Good morning, ladies and gentlemen. This is the operator speaking. Welcome to NNN Group's Analyst Conference Call on Before handing this conference call over to Mr. Lars Wiese, Chief Executive Officer of NN Group, let me first give the following statements 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 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 includes assumes no obligations to publicly update or revise any forward looking statements, whether as a result or new information or any other reason. Furthermore, nothing in today's comments constitutes an offer to sell or solicitation of an offer to buy any securities. Good morning, Mr. Friesen.
Over to you.
Yes. Hello, everybody, and welcome to our quarterly earnings call. I will start up today's presentation by looking at the highlights of the 2nd quarter results as well as the progress we are making to deliver on our strategic priorities. Delfin Rueda, our Chief Financial Officer, will then 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. So let me start on Slide 3 with the highlights. NN Group's operating result of the ongoing business for the Q2 of 2016 was €321,000,000 This compares with an operating result of €488,000,000 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 quarter, which continues to put pressure on the results of our insurance activities.
And 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 Q2, 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 June, resulting in higher claims at our Property and Casualty business. Now 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 remains strong even in the face of volatile market conditions.
The Solvency II ratio of Ennem Group increased to 252%, which already reflects deductions for the EUR 500,000,000 share buyback program and the 2016 interim dividend. Free cash flow to the holding company was EUR 494,000,000 bringing the cash capital at the holding to €2,300,000,000 at the end of the second quarter. Finally, we have today announced an interim dividend for 2016 of €0.60 per share in line with our dividend policy. I will now turn to Slide 4. Our brand promise is you matter.
And our ambition is that Ennang Group is a company that truly matters in the lives of all our stakeholders. So 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 a FTSE for Good 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 3 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.
Now 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 20 fourseven 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 4 months. And 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.
N. M. 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 €11,000,000,000 And following a record inflow of retail savings deposits in the 1st 6 months of the year, customer savings now total over €9,000,000,000 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. And then 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. And 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 6. 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, a private equity management company in December and the acquisition of the Polish financial broker Notice in May. More recently, we announced the sale of our wholly owned independent insurance broker in the Netherlands, Mondema and Partners to Van Lancelot Schabbel. And in the second half of this year, NNRE 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. So moving on to Slide 7. 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 €700,000,000 by the end of 2018. This expense reduction program is on track with total cost savings achieved to date of €32,000,000 Following the sale announcement of van den Mahe and Partners, which is part of the Netherlands Non Life segment, we have now reduced the target expense base to €685,000,000 to take account of the cost of Mandeijen 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. But 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. Now let me round off this part of the presentation by looking at our dividend policy on Slide 8. As I mentioned earlier, we have today announced that we will be paying a 2016 interim dividend of €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 2.1 €1,000,000,000 to shareholders in the form of dividends and share buybacks since the IPO 2 years ago, including the 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. And with that, I will now hand over to Delfin Roeda. Delfin?
Thank you, Laff. Good morning, everyone. NN Group reported an operating result of the ongoing business of €321,000,000 for the Q2 of 2016. And for the 1st 6 months of 2016, the operating result came to EUR626,000,000 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 1st 6 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 BA 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 €190,000,000 in the Q2 of 2016. This is a decrease from €332,000,000 a year ago, which benefited from a €61,000,000 private equity dividend as well as significantly higher technical margin. The technical margin in the Q2 last year was supported by €27,000,000 of nonrecurring benefits, mainly relating to technical provision releases as well as a €28,000,000 release of the unit linked guarantee provision. Given the further fall in interest rate this year, the current quarter reflects a €7,000,000 addition to the Unit Link 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 runoff of the Individual Life closed book. Administrative expenses increased slightly compared with the Q2 of 2015, primarily due to higher cost 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 1st 6 months of this year decreased slightly to €6,000,000 I will now turn to Slide 12 for the results of Netherlands Non Life. The operating result for Netherlands Non Life decreased to €19,000,000 from €45,000,000 for the Q2 of 2015. The results of property and casualty were impacted by the severe storms that Lard mentioned earlier. And this was only partly offset by a favorable claims development in disability and accident. Please note that the Q2 last year also benefited from a €9,000,000 private equity dividend.
The combined ratio increased to 104%. Let's look at the two business lines within Non Life separately. The 2nd quarter operating result in disability and accident increased to €47,000,000 from €37,000,000 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 €4,000,000 positive impact from an IBNR update. The disability and accident combined ratio was exceptionally low at 87% compared with 97% in the Q2 of 2015. The operating result in Property and Casualty decreased to a loss of €30,000,000 mainly due to the impact of the severe storms in the quarter, which led to claims of €28,000,000 affecting both the Fire and Motor portfolios.
An unfavorable claims experienced in motor and miscellaneous also contributed to the decrease. The P and C combined ratio deteriorated to 118% from 102% in the Q2 of 2015. Please turn now to Slide 13 and the results of Insurance Europe. Insurance Europe reported an operating result of €52,000,000 for the Q2 of 2016. This was down slightly on the same quarter in 2015 due to a lower investment margin because of lower reinvestment 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 costincome ratio increased on the higher administrative expenses. The value of new business in the 1st 6 months of 2016 decreased to €46,000,000 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 €23,000,000 in the Q2 of 2016, down from €25,000,000 in the Q2 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 costincome 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 1st 6 months of 2016 was broadly stable at €49,000,000 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 and the Asset Management segment. Total assets under management increased to €197,000,000,000 at the end of the Q2 of 2016 compared with €190,000,000,000 at the end of the Q1. The increase was driven by positive markets performance of €7,000,000,000 as a result of lower interest rates increasing the value of fixed income assets. This was partly offset by net outflows of €500,000,000 mainly of other affiliated assets. The operating result decreased to €33,000,000 in the Q2 of 2016 from €38,000,000 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 related expenses as well as lower volume driven fixed service fees. The costincome ratio increased slightly as fees decreased more than expenses. The segment Other is set out on Slide 16. The total operating result of the segment Other improved to €2,000,000 in the Q2 of 2016 from a loss of €7,000,000 in the Q2 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 €24,000,000 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 €9,000,000 Finally, the operating result of NN Bank increased to €17,000,000 in the Q2 of this year from €6,000,000 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 mortgage 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 €28,000,000 down from a positive result of €43,000,000 in the Q2 of 2015. The result in the current quarter was mainly due to a hedge related loss of €38,000,000 due to the impact of higher global market volatility. The Q2 of 2015 included a €12,000,000 reserve release from higher lapse assumptions of out of the money policies.
The Q2 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 Q2 of 2016, which increased from €2,100,000,000 at the end of first quarter to €2,300,000,000 The free cash flow during the quarter was €494,000,000 which included dividends of €532,000,000 received from almost all segments, of which €150,000,000 from NN Life, €199,000,000 from Insurance Europe and €80,000,000 from Japan Life. A full list of the dividends upstreams can be found in the appendix to this presentation.
During the quarter, we had total capital flows to shareholders of EUR 263,000,000 This comprises the cash part of the 2, 2015 final dividend of EUR 185,000,000 and the amount repurchased under the share buyback program in the Q2 of 2016 of €78,000,000 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 Q2 of 2016. As you will see, the format has been simplified by showing the operating return for all entities in one column. In the Q2, the Solvency II ratio increased from 2 41% to 252%, mainly due to market variances, partly offset by capital flows being the deduction in full of the €500,000,000 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 6 percentage points. There are 2 lumpy items in the Own Funds, being the net result of asset management for the full year 2015 of approximately €80,000,000 and a nonrecurring benefit in Japan Life relating to deferred tax assets of approximately €50,000,000 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 3 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. So 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 the 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. And the 3rd 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 2 examples.
The tightening of credit spreads on sovereign bonds, like we saw in the Q2, increases the Solvency II ratio, but decreases on 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. And now I will pass you back to Lars for the wrap up.
Yes. 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 Enen Group is committed to doing this. Our capital position remains strong and resilient even in this volatile environment, and this allows us to weather the 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 €2,100,000,000 to shareholders since the IPO. I would now like to open the call for your questions.
And can I kindly request you to limit the number of your questions to 2 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. So operator, let's turn now to Q and A.
Thank you, Mr. Ladies and gentlemen, we'll start the question and answer session now. The first question comes from Ashik Musaddi from JPMorgan. Just a couple of questions. First of all, on UFR.
So on UFR, we can see
that your sensitivities haven't changed for 3 point 2%
for 100 basis point decline. What's driving that? And just linked to that, can you give us some sense about what would be the sensitivity for a 2% decrease in UFRI? I'm just trying to understand whether it's linear or not. How should we think about that?
And secondly is, I mean, sovereign spread tightening has benefited your capital a lot, but there will always be a risk of that going back. And given that the yield on German bonds, Deutsche bonds are more or less 0, is there any value is there any way to lock that solvent 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.
Yes. Thank you, Ashik. I'll ask Doug to take these two questions. Thank you.
Yes. Thank you, Ashik, for the questions. I think on the sensitivities to the UFR, I think there's a couple of things. I think 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 Q DTA offset than we had at Q4.
So this is why the sensitivity is about the same as it was then. I think we're not disclosing a number at 2.2%, I think is not something we're calculating at every level. We also think of the UFR as one element of Solvency II and not just we do isolate it here to 3.2 because of the attention it gets. But we're careful to put too much focus on only one point of Solvency II changing.
Okay. I mean, instead of giving any specific number, can you give us any sense, is it linear on the higher end or the lower NII, the impact increases or decrease?
Yes, it would increase. It would increase a bit. It would increase as it would be some convexity in that. The And then 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.
We do it's 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 and could see happening, what you see happening a bit in the second quarter is some gains from selling some German bonds and reinvesting in some slightly higher yielding assets. And 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.
But clearly, your point is correct that if this can reverse and it may well do so, but there are actions we can take along the way.
The next question comes from Gordon Aitken from RBC.
Good morning. Thanks very much. Just the
first question on your SCR. I mean, you talked over the years that you've basically got 2 very big runoff books. And the SCR at Q1 increased a little bit and 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? And the second question is about really in the Dutch Life market, if you can talk about the competitive environment and the change there.
I mean, you've had other players are derisking in a way that you don't need to. There's also been a listing, which sometimes can have some discipline in that market. But your value of new business in Dutch Life is pretty low. It's $6,000,000 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 of the Dutch Life market and I'll ask Doug to comment on the SCR question that you raised. So in general, the Dutch Light 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. So at renewal dates, we observe increased activity from our clients to move to change these employee benefit schemes and we're helping them with that.
And it's all in the same direction. It all moves towards defined contribution. So that shift is 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. And since that is quite a large stock of past accruals, if you will, on these employee benefit schemes, it gradually it only gradually migrates towards defined contribution.
Margins on defined contribution products are lower than DB products, but obviously it's far less capital intensive. So the return on capital is quite good there. Now 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's PPI institutions, etcetera. So in that sense, we are very well placed to manage this transition in this market. Now with that, can I hand over to you on the SCR, Doug?
Yes. I think thank you, Gordon. I think on the SCR, I think I refer a bit to Page 20 of the Slide 20 of the presentation that Delfin went through. I mean, it's certainly true that we do have some reductions in our SCR every quarter and so every year that come from our 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's 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 regions and businesses as well, which has an impact slowly through 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. So I think this will move around a bit. But I think in general, those are the items that will move and I think it will not be entirely consistent every quarter.
The next question comes from Farquhar Murray from Autonomous.
Just two questions, if I may. Firstly, just looking at capital generation on Slide 19, if I crudely take the €300,000,000 operating return and then adjust for asset management in Japan one off, we seem to be looking at about €190,000,000 in the quarter. Now is that a reasonable expectation going forward? And in particular, does it capture the increased UFR drag that was kind of 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, could 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 3 on the kind of accruals on qualifying debt. Are those ongoing? And roughly, what kind of magnitude might we be looking at there?
Thank you, Falkor. Delfin, could you please take this?
Thank you very much, Falkor. So indeed, I mean, we have given you the movement analysis and showing the key drivers of our Solvency II ratio over the quarter and have pointed out some of the more material items. The reality is that the operating return under 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 runoff among other elements. And 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 step. The reference that we have made and I think it's important to repeat to the free cash flow generation. And that, as you saw in Slide 20, is formed by 3 different items: the generation of the own funds, the release of the SCR and the release of the excess capital. And this will, we believe, vary around the range of the IFRS operating result after tax.
And 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. In your second question on the accruals on qualifying debt, well, I think, yes, we have approximately €20,000,000 in the quarter. And that is something that will continue unless there is any change on our debt structure.
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 £50,000,000 in the Q2 of last year. And then 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, but actually the opposite seems to be happening. It still seems to be doing very well. So could you update the outlook for the bank result?
Yes. So Delfin, can you take those questions, please?
Yes. Thank you, William. Public dividends, not much changed, so around EUR 50,000,000 also this quarter. In terms of the result of NN Bank, I mean, 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 and that is driven by less delinquencies and also the recovery in housing market.
As a consequence for NN Bank, we believe that, that current situation and trend is to be maintained.
The next question comes from Ms. Nadine van der Meulen from Morgan Stanley.
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 Q1. 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 901,000,000,000, around that level. With regard to that gap, you indicated on Slide 20, indeed, that is partly from the reduction in surplus policy levels. Can you give us some more color what the areas are where you are thinking about reducing these solvency levels?
And I could imagine that quite a large chunk of it is the closed books, the Japan VA closed book and the Dutch Individual Life business. So I suppose the second question follows up on that in whether you can give the capital release profile of both the VA Closed Globe and the Dutch Individual Life business and whether that is probably unchanged with what you guided previously?
Yes, Nadine, thank you for your question. So Delfin,
can you take these?
Yes. Thank you, Nadine. So in terms of where to expect release of capital sorry, I think I did not have my microphone on. So I'll start again. Thank you, Nadine.
So 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
It's not the reduction in the solvency capital requirement, but it's the excess capital over the solvency capital requirement.
Okay. Thanks, Ben. 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 the EUR 2,300,000,000 of cash capital at holding. As Elard 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 2,100,000,000 so far. We do continue executing our dividend policy and looking into the opportunities to deploy that capital organically and inorganically.
And if that, we will let's be 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 runoff 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. And I would say that approximately €500,000,000 of capital is still to be released from that portfolio.
And 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 €50,000,000 per year.
Just following up on that, for example, the Japan plus VIA, the €500,000,000 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 €300,000,000 And the rest of it is not and will come through well, we'll 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 €500,000,000 is obviously the release of both the capital requirement and the surplus capital, which is associated with this business. So 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 releasing the Solvency capital requirement, in part of release of the surplus capital supporting that business. That's correct.
The next question comes from Matthijs De Wit from KBC Securities.
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 level. So why is the decline leveling off? And what should we expect here going forward, please? And then 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%? And could you, in this respect, also comment or provide some insight into the amortization pattern? So what proportion of the UFR could, for example, be amortized over, let's say, a 10 year period of or is there anything you could say on that, please? Thank you.
So Doug, I 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? Yes.
I think as you noted, we don't really quote our Solvency II ratio adjusting for any one particular element like this. So 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. A good I would say a vast majority will run off over the 10 year period in about 10 years.
Okay.
So Delfin, on the Life fees and premium cash revenues.
Yes, Matias. I think that there is, as you know, some seasonality on the Q1 because there is the renewals of the pension business coming through. But if you look to the year to date development, still I think we are around EUR 20,000,000 down in relationship to last year. So renewals might also shift a bit from the Q1 to the Q2. So that trend is there.
The next question comes from Benoit Petrarque from Kepler. Please go ahead, sir.
Yes. Good morning. It's Benoit Petrarque from Kepler Cheuvreux. Two questions on my side. First one will be on the investment margins.
Clearly, you are rerisking on the Dutch book. Could you talk a bit more on this rerisking? Where are you now on the rerisking? How much you are planning to do for the rest of the year and next year? And what type of 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? And linked to that as well, I was wondering if you could give us the impact of the rerisking on the SCR in the first half of twenty sixteen. And then 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.
So could you guide us a bit more on this ability, where are we going now? Thanks.
Yes. So first, so thank you very much, Benoit. Maybe it's good to hand over to Doug for your first question. I will take the second question thereafter. Yes.
I think on the investments and investment margin, I think consistent with what we've said for a long time and we still remain with quite a prudent to especially high quality. And then over time, we are looking for 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 a bit quite a bit more in mortgages and loans, taking advantage of the illiquidity 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, these on a market yield basis, many of these high quality government bonds are very low yielding to even negative in some cases.
So that will continue. And 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 the level we had in 2013 at the time of the IPO, which was around 105 basis points. So we even with rates coming down, we believe we can try to we'll be working to keep that in line.
Yes, Benoit. And on the disability and accident business, the 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 $6,000,000 private equity dividend included in 2015. So if you look at what's been driving the good results, it was actually very low inflow and high outflow of claims in the individual disability portfolio. And that was in contrast to indeed the high level of claims that we saw in January February of this year. By the way, I may recall that you may recall that in the call at that time, the earnings call, I said that we that those were things that happened in the 1st 2 months of that quarter. And as you can see the months thereafter going through the Q2, it was actually a quite positive favorable claims development.
So 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 and Co. Please go ahead, sir.
Yes. Good morning. Bart Horsten, Kempen and Co. I have a few questions on cash and capital. You remitted EUR 532,000,000 in the Q2, which is quite high.
Have you considered to leave part of the cash in the operating companies because you're you didn't need it to shore up your cash at the holding level, which is already quite high. So could you elaborate on that? And on UFR, in Q1, you guided that the lower interest rates would result in a U of R drag of EUR 100,000,000 additionally for the rest of the year. Is that still the case? And related to that is could you give an indication of what the impact would be on your capital generation when UFR drops from 4.2% to 3.7 percent?
Yes. Please, Delfin.
Yes. Thank you, Bart. We explained in the past our philosophy for capital management based on 3 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. So even if it shows up in gas capital at holding, we think is we provide more fungibility for the group and is the best way to manage the group.
So 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. But as already been flagged, there are many risk margin release and others that have offsetting impacts. And in terms of the sensitivity to the UFR to drop to 3.7%, we have not disclosed it explicitly within the sensitivity, but I think that if you were to take half that amount, it won't be that far off.
The next question comes from Stephen Haywood from HSBC.
Good morning. Hello. In terms of what happened with your NME 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? And then also in for the NN Bank, I don't know if this was asked earlier, I apologize.
But 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.
Yes. So let me take the question, thanks, Stephen, on the bank and then I will ask Delfin to give some more comments on the Ireland Reinsurer. So the NN Bank has is focused very much in the Dutch market on providing mortgages and saving solutions for customers. And 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. And 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. And we have moved into that space to provide those same services to our clients, but then in the form of a bank. So 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. We are 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, etcetera.
And we will continue our focus on growing the bank. Bank is doing well, it's sufficient. It operates through the, let's say, the distribution structure that the insurance group also uses. So it's not a bank with branches or something like that. So 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. So that's, let's say, my commentary on the bank. Maybe delve in on the reinsurance company in Ireland.
Yes. Thank you, Stephen. So we have a subsidiary in Ireland, NNRI. Its only activity is an investment contract and obviously is 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.
And as mentioned in the press release, we do expect that this will close that will be signed during the second half of the year. And it will result into after tax loss, which we don't think is material. And in addition to that, that will free up the capital link to or lock into NNRI. And 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.
The next question comes from Ruben van den Boek from Mediobanca.
I'm sorry to come back to this, but clearly there is a relationship between rerisking in your SCR and what that should contribute to eligible and fund generation. I think I missed the answer to what happened to the UFR drag in Q2, but based on swap movements in Q1 versus Q2, I would expect that UFR track hasn't increased as much as in Q1. So if you assume re risking, which keeps the SCR flat, should we not assume that incrementally you are looking at higher eligible fund generation going forward? That's basically the question.
Yes. So I'll ask Doug to comment on that. Thank you very much, Robin.
Yes. I think you're actually I believe I missed answering this question earlier in terms of the SCR. I think as we mentioned and mentioned on the Slide 20 and also I've mentioned, as we move from truly 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. So what we will exactly invest in the future is not necessarily what we invested in yesterday.
And also every particular quarter, we may take steps in a different path on this. The other thing that happened in a particular quarter is you don't necessarily have large movements because of diversification and other things like this. So 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. And it also depends a bit the assets.
But 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 then we swap those out with longer dated swaps. So from a Solvency II perspective and spread risk, it's not adding substantially more capital. In terms of will those assets increase capital generation? I mean, at any point, we increase the spread on our the market spread on our assets that would increase capital generation. And so but again, that will layer on over time and not all happen at one time.
And again, will be dependent on what we actually do going forward, which is dependent on financial markets and the attractiveness and availability of assets.
But given what we've seen in Q1, basically, the POFR drag increased that March, it was pretty difficult to offset that by rerisking in Q2. That should be easier going forward now, right? Is that a correct conclusion? Or
So 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. So I think that as we re risk, as we take assets with higher expected return, the eligible of funds will not change per se, but it will change the expected return from those assets. So indeed, every step in rerisking 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.
The next question comes from Marshall Helgen from NIMS.
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 and C, the storms, what would be the combined operation ratio both for the whole Netherlands and all life as well as for just P and C? Thank you.
Yes, Marcel, this is Bart. If you look at if you would exclude the €28,000,000 of claims as a result of the severe storms in May June, the overall non life ratio would be on that pro form a basis, if you will, it would be 97%. And if you would look at the property and casualty piece of that, it would improve by roughly, let me see, 13 points, 1, 3 points versus what we published. Yes, so we probably saw we obviously published the combined ratio as it is. But 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.
The next question comes from Ron Mandelberg from ABN AMRO. Please go ahead, sir.
Good morning, gentlemen. Thank you for taking my question. Most have been answered already, 2 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 visibility business, how much of the favorable claims development in the Q2 is actually an offset of the unfavorable claims experience in the Q1? And therefore, what would be the good run rate of your combined ratio going through those 2 quarters? Thank you.
Yes. Thank you very much for this. I'll answer the disability piece. I mean, this is volatile. So disability and accident on a monthly basis, looking at the claim inflows and outflows, etcetera, is of course some volatility you will see on a monthly basis.
What I what we've seen is that and I've mentioned that at the earnings call in Q1 is that in the individual book, we saw some elevated claims in the 1st 2 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. But so 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. 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 Q2, is it a good run rate?
There is nothing exceptional positive or any non recurrent or anything to highlight. And 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, and we don't think that this is extraordinarily high or anything to adjust for that in that sense.
Thank you for those answers. So 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? And then to come back on the disability, how much of the recitement of your elevated claims in January, February has been due to management, I. E. How much were there False claims is maybe the wrong term, but how much have been managed away, so to say?
The nature of our disability business and I'll by the way, I'll let the bank comment go to Delfin. So he will comment in a second, Rob. But on the disability side, now this is really not the what we're doing very actively, if a claim comes in of a client that has fallen ill or then what we do is we help the customer as soon as possible to get into a reintegration program. So 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, etcetera. We do a lot of work and a lot of services around this to do that.
So 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, etcetera. So we pay a lot of attention. We are known for this, by the way.
So 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. But again, it very much is dependent on the nature of this disability or the illness.
And 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. And 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. And 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.
And that, together with a contribution to our resolution fund, provides somewhere something around 7,000,000 euros of cost per annum. So 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.
The next question comes from Ashik Musaddi from JPMorgan. And just a couple of quick follow-up questions.
I'm not sure if I heard it correctly. I think Doug mentioned that the majority of the UFR will amortize over next 10 years. Is that right? Sounds a bit low to me, given that, I mean, 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. So is that 10 year what I heard it correctly?
So just want to clarify on that. And secondly is, how should we think about I mean, you're 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 0? Any sense on that, Good bits or bad bits.
Yes. So thanks, Ashik. Doug?
Yes. I think I did speak the way I meant to in terms of the majority of the UFR drag or benefit as some you call it will amortize over the next 10 years. It will not be 100%. But let me explain why I say that. It basically has to do with the only cash flows impacted by your the UFR, any cash flows beyond year 2020.
So if you go 10 years from now and you move that forward, most of our cash flows will sit between year 2030. There are some of course that go beyond year 30 that would still be influenced, but they would be influenced for 10 less years. So if you just kind of move the whole thing forward, the on a 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 will be much, much reduced from what we have now. That's why we say the 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, I were several thoughts on that.
One is, as long as if I had a nickel for every time I've had people tell me over the last 10 years that you should stop on the 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, 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. And 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. And if we do, we will say something about that.
Yes. So just to clarify, at the moment, you're at least at the moment, you're 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.
I can confirm that we have not changed our interest rate hedging strategy. And if I can find the person who can tell me how far interest rates are going to go negative, would appreciate that. But they've already it's very hard to say what happens
going forward.
The next question comes from Benoit Patric from Kepler. Please go ahead, sir.
Yes. So 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's not 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.
2nd one will be on the P and C. So just to make sure I understand, so you had a 118% combined ratio in the Q2 and I need to strip out 13 percentage points of storm impacts. So I will get on a clean basis at about 105% on P and C. Is that correct?
Yes, let me do Benoit, I'll take the non life piece. Yes, so 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, then you would do that on a pro form a basis, you will end up for 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.
And then on the bank earnings and your questions on net interest margin, etcetera, so Delfin.
Yes. Thank you, Benoit. I mean, it's a very generic question, which I don't know honestly from where to start. I think the 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 order, one additional contributor to the segment, and we have not provided too much specific detail on it.
That's something that at some point in the future, we'll have to consider as it becomes more relevant. And you have some of the 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 in. You can see that the net operating ROE has also been improving over time. And the business in Nenem Bank is quite simple and straightforward. It has some interest yielding assets, I mean, the mortgages.
It has some cost of funding and some administrative expenses that has been increasing as the bank grows, but providing this margin. And 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.
The next question comes from Ruben van den Broek from Mediobanca.
Ashik already asked a 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? So Doug, I guess this question is for you.
I think Lard agrees. I'll take the call. I'll take the question. I think I want to yes, I can answer this and I think I want to clarify one point that maybe underlying also some of the question of Ashik. But I think there's no particular the regulation is simply on how you set the curve.
So you use the basically use the swap curve with some few adjustments up to your 'twenty And then you extrapolate over time toward a forward rate that becomes 1 year forward rate that becomes 4.2% in year 'sixty. So you have a gradual increase at least on the current curve. Then you simply discount your cash flows. So when we talk about a UFR drag or 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 2020 goes away. And so for those cash flows, it goes away for a quarter or for a year for all the cash flows as they move forward.
And so it's effectively part of your discounting of your cash flows. I think the other thing that I want to make sure we clarify is that there's 2 is also that we're talking about here the UFR amortization, which is different from the risk margin amortization. So our we always say we have a UFR benefit, I mean, 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 that the difference between the two. And
how long does it take for the risk margin to amortize? Is it
Longer than I don't have an exact calculation to give you in comparison, but it's just much more it's more slowly. Because it's tied almost completely it's mostly tied well, materially, it's mostly tied to our longevity risk in the pension business in the Netherlands.
The next question comes from Bart Horsten from Kempeneco.
One final question, if I may. On the first page of your press release, you spent almost half a paragraph on Poland. And you said that you are following it closely. And 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?
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. So we will continue to grow that business. We actually did an acquisition, 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 has which we've been flagging and reporting on. And 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. But those high level proposals for those changes are not yet precise and the consequences therefore are not yet clear. So we need to wait for this new legislation to go through various rounds of consultations and we expect that to be finalized for 2016.
The next question comes from Bart Jooris from Duhof 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. The deposit growth was €1,300,000,000 mortgage, €1,900,000,000 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. So what was the evolution quarter on quarter? And are there any measures still left outside, let's say, volume growth that could you help sustain or even grow your interest margin?
No, I think, I mean, 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 Tenen Bank is an originator of mortgages also for the insurance companies and also for our asset management as some of our institutional clients are interest margin, there is also an origination and service fee flowing through NN Bank. And 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 and A. Please continue.
Yes. So thank you all for your questions. Let me conclude by saying that we are making good progress to deliver on all our strategic objectives, but 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.
Now 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 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.