And gentlemen, this is the operator speaking. Welcome to NN Group's Analyst Conference Call on its Q3 2019 Results. The telephone lines will be in listen only mode during the company's presentation. The lines will then be opened for a question and answer session. Before handing this conference call over to Mr.
David Kniebe, 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 fact. Actual results may differ materially from those projected in any forward looking statement. Any forward looking statements speak only as of the date they are made and NN Group assumes no obligation to publicly update or revise any forward looking statements, whether as a result of new information or for any other reason. Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities.
Good morning, Mr. Kneber, over to you.
Yes, thank you, and good morning, everyone, and welcome to this conference call. It is my pleasure to present the Q3 2019 results of Enen Group for the first time as CEO of this company. Before we start, let me just say it's a privilege to lead Enen Group into the next phase of its journey, working together with talented people who are focused on providing excellent products and services to our customers and creating long term value for our stakeholders. We will continue to build on the current solid foundations of our company, including our execution strength, robust balance sheet and strong capital generation. I've been spending a lot of time talking to various stakeholders in order to get their feedback, and I will continue this in the coming months.
We will present an update of the NN Group strategic and financial developments at our Capital Markets Day in 2020, which is scheduled for the 24th June. I hope many of you will be able to attend this event. I'm joined today by Delfin Huede, our CFO and Jan Hendrik Erasmus, our CRO. This is, of course, the last quarterly call that Jan Hendrik will attend as CRO, following his decision to leave NN at the end of the year. I would like to take this opportunity to extend my thanks to him for his contribution to the company, and I wish him all the best in his new role.
So let me kick off today's presentation by looking at the highlights and the business developments in the past quarter, starting on Slide 3. We are today reporting a strong set of results for the Q3 of 2019, with most segments posting a higher operating result compared with last year. The Non Life business, for example, has been successfully implementing a range of measures over the past 2 years, including repricing and stricter underwriting. This has contributed to the improvement of the combined ratio to 94.2% for this quarter. Similarly, Insurance Europe, Japan Life and Banking all showed an improved performance with each segment reporting results growth compared with a year ago.
The result at Netherlands Life reflects lower private equity and special dividends, while the reinsurance business continues to experience higher claims. Delfin will discuss the financial results of each segment later in this presentation. We continually strive to increase the efficiency of the organization. In the Q3, we reduced the expenses of the units and scope of the integration by a further €17,000,000 More details of these expense savings are given on Slide 5. One of our main priorities is to maintain a strong balance sheet.
This is reflected in a Solvency II ratio of 2 17% and a holding company cash capital position of €1,900,000,000 In terms of commercial performance, we saw increased new sales at Netherlands Life on the back of higher volume of group pension contracts as well as at Insurance Europe, where we are driving sales of protection and pension products. Overall, net sales are down. On last year due to lower sales at Japan Life following the new tax rules for COLI products. As a consequence, we are adapting our product portfolio in Japan, improving sales support and training our sales force to address the negative effect of the new tax rules. Turning to Slide 4.
Our ambition is to be a company that truly matters in the lives of our stakeholders. This means offering personal and relevant products and services to our customers. This also means being a good corporate citizen and playing our part in enabling sustainable progress. For example, our asset manager, NNIP, integrates ESG factors throughout the investment process for twothree of its strategy and has been awarded a top A plus score by the organization, UN Principles for Responsible Investment. On the previous slide, I already talked about the commercial momentum at the insurance units.
Looking at the other businesses, NNIP attracted net inflows of 3rd party assets in the 3rd quarter despite the challenging environment. And the volume of mortgages originated by Enem Bank reached a record level of €2,000,000,000 in the past quarter. The majority of these mortgages were then transferred to other group companies for their investment portfolios and to NNIP's 3rd party Dutch residential mortgage fund. Earlier this year, we announced the intended acquisition of Vivat Nonnavi. We are currently working through the regulatory approval process and making preparation for the integration of this business so that we can get started immediately when the transaction closes, which we expect to happen during the Q1 of 2020.
Let's move to Slide 5. As you are aware, we aim to reduce the expense base for the business units in the scope of integration by €400,000,000 by the end of 2020. We are making good progress towards reaching the target, with additional cost savings of €17,000,000 in the Q3 of 2019, bringing total cost reductions to €323,000,000 compared with the 2016 full year expense base. Having said that, and as we mentioned in the past, expense reductions will not be linear, and some units may see expense increases in the coming quarters to support growth and make necessary investments. With that, I will hand you over to Delfin Loueda, who will take you through the details of the financial performance, free cash flow and the capital position of the group.
Thank you, David, and good morning, everyone. As usual, let me start with NN Group's operating result for the Q3 of 2019 of €453,000,000 which you can see in the left hand chart. The slight decrease compared with last year reflects lower Private Equity and special dividends at Netherlands Life and a lower result at their Insurance business. But this was largely offset by higher results at Netherlands Non Life, Insurance Europe, Japan Life and Banking. The 3rd quarter net result in the right hand chart was €515,000,000 down from €788,000,000 in the same quarter last year.
The main reasons for this were the lower gains on the sale of government bonds and lower market and other impacts. This was partly offset by positive revaluations on derivatives used for hedging purposes because of the lower interest rates as well as positive revaluations on real estate and private equity. Moving on to the next slide, I will take you through the operating performance of the individual segments. Starting on the left, the operating result of Netherlands Life was down on the Q3 last year. This was almost entirely due to the fact that the Q3 of 2018 included total private equity and special dividends of €48,000,000 versus just €16,000,000 of special dividends in the current quarter.
As David already mentioned, the Non Life business posted another good result this quarter with a combined ratio of 94.2% compared with 97.1% in the Q3 last year. The higher results of disability and accident were mainly driven by favorable claims development in the group income portfolio. The portfolio and casualty results were slightly down on last year as the improved underwriting result was offset by lower other income. The 3rd chart shows the higher operating result of Insurance Europe compared with a year ago. This was caused by several factors, including higher investment income in Belgium, the growth of the protection portfolio and higher performance fees in the pension business in Slovakia.
This was partly offset by lower pension fees in Romania following the pension reforms in that country that were introduced at the start of this year. Finally, on this slide, the operating result at Japan Life increased 2% from the Q3 2018 if you exclude currency effects. This reflects a higher technical margin driven by favorable mortality results as well as lower DAC amortization and trade commissions, partly offset by lower fees and premium based revenues. Sales were negatively impacted by the new tax rules for Gori Products, which has led to lower new business premiums, but also to an increased persistency of the in force portfolio. The other segments are shown on Slide 9.
The operating result of Asset Management was stable at €43,000,000 as lower fees were offset by a decrease of administrative expenses. Total assets under management increased to €287,000,000,000 compared with €268,000,000,000 at the end of the second quarter of 2019, driven by positive market performance as well as net inflow of assets. The segment Banking reported a higher operating result compared with last year. This increase resulted from higher fees and other income, which includes a €6,000,000 nonrecurring benefit this quarter relating to the valuation premium on mortgage sales as a result of lower interest rates. Operating expenses were also up, supporting the increase in mortgage origination that David mentioned earlier and reflecting higher project expenses.
Finally, the segment Other, which includes the holding company and the reinsurance business, reported a loss of €12,000,000 this quarter versus a loss of €6,000,000 in the Q3 last year. The results of the reinsurance business were down as last year included €8,000,000 of positive hedge related results on the variable annuity euro portfolio, while these are now reported below the line as a non operating item since the beginning of this year. The current quarter also reflects unfavorable claims experience. This was partly compensated by lower holding expenses. Let's move on to the free cash flow on Slide 10.
The cash position at the holding company was €1,900,000,000 at the end of the Q3 of 2019, down from €2,200,000,000 at the end of the Q2 of 2019. The free cash flow during the Q3 was €224,000,000 mainly driven by €285,000,000 dividends received from subsidiaries. This was offset by capital flows to shareholders at €487,000,000 representing the cash part of the 2019 interim dividend and shares repurchased in the Q3 under the share buyback programs. On Slide 11, the last slide in my section, I'll take you through the developments in NN Group's Solvency position. The challenging margin sheet to ratio percentage points to 20%.
As you can see in the chart, the main driver of this operating capital ratio, which attach points to the and came from the margins. Interest rates on funds and had a negative impact, while other factors, such as the valuation elements, contribute positively to the balance sheet. And with that, I will turn to David for the wrap.
Thank you, Danfel. The group has today reported a 3rd quarter of most segments' share performance achieved across the Europe. Our capital position, our company cash capital €9,000,000,000, a show of 200%. Finally, we announced the decision to change to sample reporting we feel better suits our business. I will pass the Q and A session, Enrique Rosmers, to answer
your questions.
We've got a couple of
questions about the 3 other that's coming from. Has there been any model change from the year to date, you now make million. If you elaborate on a little bit higher than the €1,000,000 the net operating profit management, which is currently would check up the Markets Day in June, just a moment to announce something like that. Those were my questions.
Okay. Thank you, Cor. Let me answer the other two questions showing the up Delfin. As you know, we have a program of $500,000,000 in the Q1 of next year. Future decision on capital return at appropriate time, many things into at that point in our current and future regulatory uncertainty and other factors.
Of course, a decision is subject to robust capital and remain OIBDA. As you know, EUR 4.1 billion including the share, which is also very serious to return acceptable to those. So we're on disciplined area. Questions? Let me pass.
On
the first one, on the Solvency II ratio, there is not too much excitement in the market over. So this reflects some small increases in home forms and small decrease in one of the change as one quarter to another non available on the start reflecting local profits in Japan, which increased the core capital and enable non core capital is deducted as non available. But apart from that, significant model and assumptions coming through. Dividends, either one coin lower dividend or higher dividends another quarter as this, of course, capital management like bank are further specific and asset management more than the names below. Over time, Non Life has tend to pay profit some year, the net profit life, and we still pay €1,000,000 So the one should not reach into dividend patterns quarter to another.
And that's the Solvency II ratio of the Non Life business?
Yes. The core, but it is commercial capital. We basically discretely the not the dividend ratios, but these dividends that we tend to also as the profitability for NOLs tends to be positive, we manage the NTT with a bit more tight level of solvency.
The next question is from Mr. Ashik Musaddi, JPMorgan.
A couple of questions. One is the combined ratio in Netherlands. I mean, it has been tracking really well over past 3 quarters. Now clearly, it is reflecting the work you have done on the combined ratio. But how confident you are that these kind of levels can be maintained in the future as well?
Because clearly, I mean, 94.7%, which I think you did this quarter is far better than some 97% or some 98% you're guiding for in the long run. So that is important. And then you're getting VIVAT as well. So will VIVAT be moved to the similar combined ratio? Where do you see that going forward?
That would be the first question. Secondly, any thoughts on the IOPA review for especially about the debate around last liquid point and what the view on DNB has on that? Now, the reason why are a bit confused here is basically when we spoke to DND in past, DND has always said that we do look at numbers ex EFR as well. Now when we look at the IOPA consolidation paper, it feels like ex UFR or ex volatility adjusted in UFR, the Dutch solvency ratios will be sub 100%, which puts the dividend, buyback, etcetera, at risk. What's the discussion going on with DNB?
Can you give us any indication as to what your number is ex UFR? Because that's something a key focus of investors at the moment and that's really protecting investors to get new money in the stock. So any thoughts on that question would be great. And thirdly, it is around the technical margin in the Dutch Life. It was lower again in this quarter.
You have missed that number for last three quarters. What's going in the technical margin in the Dutch Life business?
Yes. Ashik, let me take the question on the combined ratio for non live and then the OPA and the technical margin Dalton will answer. On the Non Life business, yes, we're happy to see the progress. As you know, we took many measures in this business. Our guidance, however, hasn't changed.
So we continue to have our guidance of over the mean term a combined ratio of 97 or below. And we're happy to see the number now in 94. Also, as we've said in the past, there's always some volatility is possible. We've seen there could potentially be fires. We've seen weather related, some volatility in weather related claims and in some of the other portfolios.
At the same time, we continue to take measures on this portfolio, including expense reductions, pricing measures and also underwriting improvements that we still feel in order to try and offset some of the volatility. Now with regards to SVOD, we are on track with the preparation of the integration of Vivad. So we still expect to announce the closing of the transaction in the Q1 of 2020. After that, the integration will start. And then over time, we will move the VIVA products to the NAND standards.
And again, there, we do expect some benefit on the expense side and potential also on the underwriting side. So in short, we haven't changed our guidance. Volatility will always be possible in the non life, line, but we continue to make sure that we improve our ratio to make sure that we meet the guidance that we have given them. Delfin?
Thank you, Sike, for your questions. So the first question on IOPPA Review 2020 certainly is something that brings the attention of many stakeholders and certainly ourselves. Maybe just to keep things a bit into perspective in terms of the process ongoing, What currently is in place, as I'm sure you are aware, is a consultation paper that IOPPA has issued. And feedback to that paper will be due before the 15th January. After that, IOPA will take some time to present their opinion to the European Commission mid next year.
Then the European Commission need to present to submit a legislative proposal to the European Parliament. And only then the process within European Parliament and European Council will come to after some consultations to a final agreement regarding the directive. So it is a very long process that we've seen it already when the IOPA when the Solvency II framework was established. Therefore, the timing of which of any changes is still uncertain and it might go it will take quite a few years. So maybe we're talking on 2023 or 2024.
You are right from that perspective that there's been a bit of noise about how and this is a question that we receive regularly in terms of how our main regulator in the Netherlands look at our solvency. And you won't be surprised to hear from me that they look at it in a holistic view, analyzing all the different aspects, solvency, what is the risk profile, what are the sensitivities, what is expected capital generation. And based on that, we made a recommendation of paying dividends. You've seen very stable dividends being paid from Netherlands Life of €185,000,000 now per quarter, plus €15,000,000 coming through the interest on the hybrid debt. So approximately €200,000,000 per quarter.
And we see no indication that this is at risk as also the solvency of Netherland Life is at 211%. So it's quite strong. In terms of the technical margin for Life, you have seen, as we have announced already and anticipated, a downward trend in the technical margin. This is due to the runoff of the individual Life portfolio. So that's something like they also they catch up that there are 2 elements.
1, the reduction of the portfolio and the other is, if you like, through IFRS, the catch up between the difference on the assumptions for longevity versus what are the assumptions of longevity that have been used for solvency capital. So part of this decrease on the technical margin is not happening in Solvency II capital generation as these are already taking into account this longevity assumption. But indeed, under IFRS, we see now the technical margin being more around €40,000,000 with a downward trend.
Okay. That's very clear. And just a couple of follow ups. So on combined ratio, is it fair to say that structurally you are already at 97? Or you would say there is more time required for structurally to get there?
And I hope I review the any numbers you would give on sensitivity on last liquid point move to 30 year in case you could?
Yes. So on the combined ratio, as I said, the currently, obviously, in this quarter, we are below 97%. But as I said, there's always volatility possible in the portfolio. Also keep in mind that if we close the VBAND deal in the Q1, we will start onboarding the VBAND portfolio, which we still need to see exactly how this portfolio will behave going forward. And it will take time also to convert that to the NN portfolio and the NN standards.
So no news on that front.
Okay. That's good. Thank you.
Nelson?
Yes. On the last liquid point, I think the IOPA consultation paper gives even, I believe, 5 options, different ways of looking into it. Solvency II is a framework that needs to be understood as a package. One, but as you know, the way that the company is reviewing the framework that makes sense as a whole is the way that they review not only by IOP and their proposal on European Parliament with changes. So very helpful.
If you extend the 5 options that are presented, ratio to other fact within the solvency, in my opinion.
The next question from Mr. Mattielsen. Go ahead please.
Generation in the operating line. How sustainable is the number you stay where they are today? I guess you confirm if it's already done the full year increased QFR. And second question is on the business. Quarter with, yes, decent net inflows and also one have increased following long of decline.
Can you provide some color on what's yes, what has triggered the inflection point? And do you consider this sustainable like the current level of margins we've seen in the Q3?
So we stated that the capital ratio quarter over quarter. To the second, it, of course, captures UFR drugs based on the U. N. And that UFR drug freeze versus previous. And of course, as these rates, that UFR drive will continue to as from September, we have seen high on the level of interest.
Indeed, the contribution of the capital generate coming from this in way that margin changes on this quite substantially in the last quarters for the as well as for more of them, influencer movements the quarter. That's why we've been providing guidance more medium term in view of how this is expected to evolve.
Yes. And on the and yes, please, we had a of around €1,000,000,000 of assets. At the same time, the macroment for asset managers, as you know, is if there is a passive management, of course, this decrease in lower rates has helped the asset managers already. So the overall environment for the asset manager will still remain to be challenging. At the same time, NNIP is working hard to make sure that they continue to be a very efficient company by reducing expenses and building up capabilities, for example, in the space of multi asset and liquids.
And they will continue to focus on that to try and offset some of the decreasing fees that we see happening in the market.
The next question is from Mr. Albert Plueg, ING Bank.
Perhaps we can take a next question and then maybe later on Albert can come back.
The next question is from Mr. Benoit Petrar, Kepler Cheuvreux.
So a couple of questions on my side. The first one is on Japan Life. Maybe you could give us a bit more guidance on where the sales are trending also in the coming quarters. Obviously, it has been Q1 you have been relaunching this product, so bit of outlook will be helping. Second one is on the investment margin in Netherlands Life.
I know it's flat year
on year if you exclude the one offs, but we can expect more pressure obviously. So I was wondering where you are currently in terms of, well asset mix. How do you see maybe your asset mix going forward? Are you do you still have appetite for mortgages at current levels? And also if you are maybe planning to still be a bit more aggressive on cost cutting on that business?
And just to manage expectation in terms of timing of potential additional distribution, so if I understand correctly, we will have to kind of wait June to get an update on that, and we should not expect too much already in February in terms of updating on the buyback.
Thank you, Bernard. Let me start with Japan Life and then the other two questions, Delfin will answer. Yes, so on Japan Life, as you know, there was a tax reform implemented in Japan, which basically led to that in the full market sales of the COLI products came down significantly. I think our business has been very active in developing 3 new products that were already approved. So currently, we're in the process of improving our sales support, training our sales force to adapt to these changes.
Again, this is a market phenomenon. So we need to see how exactly the market will adapt to this, certainly in the short term. Longer term, we're convinced that we believe that our company is very well positioned to continue to serve the needs of SMEs in Japan. And also with these changes, we believe that we can have a sustainable COLI market also going forward. Delfin, the investment margin of NN Life?
Yes. Thanks, Benoit. So we as we as you know, the investment margin in Netherlands Life is under pressure because of the decrease, the runoff of individual Life portfolio as well as with low interest rates, the reinvestment yields are more difficult going forward. What we have seen in terms of the investment spread, we've seen that has been relatively stable between the 80, 85 basis points or if you were to exclude dividends of private equity and public equity, then it's more on the 65 to 70 basis points, and we have seen quite relatively strong stability on the investment spread excluding these more volatile dividends. Maybe helpful to flag or repeat something that we have already mentioned in the past, which is that going forward, we expect significantly lower private equity dividends contributing to the IFRS investment margin, and that is related to 2 factors: 1, the volume of private equity in our portfolio is lower.
So we have a bit more than €900,000,000 in the past and it's been reduced due to some disposals to around €700,000,000 But more importantly than that is that the nature of the investments are different. Before, we have more mature companies that were paying dividends and also in funds when we had a majority stake, which came after some disposals through dividends. So going forward, we expect these capital gains to, I mean, the profit the returns are still coming through, but more through the realized capital gains, so below the line. And we have seen that. For example, this quarter, we have €26,000,000 of revaluation reserves through private equity, and this is how it's going to come going forward.
So that, no doubt also put some pressure within the investment margin. In terms of the composition of the assets, we do continue investing in mortgages. For example, in this quarter, in the Q3, it was slightly less than €800,000,000 that Netherlands Life invested in mortgages. And also there were some investments made by Belgium within the quarter. So we will continue this policy of gradual shift to higher yielding assets when the opportunity comes.
And in terms of cost cutting, which is the last element that you mentioned, of course, efficiencies is an important element. Netherlands Life has already made a lot of progress in the reduction of expenses, but this is something that, as you know, will continue to progress. Maybe in relationship to the share buyback question, Maybe, David, you can take this one.
Yes. Thank you, Delfin. So I think, yes, as I mentioned before, so the current share buyback is ending at the end of or in the next Q1 of 2020. So I have no further guidance on that. It means that we will give an update at an appropriate time after that.
The next question is from Ms. Fuling Lang, Morgan Stanley.
I've got two questions please. So the first one is in terms of the Insurance Europe, do you have any views on how quickly this block of business, this segment of business can grow in the next like 12 to 24 months apparently because it's growing relatively quickly within the group. That's the first one. And then second one is David you just mentioned that you think that the COLI business is still good proposition for NN to be in. Does that mean actually you think that the if the business volume just only 20% or 30% of previous, is it still a sustainable business model or still strategically meaningful for NN to stay in Japan?
And then the last one is regarding, Delfin, you just mentioned about the PE dividend will be because the gains from PE will be more from the underlying. Will that change your capital generation?
Yes. Thank you for these questions. That will answer the question on Insurance Europe and the PE dividend. Let me come back on the COLI question immediately. So yes, indeed, volumes are lower.
We are aiming to increase our sales volumes again in the COLI business. It's relatively new. The new products are there. But again, the sales support and training is currently ongoing. So maybe good to know that there's more reforms ongoing in the Japanese market, just for example, also a health reform that took place.
So the market is really still adapting to the new environment and the new products. So we need to see how sales will evolve. Of course, we'll continue to focus on seeing how we can increase our sales back to higher levels on COLI. But also good to mention, given your question,
at the end
of the day, we believe we're well positioned to service SME customers in general. So we'll continue to find ways to do that. Delfin, on Insuringer.
Yes, Julien. Thanks for your questions. Insurance Europe, we have a guidance of mid to high single digit growth, and we are not changing the guidance. Of course, there are always things that goes better, others that goes against us. We have seen good growth in Protection products, so we see opportunity to further expand on that.
But also, we've seen some headwind related to the pension reforms in Romania and in Poland that has been flagged several times. In terms of the Private Equity dividends, I'm very glad that you raised this question fully because, of course, in terms of capital generation, we are expecting the same contribution. It doesn't matter how are reported below or above the operating result line. So we do expect a significant capital generation as a matter of fact. We've seen it, as you know, from the last quarters, quite a significant revaluation on the private equity.
So we are now we've got a more diversified portfolio as we've got more managers that we used to have. So it's less concentrated and we are very pleased with this portfolio.
The next question is from Mr. Kaum Kelly, UBS. Go ahead please.
Two questions. First on the IOPA review. So whilst we can debate on what may or may not happen, there's very little debate that the risk here has increased around the capital position. So can you talk about the contingencies that you have in place in preparation for a potential adverse scenario coming from that review? So ultimately, can you give some reassurance today to shareholders that even an adverse scenario with respect to the IOPRA review can still see this company maintain robust capitalization such that the capital return profile that shareholders enjoy can be sustained?
That's the first question. And then secondly, just on the subsidiary dividends. So you rightly point out the stability of the Netherlands Life dividend as giving some confidence around capitalization there and the regulatory outlook around the capitalization there. But if I look at the Insurance Europe subsidiary dividends for the 9 months year on year, it's down 40%. Now in the context of this being 20% of the group subsidiary dividends last year, I'm just wondering can you give detail on what is driving that specifically?
And then secondly, is that something we should view as sustainable in terms of a lower dividend from Insurance Europe going forward? Thank you.
Yes. Thank you for any questions. Nelson?
Yes, Colm. So two questions. If I can give a firm assurance about something which completely unknown, I'm not in that business. I don't know. What I know is that we are managing our business very diligently with strong risk appreciation.
We have a strong culture of doing cash flow matching whenever it's possible. We maintain our risk interest sensitivities within very moderate levels. Solvency is strong. Speculating about changes affecting the level of solvency, which likely will come with higher capital generation going forward is very difficult to go through it. What I can say is that I feel very comfortable with the level of solvency on the way that we manage the business and that we are always taking all considerations into account.
But it is, in my opinion, premature to start speculating about changes that might happen or might not happen or focusing on one single element within a combination of factors there.
If I just follow-up on that, and thank you for that. Again, it's not so much to speculate, but rather to discuss the contingencies you have in place in case there is an adverse outcome.
Yes. So we have, for many years, worked on our recovery plans. Now we have to work on our resolution plan. We have many different aspects. We have been looking in the for quite a while possibilities of doing reinsurance of longevity.
We have plenty of tools in our hand in order to re add. But I think that the most important element to keep in mind is that we manage the business with the perspective of risk profile and how we can develop surplus capital from our business units. We have said in the past that we're not focusing so much on the IFRS profits. Of course, it's an important metric, but it is based on the risk that we take and having a mid to long term view how we manage that business. So I think that we've got all the contingencies necessarily for the factors and the risks that we are aware of.
In terms of dividends coming from subsidiaries, as I said before, I think it's a question of looking at different contribution of dividends. We have had over the last years a very strong level of dividends usually, sometimes even higher than the net profit coming from different segments. So I don't think we need to read too much in particular period of the dividends. If you were to compare, which I think is what you were doing, what are the dividends of, for example, this quarter for Europe versus the same quarter of last year, that's very much the difference is that the Q3 of last year, we distributed some additional dividends from one of our business units in order to repay some surplus capital that existed there. And that occurs also from the past.
So units like Belgium or Spain have paid more dividends in the past that potentially are expected going forward because the surplus capital was paid. But I think that the relevant aspect is to look at the diversification of dividends coming from different sources. We see that, I mentioned before, NN really decreases, but we have a bank providing dividends on a very basis. Also, Japan Life last year did not pay a dividend. This year is paying a dividend.
And with the lower sales strains, have a higher capacity. Nevertheless, we always look to find a stable payment of dividends according to our needs. Here, our cash capital at holding is very strong at €1,910,000,000 and we manage everything in a holistic way.
The next question is from Mr. Jason Karamboszis, KBC.
A couple of things. One is I would like to come back a bit on the non life and the question that was asked earlier on your target. I mean, if we look, the 94.4% was very good, but that's the benefit of the D and A, which was very low at 87.9%. P and C was at 97.7%. So if we accept that you have seasonality on the disability side and you do get these very good quarters and if you focus and also that you have the help of reinsurance there, if we look at the purely at the P and C at 97.7 years, still above your target.
And I would like to have your thoughts on what we should be expecting, especially that was a relatively benign quarter. The other thing that I would like to come back is on the non Life EBITDA upstream. I mean, as it stands, I mean, clearly, we should be looking at maybe it's on my numbers, but roughly €100,000,000 that could be coming in the Q4. In general, you evoke very often the seasonality. But is that the seasonality that can go from 1 year to the other one?
That means you smooth so much the volatility that, for example, in non life, we could see a low level of dividend upstream this year in preparation in a certain way from the volatility that could come as we integrate VBAD. And the other quick point, it's a follow-up on the question. Do you see the asset management, if I understood from your answer, you do not see the good asset management result as an inflection point yet because conditions remain very challenging? Please correct me if I'm wrong there.
Yes. Thank you, Jason. Let's start with non life. Indeed, you are correct that the P and C combined ratio is still higher. It is trending down in a good way.
In 2018, it was still above 100%. We saw in Q2 a combined ratio of 98.3%. Now it's coming down to 97.7%. So it's clear that we have more work to do. So currently, we still have pricing measures implemented that haven't fully come into effect.
Also, we're looking at new measures. And clearly, we still see room to improve our underwriting capabilities as well. So we'll continue to work on the P and C book. But as you know, there will always be some volatility in that book. For example, we have seen the salvage foundation reported also that the number of large fire claims in the Netherlands in the first months has been increasing quite substantially.
So sometimes you do have market factors playing in. And to a certain extent, the same in the DNA business. The DNA business, we have, for example, seen in the past an increase in stress related disability claims, sometimes also related to the state of the economy. So we will continue to take measures in terms of pricing, underwriting, but also with the incorporation of Vivat on making sure that we leverage the platform that we're building. And we're clearly not done.
So we'll continue to work on improvement of the to make sure that we also get the P and C combined ratio below
97%.
Then on before we go to the non life upstream, then on NNIP. It's very difficult to give guidance on that. Indeed, the market circumstances are what they are, and the NNIP business unit is fighting their way through to try and offset some of the fee pressure that we've seen. Again, good to see some net inflow on the 3rd party business. What that means going forward for that business, we'll have to judge going forward, but it was a good quarter for NNIP.
Delfin?
Yes, Jason. On the Non Life Upstreams dividends, maybe kind of repeating a bit what I said before. You need to see it in the whole context of the total dividends that we receive to the parent company, what is the level of cash capital and just looking everything as a whole. I think that the best guidance I can still give for the dividends of Non Life going forward is the net profit, but that doesn't mean that every single year is going to be close to that figure. As a matter of fact, if you were to look at what happens in 20 16, 'seventeen and certainly in 'eighteen, where Non Life has a negative results, we distributed much more in terms of dividends than net profit.
And yes, 2019 might be a year that is not done in the same manner. But still the guidance going forward in terms of remittance capacity of Netherlands Non Life, the best guidance I can give is the net profit.
Thank you, Till. Just as a follow-up on this one. A couple of quick remarks. So if I understand it well, at the end of the day, we should be not be looking necessarily at segment. We should be looking at the total amount.
And the segments can see seasonality between quarters with some patterns, but at the end of the day can be yearly seasonality, if I understand you well. The other thing just on the combined ratio, if the P and C is now trending towards the 97%, it's fair to say that normally the D and A with some higher seasonality should be around the 93% mark, which basically give us an average of around 95% if I was to be taking very rounded and numbered. So that means that at the end of the day, you're in very nice trend where next year or the year after, we should be expecting the excluding VIVAT, combined ratios that should be reaching the certainly the 96% or possibly below is the fair assumption or?
Well, again, the I mean, if you look a bit at the history of the Dutch market, we've seen very short periods actually with low combined ratio. The Dutch market is very competitive. Motor plays a big role. So for me, it is really too early to draw any of these conclusions. We remain committed to our target of 97% below, given that other factors can come into play.
And again, also, we will be incorporating fee VAT. So we'll also need to see exactly how that portfolio will behave going forward. So for now, we stick to our guidance.
Okay. Fair enough.
Yes. Maybe, Jason, on your question about well, question on your conclusion about the guidance per quarter, we don't give really a guidance per quarter in terms of free cash flow. Our existing guidance that this should be expected to be in the range of the net operating result still applies, but this is a guidance that applies medium term.
The next question is from Mr. Robin van den Broek, Mediobanca.
Sorry to come back to the IOPA consultation document. I spent some time scrolling through the 800 pages, which they call evolution rather than revolution. But in options, there's also an option included where the reported basically remains unchanged. But I think it also includes a stipulation where there seems to be giving specific powers to the local regulator to test the Solvency II ratio at 100% benchmark while moving the loss record point to 50%. And that stipulation seems to say that the local regulator can even stop capital return if you are below that level.
And I appreciate what you said before on the Dutch regulator looking at capital from an economic perspective. But the Dutch Central Bank having such a strong foothold in regulation to do such a thing, isn't that worrying to you a little bit? Because I think option 2 is probably the most likely outcome where we stand. Secondly, on the IEOPA consultation document, I think your regulator, the Dutch Central Bank, in a meeting end of March also indicated that if there would be changes to the UFR, there should be some offset coming from the illiquidity mechanisms in the Solvency II framework, so the VA. But if you look at all the tables that are giving different options, it seems to me that all the outcomes or basically all the outcomes, I think 2 of them are slightly positive, but most of them are an incremental negative to capital for the Dutch life insurance companies.
So I was wondering if you still see potential for something positives coming out of the VA changes that are being proposed. Then maybe a last question coming back on the Own Funds generation in the operating return bucket of €300,000,000 I think in Q1 and Q2, you still had also offset from mortgage margins getting wider. I think going into Q4, you have an incremental headwind coming in from UFR drag, but also your mortgage margin is tighter, which will also be more of sorry, my headset just the battery died, so to change way of talking. But so the mortgage margin also went tighter. So that presumably is an additional headwind for your capital generation in Q4.
So I was just wondering if you could indicate the risk of that €300,000,000 moving down to €2,200,000,000
euros Okay. Thank you, Robin. Let me pass these questions to Delton.
Yes. Thanks, Robin. I mean, we could and probably when we see each other, we can talk a lot about the IOPPA consultation paper and the different scenarios, 5 options for the VA, different options. Yes, you're mentioning an option number 2, but there is also an option number 1, which is not to change. At the end of the day, the way I interpret the consultation is in order and later on, as you know, the IOPA doing a stress test or a test of different possibilities is in order to quantify and see, as you know, what are potential impacts of different scenarios, more not more, not less than that.
So I would not speculate further or I would not because I don't really know how the what the conversation will bring us to as there are so many factors. And in relationship to because the reference that you made to the Dutch regulator, I don't think it's different to any other regulator, which is the regulators look at it as a whole with some positives and some negatives, what would have some offsetting impacts, too early to tell really. Maybe on the operating capital generation, of course, every quarter we've got different elements going up and down. The spreads happening, some positives, some negatives. What we have seen so far in terms of the impact of the changes in the market up to today is quite neutral.
So we see some elements that have helped us positively or negatively. And as I keep saying, we need to get used to these changes in the operating capital generation of how the solvency moves up and down. So I don't see anything different going forward. And as a matter of fact, interest rates has gone up since the end of September, and that's an element that we will see being reflected as well by the year end, depending on how the level of interest rate and spreads and margins evolve. So there is already enough volatility to talk about what are the situations at the end of the quarter than what also weeklies or biweeklys or what's happening in between.
Okay. Thank you very much. And maybe one more question on the non life upstream. Given the fact that you're doing CEVA next year and I think that unit is not particularly well capitalized, you probably need to restructure that with some costs. Does it really make sense to retain a little bit more in your Dutch unit to anticipate in that?
Yes. I think it's I mean, I suggest that we do expect until we complete the acquisition of Vivat Nor Life, which is expected for next quarter, We did provide some guidance of what we expect being the impact by 2022, having an increase on operating result of €50,000,000 additional free cash flow, as you know, coming from VBAT of €50,000,000 reduction of expenses estimated to be around €40,000,000 and we also flagged that in the short term, there will be some restructuring expenses and costs. And therefore, yes, that will have an impact on the operating result, I mean, the overall capital generation for the segment Non Life. So that will come through, hopefully, as we expect. But it's too early to talk about it.
The next question is from Mr. Henry Heathfield, Morningstar. Go ahead please. Just one question for you guys this morning. On the and within the Netherlands Life provisions for risk of policyholders, the outflows look to be a little bit elevated this quarter, around 8.8%.
I was wondering how if you could talk a little bit around how linked that is to the asset management business and whether you are doing anything to bring those outflows down or expect those outflows to come down over time?
Yes. Thank you, Henry. And Dalton?
Yes. I'm not familiar exactly with the percentage that you mentioned, but I mean really the trend is very clear. The individual life portfolio is in a continuous runoff. We expect it within the next 10 years to reduce by half. So I don't know precisely the presentation that you quote.
And of course, as the volumes of assets decrease, that is one of the elements that put some pressure on the assets under management for NNIP. And then that is one part of the overall technical account, if you want. Then the pension business, due to the renewals, that is much more stable in terms of the assets under management that NNIP managed. And in addition to that, of course, new assets coming through the defined contribution business, as you know, is also the majority part of that is also managed from NNIP. But the provisions for risk of policyholders, yes, you will continue seeing that decrease as part of the runoff of the Individual Life portfolio.
The next question is from Mr. Stephen Haywood, HSBC.
Just two questions from me. There's been a few stated publicly companies that have been announcing that they might be willing to exit the CEE region. Can you tell us whether NN would be interested in reviewing additional assets and expanding further in the CE region as well? And also a question for David. Is there anything that you would be considering doing or thinking about that is different to what Lard was doing with NN in the past?
Yes. Thank you, Stephen. Yes, in terms of expanding into CEE, I think, in general, we've always stated that and we've done this since the IPO team that I was also a part of that excess capital that we will return to shareholder unless we find a value creating opportunity. As I'm sure you know, we've also returned $4,100,000,000 of capital to shareholders. At the same time, if there's an opportunity to strengthen our business and create value, we will certainly look at it.
But as in the past, and that is certainly not a change versus what you're referring to, as in the past, we will be very disciplined on this, both financially but also non financially in terms of strategic fit culture of the potential company. So we'll continue to be very rational and disciplined in terms of our capital allocation. So on your question, so that means that, that will not be a difference to what you're used to in the past.
Okay. And if you can just is there anything your thought process or your management style that you think would be changing end to end in the future more generally?
Yes. That's always a difficult one to forecast. I think a couple of things. First of all, I'm really enjoying the role. I've been going around visiting quite a few of the business units to getting reacquainted with them.
I get a lot of energy from the people that I've met. I see a lot of good plans to further improve our service to And the same applies, for example, to the Spanish unit that I recently, And the same applies, for example, to the Spanish unit that I recently visited. So when I'm meeting all the companies and business units, it's clear that there is a strong NN culture. I really want to build also on the solid foundations that we have. We have a very robust balance sheet.
We have strong strength in large programs that we have been doing. And these are, I think, strong foundations of the company that we would really like to continue to build on. Well, at the same time, and this is not really related to a CEO change, markets are changing, customer behaviors are changing, technological opportunities arise. So we need to continue to transform our business model to make sure that we're relevant and we stay relevant for our customers and we continue to serve them. And that includes, indeed, looking at growth opportunities, accelerating our transformation in order to create value for our for all of our stakeholders.
But in broad terms, this is very much in line with everything we've been with the way we have been managing the company. And you can count on that we will continue to be very rational and disciplined in our capital allocation decisions.
The next question is from Mr. Benoit Petrarque, Kepler Cheuvreux.
Just a follow-up on the debt. You have a senior debt maturing next year. I think it's €300,000,000 Just wondering what is your plan in the current, bulk debt market, let's say, low spreads and actually low interest rate. Are you planning to issue a new one? Or will that the trend that just mature?
Thank you, Benoit. Dalton?
Yes. Thanks, Benoit. So no change on the previous guidance. I mean, setter is paribus. If there is nothing changing, we will consider to not refinance the STC senior debt maturing next year, the €300,000,000 that you referred to.
The next question is from Mr. Bart Jooris, Degroof Petercam. Go ahead please.
Yes. Sorry to come back on the private equity issue. You said it will have no influence on the capital generation, but your dividend policy attributed to the net operating result and how those incomes will come in below that line. Do you plan to compensate that for us on any plan? What's your vision on this?
Thank you, Bart. Delfin?
Yes. Thanks, Bart. The link between the free cash flows and the net operating result is, if I may say like this, a very convenient one because it just move from one environment, Solvency II, that has different metrics in order to how you recognize on funds versus shareholders' equity and what is the movement from one stock period to the rest. We've seen that, that link, of course, is not precise for each of the different segments. For example, for Netherlands Life, we've always said that this free cash flow generation is expected to be somewhat higher than the net operating result.
And for some other segments, you know, are somewhat below. So you need to look at it not segment by segment and particularly because the price equity dividends affect mainly Netherlands Life. Netherlands Life is the one that the guidance was to be the operating capital generation somewhat higher than the net operating results. So no need to find anything to compensate. This is a medium term guidance and we believe it still applies.
Yes. But that is on the dividend up stream from Netherlands Live. I'm talking about the dividend paid to your shareholders, which is based on the net operating profit.
Yes. But the I understood, but the dividends that we pay to our shareholders come from the dividends that we receive from our subsidiaries. And as you were referring to the Private Equity dividends as they affect Netherlands Life, one could have implied that the dividend capacity of Netherlands Life was reduced and with such, as you know, the payment of dividends from us to the shareholder. But let's say that the payout ratio, which is the ordinary dividend, it is within the range of the 40% to 50%. No change there, but we also indicated that we can be out of that range because the most important element is the stability on the payment of the ordinary dividends.
The free cash flow gives you the guidance of the capacity of the capital being generated that can either be employed for financing our internal growth or if like in the case of the acquisition of Vabnorm Life, to do an acquisition or to give it back to shareholders as we have done it in the past through the share buybacks. So the overall structure and change does not change, and certainly not by the way that we account for the private equity dividends being below or above the line. So no changes there.
There are no further questions. Up to you, please, Mr. Kleene.
Yes. Thank you. So let me wrap up by saying that Enen Group has today reported a strong set of results as well as a solid balance sheet and capital position. Thank you very much all for joining the call today. Thanks for your excellent questions, and I look forward to meeting many of you in person in the coming months.
Have a pleasant day.