of the dividend and a higher annual share buyback. Consequently, we have increased the dividend per share with 13% to EUR 3.88 per share, increasing the base level for our continued progressive dividend policy. We are stepping up our annual share buyback program by EUR 50 million- EUR 350 million.
Today's increase marks a continuation of our outstanding track record of capital return to shareholders, having now returned over EUR 11 billion to shareholders since our IPO in 2014. We remain very committed to our capital return promise and to extend this strong track record, which is based on our current market capitalization, still implies an attractive future DPS growth of approximately 7% per annum. We continue to deliver value to our customers, employees, and society at large, and with the Capital Markets Day, we have set new targets for 2028. Let me highlight a few. We aim for the customer satisfaction scores significantly above the market average and secure a position among the top three for broker satisfaction by 2028. Customer satisfaction has shown consistent improvement, especially in Europe, where all units are above market average.
Additionally, we once again affirmed our number one position on satisfaction with the Dutch brokers, who play a dominant role in the distribution of our products. We also aim to be an employer of choice where people enjoy to work with a diversified population. Furthermore, we aim to cut greenhouse gas emissions by 45% by 2030, invest over EUR 13 billion in climate solution, and support 2.5 million people's well-being by 2028. As you can see, progress on all these targets is well on track. With the Capital Markets Day, we took a deep dive into our Future Ready program. Our plan to position us for greater competitiveness and adaptability in a rapid evolving landscape. We focus on standardization, automation, and reuse of AI, with a clear focus to improve customer experience and growth.
I'm proud to say we are making significant progress and happy to share that we are firmly on track with the new KPIs that we set at the Capital Markets Day. We now have 236 AI use cases in place, and already 42% of our sales come from digital leads. From the EUR 200 million annual target benefits by 2027, we have 40% realized in our run rate for the end of 2025. Let me just highlight a few of these use cases behind these achievements. First, a breakthrough in claim processing. We can now process third-party car liability claims fully straight through. This enables us to deliver faster service, with processing time decreasing from one to three days to a few minutes, as well as reduce manual effort and improve customer satisfaction.
It builds on our existing AI modules and system integrations. It is scalable for other use cases as well. Second, we are now using AI-powered avatars to train and coach our tied agents, enabling them to practice complex customer scenarios. Data shows that following standardized scripts significantly boost conversion rates, and we are now scaling this across the more than 9,000 agents. The result is a higher sales conversion, improved agent retention through better support, and increased customer satisfaction. Third, our new generative AI tool, AI Reply. It drafts high-quality email responses using historic interactions and templates. This frees up time for customer service agents to focus on what matters most, delivering value to our customers. We are rolling it out across all Dutch business units with international rollout to follow. These are just a few highlights because there is much more to come.
We show excellent commercial performance in our growth business, Insurance Europe, Japan, and Netherlands Non-Life. Our largest growth segment, Insurance Europe, continues to show significant VNB growth, with an increase of 16% versus 2024, with both higher sales volumes and increased margins play a part in this success. With the growth from 2025 included, new business in Europe has grown with an average of 12% annually over the last decade. Clearly not incidental, and showing that our strategy is reaping real benefits. Japan, our other international growth segment, continues its sales recovery with a significant 25% increase in new business value in 2025 versus 2024. When comparing VNB year-on-year from Q2 onward, the period since the launch of our new long-term savings product, we even see a 34% increase.
Our market share has already been improving on the back of this performance. Going forward, we expect gradual sales recovery to continue, also driven by further product introductions. This will help VNB to recover to 2022 levels by 2028, as outlined during our Capital Markets Day last year. Netherlands Non-Life witnessed solid commercial momentum, with gross written premium up 6% on year, surpassing the landmark of EUR 4 billion for the first time. This was driven by both indexation and volume growth. While the overall combined ratio remained within the 91%-93% target range at 92.9%, the combined ratio of P&C was excellent at 90.3%. And now I'd like to take a moment to highlight some of the business specifics for Europe and Netherlands Life.
Our European business continued its impressive growth trajectory, and I'd quickly like to reemphasize our strategy. The focus is on a simple capital-light offering, favoring technical and fee income, with a limited reliance on spread income. Our protection products have small ticket sizes, which makes these products accessible for a large pool of people who are increasingly aware of the usefulness of these products. With these small tickets, high volume products, the key is getting in front of customers, and this is an area in which we excel. We have a multi-channel distribution network, well balanced with tied agents, bancassurance, brokers, and direct. The tied agent channel, in particular, is undergoing a digital transformation and is one of the key beneficiaries of the Future Ready program, as can be seen by the success of our digital leads generation.
We took the decision to focus on protection more than a decade ago, and I am pleased to see how well that decision is paying off. With our presence in the highly underpenetrated markets, I have faith this trend can prove to be sustainable. Protection is the key pillar of our growth in Europe, but our pension offering is also a strong contributor. We're one of the leading providers of pillar two and pillar three pensions across Central and Eastern Europe, providing a source of AUM-based fee income, a business model with attractive operational leverage. In 2025, this business model showed strong growth, also helped by financial markets in those regions. Moving on to a promising growth opportunity in our home market. We have a leading position in the Dutch immediate annuity market.
Even in the new pension framework, it is mandatory that people convert their accrued pension investments into an annuity. This is an attractive market segment because margins are healthy and we expect the reform to improve our growth prospects. In 2025, our growth inflow into immediate annuities was around EUR 0.8 billion, up from EUR 0.5 billion in 2020, representing a CAGR of 10%. We expect these inflows to continue to grow, mainly fueled by the increasingly large DC pension pots. We expect to see a CAGR for immediate annuities of 10%-15% going forward, leading to a potential growth inflow of EUR 1.4 billion in 2030. This growth was not immediately visible in the growth of AUM.
I won't bore you with the details, but this line item also includes a legacy retail portfolio that runs off at about 10% per annum. This runoff will be largely completed by 2030, where we expect the immediate annuity portfolio to have reached EUR 10 billion in AUM. Together with the strong customer satisfaction, targeted pricing, and our market-leading position in the overall DC market, we are confident in continuing this upwards trajectory towards more than 65 billion of AUM, with an anticipated 15-20 basis points OCG margin by 2028. In conclusion, our investor proposition rests firmly on three core pillars. First, our business mix will continue to diversify over time, where growth segments will become more dominant in our mix. Netherlands Life will also become a more capital-light business as the mix changes towards DC pensions.
Second, with our Future Ready program, we continue to standardize and automate operations, improving efficiency and scalability across the group and at the same time, improving customer experience. And third, we remain fully committed to delivering on our capital return commitments, and with today's announcements, we have taken another significant step in strengthening those commitments. And with that, I will hand over to Annemiek.
Thank you, David, and good morning from my side to everyone listening in on the webcast. I'll begin with our excellent financial delivery over 2025. As you can see on slide 14, our OCG is up 9% versus 2024, coming in at EUR 2.1 billion. It's a strong print and testament to underlying business performance, while also benefiting from some non-structural tailwinds. Free cash flow is up 7% versus last year, with improved diversification as Netherlands Non-Life, Europe and the bank increased contributions. The delivery on both metrics reinforces our confidence in the 2028 OCG target of EUR 2.2 billion and our free cash flow target of above EUR 1.8 billion.
Our solvency ratio is strong at 220%, and as David highlighted, it's of significantly better quality since we removed the unit-linked overhang and are less sensitive to market movements and longevity risk. Cash capital increased to EUR 1.8 billion, although this has since reduced somewhat to EUR 1.6 billion following the repayment of the remaining RT1 debt that was called during January. These elements combined have put us in a position to reward shareholders beyond our normal capital return promise. We further enhanced our structural capital return with EUR 100 million, equally divided between dividend and share buyback. As such, we present a year-on-year dividend per share increase of 13% and a EUR 50 million increase in the annual share buyback to EUR 350 million. Now, let me give you some more insights into our capital progression.
Looking at the capital bridge for the second half of 2025, strong operating capital generation of EUR 1.1 billion added 13 percentage points to the solvency ratio, which is around at 5 percentage points higher than the capital flows to shareholders in the form of dividends. Market variance increased the ratio by 7 percentage points, largely driven by the positive impact of interest rate movements and decreasing spreads on government bonds and mortgages, partly offset by negative, by negative equity variance. Mortgage spreads at the end of December were around 75 basis points. We've previously communicated a normalized through the cycle level of 100 basis points. However, we currently see tight spreads across basically all asset classes, and clearly, mortgages are no exception. The bucket other added 2 percentage points to the ratio.
This is mainly due to an update in the way we calculate non-available own funds for Insurance Europe entities, which added 4-5 percentage points. We brought our approach more in line with the market after noting a more conservative approach versus peers. This was partially offset by a number of other model and assumption changes. The solvency ratio of Life showed a strong increase from 200% to 233% as well. Our three-pillar capital framework, with a focus on, one, a Solvency II ratio comfort zone of 150%-200%. Two, EUR 0.5 billion-EUR 1.5 billion cash at the holding company. And three, a single A financial strength rating has not changed.
With the current strong Solvency II ratio, it's fair to say that we're currently sustainably above 200%, and that our binding constraint for capital return has now moved from solvency to cash at the holding company. Of course, this could change under adverse scenarios. Now, let me give you some details on our high-quality private debt portfolio before moving into OCG. We're comfortable with our private debt portfolio, which is well diversified by industry and geographically focused on Western Europe, with an exposure to the U.S. below 10%. Over half of the book is either collateralized or government guaranteed. Around 60% is above investment grade, and there's no exposure to leverage products. We put a lot of emphasis on manager selection. Our goal is to gradually build the right exposure, giving managers time to put the funds to work.
Our enhanced oversight capabilities allow us to properly challenge the fund managers. One example of this is the sample testing that we perform on the credit ratings assigned to individual loans. So while the market has seen some isolated incidents on private credit exposure, we're confident that our credit exposure has a more conservative risk profile. Now let's move to OCG. As already mentioned, our OCG came in at EUR 2.1 billion, up 9% versus last year. This reflects ongoing commercial and business success, driven by our growth segments Europe, Japan, and Netherlands Non-Life. The strong underlying trend was further enhanced by some non-structural elements. Netherlands Life OCG grew by 13%, helped by a change in experience. Last year was negative, now is positive, and higher investment returns.
The main moving part for life into 2026 is the likely absence of positive experience variances, so we would expect a modest decrease in OCG for 2026. For Netherlands Non-Life, which grew by 9% on a reported basis, we confirm an underlying rate of EUR 400 million for 2025, from which we expect to grow with GDP plus going forward. Benign weather and the positive impact from reinsurance renewals were key reasons for Non-Life to overachieve in 2025. Europe's OCG grew by 13%. As David explained, increased sales and higher margins drove this, and we're very pleased with the overall performance. Due to favorable markets, our pension fund service also benefited from performance fees during 2025. Sales recovery in Japan was strong and as such, has put some pressure on OCG, as the current framework doesn't allow for deferred acquisition costs, as you know.
However, Japan's OCG still grew by 8%, as this was more than offset by the benefits of a reinsurance transaction and favorable claims environment. For 2026, we expect Japan to grow OCG, benefiting from the move to ICS and continued new business growth. Lower OCG at the bank is a large CD effect of NIM compression, which was only partly offset by one-offs. For 2026, we expect a roughly stable OCG versus 2025. With the above comments in mind, looking forward to 2026, we expect the non-structural positive contributions in 2025 to be offset by underlying continued business growth, leading to a flat reported OCG. As such, we're well on the way to deliver on our 2028 OCG target of EUR 2.2 billion in 2028. Now, a few words on operating results on slide 18.
Since we steer the business based on solvency metrics, I'll only concentrate on drivers that are different from the OCG analysis. Operating results are up 17%, largely driven by a sharp increase in Netherlands Life. Investment income benefited from the result on derivatives that fall outside of hedge accounting and higher dividends from private investments. Especially the first item, it's rather technical and has no economic substance. Japan's operating result was down due to a decline in the in-force book. This dynamic should be temporary as new business is rebuilding after the new long-term savings products that we launched in March. Future profits on the IFRS are largely determined by the CSM level. Our organic CSM grew 2% in 2025, with high single-digit growth from both Netherlands Non-Life and Europe. Japan is now also contributing to CSM growth following its sales recovery.
NN Group's net result decreased due to revaluations on derivatives outside hedge accounting used for hedging purposes, bond sales, and the final accounting results from the sale of Turkey. Now let's move to our cash capital position. Free Cash Flow slightly exceeded our 2025 target and came in above EUR 1.6 billion in 2025, up 7% versus last year. Although Free Cash Flow is lumpy by nature, we expect it to grow year-on-year to our target of over EUR 1.8 billion in 2028. Remittances from business segments were also up 7% and benefited from increased diversification as Insurance Europe, Netherlands Non-Life, and the bank all showed increased contributions. The bank benefited from additional remittance capacity due to the capital release from Basel IV. Other includes the impact of increased debt costs and approximately EUR 50 million of Future Ready investment.
Capital flows of more than EUR 1.2 billion include the payment of the final dividend over 2024, the interim dividend over 2025, and the EUR 300 million share back that has been executed over 2025. The change in our debt and loans reflect the impact of the unintended grandfathered RT1 notes, which have been redeemed in January 2026. As such, our pro forma cash capital position per year-end 2025 is closer to EUR 1.6 billion. Now that we achieved our 2025 targets, our eyes are set on 2028 and our improved investor proposition. We've increased confidence to deliver on our 2028 targets, which will not only grow, but also further improve and diversify our business.
We're on track to grow our Netherlands Non-Life and international segments, and the strong business and financial results of Netherlands Life underscore our commitment of stable and predictable remittances until 2040. We're on track in creating a highly digitalized, future-ready platform and organization. We have a strong balance sheet to support these key pillars of our investment case. Based on this confidence, we enhanced our capital return proposition today with an additional EUR 100 million on top of our regular progressive dividend policy and annual share buyback. Going forward, we will continue to return additional excess capital to shareholders, unless it can be used for value-creating opportunities, with a continued preference for small incremental steps rather than one-off lumpy returns. At our Capital Markets Day, we indicated EUR 1.5 billion of excess cash build potential over the four years from 2025- 2028.
With today's enhanced capital return announcement of EUR 100 million, we allocate more than EUR 400 million of this excess cash build to shareholders. In order to improve future financial flexibility and manage debt costs, we intend not to refinance the EUR 600 million senior debt that was originally raised for the Delta Lloyd acquisition and is set to mature in 2027. Consequently, we expect the residual asset excess cash build to be around EUR 500 million over 2025-2028, which can be used for value creative opportunities or further enhanced shareholder returns. Thank you all. And with this, I'd like to hand it back to David for the wrap-up.
Yes, thanks, Annemiek. I'm gonna keep it short and punchy. We exceeded our 2025 targets. Capital is strong, our growth segments show excellent and continued commercial momentum, and we further enhance capital return toward shareholders. We are ready to continue this impressive track record. With these remarks, I would like to open up the call for Q&A. Operator?
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 they are received. Please press star one one for your question or remark. Go ahead, please. Thank you. We will now go to our first question. One moment, please. Our first question today comes from the line of David Barma from Bank of America. Please go ahead.
Good morning. Thanks for taking my questions. And thank you for the 2026 capital generation guidance. I wanted to ask you about how disability fits into this. So, could you please explain the deterioration in the second half of 2025? How much of that was experienced compared to reserve adjustments, maybe? And perhaps can you give some color on the measures you're taking in 2026 to improve the Combined Ratio, and so how that is included in your flat OCG guidance for this year? Then secondly, on Japan. So, your new business data really starting showing the relaunch from the second quarter, and you had mentioned NBV growth of 50% year-on-year in that quarter. The second half was strong, but has slowed a little bit.
Would you be able to talk about the sales trend there, please, and how that's tracking compared with your expectations? Thank you.
Yeah. Thank you, David. Let me just say a couple of things on the combined ratio of the non-life business, including D&A, and then Annemiek can fill in also on the OCG guidance, and then we'll go to Japan. Yeah, overall, the combined ratio of non-life, I think overall, you know, it was in the range of 91%-93%. It was 92.9%, a little bit better than last year. Obviously, P&C was very strong, but disability stood out. And then good to know within the disability book, we are really talking about the disability part, not the sickness, which is the first two years of coverage. That, the book is actually doing well.
What we have seen in this D&A book is that we've seen elevated inflows. I think partially this is long COVID, partially this is also societal impacts, as an increase of mental health concerns. Unfortunately, we were, you know, the reporting of the government agency on this claim was relatively late. So that meant that also we needed to take strong measures in 25 to catch up, and that's what we did. So we've been actively repricing. First of all, we've also increased the segmentation between sectors because we saw quite some differences also in sector performance. And probably most important, even though these are three-year contracts, the vast majority now of contracts will have the ability to reprice every year, so once a year instead of every three years.
Now this was combined with a strengthening of reserve. So all in all, you know, we feel that these are, you know, strong measures that we have taken. Also, the solvency was not impacted there, so the remittance pattern will not be affected by this, by you know, by the development in the disability book. And we continue to guide 91%-93% as the right guidance of the Combined Ratio, and clearly, we're on track to deliver on the EUR 475 million OCG target that we set for 2028.
Yeah. On your question on how it impacts the 2026 OCG forecast for non-life, it doesn't, because the disability reserve strengthening doesn't flow through the OCG.
... Yeah, then on Japan, well, developments are very positive. I mean, clearly the VNB was up 25%. I think, I mean, if you correct for, you know, currency, it's more in the range of 30%. These are very good numbers. So, you know, what has basically been happening in the market is that the overall corporate life market was flat. The short-term market or the more tax-driven market actually went down 4%, and then the long-term market, where we mostly operate, grew 10%. So clearly, we're doing well in this market. We also expect in this half year to introduce a new long-term product.
So we have a unit-linked version out there, and we expect to launch also a more traditional product as well. So that means that, you know, next to the, you know, a good protection product, a unit-linked product, we will also have a traditional life product in there. So that means that overall, yeah, we're positive on the developments, and Japan is clearly on track to get to the targets that we have set there. We initially said that we want to get back in 2028 at the levels of VNB of 2022, which at that point was JPY 20 billion. And the business is clearly on track to deliver that, which is obviously a positive.
Thank you.
Thank you. We will now take the next question, and the question comes from the line of Andrew Baker from Goldman Sachs. Please go ahead.
Great, thank you for taking my questions. The first one, just on the solvency ratio. Are you able to give a bit more detail on the change in non-available own funds methodology, and specifically, what changes you made to bring your methodology closer to peers? And then also, what drove some of the offsetting model change impacts. And then secondly, in Netherlands Life, are you able to give us a sense of the impact of a steeper yield curve on OCG now versus maybe your expectations at the CMD? And also, if you are able to give us any type of sensitivity to yield curve steepening on OCG, that would be really appreciated. Thank you.
Yeah. Thank you, Andrew. Annemiek.
On the non-available own funds in our European business, we obviously have available own funds. We have solvency ratios that we actually statutorily report in those businesses, but we cannot contribute all those available funds to the group. That has to do with fungibility. We did some peer review also because the European business obviously is growing, and we don't like that build-up of non-available own funds from a group perspective. We found out that we had a rather conservative approach there. Technically, if you would actually sell one of those businesses within nine months, you would get part of those non-funds. Obviously, we inverse, they typically relate to future expected profit.
We've now brought that more in line with what our peers do, and that means that we had a solvency build, additional solvency build of roughly 4-5 percentage points out of this non-available own funds change. It doesn't change the local solvency ratios because they already included that. It also doesn't change the remittance capacity, but it does prevent group solvency leakage. In terms of NN Life with a steeper yield curve, obviously it was helpful for OCG of NN Life to have that steeper yield curve. If you look at it, going forward for the target, yes, it's a positive.
For 2026, we would expect Life to be modestly below the 2025 result that we had, and that mainly has to do with the absence of positive experience variances. We do recognize that the steeper curve obviously has a positive impact, but that's all market driven. So we're not gonna change our target there for Life, but there could be some upside to it.
Great. Thank you.
Thank you. We will now take the next question, and the question comes from the line of Farooq Hanif from JP Morgan. Please go ahead.
Hi, everybody. Thank you very much. When you talked about incremental step up in capital return, you were referring in the past to the buyback, but you've also added to the dividend. Can you just comment on whether the dividend is now part of the toolkit for incremental step up, given the amount of surplus cash that you've just indicated to us? And my second question is on the VNB. So the VNB, from what I can see, and you had a really big jump in margin in Netherlands Life and Insurance Europe, which I'm guessing is mix, business mix improving. Can you talk about how that can continue to improve going forward? And also in Japan, as you're launching these new products, whether you also expect a VNB margin uplift as well as just a sales uplift.
Thank you very much.
Yeah, thank you, Farooq. Yeah, on the capital, yeah, the capital return increased. And so, you know, obviously, we have continued strong business performance. As Annemiek explained, the cash levels are good and capital levels are strong. Also, our confidence in the business outlook is positive, and that's why we decided to enhance our capital return. And we indeed decided to do that by splitting it evenly between dividend and an annual share buyback. We think that, you know, the EUR 50 million extra dividend and the anticipated buyback step-up is a good balance also between shareholder remuneration and deleveraging.
Typically, we see that the higher dividend obviously compounds over time, and the market sees it as the most structural form of dividend. I think your question is also, so that was in our thinking. I think your question is also going forward. Well, our capital framework hasn't changed. We have always indicated that solvency being above 200%, that if that happens, then the binding constraint moves to cash, which is where we are today. And we also said our cash, on the cash side, we expect a buildup of EUR 300 million-EUR 400 million per year. So from that point of view, we do expect that we can further enhance capital return in the medium term, but it will continue to have a focus on small incremental steps.
Just quickly, if I may, with respect, you know, I think my question was more about the sort of level of the incremental step up. I think we sort of had a feeling that it would be EUR 50 million a year, but it was EUR 100 million this year, if you see what I mean? And that's kind of what my question was more about.
Sorry, your question was more about 100 versus 50? Or-
Yes. Yeah.
Yeah. Well, to be honest, I don't have much to add to it. I think we always said, you know, we like incremental, we like that if we do something that we can do it recurring. And we wanna avoid lumpy buybacks. And like I said, given the strong business performance, our belief in that we can continue this, given where cash and capital levels are, we felt that EUR 100 million is also the right step, given our focus on that it should not only be incremental but also recurring.
Okay. Thank you.
Yes, on VNB. Well, I mean, there's a lot of parts moving, obviously, always in VNB. We've seen actually the VNB of life coming down a bit, but this is normal because we have a less defined benefit renewals. In fact, so with the shift to DC over time, you will see that these defined benefit renewals will completely disappear, and the shift will be really to the DC space, where we measure it in net inflow. So I think that is one dynamic. If you look within and in life, actually, the margins in terms of the riders and the disability parts that are still part of and continue to be in VNB is, there, the margin is positive.
We also, I already mentioned that the Immediate Annuity market continues to be an attractive market for us. If we look at capital deployment, then this is an attractive market for us to deploy capital in. We did around EUR 800 million. We expect that market to grow, you know, 10%-15%. It's already growing around 10%, but with the effect of the pension reform, we actually expect a bit more of a step up. So we do expect that we can continue to make attractive margins there. In Europe, it's really a combination of the APE, and that is going up, but also our focus on protection.
Protection continues to have very attractive margins, and we do expect also going forward that we can maintain those attractive margins because of our strong distribution. And as I was saying earlier, the ability. It's not just around the product, but it's also the ability to have the right distribution channels to actually get customers to talk about this. So for Europe, yeah, we continue to believe that we can grow the VNB on the back of both volume and while keeping a healthy margin. Japan, again, also attractive margins.
There we also see that, you know, the volume is up, and we've moved from what we call the short-term COLI to the unit linked, which is more the long-term market, which also has a higher, you know, has a higher margin. The traditional products typically tend to have a little bit lower margin, but also are still attractive. So going forward, I think also for Japan will apply, that there is still an underserved market. There's still a lot of SME owners out there, it's a big market, that are underprotected. So we continue to see the opportunity to grow both in volume and in margin also for Japan.
A new product launch next to the, you know, the repricing that we did of the protection product and the unit link product that we launched before summer. The combination of that should, you know, give a good platform for the growth of Japan, and we still aim to be in the top three, top four, and back again in that market in the coming years.
Thank you very much.
Thank you. Your next question comes from the line of Iain Pearce from BNP Paribas. Please go ahead.
Hi, morning, everyone. Thanks for taking my questions. The first one is just on the capital structure. So with the, the pay down in the RT1, and then the further EUR 600 million deleveraging, and then assumes, you know, capital build, CSM build, the leverage looks like it's gonna come down quite a lot. Just wondering why you want to sort of adjust the leverage picture and sort of if you view that as the more normal capital structure going forward? The second one was just on Japan. You said you've done a reinsurance deal in Japan. I'm just wondering if you could give some more detail on, on what that reinsurance deal is, if there's any sort of benefit to remittance on that or capital strain.
Just trying to think, is there optionality to do more there on the reinsurance side in Japan? If I could just ask a very quick third one. Just on the cash and capital now being the binding constraint, cash and capital are holding. In terms of where that target sits, I think in the past you've sort of spoken debt holding costs, dividend cost, buyback costs, plus one in twenty shocks. I mean, with Netherlands Life solvency being so strong, you know, what sort of numbers should we be thinking about that? Is it sort of EUR 1 billion, EUR 1.6 billion, EUR 1.7 billion, the right number to be thinking about? Thank you.
Well, thank you, Ian. Unfortunately, for me, these are all for Annemiek.
On your first question on leverage. Listen, the EUR 600 million senior note that we intend not to refinance, this senior one, that was really that was tied to the Delta Lloyd acquisition. It was done at historically low rates, and not refinancing it in 2027 just saves us probably EUR 15 million or something. It doesn't materially lower our leverage ratio. It's currently around 17, slightly over 17, and it would go to around 16 if you already deduct the RT1 notes. So it doesn't materially impact that. And, you know, if you look at the if you remember at the Capital Markets Day, and what I also said in the presentation, our cash build is roughly EUR 1.5 billion in the next four years until 2028.
With today's announcement, we said, you know, we do the EUR 100 million additional capital return, EUR 400 million in total. Then we have the EUR 600 million deleveraging, and that then leaves another EUR 500 million in excess cash build. So it's not that we were unhappy with the leverage structure, it's just we don't need the cash, and it was tied to the Delta Lloyd acquisition done at historical rates. On NN Re, it was a small reinsurance transaction we did, sorry, on the, on Japan, it was a small reinsurance transaction on the in-force book and short-term quota that we did. In general, we've been doing reinsurance transactions on Japan frequently over the last couple of years, and we'll continue to look at it. It doesn't change the remittance forecast that we have on Japan.
Cash capital, we've indeed always said that we hold cash capital to cover our holding costs, to cover debt costs, and we need to sustain a 1-in-20 shock for all the business units that we have. Typically, that number varies between EUR 0.5 billion and EUR 1.5 billion, and that's still the case for the guidance that we have on cash capital.
Thank you. We will now go to the next question. Your next question today comes from the line of Michael Huttner from Berenberg. Please go ahead.
Fantastic. Thank you very much. Congratulations. I have one on life, and the other one I'm kind of hesitating. I guess I'll ask it on AI because it's kind of topical. So on life, I always say you're not shrinking, you're growing. And your comments today seem to, this is NN Life, indicate that with the new figures you've given us on the immediate annuities. Can you kind of flesh that out a little bit? I mean, if I give you the way I'm looking at it, you might say, "Well, actually, you're wrong," or, "This is right." So if I add the DC assets to the life reserves, this is in your financial supplement, year-end 2024, we had EUR 148 billion.
Year-end 2025, we're at EUR 146-147 billion. So that's a shrinkage of maybe 1% or something. And I think in the past, you've said shrinkage of 2%, but it feels like we're no longer really shrinking, and you kind of alluded to the benefit of the Dutch pension reform coming through, even though you haven't kind of focused so much as some of your peers on pension buyouts. So I just wondered why did you raise your targets in NN Life? Because the business is clearly doing fantastic. I mean, just the solvency of 2-3 is amazing. So that's... Sorry for the long question.
And the other one is really kind of almost stupid, but because it's so topical, so you gave us these lovely use cases in AI. Could you just say which one is the single biggest thing? My feeling from the way you've been kind of approaching the topic on protection is that it's coming from the fact that your agents are so much more productive once they've been trained with avatars or AI or whatever. That, if you could give us a feel, that would be magic, because clearly if you can accelerate protection growth, that's a big plus. Thanks.
Yes, thank you, Michael. Yeah, on life or NN Life, there is obviously competing things. So the closed book still runs off, and earlier we said it still runs off at around 2%. And that is on the back of, you know, the basically retail, but especially defined benefit books slowly running off. At the same time, you're right, that we do see good growth in DC. Of course, the dynamics are very different, from big spread business and capital-heavy runoff to growth of lighter. And we set a target of EUR 55 billion AUM for the DC business, EUR 10 billion in annuities, and annuity is attractive. We haven't assumed any buyouts in that.
So we do think that, you know, DC assets indeed will grow. Immediate annuities, 10%-15%. We can make ten to fifteen basis points over these AUM. So that's clearly a plus, and then some of it is run off. I think that for life, for us, it's always been important that, you know, stable remittance is very key for us. And also at the CMD, we indicated that we can maintain a stable remittance pattern out of NN Life. So even if OCG goes up a bit, which it has, or it comes down a bit, we will continue to focus on keeping stable remittances out of NN Life and offsetting the, let's say, the slow runoff of DB with growth in DC.
So from that point of view, yes, happy to see that, NL Life [NLife] is doing well, but there's not a change in the approach or in the guidance here. Yeah, on AI, I think, even though we talk a lot about, well, we say use cases, so we mean a use case obviously is where we have an something AI that is really deployed usually in our operations. But the real game, of course, is scaling. So, what is very cool, I think about the tied agencies, is that we see things that are developed in Poland or in Madrid, and then we have the ability to scale that to other markets.
This is a clear advantage of having a, you know, multi-country, multi-unit platform, that if you develop it once, it is with AI and certainly now on the languages, it's really, you know, it's really, easy to scale this, across other markets. So probably, very big one right now is the tied agents. You're right, the 42% growth. And it's not just the lead generation, it's the AI avatar that we have to coach our agents. It's the connecting AI, using connecting the agent to the right customer. So there's a lot of individual AI use cases there, and the fact that it's scalable across our 7 tied agent markets is very helpful. But I also mentioned the claim handling part.
For non-life, you can imagine that once you have an agentic AI, claim handling module live, you can also scale that to European markets where we do a lot of protection business. And protection, of course, also has, claim handling. Same for underwriting. So we now are focusing on trying to get to a 50% automated full underwriting, in the retail space in the Netherlands. Again, we do lots of underwriting in the European markets and vice versa. So, so my real expectation is, is that, we should only develop AI use cases that are scalable, right? Because we trained everybody, a lot of initiatives come out of the company, and actually we've been, you know, in a way, almost slowing down the company because we don't want these all these small individual cases.
We really want scalable cases that we can at least scale. We say scale means at least in three markets. So at least in three countries or in three units, it should be deployable, and then we develop it. So today it's probably tied agents. Over time, claim handling, underwriting, customer service, I see in all these areas some real scaling opportunities.
Thank you. We will now take the next question. The next question comes from the line of Michele Ballatore from KBW. Please go ahead.
Yes, thank you for taking my question. So I have two questions. So the first question is about the non-life, in particular, about property and casualty. I mean, in terms of the pricing environment, what are your observations, you know, going into 2026? Any sign of softening? I mean, anything you can add to this. And the second question is about the capital. So, with EUR 500 million, you know, available, let's say, capital cash beyond the distribution, if we think about, let's say, inorganic growth, I mean, if we think about the businesses that you have where your organic, the pace of the organic growth is satisfying, and businesses where you say, well, I mean, some M&A, there are some inorganic growth, some action could be beneficial.
Can you talk a little bit about, you know, your preference there? Thank you.
Yes. Thank you, Michele. I think on pricing non-life. Well, we've done a lot, and, and, within P&C, you see very different trends. Motor, you know, I would say trouble always starts in motor, and especially in retail. So we've done a significant premium increases, in the past year. Our expectation is that, you know, we will probably see a, a mid-single digit, depending a bit on the book, high single digit premium increase, and this is simply also keeping up with inflation of claim costs and other, liability costs. But we do think that, you know, the, the bigger premium increases are behind us, but we will continue to have to increase premiums to keep up with, with claim inflation. In terms of dynamics, retail motor always competitive. We might lose some market share.
Motor is 25% of our book. It's generally we're underweight it, anyway, in motor, and we don't mind. We continue to prioritize margin over volume. Even though, again, I don't think we will be expecting major increases in motor. I think fire, but also the other books around travel liability is a different dynamic. Combined ratios are very low. It's a very attractive business, so there also we are doing less premium increases simply because you know, the portfolio is holding up well. We also want to maintain our competitiveness, and this is a core of our P&C book.
So overall, I expect a you know a relatively good environment for P&C, as we have seen in the last year, even though, again, we have to state that, you know, we didn't see any fires or well, we saw fires, but not very large fires. We didn't have very large storms, so the P&C results also on the fire side were a bit helped by by favorable weather. Overall, I still think it's a good environment that we even if we would lose some market share, we continue to prioritize margin over volume, but we don't think it's needed. Data business grew 6%, and 2% was also volume growth here.
Yeah, I think on available cash, obviously, we still need to build all these, when we talked about the EUR 1.5 billion, we still need to build the EUR 500 million cash. But you're right, we do have a financial flexibility. But if you look at M&A or inorganic, you know, it has been a challenging market. We continue to see that there's more buyers than sellers. You know, there haven't been that many transactions, certainly not cross-border. We are very happy with our organic growth path. I know we said 7%-8% or our 7% CAGR, we think is very attractive. Our businesses are growing well. If we see an opportunity for M&A, you know, we have a very strict financial and strategic criteria.
We are actually proud of our track record in M&A, so, well, but that also means that we need to be very careful in embarking in M&A, unless we have a high conviction on both the financials and the strategic merit. If these opportunities will come, we will certainly take a look at it, but we're also happy to continue on the organic growth path that we have been doing.
If I may, my question was about more like this, you know, preference in terms of, you know, if you have to do something, what, you know, business that you will target?
Well, I'm not sure we have to do anything. I mean, we, what we have to do is deliver on our targets in that we set for 2028. We, and we said that, you know, we set their free cash flow and OCG target. We also said that the seven to eight percent CAGR per share is what we've been aiming for, so that is what we focused on. Any opportunities that would come on top of that in terms of inorganic would also mean that that would have to add to the targets that we have already set. So from that point of view, it is more opportunistic.
If something very attractive comes along, you know, that would be interesting, but our first priority is just deliver on our targets and deliver on the capital return commitments that we have given at our capital markets today in 2025.
Thank you very much.
Thank you. We will now go to the next question, and the question comes from the line of Nasib Ahmed from UBS. Please go ahead. Nasib, is your line muted? Nasib? Due to no response, I will-
Hello.
Oh, hello, Nasib. Your line is open. Oh, I'm not sure Nasib can hear us. I will move on to the next question. One moment, please. Your next question comes from the line of Thomas Bateman from Mediobanca. Please go ahead.
Hi, good morning, all. Thanks so much for the great results. It's great to hear the conversation so much about growth as well. Could you just comment a little bit on the strategy in Greece? I don't want to say too much, but, I guess I've observed some, some movements in, in, in the banks there. So any comment you've given on your strategy there would be interesting. And then the second question is just on government bond volatility in Japan. It seems a little bit immaterial now, so you've got solvency at 220. But has there been any, any impact on solvency in Japan, year to date? And, is that tied at all to the realized losses on bonds, that you've done in the year?
If not, maybe can you just give a little color on those realized losses? Thank you.
Yeah. Thank you, Thomas. Yeah, on Greece, so obviously there have been, you know, developments with Piraeus acquiring Ethniki. When we set our targets, we already took this into account. So we obviously expect to deliver our 2028 target for Europe, irrespective of, you know, these potential changes in Greece. Having said that, specifically for Greece, I mean, bank insurance is an important channel, so that would have an impact on our business. Today, we see a very strong performance still from Piraeus in 2026, and potentially, we also expect that in 2027. It is important to point out that, you know, this is not our only distribution channel in Greece.
We have a very strong and growing tied agent network. That network was also further strengthened with the acquisition of MetLife. We see today that the digital potential, so Michael already asked on the use cases around tied agents, but that's still relatively low in Greece. We see opportunities for further digital leads, the avatar training and some of the other things that we can still roll out in Greece. You know, there's the potential development of the broker market and some of the direct business. So we do see opportunities also to further scale. Tied agents grew also with 30% already last year in VNB, and so that will also be important going forward, that we continue to strengthen also other channels.
But the key message is that, you know, when we set these targets, we took already this change into account. Annemiek?
Your question on government bonds, volatility in Japan, they're less relevant for solvency, but higher yields obviously help VNB and OCG in Japan. Obviously, higher interest rates could have some volatility on the solvency, but the solvency in Japan, under the current regime, is very strong also versus peers, and we would expect it to be the same under the new regime there. So the realized losses that you see in the non-operating items of the IFRS result that we called out there, they are not related to any bond revals or losses or sales in Japan. They were more related to some government bond sales that the Dutch Life company did.
Actually, some sales of U.S. bonds, given that under the Solvency II regime, for us, it's just more attractive to hold long-term euro-denominated bonds. As far as those realized losses they're concerned, they obviously were already included in the shareholders' equity via OCI, but now we just had to take them in a non-operating item.
Brilliant. Very clear. Thank you.
Thank you. We will now go to our next question. The question comes from Nasib Ahmed from UBS.
Hi. Thanks for taking my questions. I've got a clarification first up. Annemiek, you said there's a reduction in the leakage from the own funds eligibility change. I remember you had a 1-point leakage every year on the solvency. Does that go away now with that change? And I guess my 2 questions are, I think you've got a German business as well. How is that going? Is there a capacity to increase exposure there? And then finally, on Japan, what does high, high yields mean for new business lapses? I think you mentioned kind of solvency, but investment returns is higher yields, actually negative for lapses, people switching out of these savings products into other products. So just trying to get a sense of that as well. Thank you.
Yeah. Thank you, Nasib. I'm glad you made it. Yeah. So, let me just start with the German business, and then, Annemiek can take the questions on the other ones. Yeah, so, you know, we entered into Germany mostly on what we call mandated agent business. It's still relatively small, but it is attractive. So today, you know, the business is performing well. At the same time, growing in non-life or especially in P&C, you always need to be careful.
But it is so far, it is screening as, as an attractive opportunity, and, and, it is, the business is on a, on a growth path, today, and, and that's also in our, in our plans. Annemiek?
Yeah, your question on the leakage from the non-available own funds change, that indeed will go largely, largely away. And your question on the higher yields for the Japanese business, it is indeed helpful given that the embedded fixed guarantee rate of it in the COLI products.
Thanks.
Okay. Yeah. Well, with that, we will now close the call. Well, thank you very much, and thank you very much for everybody on the call for the interest you've shown and all the interesting questions that you asked. Obviously, we look forward to continue to engage with you on the upcoming roadshows and conferences, and have a nice day.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.