Call over to Mr. David Klibber, Chief Executive Officer of NN Group. Let me first give the following statement on behalf of the company. Today's comments may include forward looking statements, such as statements regarding future developments in NN Group's business, expectations for its future financial performance and any statement not involving historical facts. Actual results may differ materially from those projected in any forward looking statements.
Nothing in today's comments constitutes an offer to sell or solicitation of an offer to buy any securities. Good morning, Mr. Kuebler. Over to you.
Yes. Good morning, everyone, and welcome to our conference call to discuss EnLink Group's results for the first half of twenty twenty. I'm joined today by Delfin Roeder, our Chief Financial Officer and Bernhard Kaufmann, our Chief Risk Officer. As usual, I will first take you through the highlights of the first half year results. Delfin will then talk in more detail about the Solvency position, operating capital generation as well as the financial results of the group.
After wrapping up the presentation, I will open up the call for Q and A. Let me start with the highlights shown on Slide 3. It's been an extraordinary first half of the year in many ways, 1st and foremost, because of the COVID-nineteen pandemic. Our first priority has been the well-being of our employees and an uninterrupted service to our customers. Thanks to robust systems and new ways of working, we have been able to continue supporting our customers through these turbulent times.
Of course, COVID-nineteen did impact our business. For example, the lockdown restrictions meant having to find new digital tools for brokers and agents to reach customers remotely. And we provided payment and premium holidays for customers experiencing financial difficulties. On the other hand, we show a lower frequency of P and S, which largely offset the higher D and A claims, resulting in a combined ratio of 94.9% for the first half of the year. All in all, the impact on the operating result of around €30,000,000 has been limited so far, while sales and new business were clearly much lower than in the same period last year.
Similarly, operating capital generation held up well, amounting to €543,000,000 in the first half of the year in the business. It also contributed to results in the first half of the year. Despite the volatile environment, our balance sheet remains resilient. And in group Solvency II ratio is 2 21%, which is after deduction of the interim dividend announced today. And the cash capital position is €1,300,000,000 reflecting cash outflows, such as the consideration paid for Vivot Non Life and the redemption of the €300,000,000 senior debt in June.
Our decision to suspend the 2019 final dividend and share buyback program in April was recommendations of the European and Dutch regulators given the uncertainty around how COVID-nineteen would develop. However, it has always been our intention to make those distribution to shareholders in the second half of the year if and when appropriate. And therefore, we have today announced that we are resuming the share buyback and will pay an interim dividend of €2.26 per ordinary share, which comprises the amount of the suspended final dividend plus the regular interim dividend amount. Turning to Slide 4. At our Capital Markets Day in June, we set out a strategic initiative that underpin our commitment to creating sustainable value for our stakeholders by increasing cash flow generation and driving growth in attractive markets.
In May, NN Life completed a sizable longevity deal, which reduces our exposure to longevity risk and consequently further strengthens our capital position. The resulting capital benefit has allowed NN Life to further shift to higher yielding assets and increase its quarterly dividends to the holding company. In the first half of the year, we accelerated the shift to higher yielding assets. We invested more than €4,000,000,000 in investment grade bonds, high yield bonds, equities and emerging market debt, also taking advantage of the market opportunities, especially in March April. Even with the COVID restrictions and the challenges of developing new online sales process, we continue to launch new products to meet customer needs.
For example, a unique product in Poland, allowing people already suffering from diabetes to take out this protection insurance. And in Japan, we introduced the Emergency Plus COLI product in early March, which provides attractive benefits also under the new rules. Our asset manager and an investment partners collaborated with its strategic partner, China Asset Management, to launch its inaugural ESG integrated China A Share Equity Strategy. Responding to the growing demand for investment strategies that integrate environmental, social and governance factors. Moving to Slide 5.
As I already mentioned, new sales were impacted by the COVID restrictions from March onwards. In turn, the value of new business was down versus the same period, also reflecting decreased interest rates as well as the strong sales in the Q1 of 2019 ahead of the implementation of the revised tax regulations for COLI products in Japan. On the other hand, the mortgage market remains strong. NN Bank originated €4,400,000,000 of new mortgages in the first half of twenty twenty, of which €2,900,000,000 was transferred to the Group's insurance companies for their investment portfolios as well as to NNIP's 3rd party Dutch mortgage fund. Total assets under management at NNIP increased to €285,000,000,000 at the end of June, reflecting positive market performance as well as inflow of assets.
Even though there were outflows of assets mainly in March, this was more than offset by strong inflows at the beginning of the year and the second quarter. On balance, we saw a net inflow of €3,500,000,000 in third party On Slide 6, we show our progress on cost reductions. We continue to work towards achieving our target to reduce the expense base of the business units in the scope of integration by €400,000,000 by the end of this year. In the first half of twenty twenty, we realized additional cost savings of €21,000,000 bringing the total cost reductions to date to €381,000,000 compared with the 2016 full year expense base. Even after we complete this program, we will continue to focus on increasing efficiency throughout the organization, and this is reflected in the segment cost guidance that we gave at the Capital Markets Day in June.
The following slide shows the capital returns announced today. We have a clear capital return policy, consisting of a progressive dividend per share and an annual share buyback of at least €250,000,000 Following the suspension of dividend payments and the share buyback earlier this year, we are pleased to announce that we are now resuming capital returns to our shareholders. The interim dividend of €2.26 per share announced today is essentially made up of 2 components: €1.40 which is the amount of the proposed 2019 final dividend that was suspended plus €0.86 which is the amount of the regular 2020 interim dividend calculated in accordance with our dividend policy. In addition, we are resuming the share buyback program that was started in March and then suspended in April. We have already completed €183,000,000 of the €250,000,000 program,
so
we will now execute the remaining €67,000,000 This announcement today means that we will deliver on our intended capital distribution to shareholders. And with that, I will pass it over to Delfin.
Thank you, David, and good morning, everyone. You will notice a change in the order of my slides compared with previous presentations. This is because of our shifting focus towards operating capital generation as announced at the Capital Markets Day. So let me begin with the movements in NN Group's solvency position. I'm pleased that despite the turbulent financial markets in the past 6 months, we are reporting a strong solvency to ratio of 2 21% at the end of the first half of twenty twenty versus 2 24% at the end of 2019.
Operating capital generation added 7 percentage points to the ratio. I will talk more about the drivers of operating capital generation on the next slide. We experienced extreme volatility in the markets in the 1st 6 months of the year. But as you as we have seen before, the longer term market impact is relatively small. Market variances reduced the ratio by 3 percentage points in the first half of twenty twenty, mainly due to unfavorable credit spread movements as well as equity revaluations.
The category Other includes various items with a positive contribution from the longevity transactions, which more than compensated the negative impact of the reduction of the UFR by 15 basis points at the start of the year and the acquisition of Vivat Non Life. Finally, the ratio reflects our deduction of capital flows to shareholders of 11 percentage points. This represents the announced interim dividend of €2.26 per share or approximately €705,000,000 in total as well as the €183,000,000 paid to repurchase shares under the share buyback program, which began in March and was suspended in April. As you are aware, the bank will be included in the calculation of the Solvency II ratio as from the end of the year. Based on current estimates, this will have a negative impact to the solvency ratio of around 10 percentage points.
Let's turn to Slide 10. Total operating capital generation in the first half of twenty twenty amounted to €543,000,000 compared with €697,000,000 in the same period last year. In the table on this slide, you can see the split by segment. This is in line with the guidance we gave at the Capital Markets Day and reflects the exceptional circumstances we are facing this year given COVID-nineteen. The decrease of operating capital generation reflects the negative impact of the UFR drag and risk margin release as a result of the lower interest rates, mainly in Netherlands Life as well as the negative impact of the longevity reinsurance transactions.
Another factor was the fact that there was no contribution from the bank in the first half of this year following the suspension of dividend payments on the recommendation of the regulator. In addition, we saw a lower net business contribution in Insurance Europe as a result of the COVID-nineteen restrictions as well as lower margins due to a decrease in interest rates. On the other hand, the shift to higher yielding assets resulted in a higher investment return, mainly in Netherlands Life, and operating capital generation of the Non Life business includes the results of Vivat Non Life as from April. As I already mentioned, the method for including the bank in Solvency II ratio and therefore in operating capital generation will change as from the end of the year. If we were to apply the new method already, operating capital generation for the bank for the first half of this year would have been approximately €50,000,000 on a pro form a basis.
On the next slide, you can see that the cash capital position at the holding was €1,300,000,000 at the end of June 2020 compared with just under €2,000,000,000 at the end of 2019. Total remittances received from subsidiaries amounted to €718,000,000 As usual, details of all the remittances upstream by each segment can be found in the appendix of this presentation. During the period, we also had cash outflows, including the consideration paid for the acquisition of Vivatin On Life, the redemption of €300,000,000 of senior debt and the repurchase of own shares under the buyback programs executed in the first half year. Looking ahead, we expect cash capital to remain comfortably within our target range. Besides outflows such as the planned dividend payment, we will also continue to receive dividends for most subsidiaries, including a dividend from NN Life of €225,000,000 each quarter.
Moving on to the next slide, I will take you through the IFRS financial results of the group. Starting on the left, NN Group's operating result increased to €926,000,000 from €914,000,000 in the same period last year. Let me remind you that the 2019 first half year result included €67,000,000 of private equity and special dividends, while the result for the first half of twenty twenty includes a much smaller amount of €16,000,000 of private equity dividends and nonrecurring benefits and also reflects the negative impact of COVID-nineteen, which, as David already mentioned, was around €30,000,000 in the first half of the year. We will take you through the operating performance of the individual segments on the next slide. On the right hand side, you can see that the net result for the first half of twenty twenty was €587,000,000 The decrease compared with the first half of twenty nineteen is mainly due to lower non operating items, in particular, lower revaluations and market and other impacts, reflecting the volatile markets as a result of COVID-nineteen.
On Slide 13, let me run through the performance of each segment, starting as usual with Netherlands Life. The operating result of €494,000,000 reflects a lower investment margin as the first half of twenty nineteen benefited from €67,000,000 of private equity and special dividends, while these dividends were just €9,000,000 in the first half of this year. At the same time, we saw higher longevity and morbidity results in the first half of twenty twenty as well as lower administrative expenses. The result of Netherlands Non Life increased to €111,000,000 We included the results of Dibat Non Life as from the 1st April, which was a contribution of €20,000,000 Our Property and Casualty business reported higher underwriting results, including favorable runoff results and a positive impact from COVID-nineteen. On the other hand, we saw lower underwriting results in disability and accident, including higher claims experienced due to COVID-nineteen, the reduction of the reserve in discount rate and continued unfavorable claims experience in individual disability, which was partly covered by internal reinsurance.
The combined ratio was 94.9%. Insurance Europe's operating result decreased to €133,000,000 from €140,000,000 in the first half of twenty nineteen, which included a €6,000,000 nonrecurring benefit. The operating result of Japan Life was €138,000,000 up 12% excluding currency effects. This reflects an improved persistency of the in force portfolio. Asset Management's result was stable at €74,000,000 The operating result of banking increased to €80,000,000 which includes a €7,000,000 nonrecurring benefit relating to premiums on mortgages, sales to the NNIP, Dutch Residential Mortgage Fund.
The interest result was also higher, reflecting lower funding cost and higher penalty interest as customers took advantage of lower mortgage rates to refinance their loans. Finally, the segment Other reflects a lower result at the reinsurance business, partly offset by a higher holding result. In particular, the reinsurance result reflects €39,000,000 of claims related to non life's disability portfolio, while the same period in 2019 included EUR13 1,000,000 of such claims as well as a large claim from a legacy reinsurance portfolio. With that, I will now pass you back to David for the wrap up.
Thank you, Delfin. Enen Group has today reported a strong set of results showing resilience in a time of market turbulence and weathering the impact of the COVID-nineteen pandemic. Our capital position is robust with a Solvency II ratio of 2 21%, which already reflects the deduction of the interim dividend of EUR 2.26 per share that we announced today. Operating capital generation for the first half of twenty twenty was EUR 543,000,000 adding 7 percentage points to the ratio. During our Capital Markets Day in June, we presented our strategy for Enen Group and our aim to create sustainable value for our stakeholders.
With our priority to maintain a strong balance sheet and the strategic actions we are taking to achieve resilient and growing long term capital generation, we are well positioned to navigate through volatile markets, drive profitable growth and deliver attractive capital returns going forward. I will now hand you back to the operator to open up the call for your questions.
Thank you, Mr. As a reminder, in the interest of time, we kindly ask you to limit the number of questions to 2. Your questions will be answered in the order that they are received. Go ahead please. And the first question is from Mr.
Cord Cluj, ABN AMRO.
Congratulations with the results. Question on Slide 18, where you could give the split up of the OCG. We see that a line life experience variance, that's EUR 37,000,000, quite a big plus. Is that COVID-nineteen related? Or could you elaborate on that?
And on the same slide, we also see that there's a change of the SCR, which is a benefit of €35,000,000 In the quarter in the half year, you rerisked, of course, in the rerisking effect? Because with rerisking, you would expect a negative effect from that line. So how much did the SCR increased as a result of the rerisking? That's on that slide. And second question is on capital returns.
It's good that you are finalizing the remaining part of the share buyback given the capital position and operational results. What would be a logical moment to announce a new share buyback? Is it really Q4 to review that? Or could it also happen a little bit earlier in the year at a certain event or something? And my last question is on the Japan.
Persistency, yes, quite good benefit for the results, of course. Could you elaborate a little bit more on that? How much of that is structural? It seems that clients there remain quite persistent indeed. And would it mean that the next couple of quarters, these results on average basis at least would also be so beneficial.
Those were my questions.
Yes. Thank you, Cor. Let me start by answering your questions on the capital return in Japan, and then I'll give the question on Slide 18 of Delfin's presentation and naturally to Delfin. So on capital return, what would be a logical moment? Well, I wouldn't expect a share buyback announcement this year on top of what we have already announced today.
I mean, if we look at our capital return policy, we obviously look at 3 factors, the Solvency II position, which is strong, our leverage position and our cash on the holding. And then, of course, we take into account what our outlook is for operating capital generation and free cash flow, also given the economic circumstances. Earlier, we announced that our capital policy means a minimum of €250,000,000 of share buyback annually. So that one will run off in the Q1 of next year. So the Q4 reporting for 2020 in February of next year would be a logical moment to talk about this.
Okay. That's on capital return. Then on Japan, indeed, we're putting in a lot of effort to keep the persistency where it is. So we're issuing at times policy loans. We're doing a lot to support the portfolio.
We're also benefiting from the last 4, 5 years where we had substantial sales, and therefore, we're also able to build a substantial in force book. I don't have now any indication that I would expect a major change in the persistency. With regard to the development of the portfolio, May, June, July, we've seen a more positive trend on sales. And assuming that the economy continues to open up in Japan, we're optimistic that we can increase the also the sales pattern for Japan. And then let me give you the question on Slide 18 to Delfin.
Yes. Thank you, Cor, for your questions. On the experience variance, there are several items, but it's mainly the lower claims related to COVID in the Property and Casualty business and also some positive deviations due to better longevity results also related to COVID. So most of it is COVID related. In terms of the change in SCR, please keep in mind that the change in the for the rerisking, which increased our SCR by approximately €175,000,000 This effect is reflected in the bucket order.
So it does not appear as part of the operating capital generation. Therefore, the €35,000,000 relates to the normal runoff of the portfolio, mainly in the Netherlands.
Okay. Fairly clear. Thank you.
The next question is from Mr. Andrew Baker, BT. Go ahead please.
Hi. Thank you for taking
my questions. So just 2 for me. On the COVID impact, so you said in June you expect the full year impact to be €100,000,000 on operating profit. It looks like it was €30,000,000 in the first half. Does that mean we should expect €70,000,000 in the second half?
Or is it lower than you expected at the time in June? And then is the impact on OCG that's just €37,000,000 that you just talked about, Delfin? And then secondly, just on VIVA, So it contributed €20,000,000 to non Life result. Are there any one offs in this amount? And if not, has your expectations on the benefit of this transaction changed?
Yes. Thank you, Andrew. Let me just say a few things about the COVID impact and on VIVAT, and I'm sure Delfin can elaborate if needed. So on the guidance, we don't have a reason to change our guidance on COVID-nineteen. I think we continue to see a relatively limited business impact there also due to the way the business is set up, Indeed, €30,000,000 for the first half year.
We do see a deteriorating trend for a while already in D and A, but so far, that has been offset by more favorable P and C results.
Most of
the impact is on lower sales. Keep in mind that the so when we're talking about €30,000,000 obviously, the most of the corona impact was only a quarter. So even though we report here for 6 months, most of the corona impact was mainly in the second quarter. And therefore, we're also not changing our guidance that we've given at Capital Markets Day of €100,000,000 impact. On FEVAT, indeed, there was a €20,000,000 impact in the 1st 6 months.
I think it's fair to say that the experience so far in its early days is somewhat better than expected. Please keep in mind that the EUR 20,000,000 contribution was also positively impacted by COVID-nineteen. The non life business of FIFA has a is, a large extent, a P and C business and the lockdown have a favorable impact on the claims ratios, mostly in Fire and in Motor due to less economic activity. So I wouldn't assume the €20,000,000 contribution now as a run rate going forward. Maybe, Delfin, you can add on OCG.
Yes. Andrew, on the OCG, you're right that in terms of the experience variance and other effects like, for example, in OCG, indirectly, COVID impacted the possibility to pay dividends out of the bank. That, as you know, is included when we receive the dividends. The biggest impact in OCG comes actually through the impact in drag. And on that respect, that is the biggest impact.
But otherwise, you lift markets impact aside, the impact on OCG is also relatively similar, slightly higher than the €30,000,000 for the operating result.
Great. Thank you very much, guys.
The next question is from Mr. Michael Huttner, Berenberg. Go ahead please.
Good morning. Thank you very much for taking my question. Only had one, which is at the Capital Markets Day, I had the impression or the feeling that guidance is the wrong word, but indications for operating capital generation for 2020 would be around €1,000,000,000 But at the half year, you're already around €542,000,000 So you're ahead of that. And I'm just wondering if there is any seasonality to make me think that the second half would be lower? That's my question.
Yes. Thank you, Michael. Delfin?
Yes. Thanks, Michael. No reason to provide any different guidance of what we said in the Capital Markets Day. Of course, the OCG in any particular period has a dependency on the level of interest rates and spreads over the we calculated based on monthly levels of the value of our fixed income securities. So it is not just the start of 1st July that determines the investment return, but what are these investment returns every month.
So it's difficult to provide a precise guidance of how this would evolve, but the guidance provided the Capital Markets Day still maintains.
Brilliant. Thank you very much. Thank you.
The next question is from Mr. David Gorma, Exane. Go ahead please.
Yes. Good morning. Thank you for taking my questions. The first one is on the Dutch Life earnings and the technical result is pretty strong. You mentioned some mortality benefits there.
I assume attributing them to COVID specifically can be tricky. But perhaps can you give us an idea of what you're seeing in terms of excess mortality on your book compared to last year or on average? Then the second question I had was on the investment margin in the operating capital generation. From what you've shown this morning, the CMD targets of €200,000,000 extra seems relatively close to get to. Is there anything specific to pull out on the on that investment margin you disclosed this morning?
Or is that only the impact from the rebalancing of the asset allocation you've done during the semester? Or is there maybe an impact from changes in the risk free curve since the CMD or something like that? And my last question is on non life in the Netherlands. I understand the D and A result is impacted by the COVID related claims, by the mechanical impact of rates on visibility and by the longer term claims inflation seeing in individual visibility. Would it be possible to split that out for 1 for the 1st semester
or at least
to get an idea of what's recurring in there and what's not? Thank you.
Okay. Thank you, David. Delfin, why don't you take the question on NL Life and investment margin?
Yes. So the first question on the technical result in Netherlands Life. This is driven by better longevity results as well as some better morbidity results as well in the first half of the year. Of course, the benefits on the higher mortality or better longevity, we don't expect that, that will continue. As a matter of fact, we have also seen fortunately that the number of deaths has come into closer to normal levels within the Netherlands.
In terms of the investment margin, the €200,000,000 mentioned at the Capital Markets Day, it is still a good guidance. And of course, this will be changing depending on the level of the interest rates of the spreads. So in the one hand, we have seen that the increase of spreads provide some additional investment margin going forward as well as the rerisking that we have performed so far. So overall, I don't think there is better guidance that this €200,000,000 increase for 2023. In terms of the impact of the investment in higher yielding assets, that, of course, base and we need to take into account this a bit careful based on the spreads and the level of interest rates at the end of June.
This would have already on an annualized basis provide an OCG uplift of more than €100,000,000 approximately €120,000,000 But of course, changes in these spreads will come over time as well.
Okay. Thank you, Delfin. Then on the D and A results, indeed, the overall result of the Non Life company was strong. But if you look then deeper, there are some offsetting effects. We've seen a continued deterioration of the individual D and A book.
This is around 10% of the premium. We already saw some fresh air, mostly in the medical profession, on that book and now even more in the current situation. We are taking measures on repricing, claim handling and making sure that we manage this very efficiently also from an expense perspective. But these measures will take some time to implement. Now on the specific question on the breakdown, I can tell you that the impact of the discount rate for the D and A, the full D and A company for the first half year is around €20,000,000 and you would expect a similar amount likely for the second half of the year.
Overall, good to know that despite the upward pressure that we see because of the discount rate in COVID and also in the individual D and A book that our guidance of 94% to 96% hasn't changed.
And if I may, just one follow-up on the OCG and the answer you were giving earlier, Delson. Could you just remind us the on what basis you at what points you use the curve to calculate the UFR drag in the risk margin release now that you've moved to actively reporting, is it still the sum of the starting period of each quarter?
So the calculation of the UFR, the risk margin release, the investment spreads is all based on the balances at the end of each month. So in the past, we calculated it based on quarter per quarter basis. But now as we are reporting for 6 months on a semester basis, things changed so much during this period of time. And this year, it has been the clear example of that, the evolution of markets and interest rates and the vola up to March, as you know, changed from Q1 to Q2 quite significantly. So we do calculate the operating result, I would say, on a monthly basis, on balances at the beginning of the month.
The next question is from Mr. Jason Kalambosos, KBC. Go ahead please, sir.
Yes. Hi, good morning. Sorry about that. First
thing that
I want to ask you is just on the come back a bit on the combined ratio details. So in D and A, you say €20,000,000 was included to get that was that got your D and A combined ratio at €103,000,000 But could you give us a sense in percentage points of the what is therefore only the deterioration you saw? And by when do you expect to be back to normal a combined ratio below 95%? And also, if you could give us an idea, I mean, the P and C was very good at 90.8%. Was that purely driven by COVID?
Or did you have any reserve releases in there? Because also if we account on the negative effect of Chiara, they are basically that's the 3rd element, if you want, with the the NA discount that distorts a bit the delivery of the 95% combined ratio. The second thing is just coming back on Michael's question on OCG. I mean, if I recall well, Delfin, your words in the Capital Markets Day, you did say that the OCG was going to be closer to €1,000,000,000 rather than €1,000,000,000 So I would presume that the closer is coming from €1,300,000,000 So it can be anything between that and €1,000,000 So I would consider that the €543,000,000 comes pretty much within your that guidance. If you can confirm that, that would be great.
Thank you very much.
Okay. Delfin?
Yes. So maybe starting with the second question. Indeed, at the Capital Markets Day, we highlighted the fact that COVID was having a negative impact and also the markets were dragging down. So overall, I remember saying that it will be closer to the €1,000,000,000 than the €1,300,000,000 And therefore, I can confirm that the €543,000,000 is certainly within that guidance. On the combined ratio, you're right, Jason.
There is a lot of things happening here. And as a consequence, one has to interpret it with a bit of curve. So indeed, the property and casualty combined ratio of less than 91% is driven in the one hand by a positive contribution of PMC coming from VIVAT because of the COVID. Also, our the rest of the Non Life business benefiting from that. But there was also some releases from reserves in the Property and Casualty business related to the SME portfolio.
So as we said in the press release, there are several impacts that at the end sort of net themselves out. But the discount rate of the D and A, there is the storm that you mentioned in the Q1 and some of the releases coming from the reserves in the Non Life. So another aspect to take into account in the disability and accident, of course, is that part of the negative results of individual disability are reflected in the segment Other through the reinsurance arrangement with NNRE. If you were to add, let's say, the claims included in the segment Other, the combined ratio would move to approximately 97%. So approximately 2 percentage points more for the VBAD for the non Life total combined ratio.
That is very, very helpful. Sorry to just put another little quick question. On the bank not paying a dividend, do you kind of accrue that? That means should we be expecting, for example, when the banks are able to pay again dividends that we will be receiving, for example, 2020, also the 2019 dividend. Is that a correct assumption?
And also, did you mention €50,000,000 I think I got €50,000,000 but I'm not sure as being the OCG for the first half?
Yes. Thank you. Yes, indeed, €50,000,000 Yes, on the bank, so we are following the guidance here of the ECB and the DNB. So we don't expect any remittances for this year. We do expect a catch up effect over time if and when possible.
And the next question is from Ms. Fuling Yang, Morgan Stanley. Go ahead please.
Hi, thank you for the presentation. I have three questions. The first one is on the sensitivity of credit spreads.
I actually have a
little bit of difficulty understand that. So you invested a bit more into the credit the corporate bonds. However, the sensitivity you disclosed in terms of the percentage in Hong Kong to ratio movement it's actually becoming more positive in the credit spread widening scenario than than Q4 last year. So but I think the credit spreads widening should economically be negative to the home to ratio. But previously you were positive because I think you underweight in the corporate bond, but then you actually invested more.
I'm just surprised that the sensitivity is actually getting more positive. So that's the first question. And the second question is, could you just give us a bit of update on the what's quite a default downgrade experience you've seen so far and as well as the Dutch mortgage kind of defaults or anything like that? So that's the second question. And the third one is just so I'm clear on the OCG of Japan.
Obviously, despite your decrease in new business, your Japan OCG is relatively stable presumably because that's based on the Japan statutory basis. Is it fair to think that as long as the overall book of Japan remains stable or slightly increased because you're still writing new business, the OCG should actually increase from here? Thank you.
Okay. Thank you, Fulin. I'll give the first two questions to Bernard, and then Delfin will cover the OCG of Japan.
Yes, Finland. Thank you for your questions. First one, sensitivity of credit spreads. This has not changed. And you're right, this is depending still on our positioning against the reference portfolio of IOPPA, where we have underweight in corporate bonds and overweight in government bonds.
And as the sensitivity takes into account the impact also of the resulting volatility adjustment of the reference portfolio, you see these 2 different directions in corporate spreads versus government bond spreads. And that has not changed compared to the last quarters. And on Dutch mortgages and other credit default experience in our investment portfolio, we have seen no default events yet. We saw some rating migrations and also some percentage of our portfolio is impacted by rating migrations, but that is mainly by 1 notch, and this relates to the large names and countries. And so we are monitoring this, but that is not a concern until now.
And Dutch mortgages in specifics, there we also see a flat trend, so no additional pickup in activity there.
Thank you.
And Fulin, on the third question on the OCG of Japan, which has been relatively stable compared to the first half of twenty nineteen, This is, as you know, in Japan, because of OCG reflecting the increase in solvency under Japanese rules, the more we sell, as we have explained in the past, the lower the operating capital generation because of the new business strain. So as we expect sales to increase, also now impacted by COVID 19. We would expect that sales will increase over time and as a consequence, puts pressure on the current levels of OCG.
Okay. Thank you very much.
The next question is from Mr. Michel Balatore, KBW. Go ahead please.
Yes. Good morning.
It's just on
special accretions of dividends from ABA. What is the outlook for 2020, the rest of the year? I mean, is it just the bank not paying the dividend? Or in general, you will have a more prudent
approach
on this? Thank you.
Delfin?
Yes. Thanks, Mitchel. It's not only the bank that has been affected by the prudent approach to paying dividends due to the recommendations or the provision from regulators. So we have also seen this year that affecting, for example, Poland, but also other places like Spain, to some extent, Belgium, some of our pension funds. So 2020 will be somewhat lower in terms of the dividends coming from the business units in Europe due to the impacts of COVID-nineteen and the restrictions.
Of course, we do expect that things will normalize over time also in this part of the free cash flows to the holding company. For the remainder part of the year, which was also within your question, Netherlands Life is quite predictable, expect the EUR 2 25,000,000 per quarter, so that is EUR 450,000,000 and then additional EUR 30,000,000 coming from the coupon of the hybrids. And then as I said, in Europe, it's more limited. We do not expect that this year, we will receive a dividend from the bank, and Japan has already paid their annual dividend. So that should give you a bit of a guidance of what to expect in the second half.
The next question is from Mr. Jason Kalamboussis, KBC. Go ahead please.
Yes. Just a very quick one. Looking at the value of new business under 4, that was relatively large as expected because of COVID and because of what change in Japan. I mean, if I was to think 3 years down the road, let's say, so that we don't I don't ask the question if you're going to dispose of Japan. But is it correct to say that at the end of the day, if you were, let's say, sales recover, everything is better?
If you were to think about any disposal of Japan, you would want actually to replace it with M and A that would add you that would give you new business of an equivalent nature? And in the second kind of similar question, or would you actually be agnostic and it could be like life or non life, I. E, e. Versus other groups like AGS that have specified that their interest in M and A is non life. Do you have that bias?
Or are you agnostic? So
Yes. Thank you, Jason. I'm not sure I'm going to be very helpful on this answer. But the I don't think it makes a lot of sense to speculate about divesting units and which ones then we would buy. Our base case, we made very clear at the Capital Markets Day, is that we believe in organic growth that we can not only deliver a operating capital generation of €1,500,000,000 but also believe that in the run up to 2,030, that we can grow our operating generation at mid single digit percentage.
So that is our base case. If you will look at life, non life, it's fair to say that outside of the Netherlands, our focus is primarily has been on life and life protection. The non life business is the big non life business is all in the Netherlands. So that's the situation today.
Fantastic. Thank you very much.
The next question is from Mr. Gordon Apley, RBC. Go ahead please.
Yes, thanks very much. So a couple of questions. First on the 3 longevity reinsurance transactions that completed in May 2020. Really, why now? And given I mean, the base table effect on mortality from COVID is, of course, you'll know it's pretty clear, but there's lots of uncertainty around the future projection.
And so why now? And what did the reinsurer assume in terms of future life expectancy? You don't need to give me any real detail on this, just but did the reinsurer assume no change in life expectancy? Life expectancy up or life expectancy down? And the second question is, if you can just remind us what proportion of your Dutch pension liabilities are now reinsured for longevity risk?
Thank
you. Yes. Thank you, Gordon. Bernard?
Yes. Gordon, on first, the transaction or timing of the transaction, which, of course, is completely unrelated to COVID-nineteen and the ongoing pandemic, this mainly goes back to the longevity risk our big concentration risk in our portfolio. So from mid term strategic perspective, we want to reduce this exposure. We want to have a better diversified portfolio also with respect to our insurance risk categories. And that is the main rationale behind this.
So to free up capital that is blocked for this concentration risk and to actively more actively manage this capital position. That's the main motivation for us. And yes, of course, there are different views in the market on how exactly the trend and the improvement of mortality will develop over time. But the base assumption in the insurance industry and also in the reinsurance industry is that there will be additional mortality improvements. There are some, of course, deviating opinions on how exactly this will look like.
But the main point and the main also capital intensity also for this risk category comes from simply possible adverse developments. And these adverse developments is what you have to capitalize for, and that is where also our current concentration risk is coming from, and that is what the reinsurers then are taking over. And the proportions of the life liabilities, so it's around 15% of the technical provisions that we now have reinsured under this first transaction, so to give you a magnitude of the current deal.
Just a
follow-up on what you've just said. I mean, I know you said that your decision to reinsure longevity risk was unrelated to COVID. But presumably, you changed the terms of the transaction given COVID has a massive impact on deaths and of course future life expectancy? And then also, you mentioned obviously the risks to additional mortality improvements, but and that is the risk, but it certainly hasn't been going that way for the last 10 years. So what particularly are you concerned about?
So no.
The negotiations and the preparations for these transactions have been months start months before the COVID outbreak. And also, if you look at the impact of COVID into the typical insured blocks of businesses in the life insurance books. It's yes, it's an annual impact. It may be 2 or 3 years that this is impacted. But this is part of a typical fluctuation volatility you have to take into account looking into such a long term liability and long term business.
And that a pandemic can occur, that's part of the pricing and also the assessment of a longevity transaction. And so that is happening now or happening in 10 or 20 years, well, that's just the timing that we are currently confronted with. But that's not changing the fundamental view and also the pricing assumptions for these transactions.
Thanks very much.
There are no further questions. Mr. Gille, back to you, please.
Okay. Thank you very much all for your questions. Before we close the call, let me just wrap up by saying that NN Group has today reported a strong set of results showing resilience in a time of market turbulence and weathering the impact of the COVID-nineteen pandemic. Have a good day.