Good morning, ladies and gentlemen. This is the operator speaking. Welcome to NN Group's Analyst Conference Call on Q1 2016 Results. The telephone lines will be in listen only mode during the company's presentation. The lines will then be open for a question and answer session.
Before handing this conference call over to Mr. Lark Freiser, Chief Executive Officer of NN Group, let me first give the following statement on behalf of the company. Today's comments may include forward looking statements, such as statements regarding future developments in NN Group's business, expectations for its future financial performance and any statement not involving historical fact. Actual results may differ materially from those projected in any forward looking statement. Any forward looking statements speak only as of the day they are made, and NN Group assumes no obligation to publicly update or revise any forward looking statements, whether as a result of new information or for any other reason.
Furthermore, nothing in today's comments constitutes an offer to sell or a solicitation of an offer to buy any securities. Good morning, Mr. Friese. Over to you.
Yes. Good morning, everyone, and thank you for being on the call. I will start off today's presentation by looking at the highlights of the Q1 results as well as discussing how we are progressing in terms of the strategic priorities that we set ourselves at the time of the IPO. Delfin Rueda, our Chief Financial Officer, will then talk you through the financial details of the results at group level and for the individual operating segments as well as our capital position. And I will conclude the presentation with a wrap up, after which we will open the call for Q and A.
We also, as customary, have Doug Coldwell here, our Chief Risk Officer, who will help to answer your questions. Let me now move to Slide number 3 with some highlights. NN Group's operating result for the Q1 of 2016 was €305,000,000 which was broadly stable on the same quarter in 2015. The operating performance of the individual segments showed a mixed picture, which Delfin will elaborate on later. But let me summarize now by saying that we saw continued strong investment performance at Netherlands Life and improved results at NN Bank, and this was offset by lower results at Netherlands Non Life, Insurance Europe and Asset Management.
Our continuing efforts to drive efficiency realized a further reduction in administrative expenses in the Netherlands in the Q1 2016. Our capital position remains strong despite the volatile market conditions in the 1st few months of the year. NN Group Solvency II ratio was 2 41 percent and free cash flow to the holding was €403,000,000 in the Q1 of 2016. Delfin will talk in more detail about our capital position in his part of the presentation. Shortly after quarter end on April 14, ING completed its divestment of NN Group with the sale of its remaining stake.
This transaction marked the completion of our journey to become a standalone company. And finally, I'm pleased to announce today a share buyback program for up to €500,000,000 to be executed during the coming 12 months. Let's turn to Slide 4. A critical component of our stand alone future is the creation of our own identity and our brand. We have clearly articulated our purpose, which is to help people to secure their financial futures, and we have defined our values, which are we care, we are clear and we commit.
These values are commitments not only to our customers, but to all our stakeholders. The values are embedded in our key processes and they guide the actions of all our employees throughout the entire organization. We have spent the past year rebranding our businesses to NN or Nacional Nederlanden. And while it takes time for a new name to become an established brand, we've already seen an increase in our brand awareness in most countries since the new name was introduced. Sponsorships gives us the opportunity to engage our clients in our NN brand.
1 of our sponsorship areas is sport with running as the main theme. Running reflects our values and our aim to contribute to people's general health and financial well-being. Sponsored running events so far this year included the Rotterdam Marathon, the City Pier City Run-in The Hague as well as the Urban Trails in Belgium and the International Alexander the Great Marathon in Greece. We will be sponsoring a total of 46 running events this year in Europe and Japan involving more than 300,000 participants. On the following slides, I will talk about developments in the various businesses.
On Slide 5, in the Netherlands, our strategy is centered around providing digital, personal and relevant services with the aim of enhancing customer experience. And let me give you some examples. Based on our knowledge of a customer, we can proactively offer services or products that we believe will fit their needs. We call this next best actions. Last year, we included 150,000 of these next best actions in our customer conversations, and we are on track to reach 500,000 this year.
The result is higher satisfaction, lower customer losses and increased sales. We followed a similar strategy in pensions where our new online service, Pension Assistance, provides personalized pension information to customers and non customers alike. In Non Life, we have recently piloted our smart home product that was initiated by our innovation lab and allows home owners to keep an eye on their houses and also receive advice on burglary prevention. We also launched a segmented online campaign for motor insurance, offering prospects a range of propositions based on price, brand and quality. The campaign is aimed at customers who are not only interested in low premiums, but also in a quality product.
This is a good example of the ongoing measures we are taking to improve the results of the Non Life business, such as the better pricing of risk in the form of differentiated premium increases, lowering costs as well as capturing selective growth opportunities. We continue to work hard to improve the combined ratio of the Non Life business towards our target of 97% by 2018 and we expect these measures to yield results over time. Finally, NN Bank is achieving healthy growth in both mortgages and customer savings and is now one of the top 5 mortgage originators in the Netherlands. Overall, as well as our ongoing focus on cost and capital management, we continue to innovate and invest in enabling our Dutch businesses to provide excellent customer experiences, something we think is essential to the interest of all our stakeholders. Let's turn to the next slide.
The same is true outside of the Netherlands, where we continue to innovate and develop customer propositions. For example, in the last quarter, we launched our online health product in Greece and our account protection product in Turkey. In Japan, we continue to see strong sales from the term and income protection products we launched in 2015. We aim to serve our customers through multiple channels, and so we continually look to expand and diversify our distribution network. Last week, we announced the acquisition of Notus Financial Advisors in Poland.
This acquisition will further strengthen and diversify our distribution network in that country with over 350 of Notus' own agents as well as franchises giving access to 600 financial advisors. Another distribution initiative is the paperless sales process for Tide Agents in Spain, which has been very successful in increasing customer experience and reducing new business processing costs. We have recently launched similar digital solutions in Poland and in the Czech Republic, and we will be launching similar platforms in other European countries in the coming months. Our asset manager continues to develop and focus on investment propositions in which it has a competitive advantage, launching its 1st dedicated green bond fund this year and experiencing strong demand for its Dutch residential mortgage fund. Now let's move to the next slide.
Slide number 7 shows our balance sheet metrics. And as I already mentioned, our capital position remains strong with NN Group Solvency II ratio at 241 percent and holding company cash capital at €2,100,000,000 at the end of the Q1 of 2016. We believe in disciplined capital management and are committed to our dividend policy, which states that excess capital is expected to be returned to its shareholders in the most efficient way unless it can be used for value creating corporate opportunities. Let me remind you that so far since the IPO and including the proposed 2015 final dividend, we have returned a total of over €1,400,000,000 to our shareholders in the form of dividends and share buybacks. In addition, we have announced today that we will execute an open market share buyback program for a total amount of up to €500,000,000 over the next 12 months.
We intend to cancel all of the shares acquired under this program. This share buyback program demonstrates our disciplined capital management as well as our commitment to returning excess capital to our shareholders. At the same time, we believe it is essential to maintain a robust capital position and the financial flexibility to be able to pursue value creating corporate opportunities. And with that, I would like to hand you over to Delfin Roueda.
Thank you, Lard. Good morning, everyone. NN Group reported a stable operating result of the ongoing business of €305,000,000 in the Q1 of 2016. The operating result excludes the result of the closed block variable annuity business in Japan. As Larp already mentioned, the operating performance of the individual segment shows a mixed picture.
We saw higher results at Netherlands Life driven by higher dividends as well as improved results at NN Bank. On the other hand, Insurance Europe results were impacted by regulatory pressures, lower interest rates and equity market depreciation. The Non Life business was hit by an unfavorable claims experience in disability and accident, and the asset manager reported lower fees on lower average assets under management. The decrease in the net result that you can see in the right hand chart can be explained by the fact that the Q1 last year included a capital gain on the sale of a large public equity investment, while the current quarter reflects a negative result for Japan Closed Block VA due to higher market volatility. I will cover this last point later in the presentation.
Before going through individual operating segments, please turn to Slide 10, which gives more details on the cost savings in the Netherlands. As we announced last year, we have set ourselves a new cost base target in the Netherlands. We aim to reduce the annual administrative expenses of Netherlands Life, Netherlands Non Life and the holding entities to €700,000,000 by the end of 2018. This is a reduction of almost 15% compared with the annual cost base at the end of the Q3 of 2015, when we set this new expense target. The expense reduction program is on track.
In the Q1 2016, we realized €11,000,000 of additional cost savings, which brings the cost base in the Netherlands down to €792,000,000 on a last 12 month basis. Please note that the progress in realizing cost savings may not be linear from quarter to quarter due to project related expenses, regulatory pressures and the need to invest in our businesses. Improving efficiency in the Netherlands remains a priority, and we will continue to implement a range of initiatives to achieve our target cost savings. Let's now look at the Q1 performance of each individual segment, starting as usual with Netherlands Life on Slide 11. The operating result of Netherlands Life increased to €177,000,000 in the Q1 of 2016 from €152,000,000 a year earlier.
In line with the long term trend we have previously flagged, fees and premium based revenues were down due to lower margins in the pension business as well as individual closed book runoff. This was more than offset by a higher investment margin and higher technical margin. The current quarter investment margin includes an exceptional dividend of €30,000,000 from an indebted stake in ING Life Korea and private equity dividends of €29,000,000 The higher technical margin was supported by a higher mortality result. The current quarter also reflects a €25,000,000 addition to the unit linked guaranteed provision due to the decrease in interest rates. Finally, as already seen on the previous slide, administrative expenses decreased compared with the Q1 of 2015, supported by lower staff cost.
I will now turn to Slide 12 for the results of Netherlands Non Life. The operating result for Netherlands Non Life decreased to €9,000,000 from €24,000,000 for the Q1 of 20 15. This was due to lower results in disability and accident. The combined ratio increased to 104%. As mentioned in previous quarters, the results of non life activities are volatile by nature as claim incidents and severity can fluctuate in any quarter.
Let's look at the 2 business lines within NN Non Life separately. The first quarter operating result in disability and accident decreased to €11,000,000 from €28,000,000 in the Q1 of 2015. This was largely caused by an unfavorable claims experience in the individual disability portfolio in the 1st 2 months of the year. In addition, the Q1 of 2015 included a €9,000,000 positive impact from an IBNR update related to better expected recovery experience in the group income protection portfolio. The disability and accident combined ratio was 100 and 3% compared with 93% in the Q1 of 2015.
The Q1 operating result in property and casualty improved to a loss of €2,000,000 from a loss of €5,000,000 in the Q1 of 2015. This improvement reflects a higher operating result in the fire portfolio due to fewer larger and weather related claims in the current quarter. The operating result in the motor and miscellaneous portfolios decreased due to the impact of claims on prior accident years. The P and C combined ratio improved to 105% from 106% in the Q1 of 2015. Let's now have a look to the results of Insurance Europe.
Insurance Europe reported a lower operating result at €34,000,000 for the Q1 of 2016. That compares with €40,000,000 for the same quarter in 2015. This reflects a lower investment margin due to lower investment rates as well as lower invested volumes. In addition, the current quarter includes a €4,000,000 provision related to the terrorist attacks in Belgium. Let me also remind you of the tax on assets of insurance companies that became effective in Poland as of February 2016.
The impact of this tax, which is reported under administrative expenses, is estimated to be around €5,000,000 on a full year basis. The cost income ratio increased on lower income in combination with higher administrative expenses. Moving now to Japan Life on Slide 14. The operating result of Japan Life was €67,000,000 in the Q1 of 2016, down from €72,000,000 in the Q1 of 2015. Investment margin decreased due to lower interest rates on reinvested assets, while DAC amortization and trade commissions were higher due to higher premium income and higher surrenders.
These were partly offset by higher fees and premium based revenues, driven by larger in force volumes. The costincome ratio improved as a result of the higher income. I will turn now to Slide 15 and the Asset Management segment. Total assets under management increased to €190,000,000,000 at the end of the Q1 of 2016 compared with €187,000,000,000 at the end of the Q4 of 2015. The increase reflects a positive market impact of EUR 6,000,000,000 partly offset by net outflows of €3,000,000,000 mainly in other affiliated and third party assets.
The operating result decreased to €29,000,000 in the Q1 of 2016 from €36,000,000 in the same period last year. Fees were down on lower average assets under management in the quarter as well as due to a shift to lower margin assets. Expenses went down, reflecting lower volume driven fixed service fees as well as lower staff expenses. The costincome ratio is higher, mainly reflecting the lower income. The segment Other, which comprises the holding company, the reinsurance business and NN Bank is set out on Slide 16.
The total operating result of the segment Other improved from a loss of €20,000,000 in the Q1 of 2015 to a loss of €11,000,000 in the Q1 of 2016. This segment mainly comprises the 3 elements shown in the graph in this slide. Let me go through this individually. The improved holding result was mainly driven by lower cost. The result of NN Bank increased to €13,000,000 in the Q1 of this year from €4,000,000 in the same quarter last year.
This increase reflects a higher interest margin and a lower addition to loan loss provisions, partly offset by higher administrative expenses as we continue to make investments to support the bank's growth. Finally, at the reinsurance business, the operating result remained relatively stable at €3,000,000 I will now move on to Slide 17 to cover our last segment, Japan Closed Block VA. The Japan Closed Block VA segment reported a loss before tax of €69,000,000 down from a positive result of €16,000,000 in the Q1 of 2015. This negative result was mainly due to a hedge related loss of €66,000,000 due to the impact of higher global market volatility in the quarter. As we have mentioned before, these hedge results tend to fluctuate from quarter to quarter and have a negative bias in volatile markets.
As a reminder, the 1st few months of 2016 saw the highest realized volatility for Japanese equity since the financial crisis in 2,008, 2009. Even in these changeable markets, the hedge program that we have in place has remained effective. The Q1 of this year also reflects a €16,000,000 increase in technical provisions following a refinement in lapse assumptions, as well as lower fees and premium based revenues due to the lower account value as the portfolio continues to run off. That completes the results of our operating segments. On the following slides, I will take you through the free cash flow and capital position.
On Slide 18, you can see the movement in the holding company cash capital during the Q1 of 2016. This increased from almost €2,000,000,000 at year end 2015 to €2,100,000,000 at the end of March 2016. And this is despite the €250,000,000 share buyback in January 2016. The free cash flow during the quarter was €403,000,000 which included dividends of €390,000,000 received from several subsidiaries, of which €150,000,000 from NN Life and €107,000,000 from NN Non Life. And finally, on Slide 19, let's look at the developments in NN Group Solvency II ratio.
On this slide, we show the movement of NN Group Solvency II ratio, the Own Funds and the SCR over the Q1 of 2016. The left hand side of the chart first shows the impact of the designation of NN Group as a financial conglomerate, meaning that we exclude NN Bank from both Own Funds and the Solvency Capital requirement from the 1st January 2016. This had a positive impact of 6 percentage points and means that NN Group Solvency II ratio was 2.45 percent at the end of the Q1, mainly due to the impact of the €250,000,000 share buyback that we executed as part of the ING sell down in January. As you can see, in the middle of the chart, there were a number of offsetting impacts, and I will talk you through each of these. Starting with the 2 percentage points positive impact of the operating return of the Solvency II entities.
This column includes the expected investment spreads over the Solvency II discount rate, the release of the risk margin and the impact of new business, partly offset by the unwind of the UFR. Any operating variances from the development of our portfolio versus underlying assumptions is also included here. For all these items together, Own Funds increased by approximately €200,000,000 in the Q1. The main component of this number is the expected investment spreads. However, this quarter, it also includes benefits of approximately EUR100 1,000,000 relating to the transfers from the separate account to the general account at Netherlands Life, which typically happen in the Q1 of the year.
The solvency capital requirement increased due to the shift to higher yielding assets, partly offset by the runoff of the Japan Closed Block VA. The next column shows that market variances had a negative impact on the Solvency II ratio of 6 percentage points, reflecting the drop in interest rates leading to a higher SCR, which was only partly offset by an increase in owned funds. The total impact of the movement of credit spreads over the quarter was positive, which was partly offset by the negative impact of equity market performance. These movements were more or less in line with the sensitivities we disclosed with our Q4 2015 results. There were no material model changes in the Q1 of 2016.
The movement of non Life Solvency II entities in the column mainly reflects the performance of Japan Life in the quarter, net of the change in non available owned funds. The result of asset management is currently only reflected once a year after approval of the annual accounts in the 2nd quarter. The column level other shows a positive impact of 2 percentage points on the Solvency II ratio in the quarter. It includes the impact of using transitionals in Belgium and Spain, for which we received regulatory approval in the Q1 of the year and the change of both non available own funds for the Solvency II entities and non eligible own funds. Finally, in the last column, you can see that the €250,000,000 share buyback in January had an impact of 4 percentage points to the ratio.
And with that, I will pass you back to Lars for the wrap up.
Thank you, Delfin. The operating result for the Q1 of 2016 remained broadly stable on last year, even in a challenging environment of low rates and volatile markets. However, I think it's fair to say that there are several areas that still need more work. We remain committed to further improving performance within the business and in particular at the Non Life and Asset Management units. And at the same time, we will continue to increase efficiency by reducing the cost base in line with our target.
Our capital position is robust and held up well despite the volatile market conditions in the 1st few months of the year. This strong capital position in combination with a healthy holding company cash capital allows us to embark on our 1st open market share buyback program for an amount up to €500,000,000 during the coming 12 months. This demonstrates our disciplined capital management as well as our commitment to returning excess capital to shareholders, while maintaining a robust capital position and the financial flexibility to be able to pursue value creating corporate opportunities. 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?
And of course, feel free to come back with a second round of questions if they have not yet been dealt with. So with that, operator, I'll ask you to open for questions.
Thank you, Mr. Friese. Ladies and gentlemen, we will now start the question and answer session. The first question is from Mr. William Hawkins from KBW.
I think you know guys the capital management message is great, but there are concerns about your operating performance. So my two questions are, your underlying Life investment margin, if I strip out the dividends, seems to be below 95 basis points, which is way off your 105 basis point target and seems quite materially weaker than the underlying performance last year. Can you talk about that a little bit? Are there any negatives that sort of mitigate the highlighted positives that you've given us? And what is the risk to the outlook for your Dutch Life investment margin?
And then secondly, on Slide 19, annualizing the operating capital generation seems to come up with a figure that is visibly lower than your basic guidance of free cash flow. I think most people are expecting the net operating result to be either side of €1,000,000,000 Annualizing this figure on Slide 19 would be significantly lower than that and even worse if I strip out the €100,000,000 exceptional that Delfin just referred to. So at least on a Solvency II basis, it doesn't look like your capital generation is anything close to the guidance you've been giving us on an IFRS basis. So could you try and say something to sort of bridge the gap between those two figures? Thank you.
Yes. Thank you, William. Delfin, I think it's can you take them?
Yes. William, thank you very much. The guidance that we provided with investment margin for NN Life was always very carefully and cautious because we said that we were aiming as a consequence of the lower interest rates to invest prudently into higher yielding assets and that with that, we were intending to compensate the pressure on the IFRS investment return related to this decrease. And what we said is that we were aiming to be around the same level as it happens in 2013. And that was, I think, if I recall, more around the 100 basis points that 105.
But nevertheless, every quarter has slightly different impact and you will see fluctuations on a quarterly basis. Also, we like it or not, the volatile returns coming from equity, private equity, real estate is also a part of our investment margin. And as I go on say, when say that's going to drive that investment return up and down from 1 quarter to another. So I would not normalize that much the investment return as you suggested. Then the question about the capital generation is a tricky and complicated one.
But I will try to, if not, to give you a very precise guidance on the run rate, at least to help you on how to think about it. First, let me remind everyone that the guidance that we provided was the free cash flow generation to be in the range of the operating result after tax of the ongoing business. And that we have always said this is an over time target. And we emphasize this again and again that from one period to another, there's going to be deviations from that. Nevertheless, I clearly understand the need to have some understanding on the kind of normal run rate.
So indeed, another probably point of caution that I will make here is that the movements in the market, particular interest rates, have quite an impact into what is the capital generation that happens the following quarters. So in Q1, the decrease in interest rates has obviously have some negative impact in our solvency ratio, but also has increased the UFR drag that it will be coming in the next quarters. So that means that every quarter, if you were to normalize the situation based on that quarter, that annual rate or run rate, assuming everything stays the same as that quarter, changes from 1 quarter to another. And that can be significant, as we have seen with the decrease of interest rates is the impact of that will be lower in the quarters to come. In any event, when I were to look at the Q1, you have around €200,000,000 from market from operating return, of which indeed €100,000,000 is something that happened in the Q1 because of the movement of the separate account to the general account.
And that's something that typically happens every Q1. So you should take that into account from that amount in the quarter. So you take, let's say, the €200,000,000 in the Q1 and maybe, as I said before, with all the caveats, normalizing the Q1 of €100,000,000 I guess you get around €500,000,000 coming from the Solvency II entities. But again, I'm saying that already we have seen that due to the decrease in interest rates, there is a further drag of the UFR that will decrease that figure. And that again will change quarter per quarter.
On top of that, you need to add, of course, the capital generated from the non solvency to entities. And this, we have given some guidance that for investment partners, the capital generation is expected to be around the net profit of the entity. And then from Japan Life, it is slightly more complicated, but you could take both together maybe to be around €150,000,000 or so. There is some contribution as well coming from the pension funds that will come over that period of time. So I hope that maybe I gave a very long explanation, but hopefully helps you understand or how to think more about the run rate going forward.
It does. May I just come back? That was very clear. But it does still lead to the concern that what you just said summarized is €500,000,000 plus €150,000,000 is €650,000,000 of capital generation, which barely covers your ordinary dividend, let alone the buyback as well. So still have that concern in my mind from that.
Yes. Well, I guess that I mean, you could add also pension funds. Maybe that's around €40,000,000 a year. But in any event, keep in mind that we come from a very strong solvency position and that when we talk about the generation of free cash flow to the holding and we also mentioned that in the last presentation of results with Q4 that a part of the cash flow in some instance from some legal entities might come from the return or the decrease in the surplus capital in these entities. So in terms of the cash flows or dividends from the subsidiaries to the holding company, you have to take into account both things, the capital generation in that period of time as well as what is the starting position in terms of solvency of those entities.
The next question is from Mr. Ashik Musaddi from JPMorgan. Please go ahead, sir.
Hi. Good morning, Delfin. Good morning, Lalag. So just a couple of questions. I mean, what how should we think about P&C and Asset Management?
You have some targets with respect to combined ratio and with respect to some growth in Asset Management. Do you still believe that we should stick with that target? Or are those targets looking a bit tough now? So that's the first one. Secondly is, I get some sense about the Slide number 19 again, this operating return or this SCR increase of $31,000,000 What is driving the SCR increase here?
Because if I understand correctly, I mean, a large part of your business is kind of running off or wherever you're growing is very, very capital light. So why is your SCR going up on an underlying basis so that would be good? Thank you.
Okay. Ashik, thank you very much for your questions. I will first start with the combined ratio and asset management questions and then Delfin will take the point around the SCR. On Non Life, the Non Life combined ratio target of 97% or below by the end of 2018 is still something that we are committed towards. If you look at the let's say, if you take a step back, we saw in the Q1 of this year, in the 1st 2 months, individual disability claims with higher inflows and lower outflows, and that was basically driving the results of this quarter, while P and C slightly improved.
So if you take a step back, I would say that over the years, we have seen but it's not an area of major concern to us. The key thing here is the property and casualty side, where last year we saw for the 1st 9 months quite some large fires in fire. That's the 1st 9 months. We haven't seen them for a while, at least not in the same amount as we had last year. So we also including a number of management actions, we have seen that actually also this quarter, the fire results have improved.
Then what remains is the motor book, and that's where we do have a concern. We have a number of management actions that we're putting in place there, but there's a market context here as well. So if you look at the overall car insurance market in the Netherlands, I think that profitability is under pressure of that segment, and that is something that we, of course, are doing our bid to improve, which is a combination of differentiated pricing actions that we take, so ongoing rate adjustments. And as we said before, we terminated the large car fleets and all of these contracts save 1 have been done. They're still giving some negative runoff results here and there, but this action will take some time to become fully visible.
We improved the fraud detection claims, the fraud detection, etcetera. So we continue to have a number of things in place to improve that. So that's how I would like to end the discussion on the combined ratio for this moment. For the entire Non Life company, I'd like to add that it's basically three main things that we're doing. 1 is improving the expense reduction by improving the expense ratio by driving expense reductions as part of the 700,000,000 dollars target that we have.
Secondly, improving the underwriting results by a number of measures that I just mentioned and more. And then there is some selective growth opportunity that we see, for instance, in the group disability side and for instance, in home and fire insurance in Belgium, which is also represented in this line. We then go to your question regarding Asset Management. With Asset Management, I'd like to start out by saying that there is a backdrop, a market backdrop on the Active Management Industry, where you saw, certainly due to the volatility at the beginning of the year, that quite some institutional investors moved their assets away from risk into a lower risk products or even a risk off as a whole. And we're seeing the entire industry reflected this entire industry, the asset management industry and also we are not immune to that.
And we saw that happening as well. We launched in the Q4 last year a program, as we mentioned last time, called Focus, Simplify and Optimize. And what we do there is a set of initiatives that are being implemented to address these challenges: focus on products in selected growth areas like income, multi asset, emerging markets and private debt simplifying the product range, so we have about 40 funds that are being reviewed for potential closure or merger and to create more scale and lowering expenses and simplifying the footprint, let's say, the overall platform and then focusing distribution network to increase the effectiveness, especially designed at specific client and distribution groups and making sure that we emphasize the strategies that we are winning relative to competition. We have some cost control as well in place there and that is coming through in this year but also next year to the full effect. So that's the way we address the Asset Management side of the business.
Now with those two questions answered, I think we go to Delfin on the SCR movement.
Yes, Asik. So the Solvency capital requirement increased by €31,000,000 That mainly reflects, first, the higher volume of invested assets. So when you look at the total investments has increased by around €4,700,000,000 and if you exclude the amount of cash, the increase is €3,700,000,000 euros In addition to that, there is a certain shift from more less capital intensive investment assets to higher yielding assets, and that is partially compensated due to the decrease of the Japan Closed Block VA. But basically, it reflects the higher invested assets for the most part. I don't know, Doug, if you have anything to add to that.
No, I mean, just one thing is higher invested asset, is it because of some growth in Dutch Life business? Or is it just like mark to marking of assets?
Yes. It's just the move. The majority of it is the move of mark to market and then obviously some new investments. But the valuation of the assets has increased as well.
The next question is from Ms. Nadine van der Meuler from Morgan Stanley. Please go ahead.
Good morning. With regard to M and A, you said it is essential to keep the capital position very robust and to have flexibility to pursue value creative opportunities. Does it mean that this is getting increasingly likely? I just have the feeling that your language around M and A is changing a little bit. Maybe you can elaborate on your appetite.
And then the second question is on the €390,000,000 dividend. I believe you said €150,000,000 from NN Life and €107,000,000 from NN Non Life. Can you specify where the rest was coming from? Thank you very much.
So, Nadine, thank you very much for your questions. Delfin will take the dividend question. I'll comment first on M and A. Nothing has changed in this respect since the IPO. We've always said that our dividend statement and our priorities are on improving the earnings and driving cash generation in the platform that we have.
That's what we do. And then when we generate cash, make that available as a base case to our shareholders unless there is a value creating corporate opportunity that we can invest in. We said it at the time 2 years ago, we say it today, so in that sense nothing changed. And that's also if you look at what we've done so far, we I think have demonstrated again today also with the buyback announcement that we take our dividend statement very seriously. And at the same time, we do want to keep a robust capital position, which we feel is only appropriate and prudent and at the same time maintain some financial flexibility.
So with that, I'd like to hand over to Delfin for your dividend question.
Yes, Nadine. As you can see in the only page in the appendixes that we have included the dividends upstream. So you can see there that you've got from NN Life €160,000,000 This is €150,000,000 as dividend and the other €10,000,000 is related to the coupon on the subordinated bonds that are owned by NN Group. Then NN Non Life is €107,000,000 from Europe. There is €6,000,000 this quarter.
They're coming from Poland. NN Re is €75,000,000 And the other is coming, the €41,000,000 is coming from our insurance company in Ireland.
The next question is from Mr. Farquhar Murray from Autonomous.
Morning, gentlemen. Just two questions, if I may. Firstly, just a follow on on Slide 19. My questions really relate to the scope and specifically how we take kind of Slide 19 from kind of Solvency II type scope to group. Specifically, could you just clarify how the holding expenses, NN Bank and the Japan SPVA book are being captured?
I think NN Bank is obviously outside the scope of Slide 19. I think SPVA is actually in Slide 19 because it's part of that SCR movement. But I was slightly less clear on the holding. So really just a sense of how we go from Slide 19 through to the group without missing anything would be very useful. And then just a kind of second question is really just a slightly forward looking question.
Could you give a sense of the incremental drag from the UFR that you expect to emerge Q on Q? As you said, interest rates are down, presuming that has a slight impact. And also, actually, as you're kind of slightly rerisking the book, should we expect any kind of offsetting improvement in the kind of excess returns that you'd be coming through as well? Thanks.
Okay, Farquhar. Delfin, I think it would be good if you start this.
Yes, Farquhar. So the holding expenses are part of the bucket order. NN Bank is not included at all on the Slide 19 as of starting this quarter because Solvency II numbers now exclude NN Bank because of the denomination as a financial conglomerate as is already the case for our competitors in the Netherlands. And the Japan Closed Block VA is captured within the operating return. In terms of incremental drag from UFR in the coming quarters, that it is probably around €100,000,000 on an annual basis.
So it would be around €25,000,000 in the quarter. But keep in mind that also this is also compensated by also an increase release of the risk margin also due to the decrease in the interest rates. And I'm not sure if I have answered all your questions or you have something else. Yes, there was something on the movement in the excess return that obviously also when the interest rates change, there is also the expected return is impacted somehow.
Okay. Thanks, Rich, indeed.
The next question is coming from Mr. Matthijs de Witte from KBC Securities.
Two questions, please. First on the fee and premium based revenues in Dutch Life. You stated that the decline is due to lower margins in your pension business. Is there anything you could share on the profitability of your Dutch Group Life business, both for back book and on the renewals in the new production. So maybe there is also something you could say in terms of pretax margin on reserves in group relative to individual life?
And then secondly, on your capital position and cash position, You continue to operate with a lot of excess capital, which is kind of diluting returns. And so I just wondered if there is any room to execute that €500,000,000,000 buyback program more rapidly than the 12 months you mentioned. And also wondered whether you would be looking or you might look at additional returns on top of that €500,000,000 buyback considering that you're holding cash is €1,000,000,000 ahead of your the midpoint of the target? That's it.
Matthias, this is Lard. I will take the second question and Delfin will take your question on then Afton made the question on the NLIFE fees and premium based revenues. Well, as I said, we are committed to our equity story to improve earnings, to generate cash and to make that cash available for distribution to shareholders unless we can invest it in value creating opportunities. Let me remind you that in 2015, we have returned 850,000,000 dollars in the form of buybacks and dividends, a combination of both. And if you look at 2016, may I remind you that we had $250,000,000 in January.
We have next week on the agenda at the AGM, the approval for $341,000,000 dividend. We've launched a buyback this morning of $500,000,000 to be executed in the next 12 months. And then there's, of course, an interim dividend, which we, of course, still needs to be need to decide on, but it's also something. So if you add that all up, I would argue that we demonstrate that we are taking our equity story and our dividend statement seriously and that we also aim for capital returns that are sustainable over time, over a longer period of time. We find it important to maintain, as I said earlier, a robust capital position to do with market volatility and market uncertainties and such.
And yes, we also want to maintain some financial flexibility to invest in value creating opportunities. So we think that we do hope that the actions that we have demonstrated in the last 2 years are demonstration of our commitment to our equity story. With that, I think I'd like to hand over to Delfin for your point around Netherlands Life.
Okay, Matthias. I think that when thinking about the fees and premium based revenues of NN Life, there are obviously two trends there. I mean, there is the trend of the individual Life business of which the book is in turn off and as a consequence, as it decreases the fees and premium based revenues there keeps decreasing and we have flagged that in the past. And also no surprise that for group pensions, as the trend is continuous trend is moving from defined benefit to defined contribution, the margins there decrease. And as a matter of fact, the margins in some of the defined contribution products in the PPPI.
PPPI arena basically are not reflected in only in Netherlands Life because it's a small contribution there, but is in the increase of assets under management and fees for asset management going forward. So that is the two trends explaining the profitability.
And could you maybe share how important individual closed block is in terms of your Dutch Life earnings?
Yes. Let's say that approximately 70% of the operating result relates to the pension business.
Okay. Thanks.
The next question is from Mr. Michael Van Weze from Bank of America. Please go ahead, sir.
Yes. Hi, good morning guys. One quick follow-up unfortunately on Slide 19 again. The €31,000,000 increase in the SCR, in one of the earlier questions, you explained that that's a combination of growth in SCR because of rerisking growing the assets, but also there's a component that is driven by the fair value change in the investment portfolio. Can you separate the 2 to get a better feel for what the underlying development in the SCR is?
Thank you.
Yes. So Doug, I think you want to add.
Yes. I think just to clarify a bit, I think the change due to interest rates and the higher balance sheet comes under market variances and is modest. I think primarily the focus, as Delfin said, is on the fact that we do have we do continue to move away from government bonds and this incorporates bonds and mortgages. And these are the types of assets that as we've been communicating for a long time at Netherlands Life that has some incremental capital that we need
to hold, but we think the returns are
good against that. And of course, there is a returns are good against that. And of course, there is a it's 1 quarter, so the VA book runs off, but it runs off 1 quarter at a time. So I think these 2 in this particular quarter resulted in a slight increase, but that could that should fluctuate as long as we're kind of adding additional risky assets. That should fluctuate close to 0 for the I would think.
Okay. So normalized level in your view would be around 0?
I don't have exactly a number to give an exact forecast, but I think you're going to see both of those things continuing over the coming quarters.
Okay. Thank
you. The next question is coming from Mr. Stephen Haywood from HSBC. Please go ahead, sir.
Good morning, everybody. I wonder if you could provide us with a bit of an update on what's going on with the unit linked cases, particularly the outcome of a couple of the Giffit cases and whether NN is going to one of the courts where it's going to appeal against the individual case and when slightly to hear back from the other cases that are currently going on at the courts? And then the second question is, I wonder if you can comment about the potential review that the D and V is doing into the motor market, particularly about the competitive level of the motor market?
I will take the first question, Stephen, although I think can you your second question on the DNB review of the motor market, is that what we understood you to say or the mark to market? I don't
Yes, yes, sorry, that was on the motor market, yes.
Okay, the motor market. Okay, thank you. So let me take both. So first, on the unit linked file. Well, as you know, we're helping customers our priority is to help customers with an outreach program that we have and that we work on every day very hard to ensure that we reach every customer and that we assess with them whether they are still satisfied with the product that they have.
And if not, that we will help them to take opportunity of the many options that we give to change the product so that it fits their appropriate need. At the same time, we are confronted and the entire industry, by the way, we're not alone in this, confronted with some legal proceedings and also proceedings against us on individual cases at the KIFID. Recently, that's what you're referring to, the KIFID in an individual case came to a conclusion and ruled in favor of the plaintiff in that particular case. First of all, it's an individual case. So each claim needs to be assessed on its own merits.
And therefore, no generic conclusions can be drawn from a ruling in the first instance by the KIFIT in this individual case. More importantly, we believe that the information obligations assumed by the KIFID do not meet the criteria that were set out in the ruling of the European Court of Justice of 2015 in April. In our opinion, these information obligations cannot be reconciled with the conscious choices made by the Dutch legislator at the time legislature at the time, and those were widely endorsed by society. Therefore, we have appealed the KIFAD ruling that was rendered recently on an individual case in first instance. Now that's where that stands.
We by the way, there are also other rulings that are being rendered in the market. Also, I think this is all all these proceedings are in first instance. So I think it will take some time before the legal clarity, if you will, or a clear path will start to establish itself. We really think that will take time. So we'll just have to await that.
When it comes to timing of whether when the appeal within this individual on this individual case of the KIPFET is going to be ruled upon. We don't know. We simply don't know. Usually, these things take time, but we don't know what the exact time frame will be. When it comes to the comments of DNB, well, on the motor, the car insurance market, well, as I mentioned earlier, there is indeed a market backdrop in the Netherlands that needs to be recognized.
And that is that the car insurance market in the Netherlands is, let's say, seeing quite some profitability pressures. We are not immune to that, as you know from our own numbers. And we have a range of management actions that we are putting in place to ensure that we improve the overall picture of our motor book against that difficult market backdrop. So expense reductions, differentiated pricing, etcetera, and all the things that I've listed before and more to ensure that we improve the profile of that motor insurance business. With that, I think next questions.
There is a follow-up question coming from William Hawkins from KBW.
Sorry to strike the call out just very briefly. On the disability book again, I'm worried that when we see actual versus estimate running ahead that it is a harbinger for a reserve review. But I think you said when you were giving your formal remarks that those issues were specifically in the 1st 2 months and therefore implicitly March is back to normal, so we shouldn't be worried about this on a forward looking basis. Can you just confirm that was what you said and that was your intention to say that?
On the disability book, let me be clear, William, here. On the disability book, the 1st 2 months of the year, we saw these claims coming in. These were on this year's premiums. These were not claims of past years or something like that. Yes, so this is on this year's premiums.
So bottom line, at this point in time, the disability book has demonstrated over the last, I think, for a longer period already, quite a substantial profitability profile, which is pretty good. And this is 1st 2 months of this year. We saw on existing on this year premiums, we saw some additional claims. That's how you have to look at it.
Okay. So the implication is
the 3rd month was just normal?
The implication is the 3rd month we indeed saw a normal pattern. Thank you.
There are no further questions. Please continue.
Okay. If there's no further questions, then let me conclude this call by saying that while the Q1 operating result was broadly stable on last year, we are fully aware there's still more work to do to further improve the performance of our businesses, and we are committed to doing so. Given our strong capital position and healthy holding company cash capital, we have today announced an open market share buyback program and this demonstrates our disciplined capital management as well as our commitment to returning excess capital to shareholders, while maintaining a robust capital position and the