Good morning, ladies and gentlemen. This is the operator speaking. Welcome to NN Group's analyst conference call on its second quarter 2016 results. The telephone lines will be in a listen-only mode during the company's presentation. The lines will 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 the company's behalf. Today's comments may include forward-looking statements, such as statements regarding future developments in NN Group business, expectations for its future financial performance, and statements not involving a historical fact. Actual results may differ materially from those projected in any forward-looking statements. Any forward-looking statements speak only as of the date they are made, and NN Group assumes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information or any other reason.
Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation or an offer to buy any securities. Good morning, Mr. Friese. Over to you.
Hello, everybody, and welcome to our quarterly earnings call. I will start off today's presentation by looking at the highlights of the second quarter results, as well as the progress we are making to deliver on our strategic priorities. Delfin Rueda, our Chief Financial Officer, will talk you through the financial details of the results at a group level and for the individual operating segments, as well as our capital position. I will conclude the presentation with a wrap-up, after which we will open the call for questions and answers. We also have Doug Caldwell, our Chief Risk Officer, with us to answer your questions. Let me start on slide three with the highlights. NN Group's operating result of the ongoing business for the second quarter of 2016 was EUR 321 million.
This compares with an operating result of EUR 488 million for the same quarter last year, which benefited from a private equity dividend and significantly higher technical margin in the Netherlands Life. Our businesses are focused on further improving their earnings, while at the same time having to deal with regulatory changes in market conditions. Interest rates dropped even further in the quarter, which continues to put pressure on the results of our insurance activities. The tax on assets in Poland introduced earlier this year is an additional expense for our Insurance Europe unit. Market volatility, as we saw again in the second quarter, creates a difficult environment for the asset manager to attract net inflows. The current quarter was also impacted by the particularly severe storms, which hit the Netherlands in May and June, resulting in higher claims at our property and casualty business.
On the other hand, we continue to make good progress with our cost-saving plans in the Netherlands, and NN Bank again reports healthy growth in both mortgages and savings. Our balance sheet and capital position remain strong, even in the face of volatile market conditions. The Solvency II ratio of NN Group increased to 252%, which already reflects deductions for the EUR 500 million share buyback program and the 2016 interim dividend. Free cash flow to the holding company was EUR 494 million, bringing the cash capital of the holding to EUR 2.3 billion at the end of the second quarter. We have today announced an interim dividend for 2016 of EUR 0.60 per share, in line with our dividend policy. I will now turn to slide four.
Our brand promise is You Matter, and our ambition is that NN Group is a company that truly matters in the lives of all our stakeholders. Let me give you some examples of how we're doing that. We take sustainability very seriously, whether it be in investing responsibly, creating positive change in the communities, or managing our environmental footprint. NN Group was recently included in the FTSE4Good Index for companies demonstrating strong ESG practices. Our sports sponsorship supports our aim to contribute to people's general health and financial well-being. We are a large sponsor of running events, which is an activity that unites people of all ages. For example, NN sponsored the 2016 European Athletics Championships held in the Netherlands, the largest sport event in the Netherlands this year.
In line with our focus on innovation, we recently signed a three-year partnership with Startupbootcamp to sponsor its fintech and cybersecurity program. The agreement includes offering professional assistance to fintech startups by providing employee mentors. By participating in these types of ventures, we hope to help the industry reach new levels in terms of speed and customer centricity. On the following slide, I will talk about developments in customer services at our business units. In the Netherlands, our strategy is centered around providing digital, personal, and relevant services with the aim of enhancing customer experience. We are continually implementing new functionality to meet the growing demand of customers for 24/7 services and solutions, while at the same time wanting to be recognized and treated as an individual customer.
For example, customers logging into the NN portal receive a personal message alerting them when the fixed rate period of their mortgage will end within four months. Existing NN customers who request a quote for car insurance through the website are informed through a message that they might be eligible for a discount if they already have a package of insurance products. NN Bank continues to attract new customers and grow its business. As one of the top mortgage originators in the Netherlands, the mortgage portfolio currently stands at more than EUR 11 billion. Following a record inflow of retail savings deposits in the first six months of the year, customer savings now total over EUR 9 billion. NN is continually developing and launching products that meet customers' needs, and at the same time help us to capture growth opportunities in the insurance markets where we are active.
NN in Hungary recently launched a new accident insurance product, which offers financial support as well as unique medical and assistance services that are crucial for faster recovery after an accident. In Japan, we introduced a new COLI critical illness product for SME owners to support business continuity should they fall ill. NN Life in Romania launched an innovative private health insurance solution, which enables our Romanian customers to ensure the financial futures of their families should unexpected medical situations arise. Let's now turn to slide six. We have a diversified portfolio of businesses with leading positions in the Netherlands and a strong presence in a number of other European markets and in Japan. However, a portfolio is never static, and we continue to assess our businesses on a regular basis.
This has led to various transactions over the past year, including the sale of Parcom, our private equity management company in December, and the acquisition of the Polish financial broker Notus in May. More recently, we announced the sale of our wholly owned independent insurance broker in the Netherlands, Mandema & Partners, to Van Lanschot Chabot. In the second half of this year, NN Re Ireland expects to sign a portfolio transfer agreement for an investment contract and related investments, which are the only remaining activities of this entity. This will result in a repatriation of capital to the group upon completion of the transfer. In all portfolio decisions that we make, we ask ourselves: Are we the right owner of that business? We will always act rationally when considering the best way to deploy capital. Moving on to slide seven.
Improving efficiency in the Netherlands remains a priority, and we will continue to implement a range of initiatives to achieve the cost savings target that we have set ourselves. At our Capital Markets Day last November, we announced a new expense base target for Netherlands Life, Netherlands Non-life, and the holding entities of EUR 700 million by the end of 2018. This expense reduction program is on track with total of cost savings achieved to date of EUR 32 million. Following the sale announcement of Mandema & Partners, which is part of the Netherlands Non-life segment, we have now reduced the target expense base to EUR 685 million to take account of the cost of Mandema that we will no longer incur.
We still have a lot of work to do to reach this ambitious expense base target, as we have to deal with upward cost pressure in the form of project expenses, regulatory costs, especially in the pension business, and the need to invest in our businesses. We are committed to the target, and we believe that these initiatives will make our company more efficient and agile and will improve the customer experience. Let me round off this part of the presentation by looking at our dividend policy on slide eight. As I mentioned earlier, we have today announced that we will be paying a 2016 interim dividend of EUR 0.60 per share. This is calculated as 40% of the prior year full-year dividend, in line with the guidance given in our dividend policy. We continue to aim for sustainable and predictable dividends.
The share buyback is progressing well, with 22% of the total buyback amount already repurchased as at the end of last week. In total, NN has returned more than EUR 2.1 billion to shareholders in the form of dividends and share buybacks since the IPO two years ago, including a current share buyback program and the interim dividend as announced today. This demonstrates our commitment to return excess capital to shareholders. At the same time, we continue to look for ways to deploy capital in other value-creating opportunities, be it organic growth opportunities or acquisitions. Please be assured that we always act rationally and that we assess all opportunities based on strict financial and non-financial criteria. With that, I will now hand over to Delfin Rueda. Delfin.
Thank you, Lard. Good morning, everyone. NN Group reported an operating result of the ongoing business of EUR 321 million for the second quarter of 2016. For the first six months of 2016, the operating result came to EUR 626 million. I will go into the main drivers of the operating result when I discuss the results of the individual segments in the coming slides. The decrease in the net result for the first six months of 2016, as shown in the right-hand chart, can be mainly explained by the lower operating result and a negative hedge result in Japan Closed Block VA due to the market volatility. Please now turn to slide 11, which gives more details about Netherlands Life. The operating result of Netherlands Life was EUR 119 million in the second quarter of 2016.
This is a decrease from EUR 332 million a year ago, which benefited from a EUR 61 million private equity dividend, as well as significantly higher technical margin. The technical margin in the second quarter last year was supported by EUR 27 million of non-recurring benefits, mainly relating to technical provision releases, as well as a EUR 28 million release of the unit-linked guarantee provision. Given the further fall in interest rate this year, the current quarter reflects a EUR 7 million addition to the unit-linked guarantee provision. We continue to increase the investment allocation to higher-yielding assets, which helped to offset the impact of the low interest rate environment on reinvestments. The last 12-month investment spread remained more or less stable at 128 basis points. Fees and premium-based revenues were down, reflecting the run-off of the individual life closed book.
Administrative expenses increased slightly compared with the second quarter of 2015, primarily due to higher costs as a result of changes in pension regulations. We have previously flagged that progress on expense savings may not be linear from quarter to quarter due to upward cost pressure that we have to absorb. Finally, the value of new business in the first six months of this year decreased slightly to EUR 6 million. I will now turn to Slide 12 for the results of Netherlands Non-life. The operating result for Netherlands Non-life decreased to EUR 19 million from EUR 45 million for the second quarter of 2015. The results of property and casualty were impacted by the severe storms that Lars mentioned earlier. This was only partly offset by a favorable claims development in disability and accident. Please note that the second quarter last year also benefited from a EUR 9 million private equity dividend.
The combined ratio increased to 104%. Let's look at the two business lines within Non-Life separately. The second quarter operating result in disability and accident increased to €47 million from €37 million in the same quarter of 2015, mainly reflecting a favorable claims development in both the individual disability and the group income protection portfolios, as well as a €4 million positive impact from an IBNR update. The disability and accident combined ratio was exceptionally low at 87%, compared with 97% in the second quarter of 2015. The operating result in property and casualty decreased to a loss of €30 million, mainly due to the impact of the severe storms in the quarter, which led to claims of €28 million, affecting both the fire and motor portfolios. An unfavorable claims experience in motor and miscellaneous also contributed to the decrease.
The P&C combined ratio deteriorated to 118% from 102% in the second quarter of 2015. Please turn now to Slide 13 on the results of Insurance Europe. Insurance Europe reported an operating result of €52 million for the second quarter of 2016. This was down slightly on the same quarter in 2015 due to a lower investment margin because of lower investment rates and lower invested volumes. This was partly offset by higher fees and premium-based revenues. Administrative expenses were also higher, reflecting the tax on assets of insurance companies that became effective in Poland as of February 2016. The cost income ratio increased on the higher administrative expenses. The value of new business in the first six months of 2016 decreased to €46 million, largely due to lower term insurance sales in Belgium, as well as negative markets impact. Moving now to Japan Life on Slide 14.
The operating result of Japan Life was €23 million in the second quarter of 2016, down from €25 million in the second quarter of 2015. The lower operating result reflects a decrease in the investment margin due to lower interest rates on reinvested assets, as well as lower mortality results because of a few large claims. This was partially offset by higher fees and premium-based revenues driven by larger in-force volumes. The cost income ratio increased as higher income was offset by higher administrative expenses to support the growth of the business. The value of new business in the first six months of 2016 was broadly stable at €49 million, as the impact of the decrease in interest rate was largely offset by higher sales of COLI protection products. Let's move now to Slide 15 on the asset management segment.
Total assets under management increased to €197 billion at the end of the second quarter of 2016, compared with €190 billion at the end of the first quarter. The increase was driven by positive markets performance of €7 billion as a result of lower interest rates, increasing the value of fixed income assets. This was partly offset by net outflows of half a billion euros, mainly of other affiliated assets. The operating result decreased to €33 million in the second quarter of 2016 from €38 million in the same period last year. Fees were down due to lower average assets under management, as well as a shift to lower margin assets. Expenses also decreased, reflecting lower staff relating expenses as well as lower volume-driven fixed service fees. The cost-income ratio increases slightly as fees decrease more than expenses. The segment other is set out on Slide 16.
The total operating result of the segment other improved to EUR 2 million in the second quarter of 2016 from a loss of EUR 7 million in the second quarter of 2015. This segment comprises the holding company, the reinsurance business, and NN Bank. Let's look at this individually. The holding result improved to a loss of EUR 24 million, mainly driven by lower holding expenses as we continue to achieve cost savings as part of our cost reduction program in the Netherlands. The operating result of the reinsurance business remained stable on the same quarter last year at EUR 9 million. Finally, the operating result of NN Bank increased to EUR 17 million in the second quarter of this year from EUR 6 million in the same quarter of 2015. This increase reflects a higher interest margin and a lower addition to loan loss provisions.
This was partly offset by higher administrative expenses as we continue to make investments to support the bank's strong growth in the mortgages and savings market. I will now move on to slide 17 to cover our last segment, Japan Closed Block VA. Japan Closed Block VA reported a loss before tax of EUR 28 million, down from a positive result of EUR 43 million in the second quarter of 2015. The result in the current quarter was mainly due to a hedge-related loss of EUR 38 million due to the impact of higher global market volatility. The second quarter of 2015 included a EUR 12 million reserve release from higher lapse assumptions of out-of-the-money policies. The second quarter of this year also reflects lower fees and premium-based revenues as the portfolio continues to run off. That completes the results of our operating segments.
On the following slides, I would like to take you through the free cash flow and the capital position. On slide 18, you can see the movement in the holding company cash capital during the second quarter of 2016, which increased from EUR 2.1 billion at the end of first quarter to EUR 2.3 billion. The free cash flow during the quarter was EUR 494 million, which included dividends of EUR 532 million received from almost all segments, of which EUR 150 million from NN Life, EUR 199 million from Insurance Europe, and EUR 80 million from Japan Life. A full list of the dividend sub streams can be found in the appendix to this presentation. During the quarter, we had total capital flows to shareholders of EUR 263 million.
This comprises the cash part of the 2015 final dividend of EUR 185 million and the amount repurchased under the share buyback program in the second quarter of 2016 of EUR 78 million. On slide 19, I would like to talk you through the developments in NN Group's Solvency II ratio. On this slide, we show the movement of the NN Group Solvency II ratio, the eligible own funds, and the SCR over the second quarter of 2016. As you will see, the format has been simplified by showing the operating return for all entities in one column. In the second quarter, the Solvency II ratio increased from 241% to 252%, mainly due to market variances, partly offset by capital flows being the deduction in full of the EUR 500 million share buyback program and the 2016 interim dividend.
Let me spend a moment to explain the main movements in a bit more detail. Starting with the largest movement, market variances, which had a material positive impact on the Solvency II ratio of 21 percentage points. This mainly reflects the impact of lower credit spreads on highly rated sovereign bonds. This movement is in line with our disclosed sensitivities and our large exposure to German, Dutch, and French sovereign bonds. The operating return had a positive impact of six percentage points. There are two lumpy items in the own funds, being the net result of asset management for the full year 2015 of approximately EUR 80 million and a non-recurrent benefit in Japan Life relating to deferred tax assets of approximately EUR 50 million. As we have noted in the past, the operating return will move around quarter by quarter. Finally, the SCR remained relatively stable over the quarter.
Finally, on slide 20, let me remind you of the three drivers of the free cash flow available to shareholders that we expect to generate over time. The first and main driver being the generation of own funds by all segments. Both the Solvency II entities as well as Japan Life asset management and the pension funds. The second driver is the development of the SCR. The SCR will reduce as they close books in the Netherlands and Japan VA run-off, but it can also increase as a result of new business growth or a shift to higher yielding assets. The third driver is the reduction of surplus capital in several of our units. These drivers of free cash flow are volatile quarter by quarter and interact with each other. Let me give you two examples.
The tightening of credit spreads on sovereign bonds, like we saw in the second quarter, increases the Solvency II ratio but decreases own fund generation. As a second example, should the UFR be lowered, this would reduce the Solvency II ratio, while at the same time reducing the UFR drag, and as a result, increasing own funds generation. Taken together, these three drivers support our guidance that over time, we expect to generate free cash available to shareholders in a range around the group's net operating results of the ongoing business. Now I will pass you back to Lars for the wrap-up.
Thank you very much, Delfin. Going forward, our focus remains on delivering excellent service to our customers while making our operations more efficient and effective and pursuing profitable growth in selected European markets and Japan. At the same time, our priority is to improve the operating performance of our businesses to increase earnings and generate cash. We are progressing well with these strategic priorities, but there is still more work to do, and the entire management team of NN Group is committed to doing this. Our capital position remains strong and resilient even in this volatile environment, and this allows us to weather challenging market conditions. We will continue to execute our open market share buyback program, and we will pay an interim dividend in September. Including these, we have returned more than EUR 2.1 billion to shareholders since the IPO.
I would now like to open the call for your questions. Can I kindly request you to limit the number of your questions to two per person so that everybody gets a chance to speak? Of course, feel free to come back with a second round of questions if they have not yet been dealt with. Operator, let's turn now to Q&A.
Thank you, Mr. Friese. Ladies and gentlemen, we'll start the question and answer session now. To register for the Q&A, please press star one on your telephone. As a reminder, in the interest of time, we kindly ask you to limit the number of questions to two. Your questions will be answered in the order they are received. Please press star one for your question or remark. Go ahead, please. The first question comes Ashik Musaddi from J.P. Morgan. Please go ahead, sir.
Hi. Good morning, Lars. Good morning, Delfin, and Doug as well. Just a couple of questions. First of all, on UFR. On UFR, we can see that your sensitivities haven't changed for 3.2% for 100 basis point decline. What's driving that? Just linked to that, can you give us some sense about what would be the sensitivity for a 2% decrease in UFR? I am just trying to understand whether it's linear or not. How should we think about that? Secondly is, sovereign spread tightening has benefited your capital a lot, but there will always be a risk of that going back. Given that the yield on German bonds, Dutch bonds are more or less zero, is there any way to lock that sovereign spread tightening, i.e., move into cash or some other asset classes where you are kind of locking in that spread tightening benefit?
Any sense on that would be really great. Thank you.
Yeah. Thank you, Ashik. I'll ask Doug to take these two questions. Thank you.
Hi. Yes. Thank you, Ashik, for the questions. On the sensitivities to the UFR, there's a couple of things. With rates coming down, it can make it a bit more sensitive. At the same time, we have a bit more tax offset than we had at the DTA offset than we had at Q4. This is why the sensitivity is about the same as it was then. We're not disclosing a number at 2.2%, is not something we're calculating at every level. We also think of the UFR as one element of Solvency II. We do isolate it here to 3.2 because of the attention it gets.
We're careful to put too much focus on only one point of Solvency II changing.
Okay. Instead of giving any specific number, can you give us any sense? Is it linear on the higher end or the lower end, i.e., the impact increases or it might not?
Yeah, it would increase a bit.
Okay.
There would be some convexity in that.
Okay, thanks.
The second, I think your point is something that certainly has our attention, that as sovereign spreads, especially as the highly rated sovereign bonds, like our German and Dutch and French holdings, have really increased in value due to spreads becoming even more negative. Of course, it's something we look into as to whether we should lock those in. It is important to note that these are critical assets for us in terms of managing our interest rate position. So if we were to do something like sell them or some other action, we need to consider that because we still, at this point, maintain our approach to prudently managing the interest rate position with a tight match. That said, I think what you see happening a bit in the second quarter is some gains from selling some German bonds, and in reinvesting in some slightly higher-yielding assets.
You may see some of that happening from time to time. Also, assuming we can manage our interest rate risk. There are a few other tools available that we are looking into. Clearly, your point is correct, that this can reverse, and it may well do so. There are actions we can take along the way.
That's very good. Thank you.
The next question comes from Gordon Aitken from RBC. Please go ahead, sir.
Morning. Thanks very much. Just the first question on your SCR. You talked over the years that you've basically got two very big runoff books. The SCR at Q1 increased a little bit. Q2 is pretty much unchanged if you strip out the market movements. Can you just guide us to how the SCR should move over time? The second question is about really in the Dutch life market. If you can talk about the competitive environment and the change there. Other players are de-risking in a way that you don't need to. There's also been a listing, which sometimes can have some discipline in that market. Your value of new business in Dutch life is pretty low. It's EUR 6 million.
Can you just break that into sort of DC new business and also the renewals on the DB pensions, and do you expect that to improve? Thanks.
Yes. Thanks, Gordon. Let me take the overall view on the competitiveness of the Dutch life market, and I will ask Doug to comment on the SCR question that you raised. In general, in the Dutch life market, what we observe, of course, driven by low rates and longevity, is that, say, classical pension schemes on a defined benefit basis become quite unaffordable or very expensive at least for employers that have these programs for their employees. At renewal dates, we observe increased activity from our clients to move to change these employee benefit schemes, and we are helping them with that. It is all in the same direction. It all moves towards defined contribution.
That shift is just something that we observe and that we actively, by the way, help our clients with. However, please note that the majority of the pension liabilities on our balance sheet still remains to DB pensions. Since that is quite a large stock of past accruals, if you will, on these employee benefit schemes, it only gradually migrates towards defined contribution. Margins on defined contribution products are lower than DB products, but obviously it is far less capital intensive. The return on capital is quite good there. We have a range of products and capabilities that we can offer to our clients, whether it is through full DC, hybrid DC, whether it is PPI institutions, et cetera. In that sense, we are very well placed to manage this transition in this market. With that, can I hand over to you on the SCR, Doug? Yes.
Thank you, Gordon. I think on the SCR, I refer a bit to slide 20 of the presentation that Delfin went through. It is certainly true that we do have some reductions in our SCR every quarter and every year that comes from especially our individual life book in the Netherlands and our Japan VA book. We see that happening. It will not be the same number every quarter, but it is certainly going that way as we would expect. As we also say, we are over time shifting toward more capital light products in some of our other region businesses as well, which has an impact slowly to the ratio. That can be offset in any particular quarter depending on what we may do on the asset side or our new business growth, including in Japan. I think this will move around a bit.
I think in general, those are the items that will move, and I think it will not be entirely consistent every quarter. Great. Thank you very much.
The next question comes from Farquhar Murray from Autonomous. Please go ahead, sir.
Morning, gentlemen. Just two questions, if I may. Firstly, just looking at capital generation on slide 19. If I crudely take the EUR 300 million operating return and then adjust for asset management and Japan one-off, then we seem to be looking at about EUR 190 million in the quarter. Is that a reasonable expectation going forward? In particular, does it capture the increased UFR drag that was highlighted last quarter, or is that being washed into the market moves? Obviously, I appreciate all these numbers move around a lot, so I'm really just looking for a rough sense of indication. Secondly, can we just dig a little bit into the other component on that slide? In particular, I'm just trying to determine whether we should regard elements of that as structural, specifically from note three, on the kind of accruals on qualifying debt. Are those ongoing?
Roughly what kind of magnitude might we be looking at there? Thanks.
Thank you, Farquhar. Delfin, could you please take this?
Thank you very much, Farquhar. Indeed, we have given you the movement analysis and showing the key drivers of our Solvency II rate over the quarter and have pointed out some of the more material items. The reality is that the operating return and the Solvency II, is going to fluctuate quite a bit from quarter to quarter. As a reminder, the operating return includes expected spreads, the UFR drag, the risk margin run-off, among other elements. All of those are influenced by our starting balance sheet position, model and assumptions, and what has happened in the markets. In addition to that, there is also the impact of new business, operating variances, and contributions from Japan Life, asset management, and pension funds.
Given this, I'm reluctant to talk about a sustainable level or to provide any precise guidance, except the reference that we have made, and I think it's important to repeat, to the free cash flow generation. That, as you saw in slide 20, is formed by three different items. The generation of the own funds, the release of the SCR, and the release of the excess capital. These will, we believe, vary around the range of the IFRS operating result after tax. This will change from quarter to quarter, but that is a much stronger and clearer guidance than operating return that will fluctuate necessarily every quarter.
Okay.
In your second question on the accruals on qualifying debt, well, I think, yes, we have approximately EUR 20 million in the quarter. That is something that will continue, unless there is any change on our debt structure.
Okay. Thanks much.
Next question comes from William Hawkins from KBW. Please go ahead, sir.
Hello. Thank you very much. Thank you for the reassuring capital disclosure. I'd like to just ask a couple of simple questions on the IFRS results, though. The impact of public dividends on the Dutch Life investment margin, could you quantify that for us, please? I think it was EUR 50 million in the second quarter of last year. Secondly, you've got a very strong Bank result again. I thought you'd been guiding that over time, that figure should be fading as you're investing in growth, actually the opposite seems to be happening. It still seems to be doing very well. Could you update the outlook for the Bank result? Thank you.
Delfin, can you take those questions, please?
Yes. Thank you, William. Public dividends, not much change. Around EUR 50 million also this quarter. In terms of the result of NN Bank, in the quarter, as highlighted in the press release, we saw a significant growth in the balance sheet, both mortgages and savings. In addition to that, there was a decrease in addition to the loan loss provision, that is driven by less delinquencies and also the recovery in housing market. As a consequence for NN Bank, we believe that current situation and trend is to be maintained.
That's great. Thank you very much.
The next question comes from Ms. Nadine van der Meulen from Morgan Stanley. Please go ahead, ma'am.
Good morning, gentlemen. Thank you for taking my question. I realize that you were reluctant to give a normalized level of the operational capital generation. It is interesting to see that the second quarter, if you take off the one-offs, as you indicated on the slides, the resulting level is roughly in line with what you were guiding to at the first quarter. In any case, there's still, I suppose, from that level, quite a big gap to the net operating results that you're guiding to in terms of cash generation of, let's say, EUR 900, EUR 1 billion, around that level. With regard to that gap, you indicated on slide 20 indeed that is partly from the reduction in surplus solvency levels. Can you give us some more color what the areas are where you are thinking about reducing these solvency levels?
I could imagine that quite a large chunk of it is the closed books, and this is Japan VA closed book and the Dutch individual life business. I suppose the second question follows up on that in whether you can give the capital release profile of both the VA closed book and the Dutch individual life business, and whether that is broadly unchanged with what you guided previously. Thank you.
Yes, Nadine, thank you for your question. Delfin, can you take these?
Yes, thank you, Nadine. In terms of where to expect the release of capital. Sorry, I think I did not have my microphone on, so I start again. Thank you, Nadine. In terms of where do we expect to see reductions in the solvency capital requirement, which I think was your question. This is driven by-
Sorry to interrupt. It's not the reduction in the solvency capital requirement, but it's the excess capital over the solvency capital requirement.
Okay.
Yes.
Okay. Thanks. Well, you have seen that we have had a very strong quarter in terms of capital generation and as a consequence, also, dividends from the subsidiaries, resulting in EUR 2.3 billion of cash capital at holding. As Lars mentioned before, if you include the interim dividend that we have announced and the share buyback that we are executing, we have paid back to shareholders EUR 2.1 billion so far. We do continue executing our dividend policy and looking into the opportunities to deploy that capital organically and inorganically. If that, rest assured that we will continue with that discipline in order to do it in a gradual, consistent manner. In terms of the elements on the run-off for the NN Life and Japan closed book, which, as Doug mentioned, are the main drivers for the reduction on the SCR to some extent.
There is no change of guidance for the Japan Closed Block VA. We do still expect the portfolio to run off mostly by the end of 2019. I would say that approximately EUR 500 million of capital is still to be released from that portfolio. The pattern of NN Life, again, we think that is going to progress gradually, and it's difficult to say on a particular manner, but it might be around EUR 50 million per year.
Just following up from that. For example, the Japan Closed Block VA, the EUR 500 million that you indicate, I assume a good chunk of that is the release of the SCR, as you mentioned, which is already included in the operational capital generation number as on slide 19 at the EUR 300. The rest of it is not and will fill the gap basically between the number that you show and the guidance that you're giving with regard to cash being equal to net operating results.
To make it clear, the EUR 500 million is obviously the release of both the capital requirement and the surplus capital, which is associated with this business.
Yes.
When you look at the evolution of the free cash flow, you will have, in this particular case, for Japan Closed Block VA, will be part of release in the solvency capital requirement and part of release of the surplus capital.
Yes
supporting that business. That's correct.
Thank you.
The next question comes from Matthias De Wit from KBC Securities. Please go ahead, sir.
First question is on the Dutch Life business, on the fee and premium-based revenues, which were roughly flat on a year-on-year basis. In previous quarters, they were down double-digit levels. Why is the decline leveling off, and what should we expect here going forward, please? The second question is on the UFR. I just wanted to get a sense of your Dutch Life capital position on an ex UFR basis. I assume you don't want to provide it, but could you confirm whether it's ahead of 100%? Could you, in this respect, also comment or provide some insight into the amortization pattern? What proportion of the UFR could, for example, be amortized over, let's say, a 10-year period? Is there anything you could say on that, please? Thank you.
Doug will take the point on the UFR, and then thereafter, I think Delfin on the fees and premium-based revenues for NN Life. Thanks, Matthias. One moment. Doug?
Yeah, I think as you noted, we don't really quote our Solvency II ratio adjusting for any one particular element like this. We will, I think, stick to that guidance because there's too many parts of Solvency II that come together to make the entire ratio. In terms of the question about amortization pattern, I think we can say a bit more on that. I would say a vast majority will run off in about 10 years.
Okay.
Delfin, on the Life fees and premium-based revenues.
Yes, Matthias. I think that there is, as you know, some seasonality on the first quarter, because there is the renewals of the pension business coming through. If you look to the year-to-date development, still, I think we are around EUR 20 million down in relationship to last year. Renewals might also shift a bit from the first quarter to the second quarter. That trend is there.
Okay. Thank you.
The next question comes from Benoît Pétrarque from Kepler. Please go ahead, sir.
Yes. Good morning. It's Benoît Pétrarque from Kepler Cheuvreux. Two questions on my side. First one will be on the investment margins. Clearly, you are re-risking on the Dutch book. Could you talk a bit more on this re-risking? Where are you now on re-risking? How much you are planning to do for the rest of the year and next year? What is the kind of investment margin outlook for the coming quarters? Are you going to be able to maybe slightly improve your investment margin or keep it stable? Linked to that as well, I was wondering if you could give us the impact of the re-risking on the SCR in the first half of 2016. The second question will be on the disability business. Could you update us on the outlook for the disability book?
We have seen very strong claim development in Q2, which actually a bit against the trend we have seen in Q1, which was going for deterioration there. Could you guide us a bit more on disability? Where are we going now? Thanks.
First, thank you very much, Benoît. Maybe it is good to hand over to Doug for your first question. I will take the second question thereafter.
I think on the investments and investment margin, I think consistent with what we've said for a long time, we still remain with quite a prudent investment book with a significant amount of government bonds, especially high quality. Over time, we are looking for the opportunities to move those to slightly higher yielding assets as those are available. We have been, the last year and a half or so, investing quite a bit more in mortgages and loans. Taking advantage of the liquidity of the liabilities and also more corporate bonds and some other fixed income spready assets. That has been gradual, and we will continue to look for those opportunities to do that. Also, similar to the question Ashik gave, obviously on a market yield basis, many of these high quality government bonds are very low yielding to even negative in some cases.
That will continue. I think the guidance, I think we've generally given on the investment spread as we expect it to be relatively in line and remaining stable to the level we had in 2013 at the time of the IPO, which was around 105 basis points. Even with rates coming down, we believe we will be working to keep that in line.
Yes, Benoît, on the disability and accident business. First of all, we had a strong second quarter in disability and accident results. By the way, you also need to look at the comparison with last quarter, same quarter last year, where there was a EUR 6 million private equity dividend included in 2015. If you look at what's been driving the good results, it was actually a very low inflow and high outflow of claims in the individual disability portfolio. That was in contrast to, indeed, the high level of claims that we saw in January and February of this year. By the way, you may recall that in the call at that time, the earnings call, I said that those were things that happened in the first two months of that quarter.
As you can see, the months thereafter, going through the second quarter, it was actually a quite positive, favorable claims development. That's been driving it. Low inflows and high recovery, especially in the individual disability part of the business.
Okay. Thank you very much.
The next question comes from Bart Horsten from Kempen & Co. Please go ahead, sir.
Yes. Good morning. Bart Horsten, Kempen & Co. I have a few questions on cash and capital. You remitted EUR 532 million in the second quarter, which is quite high. Have you considered to leave part of the cash in the operating companies because you didn't need it to shore up your cash at the holding level, which is already quite high. Could you elaborate on that? On UFR, in Q1, you guided that the lower interest rates would result in a UFR drag of EUR 100 million additionally for the rest of the year. Is that still the case? Related to that is could you give an indication of what the impact would be on your capital generation when the UFR drops from 4.2% to 3.7%? Thank you.
Yes, please, Delfin. Yeah.
Yes. Thank you, Bart. We explained in the past our philosophy for capital management based on three pillars. One of the pillar, which we think is also important in order to maintain also internal discipline on the usage of capital, is that the operating units have to be operating at what we call internally our commercial capital target level. Even if it shows up in cash capital at holding, we think it provides more fungibility for the group and is the best way to manage the group. We do not consider to leave it in the business unit. We look at sustainable distribution from those units to the holding company. In terms of the UFR impact, clearly, the impact of the UFR drag has been negative on the operating return, has already been flagged.
There are many items, such as the risk margin release and others that have offsetting impacts. In terms of the sensitivity to the UFR to drop to 3.7%, we have not disclosed it explicitly within the sensitivity. I think that if you were to take half that amount, it won't be that far off.
Great. Thank you.
The next question comes from Steven Haywood from HSBC. Please go ahead, sir.
Good morning. Hello. In terms of what happened with your NN Re division in Ireland, could you give us a bit more detail here, and could you indicate what sort of amount of capital repatriation may be possible from this entity? Also for the NN Bank, I don't know if this was asked earlier, I apologize. Could you explain to us why the number of customers is increasing so rapidly, and how NN Bank is doing, and why is it doing so well here? Many thanks.
Let me take the question, thanks, Steven, on the bank, then I will ask Delfin to give some more comments on the Ireland reinsurer. The NN Bank is focused very much in the Dutch market on providing mortgages and saving solutions for customers. This is very much an extension of the product range that we have in the Netherlands on life insurance solutions for retail customers and non-life insurance solutions for retail customers. Especially because in the individual life insurance market, the long-term savings solutions market has, due to all kinds of regulatory changes in the past, has reduced very significantly. That task actually has been taken over by banking products. We have moved into that space to provide those same services to our clients, but then in the form of a bank.
The role that our bank plays is very much an extension of our product range, in the Netherlands to solidify our already very strong position in the Dutch market. The bank is doing well, in its progress, both on mortgage origination as on attracting new customers when it comes to saving solutions. Those are long-term saving solutions, deposits, et cetera. We will continue our focus on growing the bank. The bank's doing well. It's efficient. It operates through, let's say, the distribution structure that the insurance group also uses. It's not a bank with branches or something like that. In that sense, it's an innovative bank activity, very focused bank activity that we have, that we aim to grow further. It's doing very well, and it nicely contributes to the overall product offering.
While at the same time being an origination capability to help us originate an asset that we actually like on balance sheets of our insurance companies, as it is an attractive asset class with a nice spread that helps us to back long-term liabilities. That's, let's say, my commentary on the bank. Maybe Delfin on the reinsurance company in Ireland.
Yes. Thank you, Steven. We have a subsidiary in Ireland, NN Re. Its only activity is an investment contract and obviously its related investments. We are in the process, in advance discussions and expect to sign a portfolio transfer agreement for both that investment contract and the related investments to be transferred. As mentioned in the press release, we do expect that this will close, that will be signed during the second half of the year. It will result into after-tax loss, which we don't think is material. In addition to that will free up the capital link to, or lock into NN Re. This is the capital repatriation that we will bring to the holding company. Once the transaction has been signed, we will communicate the precise impacts.
Thanks very much.
The next question comes from Robin van den Broek from Mediobanca. Please go ahead, sir.
I'm sorry to come back to this. Clearly, there's a relationship between re-risking in your SCR and what that should contribute to eligible fund generation. I think I missed the answer to what happened to the UFR drag in Q2. Based on swap movements in Q1 versus Q2, I would expect that the UFR drag hasn't increased as much as in Q1. If you assume re-risking, which keeps the SCR flat, should we not assume that incrementally you are looking at higher eligible and fund generation going forward? That's basically the question.
Yeah. I'll ask Doug to comment on that. Thank you very much, Robin.
Yeah, I believe I missed answering this question earlier in terms of the SCR. I think, as we mentioned on slide 20, and also I've mentioned, as we move from purely some of our government bond position toward riskier assets, that will increase the SCR. I think the reason we're careful to give any specific numbers on this is because, first of all, the asset markets can change. What we will exactly invest in in the future is not necessarily what we invested in yesterday. Also every particular quarter, we may take steps in a different path on this. The other thing that happens in a particular quarter is you don't necessarily have large movements because of diversification and other things like this.
I think whether the additional assets that we buy will end up fully offsetting the runoff of the closed books, it remains to be seen. I think we can't give specific guidance on that. It also depends a bit the assets. Right now, going into mortgages, especially Dutch mortgages, have been also quite reasonable in terms of spread risk as well, because they're a bit shorter duration, and then we swap those out with longer-dated swaps. From a Solvency II perspective in spread risk, it's not adding substantially more capital.
Can you Sorry.
In terms of will those assets increase capital generation, at any point, we increase the market spread on our assets, that would increase capital generation. Again, that will layer on over time and not all happen at one time. Again, will be dependent on what we actually do going forward, which is dependent on financial markets and the attractiveness and availability of assets.
Given what we've seen in Q1, basically the UFR drag increased that March, it was pretty difficult to offset that by re-risking in Q2. That should be easier going forward now, right? Is that a correct conclusion, or?
I think maybe, Robin, I can jump in here. There are many elements affecting the capital generation in a particular quarter. The UFR drag is one of them, as I mentioned, is the release of the risk margin, but also all the movements in the valuation, the new value of the balance sheet. I think that as we re-risk, as we take assets with a higher expected return, the eligible of funds will not change per se, but it will change the expected return from those assets. Indeed, every step in re-risking have a positive effect in the capital generation, and it will increase or have an impact, as it has been explained by Doug, in the solvency capital requirement as well.
Okay, thank you.
The next question comes from Marcell Houben from NIBC. Please go ahead, sir.
Good morning, gentlemen. Thank you for taking my question. I have one left on Netherlands Non-Life. If you strip out the claims at the P&C of the storms, what would be the combined operation ratio, both for the whole Netherlands Non-Life as well as for just P&C? Thank you.
Yeah, Marcell. This is Lard. If you would exclude the EUR 28 million of claims as a result of the severe storms in May and June, the overall Non-Life ratio would be, on that pro forma basis, if you will, it would be 97%. If you would look at the property and casualty piece of that, it would improve by roughly, let me see, 13 points, one, three points versus what we published. Yeah, we obviously published the combined ratio as it is. Since you're asking specifically, if you take out the storms, how would it look? If you take out the storms, you're looking at 97% for the quarter on the total combined ratio of the Non-Life company.
Okay. Thank you.
The next question comes from Ron Heijdenrijk from ABN AMRO. Please go ahead, sir.
Good morning, gentlemen. Thank you for taking my question. Most have been answered already. Two small ones remaining. In the bank, can you confirm that the only assets that you're putting on your balance sheet are mortgages, or are you investing your savings in other assets as well? Secondly, could you give an indication of whether the loan loss provisions you saw in Q2 are a proper run rate going forward or whether or not these were abnormally low in this quarter? And then on the disability business, how much of the favorable claims development in the second quarter is actually an offset of the unfavorable claims experience in the first quarter? And therefore, what would be the good run rate of your combined ratio going through those two quarters? Thank you.
Yeah, thank you very much for this. I'll answer the disability piece. This is volatile. Disability and accident on a monthly basis, looking at the claim inflows and outflows, et cetera, is of course some volatility we'll see on a monthly basis. What we've seen is that, and I've mentioned that at the earnings call in Q1, in the individual book, we saw some elevated claims in the first two months of the year, which was then basically subsiding in the months thereafter, resulting in a good result over the first half of the year for that book. There is some volatility as a result of that. The other piece, Delfin, on the bank?
Yes, Ron. Your first question on if this mortgage is the only asset, very much so. Except, they need to maintain some liquidity. This is a very simple retail bank, focused on providing mortgages and savings for the time being. In relationship to the addition to the loan loss provision in the second quarter, is it a good run rate? There is nothing exceptional, positive or any non-recurrent or anything to highlight. As a consequence, I would say so. It is the result, as I said, of some very strong signs of recovery in the valuation of housing in the Netherlands. We don't think that this is extraordinarily high or anything to adjust for that, in that sense.
Thank you for those answers. Is it fair then to conclude that the current profitability of the bank is sustainable going forward and actually going to grow in line with your book growth? To come back on the disability, how much of the resignment of your elevated claims in January, February has been due to management? i.e., how much were there, well, false claims is maybe the wrong term, but how much has been managed away, so to say?
The nature of our disability business, by the way, I'll let the bank comment go to Delfin. He will comment in a second, Ron. On the disability side, now, this is really not What we're doing very actively, if a claim comes in of a client that has fallen ill, then what we do is we help the customer as soon as possible to get into a reintegration program. We've been doing a lot of activity to help individuals and customers to reintegrate and to get back to work and to be healthy again, et cetera. We do a lot of work and a lot of services around this to do that. In that sense, is it management action? Yes, obviously. We have a very active way of managing and helping customers to get back and to reintegrate back.
Having said that it depends very much on the nature of the illness, the nature of what's causing the disability that leads to how long it will take for the customer to reintegrate back, et cetera. We pay a lot of attention. We are known for this, by the way. We are known with our brand for this, that we are very active and that we are helping customers to get back to work as soon as they can, and we help them with that. Again, it very much is dependent on the nature of this disability or the illness.
In terms of the result of NN Bank going forward, indeed, I think that NN Bank has been growing from being a very small bank into becoming much more mature. Therefore, we will see these economies of scale as it grows, depending how the interest margin will stay over time. As it grows, the bank will need to do some further investments and expenses. Also one element to keep into account is the additional regulatory levies that we have now to incur. There is a deposit guarantee scheme that I believe it was introduced in the last quarter of last year. That, together with a contribution to a resolution fund, provides something around EUR 7 million of cost per annum.
When you look at the cost base in 2015, that was not included, and it has started being reflected in our profit and loss account as from the start of this year.
Thank you. Very clear.
The next question comes from Ashik Musaddi from J.P. Morgan. Please go ahead, sir.
Hi. Thank you. Just a couple of follow-up questions. I am not sure if I heard it correctly. I think Doug mentioned that the majority of the UFR will amortize over the next 10 years. Is that right? Sounds a bit low to me, given that your duration of the book is around, say, 17 in pensions, in the group pension, and 13 in the individual life. It should be amortizing over the next 20 years. Is that 10 year what I heard it correctly? Just want to clarify on that. Secondly is, how should we think about You are hedging cash flows at the moment, whereas some of your peers are hedging UFR or say, Solvency II balance sheet. Can you give us some sense about why are you hedging cash flows even when interest rates are zero? Any sense on that?
Good bits or bad bits? Thank you.
Thanks, Ashik. Doug?
Thank you. I think I did speak the way I meant to in terms of the majority of the UFR drag or benefit, as some of you call it, will amortize over the next 10 years. It will not be 100%, but let me explain why I say that. Basically, it has to do with the only cash flows impacted by the UFR, any cash flows beyond year 20. If you go 10 years from now you move that forward. Most of our cash flows will sit between year 20 and 30. There are some, of course, that go beyond year 30 that would still be influenced, but they would be influenced for 10 less years.
If you just move the whole thing forward, if it was on a purely closed book type basis, we would not have that much impact in 10 years from the remaining impact of the UFR and in life. There will be some there, but it would be much reduced from what we have now. That's why we say they amortize over 10 years.
Okay, that's clear. Thank you.
Why are we hedging the cash flows? Well, I think we've been doing this for a long time. Also, believing that low interest rates were a risk for a long time. Also, using economic capital and a lot of different risk management tools for many years. We believe it's the way to manage. I think your question becomes, is there a point at which you would not want to do that if interest rates become low? I mean, there were several thoughts on that. One is, if I had a nickel for every time I've had people tell me over the last 10 years that rates are going to start going up, so you should adjust your interest rate position, I would appreciate that, because I've heard it for many years, and rates have just continued to fall.
Now, of course, we're starting to enter into a completely new world with negative rates on certain government positions. Even 10-year swap rates are approaching a negative territory. I think, of course, it's fair to ask that question, and I think it's fair to say that we do discuss this internally. The point at this point is we have not changed our general focus on managing interest rate risk. If we do, we will say something about that.
Yes. Just to clarify, at least at the moment, you are not looking to change that strategy because the sense I'm hearing from everyone is rates could continue to remain low. I mean, it may not go down, but it may continue to remain low. I just want to confirm that, yeah.
I can confirm that we have not changed our interest rate hedging strategy.
Yes.
If I can find the person who can tell me how far interest rates are going to go negative, I would appreciate that. It's very hard to say what happens going forward.
Okay. That's good. Thank you, Doug.
The next question comes from Benoît Pétrarque of Kepler. Please go ahead, sir.
Yes. Just two follow-up questions on my side. The first one, I was wondering if you could provide a bit more granularity on the NN Bank earnings. I think, overall, it starts to be really significant, so that we could calculate the net interest margin, loan loss ratio and cost income ratio. That's the first, just to remark. Second one will be on the P&C. Just to make sure I understand. You had a 118% combined ratio in the second quarter, and I need to strip out 13 percentage points of storm impact. I will get on a clean basis at about 105% on P&C. Is that correct?
Yeah. Benoît, I'll take.
Yeah
the non-life piece. Yeah. We published our combined ratios, obviously, as they are for the total non-life company. If you would take out the impact of the storm, and you would do that on a pro forma basis, you will end up with 97% for the total non-life company. If you would do that only for the property and casualty piece, the property and casualty element of the non-life company would improve on that basis by 13 points. Percentage points, sorry. Okay?
Thank you.
On the bank earnings and your questions on net interest margin, et cetera, Delfin.
Yes. Thank you, Benoît. I mean, it's a very generic question, which I don't know, honestly, from where to start. I think you have some details in the financial supplement, where you can see how the flows have evolved so far. Up to now, we have considered NN Bank to be as part of the segment other. One additional contributor to the segment, and we have not provided too much explicit detail on it. That's something that at some point in the future, we'll have to consider as it becomes more relevant. You have some in the financial supplement, some data in relationship to how it has evolved, the level of capitalization, which is very strong. Close to 16% BIS ratio Phase 1. You can see that the net operating ROE has also been improving over time. The business in NN Bank is quite simple and straightforward.
It has some interest yielding assets, being the mortgages. It has some cost of funding and some administrative expenses that has been increasing as the bank grows, providing this margin. As I said in the financial supplement, you also have done some additions on the deposits and other savings as well as mortgages, how this has been evolving over time.
Okay. Thank you very much.
The next question comes from Robin van den Broek, from Mediobanca. Please go ahead, sir.
Yes. Good morning again. Ashik already asked the question, but I want to follow up on the UFR amortization period of 10 years. I understand what you're doing, but can you maybe explain how regulation prescribes you to amortize the UFR? Because there seems to be a certain amount of subjectivity in it. Doug, I guess this question is for you.
I think Lars agrees. I'll take the call. I'll take the question. I can answer this, and I think I want to clarify one point that may be underlying also some of the question of Ashik. I think the regulation is simply on how you set the curve. You basically use the swap curve with some few adjustments up to year 20, and then you extrapolate over time toward a one-year forward rate that becomes 4.2% in year 60. You have a gradual increase, at least on the current curve. You simply discount your cash flows. When we talk about a UFR drag or a UFR impacting your capital generation, in some sense, every year or every period, you move forward on that curve. And that impact of the UFR and that adjustment after year 20 goes away.
It goes away for a quarter or for a year for all the cash flows as they move forward. It's effectively part of your discounting of your cash flows. I think the other thing, though, I want to make sure we clarify is also that we're talking about here the UFR amortization, which is different from the risk margin amortization. We always say we have a UFR drag, and we also have a benefit from the risk margin. The risk margin takes more time to run off. It runs off more slowly than the UFR, and I think it's good to understand also the difference between the two.
How long does it take for the risk margin to amortize?
I don't have an exact calculation to give you in comparison, it's more slowly. It's mostly tied, well, materially, it's mostly tied to our longevity risk in the pension business in the Netherlands.
Okay. Thanks.
For additional questions or remarks, you can still press star one. Star one for your questions or remarks. The next question comes from Bart Horsten from Kempen & Co. Please go ahead, sir.
Yeah. Thank you. One final question, if I may. On the first page of your press release, you spent almost half a paragraph on Poland, you said that you are following it closely. I was wondering how you look at it right now, and would you also consider exiting Poland if the situation continues to be like this? Thank you.
Bart, our Polish business is a successful business that we've been building over the last decades in Poland. It's got very strong positions in both the life insurance side as the pension side, and also in the asset management side, we have a good business there as well. We will continue to grow that business. We actually did a small acquisition in the beginning of the year to cater for additional distribution strength to support the growth of that business. What we are pointing towards is a development that, first of all, we had some changes in regulation coming through over the last periods, which we've been flagging and reporting on. There is a very general and high-level proposal now for changes in one piece of our business, at least the regulation around that business, for pension funds.
Those high-level proposals for those changes are not yet precise, and the consequences, therefore, are not yet clear. We need to wait for this new legislation to go through various rounds of consultations, and we expect that to be finalized for 2016.
Okay. Thank you.
The next question comes from Bart Jooris from De groof Petercam . Please go ahead, sir.
Yes. Hi. Some follow-up on the interest margin at the bank. If you look on year-on-year, your deposit growth was lower than your mortgage growth. Deposit growth was EUR 1.3 billion, mortgage EUR 1.9 billion. Is this the only thing that explains the margin increase, or are there also measures? If you look at the last quarter-on-quarter, your deposit growth is higher than your mortgage growth. What was the evolution quarter-on-quarter, and are there any measures still left outside, let's say, volume growth, that could help sustain or even grow your interest margin?
I think we can take this question offline to go into the details. The only thing I would say now is that in addition to the interest margin, we should not forget that NN Bank is an originator of mortgages also for the insurance companies and also for our asset management, as some of our institutional clients are investing into Dutch mortgages through some of the funds managed by asset management. That means that apart from the interest margin, there is also an origination and service fee flowing through NN Bank. I think that with that, we'll be happy to go into further details offline to cover NN Bank if you have any additional questions, Bart.
Okay. Thank you.
Ladies and gentlemen, this concludes the Q&A. Please continue.
Thank you all for your questions. Let me conclude by saying that we are making good progress to deliver on all our strategic objectives. We are fully aware that there is still more work to do. We are able to fully focus on improving operating performance, thanks to our strong capital position, while at the same time, we remain committed to disciplined capital management. Our base case is to return excess capital to shareholders while maintaining a robust capital position and the financial flexibility to be able to pursue value-creating corporate opportunities, be it organic or inorganic. Finally, I would like to mention that this was Doug Caldwell's last quarterly analyst call as Chief Risk Officer of NN Group. His successor, Jan-Hendrik Erasmus, will join NN Group on the 1st of September and will take over the CRO role in October.
I would like to take this opportunity to extend a huge thanks to Doug for his expert knowledge and clarity during these calls and for his contributions to all our interactions with investors and with analysts over the past few years. I want to thank all of you and wish you a very good day. Thank you.