Good morning, ladies and gentlemen. This is the operator speaking. Welcome to NN Group's Analyst Conference Call on its Q1 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. Lard Friese, 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 a 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. Friese. Over to you.
Thank you, operator. Good morning, everyone. Welcome to our conference call to discuss NN Group's results for the Q1 of 2019. I will start today's presentation by talking about the highlights and the business developments in the past quarter. And then Delfin Rueda, our Chief Financial Officer, will take you through the details of the financial performance and talk about the free cash flow and the capital position of the group.
After wrapping up the presentation, I will open the call for Q and A. Our Chief Risk Officer, Jan Hendrik Erasmus, is also with us today to answer your questions. Let me start with the highlights shown on Slide number 3. The year 2019 has started off well with NN Group reporting an operating result for the Q1 of €468,000,000 This is up from €313,000,000 in the Q1 last year, which as you will remember was impacted by a large storm in January. The Netherlands Life, Netherlands Non Life and Japan Life segments all posted improved results this quarter.
In addition, we reduced administrative expenses by €20,000,000 bringing total cost reductions achieved to date to €310,000,000 At the same time, we saw some pressure on the results in Europe at the Asset Management and the Bank. Delfin will discuss the details of the financial results later in the presentation. In terms of capital, our Solvency II ratio of 2 13% remains at a strong level, albeit down the end of last year. But please note that the ratio was impacted this quarter by unfavorable movements in credit spreads and interest rates, the full deduction of the 500,000,000 share buyback and the lowering of the UFR to 3.9 percent. The holding company cash position and cash capital position stands at €2,000,000,000 with €269,000,000 of dividends received from subsidiaries in the Q1.
We saw a strong increase in new sales to €945,000,000 up 72% at constant currencies compared with the same quarter last year. The insurance businesses in the Netherlands, Europe and Japan all contributed to this increase. So let's now move to Slide number 4. One of our priorities is to improve the performance of our business units while continuing to help customers secure their financial futures. We do this by launching innovative new products to meet the evolving needs of our customers.
We also continue to implement a range of strong increase in new As I already mentioned, we saw a strong increase in new sales in the Q1 of the year. At Netherlands Life, new sales increased 92% on a higher volume of group pension contracts. And sales in Japan more than doubled on the back of strong sales efforts as well as customer expectations of our revision of tax rules for COLI products. The National Tax Agency in Japan recently published proposed new tax regulations, which will reduce the tax deductibility of certain COLI products. These changes will only be applicable to new sales.
While sales will be held back in the short term, we expect the changes to be favorable for the persistency of the existing in force book. In line with the industry, we have suspended the sales of certain COLI products and are currently adapting a product offering to the new tax regulations. We operate in a heavily regulated environment and often have to navigate changes in local markets like the tax changes in Japan that I just mentioned. Recently, certain changes were also proposed to the pension systems in Romania and Poland. We have extensive experience in both the European and Japanese markets and have been successfully coping with such regulatory changes for many years now.
We do this by differentiating ourselves in these markets through an excellent customer experience, continuous product innovation and diversified distribution. Let's move to the next slide, Slide number 5. We continue to increase efficiency across the organization, for example, by integrating Teams and simplifying the IT landscape by substantially reducing the number of applications. In the Q1 of the year, we reduced the expense base of the business units in the scope of the cost reduction target
by an
additional €20,000,000 bringing the total cost reductions to €310,000,000 compared with the 2016 full year expense base. We're making good progress towards our target of reducing the administrative expense base by €400,000,000 by the end of 2020. Having said that, I would like to caution again that expense reductions will not be linear and that some units may see some expense increases in the coming quarters to support growth and make necessary investments. And with that, I will hand you over to Delfin Rueda. Delfin?
Thank you, Lars, and good morning, everyone. Let me start with NN Group's operating result for the Q1 of 2019 of €468,000,000 which is up from €313,000,000 in the same quarter of 2018. There are a couple of non recurrent items influencing these results. The The Q1 of 2018 was impacted by a storm in January for a total amount of €89,000,000 and the Q1 of this year benefited from a €63,000,000 dividend from an indirect stake in the former ING Life Korea. The first quarter net result was €512,000,000 There are a few items below the line that I would like to highlight.
Firstly, the non operating items mainly reflect positive revaluations of derivatives and private equity. Also, the result before tax of Japan Closed Block VA was minus €10,000,000 compared with plus €15,000,000 in the Q1 of 2018, mainly due to negative hedge related results. The line acquisition intangibles and goodwill includes the recognition of negative goodwill of €33,000,000 on the acquired Czech and Slovak Aegon businesses as well as lower amortization of acquisition intangibles. And finally, special items, which mainly relate to restructuring expenses incurred in respect of the cost reduction target were down from €79,000,000 to €52,000,000 in the Q1 of this year. On the following two slides, I will take you through the Q1 performance of the individual segments.
As you are aware, we have changed our segment reporting this quarter and now show the results of the bank as a separate segment for the first time. The results of Japan Closed Block BA are no longer reported as a separate segment but included in the segment Other. As usual, let's start with Netherlands Life, which reported an operating result of €268,000,000 up from EUR 212,000,000 in the Q1 last year, mainly driven by the EUR 63,000,000 dividend that I mentioned before. The Q1 last year included a dividend of EUR 7,000,000 from the same stake. The current quarter also reflects lower administrative expenses as well as lower fees and premium based revenues.
The operating result of Netherlands Non Life improved to €29,000,000 On the one hand, we saw a lower underwriting result in D and A, mainly due to an unfavorable claims development in the individual disability portfolio. However, the results in P and C were higher, reflecting more favorable claims experience and lower administrative expenses, partly offset by a €9,000,000 impact from a storm, which mainly hit Belgium in March 2019. The result for the same period last year was, of course, impacted by the January storm. The Non Life combined ratio improved to 97.9% compared with 106 0.3% in the Q1 of 2018 or 98.6% if you exclude the impact of last year's storm. The operating result of Insurance Europe decreased to €58,000,000 from €71,000,000 a year ago, which included €9,000,000 of non recurrent benefits.
Lard already mentioned the pension reforms in Romania and this had an adverse impact on the current quarter results. On a net basis, the acquired Czech and Slovak businesses had a limited positive contribution to the operating result. The operating result of Japan Life was €94,000,000 up 23% from the Q1 of 2018, excluding currency effects, reflecting the contribution of the higher COLI sales. I will now move to Slide 9. The operating result of our asset manager decreased to €36,000,000 from €41,000,000 in the Q1 of 2018.
Fees continue to be under pressure in the asset management industry. However, we are partly compensating this with expense reductions. Total assets under management increased to €260,000,000,000 mainly on the back of positive market performance. We also saw some asset inflows including net new third party assets. The operating result of Banking was €30,000,000 in the Q1, down from €33,000,000 last year.
The lower interest result was partly compensated by lower administrative expenses. Finally, the segment Other includes the results of the holding company and the reinsurance business. The results of Japan Closed Block VA are also reported in this segment, but below the line. The operating result of the segment Other improved to minus €36,000,000 from minus €78,000,000 in the Q1 of 2018, which included a €33,000,000 negative impact of the storm in the reinsurance business and nonrecurring items of minus €15,000,000 On Slide 10, I would like to talk about our cash capital position. The holding company cash capital remained stable at €2,000,000,000 at the end of the Q1 of 2019.
The free cash flow during the Q1 was €183,000,000 driven by €269,000,000 of dividends received from subsidiaries. This was partly offset by the consideration of €102,000,000 paid for the Slovak businesses acquired from Aegon as well as €38,000,000 of shares repurchased under the €500,000,000 share buyback program that we commenced in March. To finalize my presentation, I will take you through the developments in NN Group's Solvency on Slide 11. NN Group's solvency ratio was 220% at the end of the first quarter of 2019 before the deduction in full of the €500,000,000 buyback program that we announced in February. After the deduction of the buyback, the ratio was 213%, down from 230% at the end of the previous quarter.
The operating capital generation for the Q1 added 5 percentage points to the ratio. Note that as from this quarter, we deduct the accruals of qualifying debt from the operating capital generation. Let me remind you that this amounts to approximately €160,000,000 per annum. The SCR operating return reflects a lower contribution from Japan Closed Block VA, in line with expected runoff as well as higher sales in the insurance entities. Market variance lowered the ratio by 9 percentage points.
Credit spreads had a negative impact, mainly due to the tightening of corporate bond spreads to which we are underweight compared with the reference portfolio. Lower interest rates were also unfavorable for the ratio, partly offset by positive equity revaluations. Finally, the category Other includes the negative impact of the reduction of the UFR by 15 basis points in January this year as well as the update of the reference portfolio. I will now pass you back to Lars for the wrap up.
Yes. Thanks, Dalton. NN Group has started the year well, posted an operating result for the Q1 of €468,000,000 We continue to strive to improve performance of all our business units and increase efficiency throughout the organization. Our balance sheet remains strong with a cash capital position of €2,000,000,000 and a Solvency II ratio of 2 13% at the end of the first quarter. Going forward, our focus remains on successfully integrating Delta Lloyd in the Netherlands and Belgium as well as on further driving growth and improving the customer experience through innovation and our client centric approach.
Now let me finish by mentioning that we plan to hold a Capital Markets market update in the Netherlands on the 4th December 2019. I will now open the call for your questions. Operator, over to you.
Thank you, Mr. Friese. Ladies and gentlemen, we will now start the question and answer session. And the first question is from Mr. Cor Kluis, ABN AMRO.
Go ahead please, sir.
Good morning. Cor Kluis, ABN AMRO. A couple of questions. First of all, about the Japan COLI business. Can you give us an update on the possible earnings outlook or earnings impact of this tax change, assuming, of course, that you will sell less of this specific product, taking into consideration that you have a mid- to high single digit growth target or outlook for the Japanese Life business?
And related to that, on dividend upstreaming from Japan, it could it might help a little bit to increase the upstreaming if you sell a little bit less products there. Could you also give an idea of the expected different upstreaming from Japan in 2019? And yes, second question is about the Asset Management business. We see that the fee and the revenues is somewhat less in Q1 than it was in Q4. I think despite the fact that the AUM has been rising somewhat, I think the average is a little bit higher.
Why is that commission income or fee income somewhat lower than we thought? And last question is about the roll forward of the Solvency II on the Slide 11. In the category Own Funds Other, we see a minus of €100,000,000 And that, of course, includes 2 large minuses, €60,000,000 I think probably from Slovak and €240,000,000 from the UFR, so around €300,000,000 from minus. So there should be a plus also of around €200,000,000 in it. What is the plus included in the own funds of other of €200,000,000 approximately?
Those are my questions.
Thank you very much, Cor. This is Lars. So first, I'll address your the discussion on Japan. As Delfin mentioned and I mentioned as well already in my opening remarks, we're very pleased to report a strong quarter, not for Japan. The exceptional sales results were a combination driven by a combination of 2 things.
1 is the strong distribution and sales momentum that we've seen already for a couple of quarters and that we've built out over the years as well as an expectation which emerged later in the quarter that the tax treatment of the products would change. That helped us well. Now the proposed tax changes are known to us now, and we are adapting our products and sales approaches, and that will take a bit of time. In the short term, we believe that this process of adaptation will hold back sales. But longer term, we believe our company is very well positioned to continue to serve the needs of the SME companies in Japan.
And we also believe that these changes are in the interest of a sustainable COLI market. Now when it comes to the financial impacts, I think there's a couple of things to mention here. The full earnings impact of this on an IFRS basis is we will take time to fully assess it as the market evolves and adapts. In general, we expect that lower COLI sales will impact VNB and IFRS earnings, while on the other hand, the better persistency of the in force book, which is encouraged by these new tax rules, will support earnings and value. All else equal, lower sales will also reduce the new business strain, as you mentioned yourself, and will therefore increase the dividend capacity in the short term.
However, note that we prioritize a stable dividend pattern over time coming out of Japan.
Then
Delfin will take the other two questions, Delfin. Thank you.
So thank you, Cor. So starting with your question on the fees. Yes, you're right that, of course, one has not to look at the balance of assets under management at the end of the period, but you know the average. But I think you have looked into that already. And the reason for the decrease in the fees is, in the one hand, the reflection of the ongoing free pressure and but also the composition in on the assets of the management.
And also, there was some repricing in one particular contract. But that is basically a reflection of pressure on the lower fees in general. On the Solvency II roll forward, on the Own Funds movement in the segment Other, very there is a positive, which is in relationship to the change in non available own funds. And that is related to, in particular, Belgium, on which the solvency capital requirement has increased due to some rerisking there. And with that, the amounts of transitionals, we could use for the purpose of group consolidation increase.
So that is one of the positives within that bucket.
The next question is from Mr. Ashik Musaddi, JPMorgan. Go ahead please.
Hi, good morning, Jafim. Good morning, Vlad. Just a couple of questions. First of all is on M and A. I mean recently there has been a bit of noise about you looking at Vivat, which is not an old story.
And secondly, around Cassell as well, the Spanish insurer. Now I guess you won't comment on any speculation, but can you just remind us about your M and A discipline? What sort of ROI shall we be expecting? Will it be based on 1 year ROI, 2 year ROI? I mean, when do you plan to achieve those things?
So any thoughts on your discipline on M and A would be great. Secondly, I mean, if I notice that the cash flows, the cash flow to holding company was a bit lower, was actually not there in the P&C business, Dutch P&C. So what is the reason for that? Because you still delivered decent results in P and C. And thirdly is around same P and C, the combined ratio was 98%.
Would you remain comfortable with that number for the rest of the year? Any thoughts on that would be great.
Thanks, Ashik. I'll take the P and C business and M and A. And then Delfin, would you be so kind to comment on the cash flow to holding? So let me first talk about the M and A question you had. Let me remind everyone that our main priority is to build our business out and focus on improved earnings, etcetera, on an organic basis.
So that's where our priority lies, and that should be well understood. And when it comes to M and A, it's all a situation where opportunity meets discipline. And we have we are looking we're always looking for opportunities to strengthen the business with a priority on markets where we already have a business. There is no template to hurdles we have to this because we don't believe there's a template
to M and A.
It's all opportunity driven. We have a set of financial and non financial criteria, which we are very, very disciplined in adhering to. And we want to make sure that we understand businesses well and that we also are paid for potential risks that we're taking. So in that sense, there is no template for this, but discipline is, of course, absolutely critical here. When it comes to P&C, let me so first of all, I'd like to mention that and we all know we're on a program to improve structurally our P and C business and our Non Life business towards our target of 97% or below.
Now the good news is that we're seeing progress as we implement all our measures on the underwriting side, on the efficiency side as well, so the expense ratio side. And this is the 4th consecutive quarter now with a combined ratio below 98%. So I think that's encouraging. But there's still a lot more work to do. So the we are continuing to improve our underwriting.
We are continuing to push through repricing where necessary. And we are continuing to build out a capability using data analytics, etcetera, to be able to consistently build a company that has a strong earnings profile longer term. That's our objective with this. And we're also obviously not finalized and finished with the efficiency program that we have there as well. We saw this quarter a little bit of an elevation in the D and A business, which we're mindful of, and we're monitoring that closely, taking measures to address it.
So we just continued a course towards our target of building a business which is structurally below 97%.
I think so on your question on the lower dividends or lower cash flows to the holding, particularly from P&C, well, if you compare the remittances of this quarter with those of the same quarter last year, actually, it is slightly above that level. And also in the Q1 of last year, there was no dividend coming from Property and Casualty. So nothing special to mention here. Obviously, we pay dividends out of our subsidiaries based on their profitability, but also in terms of their excess capital over their levels. So I think you should expect dividends coming from Non Life according to the profitability and evolution of their share capital going forward.
As you know, usually, the Q2 tends to be higher in terms of remittances, dividends coming from the subsidiaries, and there is always some seasonality there.
I just have one follow-up question on M and A. Sorry to go back to on that topic. I mean, do you have any preferences for P and C, Life or Asset Management? Or you're a bit agnostic on that? It's just about the returns.
It's again, our priority is on organically building out our business. But if there are opportunities for us to strengthen the business through M and A, we will look at it and evaluate it. And those things are always with a priority on existing markets and if we can strengthen the business in particular markets. But I would say it's always opportunity driven. So it could be P and C, it could be life, it could be everything that would be a good thing to do, which we can which we apply it against our strict financial and non financial criteria, which we will evaluate, if it makes sense.
Thank you.
And if it doesn't meet it, we don't.
The next question is from Mr. Matthias de Wit, Kempen. Go ahead please, sir.
Yes. Good morning. Two questions from my side, please. First is on the banking business. You report again pressure on NII, similar to what we've seen in the past.
I've noticed that mortgage spreads are recovering. So just wonder whether you see a trough in or an inflection point in NII also considering the volume growth we've seen during the quarter. So that's question one. And then secondly, on Insurance Europe, regarding the acquisition of Aegon's business, I just wonder how big the contribution was of that operation. If I remember well, it used to be profitable under Aegon's ownership.
So is that still the case? And what do you expect for this business on a full year basis?
And Delfin?
Yes. Hi, Matias. Thanks for your questions. On the Banking, I think the depending on competitive environment and what is the absolute level of interest rates, the new production of mortgages can have a slightly higher or lower or lower interest margin there. Our bank is mainly a mortgage bank and therefore, very much dependent on the rates for mortgages.
And over time, and that's not new for the whole industry, we have seen competition, severe competition. And actually, with the decrease of interest rates, the margins decreasing. And that's what you have seen reflected in this quarter as well. In terms of the acquisition of Evon Business, I think I can assure you that there has been a positive contribution in the quarter. We're saying it has been moderate because it was also a relatively small transaction in itself, and therefore, you can only contribute expect a moderate contribution per quarter.
There is also another factor to take a bit into account, which is the fact that and this is a bit technical, but with the acquisition on the day 1 balance sheet, we recognize some negative goodwill that, of course, result into a capital gain in the moment of the acquisition, which is being flagged in the press release. And that, of course, is recognizing profits earlier and has a bit of a downward pressure on the actual contribution in the quarters to come. But still, we are very comfortable. Of course, it's very early days for the integration of the two activities, but we are confident on the double digit return that we consider when pricing this transaction.
The next question is from Mr. Johnny Vo, Goldman Sachs. Go ahead please.
Just a couple of questions. Obviously, you've grown quite strongly in the group pensions business in the Netherlands. So can you tell us what the new business margin for that business is? And also, can you just give us an outlook in terms of is this a one off? Or is our conditions improving such that you think the flow of new business is going to be at this level?
Thank you.
Yes, Johnny. First of all, the this business is a bit seasonal in the sense that the it depends each year what from the history of how these pension contracts have been contracted in the past, whether you have a big year of clients who are renegotiating their next period, if you will, or whether you have a more muted year. So your existing in force book and the expiration of contracts, which need to be up for renewal, can be bigger or smaller any given year. And this particular year, it was a strong renewal season, as we call it. So that means many contracts offer renewal, and we were happy to be quite successful in it.
The focus that we have with all these renewals is on VNB and making sure that the business that we are renegotiating that in the pricing, the margins exceed the cost of capital. Now the oftentimes, these contracts move from defined benefits into defined contribution, which is a completely different product obviously for the accruals that will come for the employee benefits that they have for their employees. And why? Because to a large extent, the lower rates and longevity pressures are repricing an existing defined benefit product into a new contract duration is very high, and therefore, companies often choose to go to the defined contribution. So margins are lower, but the capital allocated to that defined contribution is also much lower obviously as you don't take the market risk.
So again, we're pricing above our cost of capital for this, but there is a pressure on the margins as a result of many of the clients choosing to move to defined contribution rather than defined benefit products.
Okay. So it's fair
to say the margin is around 0? Is that fair or a little bit above?
No, it's a bit above.
The next question is from Mr. Farooq Hanif, Credit Suisse.
Just returning to Japan COLI, can you just give a little bit more information on what is happening with tax? And some of your peers have commented that they should be able to replace if they can adjust the product. I mean, is that going to be possible? And related to that, what do you think so what do you think the potential is for you to kind of reduce your earnings growth ambitions for Japan over time? I mean, do you stick by your earnings growth guidance there?
Yes, Farooq. So let me expand a bit on Japan. First of all, what has what is happening now is something that in the last 33 years that were there with the business has happened before. So we've had we've seen multiple periods at which multiple occasions at which tax regulation around the COLI products have changed. And what you see happening usually is that after an adaptation process, the underlying need, of course, does not change.
And as a result, you adapt your products and you move on. And that's basically what we expect here to happen as well. Now what has happened is that there were the new rules are saying that there were some changes that impact certain type of products with high cash surrender values, while other products on the COLI space, which we're also carrying, are products that are not affected by these new rules. So as I said, it's an adaptation process where we are currently in. We are experienced in this.
We've done this before. What we expect, as I said earlier on an earlier question on the call, is that this adaptation process takes a bit of time. So on the short term, we expect sales to be held back. At the same time, we believe that we're very well positioned for the longer term. And also on the earnings side, please note that there is that these new tax rules are basically an encouragement for persistency in the book, which means that, that is an offsetting factor, which actually improves the potential earnings outlook.
So I think these things and how they will completely move in the earnings side on the IFRS is something that we need more time for to assess. When it comes to the JGAAP earnings, which are important because those are basically determining the dividend capacity that you have, if you have a period of held back sales, your JGAAP earnings as a result of the business strain will be will improve. And as a result, your dividend capacity will actually also improve. So in that sense, it's a bit of puts and takes here, an adaptation process, which we've done before. We're very well positioned for this.
The underlying need of the SME customers has not changed. So and to see how the IFRS side exactly works out, we just need a bit more time to see how the market shapes up.
The next question is from Mr. Robin van den Broek, Mediobanca.
Two questions from my side. The first one is in relation to the bank distribution agreement with ING. I was just wondering, ING, of course, went into a partnership with AXA. And I was just wondering how comfortable are you in most of your regions where you do work with ING that those bank distributions will be up for renewal? I think most of those are in 2024, so it's still a bit further out, but I think some will also lapse earlier.
So any commentary there would be helpful. 2nd question is more relating to the UFR. I mean due to the Euro swaps curve move year to date, your solvency is obviously down. But I also guess the benefit from the UFR is it has grown quite a bit year to date. I was just wondering if you remeasure your UFR drag on a quarterly basis or do you do that on an annual basis?
And I was wondering if you could give us a little bit of quantification on how much the UFR drag has basically gone up year to date.
Yes. Thanks, Robin. So I'm going to ask Delfin to take care of the UFR discussion. But before that, the bank distribution arrangement with ING. Yes, at the time of the IPO, we have basically renewed all our existing bank distribution agreements with ING.
Market by market slightly different, but I would say on average 10 years duration. The relationships that we have with ING on the distribution side in the markets locally are very good. And in that sense, it's going well. ING indeed has a partnership with AXA in a number of markets, but those are markets that were not present. So in that sense, we have comfort and also confidence in the way that we work with ING already for a very long time in the markets where we have built a collaboration.
On the UFR dynamics, Delfin?
Yes. Thanks, Robin, for your question. Absolutely, when the benefit of the UFR is every quarter resulting into and we monitor what is what we call the UFR drag. We also, of course, look at other components of changes every quarter, including the risk margin release, which is very substantial and very important. And actually, one tends to be compensated to a large extent by the other.
So we do still have the net of the 2 effects negative, an impact in terms of negative. And indeed, as the UFR reduces, the UFR benefit is lower, and we have seen already some improvement on the lower UFR drag. Every quarter, it changes because the benefit, of course, depends on the ultimate level of interest rates. And but maybe, as a rule of thumb, what you could think is that whenever there is a change on the UFR down that we expect to happen every single year by 15 basis points for at least in the next years that we expect to earn that back through higher capital generation over a long period of time, I would think between 10 15 years.
The next question is from Mr. Andrew Baker, Citi. Go ahead please.
Hi. Thank you for taking my questions. So just 3 for me please. So appreciate it's early, but are you able to provide an initial view on the potential impact from EIOPA's 2020 long term guarantee package review, specifically around any movement at the last liquid point or if there's any other positives or negatives that you're aware of at this point? Then secondly, on integration, are you able to provide an update on the operational progress?
So I know on the non life side, you were originally going to from 44 systems down to 19 and presumably other live migrations as well. Have those migrations started yet? And if not, when are sort of the largest migrations scheduled to happen? So said another way, when are sort of the operational risk associated with the integration going to be at the highest over the next couple of years? And finally, just on Netherlands Life.
So typically, on the fee and premium based revenues, it's seasonably higher in Q1. But if you look at it this quarter compared to the last couple, that didn't really come through. Does this mean there's a step down in expectations in this line going forward? Or was that something specific to Q1?
Yes. So let us do it this time with the 3 of So the first one on AOPA, Jan Hendrik. Then I'll comment on the operational side of the integration. And Delfin, can you then do the discussion in N Life? So Christian Hendrik, over
to you.
Andrew, yes, of course, we've noted EOPA's review of the Solvency II framework. And that's exactly what it is. It's a framework. So it has lots of components in it. And we would caution against trying to isolate the impact of one element above another.
What we would say is that it's a package and it's really too early to gauge the final effect of impact of this on our business.
The integration. The integration is progressing well. A couple of comments on it. You've we always report on all the financial side around this. And you know that we're progressing well towards our €400,000,000 expense reduction target with €310,000,000 already behind us.
And the target needs to be achieved by the end of 2020. So we're well on our way. When it comes to the status of the integration, we have all the legal mergers have taken place. At the end of last year. The large operating legal mergers have also taken place.
The internal model expansion that was quite important to us has been approved by the end of last year by our regulators. So basically, all big milestones have been achieved. When it comes to all the application rationalization and the decommissioning road map and stuff like that, We are ongoing on this. This is not going to start. It has already started, and we're on this.
In the last quarter, I think we sun set roughly 30 applications to give you an idea, a little bit over it, in fact. But it's something that takes time. This is step by step every month, every quarter. Our teams are working toward a situation where the IT landscape is simplified. We're also using the opportunities where we can to improve technology to make our processes also longer term, more flawless and more efficient.
And this is a step by step process that we're taking in a very diligent and disciplined manner. So we will it's already started a while ago, and it's going to take a couple of years to get that right. And by the end of 2020, we aim to have achieved most of it. Then on the Life, the fees and premium based revenues.
Yes. Andrew, on the fees and premium based revenues, we have flagged in the past the trend for this to decrease. The main driver of that is, I would say, 2 aspects. The first one is, of course, the runoff of the individual life closed book that you are very much aware of, but also the lower margins in the pension business as it moves from defined contribution from defined benefit into defined contribution. Of course, the fees and the revenues is significantly lower, and that is reflected within this line.
Of course, I mean, that's a trend that we have identified very early on. We have given some guidance in terms of maintaining the operating result stable, and that's why we are doing other activities like reducing the overall expenses and working on our investment portfolio in order to compensate that trend.
Trend. Question, I would like to remind you that you can still press star 1 for your questions. And the next question is from Mr. Jason Kalambosos, KBC. Go ahead please.
Yes. Hi, good morning. I had my questions are the following. The one is on Asset Management. You had an upstream of €44,000,000 last year.
And this year is about yes, it's €22,000,000 So just want to have an idea what drives the difference and if it is excess capital or so any comments would be great. The second thing is on asset management. Do you find that the what we are seeing on the results, is it more a consequence of the Q4? So are you more optimistic about Q2? And will that at a certain stage translate into a review with potential with potential you look for you to look for acquisitions in this area or to look at what you can do?
And the third question is just around M and A. In the follow-up question and answer you gave earlier, you said that the you said that the priority was on existing M and As, which I still remember that you were saying that you knew your priority is in existing markets. So how do you think about if, for example, you go to a new market and the papers have been talking about Spain, doing a large deal in another market would effectively preclude you for a while to be able to grow in your existing markets. So what are your thoughts on this?
Thank you.
Yes. Let me first talk about your last question. You want to do that first, Delfin? We'll take them 1 by 1. So Delfin will talk first about the first one.
I'll come back later.
Yes. Thanks, Jason. I think it's the other way around. So that in the Q1 of last year, we have remittances of EUR 22,000,000 from Asset Management. And this quarter, it is €44,000,000 in the quarter.
And of course, what drives it is also the not only the profitability, but also the level of capital and solvency that this unit has.
Yes. Jason, on Asset Management, first of all, Asset Management is a business model which, as you all know, is operating in a difficult environment globally. So the recipe that our NN IP, our Investment Partners Group is following and implementing is a recipe of focus, focus and focus. The first one, focus on the emphasis on certain investment strategies, investing in those and honing those even further. Secondly, a focus on relentless client service and aligning the distribution efforts and sales efforts to the need for the investment strategies that we're focusing and placing emphasis on.
And thirdly, efficiency, which is all about reducing expenses, etcetera. So that's what they do. And this quarter, I was encouraging with positive flows this quarter also for the total, but also for the 3rd party business, which is good. On M and A in general, as I said earlier on the call, we focus on organic growth. That's where our efforts are.
If we find an opportunity, we'll look at it. It's opportunistic, so in the sense that we judge it at its own merits. And we have a priority, and that priority is for existing businesses, for existing markets because we for the obvious reason, because we understand it, we can potentially benefit from synergies and scale, etcetera. So that's why we have a priority there. So what about new markets?
Not a priority for us today.
If I could just follow-up on the NNIP. Don't you find that exactly because of the pressures that you're seeing in the industry and you can see it in headlines everywhere that you would help the unit by looking at potentially adding more in there and do a smaller scale acquisition? Or it's not something that you find is necessary at this stage you prefer just for the unit to remain focused on what they are doing? And it's something that you would consider at a later stage?
As I said, we're focused at our our primary focus is organic, right? And for the asset manager, it's fighting day every day for focus, focus, focus, as I just said, on the strategies, emphasis that they have on expenses and efficiency and on client service, etcetera. That's where the focus is. And just like any other business that we have, if there is an opportunity to strengthen the business inorganically, we'll look at it, at its own merits and assess it against very strict financial and non financial criteria. And if it makes sense, we act.
If it doesn't make sense, we don't. That's how we look at it. But our focus is on our organic activity.
There are no further questions. Mr. Friese, back to you, please.
Thank you very much, operator. And more importantly, thank you everybody for being on this call today. And let me conclude by saying that 2019 has started off well for us. However, we remain focused on delivering our strategic priorities and on creating long term value for all our stakeholders. I want to thank you for all your questions and I wish you all a pleasant day.