Gentlemen, this is the operator speaking. Welcome to the NN Group analyst conference call for its fourth quarter 2015 results. The telephone lines will be in a listen-only mode during the company's presentation. The lines will be opened for a question-and-answer session. Before handing this conference over to Mr. Lard Friese, Chief Executive Officer of NN Group, let me first give the following statement on behalf of the company. Today's comments may include forward-looking statements, such as statements regarding the future developments in NN Group's business, expectations for its future financial performance, and any statements not involving historical fact. Actual results may differ materially from those projected in any forward-looking statements.
Any forward-looking statements speak only for as of the date they are made. 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 comment constitutes an offer to sell or solicitation or an offer to buy any securities. Mr. Friese, go ahead, please.
Good morning, everyone, welcome to this conference call to discuss NN Group's results for the fourth quarter of 2015. I will start off today's presentation by going through the highlights of the fourth quarter results and of the year 2015 as a whole, including the progress we have made to deliver on our financial targets. I will also look forward at our priorities for the coming year. Delfin Rueda, our Chief Financial Officer, will talk you through the financial details of the results at 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 Q&A. We also have our Chief Risk Officer, Doug Caldwell, here to answer your questions. Let's go to slide number three, the financial highlights of the fourth quarter.
NN Group's operating result for the fourth quarter of 2015 was EUR 250 million, which was down on the same quarter of 2014. Let me start with the positive developments in the quarter. We continued to reduce administrative expenses in the Netherlands. The results of Insurance Europe and Japan Life were up compared with the same quarter in 2014. On the other hand, the results of our non-life business were impacted by less favorable claims experience in the property and casualty segment. The lower operating result at asset management reflects a restructuring provision, which has been taken as part of its strategy enhancement program, which I will talk about later. If we look at the year as a whole, the full-year 2015 operating result of the ongoing business was EUR 1,435,000,000, which is up more than 32% compared with 2014, with almost all segments reporting improved results.
As you know, De Nederlandsche Bank approved our Solvency II partial internal model in December 2015. Delfin Rueda will talk in some detail about our capital position in this part of the presentation. I will simply say that our Solvency II ratio under the partial internal model was 239% at the end of 2015, and our cash capital at the holding company increased to almost EUR 2 billion. In view of our strong capital position and the earnings development, we are proposing a final dividend for 2015 of EUR 1.05 per ordinary share.
Together with the interim dividend that we paid in September, the full-year 2015 dividend comes to EUR 1.51 per ordinary share and represents a payout ratio of 41% of the 2015 full-year net operating result of the ongoing business, in line with our stated dividend policy of 40%-50% of the net operating profit. Let's now turn to the next slide and look how the individual businesses developed in 2015. At our largest segment, Netherlands Life, we remain focused on achieving further cost efficiencies while managing the runoff of the individual life closed block. We continue to selectively pursue growth in the pensions market, and in December 2015, saw the launch of our general pension fund, or APF, ahead of the new pension regulations that became effective in January of this year.
Our aim is to improve the combined ratio of our non-life business to 97% or better by 2018. This ratio stood at 101.5% for 2015, we have still more work to do. Progress within the disability and accident segment has been encouraging, with a combined ratio of 97.6% for 2015. However, the property and casualty segment was hit by large fire and weather-related claims in 2015, resulting in a combined ratio of 104.8% for the year. At the businesses in Insurance Europe, our focus is on profitable growth, which means that we put the value of new business before volume. This is reflected in the higher valued new business numbers for 2015. This should help us achieve our earnings growth target even in this low interest rate environment.
Our COLI business in Japan is performing well as it builds on its ability to offer innovative products through an expanding distribution channel. Our bank insurance sales grew by approximately 20% in 2015. The market environment in 2015 was very challenging for the asset management industry as a whole, and NN Investment Partners, our asset manager, was no exception in struggling to attract new mandates during the year. To address this, we have embarked upon a program to Focus, Simplify and Optimise our asset management business by rationalizing and creating scale in its product range and building on its specific areas of expertise. As I already mentioned, we have taken a EUR 13 million restructuring provision in the fourth quarter in connection with this program, which is reflected in the operating result.
In addition to delivering cost savings, these measures should enable our asset management business to achieve its growth ambitions in the coming years. Finally, NN Bank is steadily and successfully growing its franchise in the Netherlands as it expands its mortgage portfolio and customer savings activities. Let's move on to the next slide, and let's look at our progress on the financial targets that we have set for NN Group as a whole. Firstly, we aim to realize an annual growth rate of the operating result before tax of the ongoing business of 5%-7% on average in the medium term. The operating result before tax of the ongoing business in 2015 of over EUR 1.4 billion represents a 32% increase compared with 2014. This growth rate obviously reflects the particularly high results in 2015, which were supported by some large favorable items.
We've always stressed that this is a medium-term target and that we intend to measure our average growth rate over a longer period. At our Capital Markets Day in November, we announced our new target to reduce the administrative expense base in the Netherlands to EUR 700 million by the end of 2018. We achieved EUR 15 million of cost savings in the fourth quarter of 2015. Thirdly, we aim to increase the net operating return on equity of the ongoing business in the medium term. The net operating return on equity of the ongoing business for 2015 was 10.8%, so higher than the 8.6% for 2014. Aligned with these three targets, we expect, over time, to generate free cash available to shareholders in a range around the net operating result of the ongoing business.
In 2014, the free cash flow, adjusted for the IPO-related items, was EUR 450 million compared with a net operating result of EUR 806 million. The free cash flow of the holding company in 2015 was almost EUR 1.4 billion, which included a total of about EUR 1.5 billion of dividends upstreamed by our subsidiaries. This compares with a net operating result of the ongoing business for 2015 of almost EUR 1.2 billion. Please bear in mind that this is an over-time target, and there can be volatility in both the operating results and the dividend flow. Delfin Rueda, our Chief Financial Officer, will go into details of our free cash flow later in the presentation. Turning now to slide six. We aim to always maintain a robust balance sheet while at the same time using the balance sheet efficiently. Being well-capitalized allows us to fully focus on improving the returns on that capital.
Thanks to strong capital generation, NN Group Solvency I IGD ratio increased to 320% at the end of 2015, even after distributing EUR 849 million to shareholders during the year. The holding company cash position was almost EUR 2 billion at the end of the year, mainly driven by the dividends upstream by all business segments in 2015. And please bear in mind that this number reflects the position before the payment of the announced final 2015 dividend and the share buyback completed in January 2016. In terms of financial leverage, our fixed cost coverage ratio went up to 13.1 times. The leverage ratio decreased to 21.7%, while the gross financial leverage position remained stable at EUR 3.7 billion. From now on, we will report our capital position based on our Solvency II partial internal model as approved by the Dutch regulator last December.
The NN Group Solvency II ratio was 239% at the end of the fourth quarter of 2015, down from 247% at the end of the third quarter of 2015. Please note that both the Solvency II ratio and the IGD ratio already reflect the proposed final 2015 dividend of EUR 341 million. The share buyback of EUR 250 million in January 2016 will be reflected in the Solvency II ratio at the end of the first quarter of 2016. Let's move to slide seven. We've always been very clear about our commitment to execute on the equity story set out at the IPO with a focus on creating shareholder value. Our priority is to improve earnings and generate cash with a base case of returning that cash to shareholders unless it can be used for other value-creating opportunities.
Since the IPO, we have returned a total amount of EUR 1.44 billion to shareholders. This includes the final 2015 dividend that will be proposed to the annual general meeting in June 2016, and it also includes our participation in ING's sell-down of a further stake in NN Group in January 2016, when we bought back another EUR 250 million of NN Group shares. As a result of that sell-down and the conversion of the final tranche of subordinated notes to the anchor investors, ING's stake in NN Group has been reduced to 14.1%. Finally, on slide number eight, I would like to spend a minute on our priorities for 2016. Our primary focus is on improving performance across all of our businesses. That means continuing to achieve efficiencies and cost savings while at the same time investing in our products and services to customers in the various regions.
Two areas are being given particular focus, and that is non-life and asset management. I've already mentioned the program we have launched at our asset manager to sharpen its strategic focus. At our non-life business, we continue to take measures to further improve the results, such as adjusting premium rates and improving underwriting performance. We will continue to deploy capital in the best way in the most profitable businesses in order to generate value for our shareholders. When looking at future growth opportunities, be it organic or inorganic, we will always apply strict financial criteria and compare it with the alternative deployment of that cash by returning it to shareholders. At all times, we will maintain our capital discipline.
We have today disclosed our target range for the cash capital position of the holding company at EUR 0.5 billion-EUR 1.5 billion, and Delfin will talk more about this later in the presentation. Our solid capital position will allow us to cope with the remaining regulatory uncertainties and market volatility and continue to deliver on our dividend policy. With that, I would like to hand over to you, Delfin.
Thank you, Lard. Good morning, everyone. I will start with the consolidated full year results. NN Group reported an operating result of the ongoing business of EUR 1.4 billion for the full year 2015. This is up 32% compared with 2014. The operating result excludes the result of the closed block variable annuity business in Japan. The 2015 operating result was supported by some favorable items, including large private equity dividends of EUR 221 million, cost reductions in the Netherlands of EUR 75 million, and non-recurrent benefits of EUR 52 million in the technical margin. It also reflects higher results at Insurance Europe and Japan Life, as well as lower funding costs. These positive developments were partly offset by a lower result at asset management and an unfavorable claims experience in our non-life property and casualty business.
In the right-hand chart, you can see that the full year net result increased significantly compared with 2014 to almost EUR 1.6 billion. Special items in 2015 comprise rebranding expenses. In addition to that, special items include EUR 13 million of restructuring expenses taken in the fourth quarter related to our new cost reduction target in the Netherlands. To achieve this target, we expect to spend EUR 30 million to EUR 35 million before tax per year over the next three years. We will report these expenses as special items. Before going through individual operating segments, please turn to slide 11, which gives more details on the cost savings in the Netherlands. As we announced at our Capital Markets Day in November, we have set ourselves a new target cost base in the Netherlands.
We aim to reduce the administrative expenses of Netherlands Life, Netherlands Non-Life, and the holding entities to EUR 700 million by the end of 2018. This is a reduction of almost 15% compared with the annualized cost base at the end of the third quarter of 2015. We have got off to a good start with total expense savings of EUR 15 million achieved across all the Dutch units in the fourth quarter of 2015, bringing the cost base in the Netherlands down to EUR 803 million in an annualized basis. As Lard already said, improving efficiency remains a priority for us going forward. We are implementing a range of initiatives to achieve these savings, from operational efficiency improvements in individual departments to more cost-effective IT platforms. Let's now look at the fourth quarter performance of each individual segment, starting, as usual, with Netherlands Life on slide 12.
The operating result of Netherlands Life remained broadly stable at EUR 155 million in the fourth quarter of 2015. There are both positive and negative developments influencing this result. Firstly, the technical margin was higher as the current quarter including EUR 25 million benefits following updates to certain technical provisions, partly offset by lower mortality results. Please also note that the fourth quarter of 2014 included a EUR 19 million addition to the unit-linked guarantee provision due to a decrease in interest rates. Secondly, fees and premium-based revenues remain under pressure due to the individual life closed block run-off. The investment margin decreased in the fourth quarter of 2015, following a non-recurring negative adjustment of EUR 13 million related to mortgage amortization, while the fourth quarter of 2014 included a EUR 23 million private equity dividend.
The large private equity dividends received in earlier quarters in 2015 led to an increase in the investment spread to 136 basis points. We continue our strategy to gradually shifting the asset mix to higher yielding assets. Finally, as already seen in the previous slide, administrative expenses decreased compared with the fourth quarter of 2014, supported by lower staff cost. I will now turn to slide 13 for the results of Netherlands Non-Life. The operating result for Netherlands Non-Life was EUR 28 million, compared with EUR 35 million for the fourth quarter of 2014. This was due to an increase in the claims ratio in property and casualty. The combined ratio for the fourth quarter increased to 100.7%. Let's look at the two business lines within Non-Life separately. The fourth quarter 2015 operating result in Disability & Accident remained stable at EUR 21 million.
The results of D&A have improved over the last few years following the various management actions we have taken. As you can see in the right-hand chart, the combined ratio has decreased accordingly, and now stands at 97.6% for the full year 2015. The fourth quarter operating result in property and casualty, however, decreased to EUR 6 million from EUR 13 million in the fourth quarter of 2014. This was due to lower results in the motor portfolio as well as in the miscellaneous portfolio, which primarily comprises liability and legal aid cover. On the other hand, the current quarter saw fewer large fire and weather-related claims, leading to a higher result in the fire portfolio. On balance, however, I think it is fair to say that we still have more work to do to bring the property and casualty combined ratio down, which stood at 104.8% for the full year 2015.
Please turn to Slide 14 and the results of Insurance Europe. Insurance Europe reported a higher operating result of EUR 48 million for the fourth quarter of 2015. This is compared with EUR 40 million for the same quarter the year before. This was supported by higher fees and premium-based revenues related to traditional life, unit link, and universal life insurance products. Also, administrative expenses were lower compared with the fourth quarter of 2014, resulting in an improved cost-income ratio. Moving to Japan Life. The operating result of Japan Life was EUR 27 million, up significantly from the fourth quarter of 2014. Fees and premium-based revenues increased almost 5% on a constant currency basis, driven by larger in-force volumes, and the technical margin improved, reflecting a higher mortality result. This was partly offset by a decrease of the investment margin due to lower interest rates on reinvested assets.
The cost-income ratio improved as a result of the higher income and flat administrative expenses. Moving now to asset management. Total assets under management decreased to EUR 187 billion at the end of the fourth quarter of 2015. The decrease reflects net outflows of third-party assets of EUR 4.1 billion, partly offset by positive market performance of EUR 1.6 billion. The operating result decreased to EUR 21 million for the fourth quarter. Fees were down on lower average assets under management in the quarter, and expenses were higher due to the EUR 13 million restructuring provision already mentioned by Lard. This one-off expense was partly offset by lower staff-related cost. The lower income and higher expenses are of course reflected in the higher cost-income ratio for both the fourth quarter and the full year. Our focus remains on bringing this ratio down by increasing fees on assets under management and reducing expenses.
The segment other, which comprises the holding company, the reinsurance business, and NN Bank, is set out on Slide 17. The total operating result of the segment other decreased from a loss of EUR 24 million in the fourth quarter of 2014 to a loss of EUR 29 million in the fourth quarter of 2015. These results mainly comprise the three elements shown in the graphs on this slide. Let me go through these individually. First, starting with the first graph. The improved holding result was mainly driven by cost reductions. The result of NN Bank increased to EUR 11 million in the fourth quarter. The bank continued to grow in both mortgages and customer savings, which led to a higher interest margin. On the other hand, administrative expenses were also up as investments are being made to support this growth.
Finally, at the reinsurance business, the operating result was down due to lower underwriting results. Also, the fourth quarter of 2014 included favorable mortality and lapse assumption updates. I will now move on to Slide 18 to cover our last segment, Japan Closed Block VA. Japan Closed Block VA reported a result before tax of EUR 24 million, up from a EUR 24 million loss in the fourth quarter of 2014, mainly driven by positive hedge results. As we have mentioned before, these hedge results can be volatile from quarter to quarter and tend to have a negative bias in volatile markets. As you can see in the right-hand chart, the portfolio continues to run off. The number of policies decreased by more than 31% in 2015, and the account value of this closed book now stands at EUR 10 billion. That completes the results of our operating segments.
On the following slides, I would like to take you through the value of new business, free cash flow, and capital generation. Starting with the value of new business. As Lard mentioned in the presentation, we were much focused on profitable growth in Europe and Japan, where we are shifting our business mix towards higher margin products. The success of this strategy can be seen in the value of new business for the full year 2015, which went up at both Insurance Europe and Japan Life. On the other hand, the value of new business at Netherlands Life decreased due to an overall decline in interest rates. I will now move on to slide 20 to cover our free cash flow.
As we have done in previous quarters, let's start with the movement in the holding company cash capital during the fourth quarter of 2015, which increased from EUR 1.6 billion at the end of the third quarter to almost EUR 2 billion at the end of 2015. The free cash flow during the quarter was EUR 335 million, which is the sum of the four elements within the box in the chart. As you can see, the free cash flow was mainly driven by dividends of EUR 376 million received from our subsidiaries. This included a total of EUR 250 million of dividends received from NN Life. The free cash flow for the year 2015 as a whole is on slide 21. The cash capital position at the holding company increased during 2015 from EUR 1.4 billion at the beginning of the year to almost EUR 2 billion at the end of the year.
This increase reflects total free cash flow during the year of EUR 1,336,000,000, driven by dividends received from all business segments. This was partly offset by EUR 792 million of net capital flows to shareholders, which mainly consist of ordinary dividend payments of EUR 349 million, and the three share buybacks completed during the year, for a total amount of EUR 500 million. The appendix to this presentation on slide 32 shows a breakdown of the dividends received in 2014 and 2015 from our segments and subsidiaries. As you can see on that slide, they are broadly spread across the various businesses. Let's now turn to capital generation on slide 22. This slide shows the capital generation of our subsidiaries, and for NN Life separately, for the second half of 2015, based on Solvency I. The total capital generated by the subsidiaries during the second half of the year was EUR 951 million.
This was predominantly generated by NN Life for an amount of EUR 804 million, and reflects decreasing interest rates and the tightening of credit spreads, in combination with positive operating performance, partially offset by the investment in new business. Now that Solvency II has become effective, this will be the last quarter that we report these Solvency I numbers. On the following slides, I would like to take you through some additional disclosures on Solvency II. In the table of this slide, we provide you with the Solvency II ratios for NN Group and insurance entities in the Netherlands based on the partial internal model. As you can see, they have different levels of solvency, but are all strongly capitalized under Solvency II. Let me now update you on the sensitivities of our Solvency II ratio, based on the partial internal model, on slide 24.
On this slide, as you can see that in time of stress, the Solvency II ratio, based on the partial internal model, moves in a similar direction as the standard formula ratio, which we disclosed at the Capital Markets Day last November. NN Group solvency ratio is exposed to raising and falling rates, but is relatively well matched to interest rate movements as own funds and the SCR both move in the same direction under parallel interest rate shifts. The own funds are most exposed to widening spreads on AAA sovereigns and reducing corporate spreads. The fact that own funds benefit from widening corporate spreads provides a good offset to equity risk, especially in times of stress.
This is mainly the result of the difference between our own investment portfolio and the vola reference portfolio, and the fact that we have substantially more AAA government bonds and fewer corporate bonds. If we apply these sensitivities to market developments since the beginning of the year, and we exclude the impact of the EUR 200 million share buyback we did in January, the impact from market movements on our Solvency II ratio was not material. I will finish off by looking at our cash capital target and dividend on slide 25. We told you at the time of the IPO that we would look to have free cash available to shareholders in the range of the net operating profit of the ongoing business. While this varies year on year due to financial markets and other items, this guidance remains in place as we transition to Solvency II.
Today, we also give you some more clarity on the cash capital position at the holding company, which we see as requiring a target range of EUR 0.5 billion-EUR 1.5 billion. As I have previously communicated, the amount of capital we need in the holding depends on the risk in our units relative to their financial position. As they take on more risk or have lower solvency ratios, we will need more in the holding and vice versa. For this reason, we give you a guidance range, which we think will cover most scenarios. The combination of these two statements should allow you to have a better sense of our deployable capital in the holding, both in terms of what you can normally expect to be generated and also what you can normally expect us to hold.
Looking at our position today, if we take into account the EUR 200 million share buyback that we completed in January, and the proposed final 2015 dividend that, if approved by shareholders, will be paid in June, our pro forma cash capital position stands at almost EUR 1.4 billion, so within our target range. The proposed final dividend, taken together with the 2015 interim dividend that was paid in September, represents a payout ratio of 41%, in line with our stated dividend policy. Now I will pass you back to Lard for the wrap-up.
Yes, everybody. I'd like to round off this presentation by saying that we are pleased with the strong results for 2015 and the progress that we have made during the year to achieve our financial targets and generate value. We reached an important milestone in December when our Solvency II partial internal model was approved by the Dutch regulator. We believe that our strong capital position will allow us to deal with any remaining uncertainties or market volatility. It also allows us to keep delivering on a promise to return capital to shareholders by proposing a final 2015 dividend of EUR 1.05 per ordinary share.
We still have a lot of work to do in 2016 to further improve performance, this goes hand in hand with delivering an excellent customer experience by offering transparent products and services that serve our customers' lifetime needs, and being a company that truly matters in the lives of our stakeholders. With that, I would like now to open the call for your questions. Delfin Rueda and Doug Caldwell, our Chief Risk Officer, and myself are here to help you with that. Please, operator, over to you.
Thank you, sir. Ladies and gentlemen, we will start the question and answer session. To be registered for the Q&A, please press star one on your telephone. In the interest of time, we kindly ask each analyst to limit the number of questions to two. Your questions will be answered in the order they are received. Please press star one for your question or remark. Go ahead, please. The first question comes from Ashik Musaddi from JPMorgan. Please go ahead, sir.
Delfin. Just a couple of questions. First of all, on your dividend, how should we think about your dividend? Is it strictly based on payout ratio, i.e., if your earnings move up or down based on, say, private equity dividend coming in or not? Do you have some sense like, okay, you aim to have at least maintain the absolute cost of dividend, or any sort of thoughts on that? Secondly, in your partial internal model, is it more or less final, are you still in discussion with DNB or other regulators to get a bit more clarity on stuff like LAC DT or anything else that is still pending? Do you think this is more or less the final number, and then whatever happens will be proper industry-wide, not just Netherlands, but for all of Europe?
Thirdly is, can you give us a bit more color on cash flows for 2016? Because you extracted a lot of cash out of Netherlands last year. How should we think about, is it like you're extracting cash ahead from Netherlands or from year 2016, you have already got a lot of cash in 2015, or that was just done and now it's all about 2016 and you continue to expect recurring strong cash flows from that? Thank you.
Yeah, thanks, Ashik. Delfin, I think if you would be so kind to take those questions.
Okay. Three questions. Good morning, Ashik.
Yeah.
The first one, how to think about dividend. We have established the guidance on the dividends in the range of 40% to 50% of the operating result of the ongoing business after tax. We have also highlighted, and we do so again, that we are aiming for a sustainable dividend over time. That means that fluctuations that might happen on the operating results should not be translated one-on-one towards the amount of dividend to be paid. That's why, as you know, we have a range between 40% and 50%, on which under normal circumstances, we like to drive the ordinary dividend. Obviously, as it's been commented already in the past, any surplus capital that we have will be distributed at the appropriate time on top of the ordinary dividend as we have done already over the past quarters.
In terms of the partial internal model, we did receive approval by our regulator mid-December, and we have already disclosed what is the amount of the solvency ratio under the partial internal model. We have indicated that as it was the case for Solvency I, that the solvency ratios are not final until they are filed with the regulators. It is true that under Solvency II, there are more areas for potential interpretation with the new regulation than it was the case with Solvency I. Otherwise, we do consider that our partial internal model is stable, has been approved, and subject to the uncertainties that we have mentioned in the press release and in further disclosures. There is nothing else or special to comment upon.
Looking at the cash flows for 2016, I can refer you back, Ashik, to our general statement that we do expect these cash flows to be, over time, in the range of the operating result after tax. I think that you highlighted yourself, indeed, 2015 has been very strong, and there are certain elements there, particularly the dividends from private equity, that although we do expect to keep receiving dividends from private equity, not to the same extent that happens in 2015.
There is no such thing that you have accelerated cash flows from Netherlands Life. We may see a bit of drop in Netherlands Life cash flow this year. It is not like that. You still expect recurring cash flows from Netherlands Life in the range of your operating profits.
Netherlands Life had a very good dividend for the parent company, they are not out of line with the guidance that we have provided in terms of the cash flows coming from Netherlands Life to be, over time, at or above the operating result. As we have always flagged, there is volatility on how this comes quarter per quarter or year per year. Nothing special that happened in 2015 that, under normal circumstances, could not be repeated going forward.
That's very clear. Thanks, Delfin. Thanks a lot.
The next question comes from William Hawkins from KBW. Please go ahead, sir.
Thank you very much. First of all, on Solvency II, now that you have had the PIM signed off, could you just try and be clearer to us about what you think is an acceptable Solvency II ratio of the group, and then Dutch Life and non-life subsidiaries? Part B of that, forgive me if you've disclosed it and I've missed it, but can you just remind us what's the LAC DT contribution to available capital and the tiering between tiers 1, 2, and 3? Again, some of that might have changed since the Investor Day. Secondly, could you just give us a brief strategic update on what's changed in the asset management division since the IPO?
I'm maybe not following this as closely as I should have done, but it does sound like the performance hasn't been coming up to scratch, and you've got this further restructuring investment today. Can you tell us what's been going wrong and more precisely what you're changing that means the performance is going to be better in the future? Thanks.
Thanks, William. I'm going to take the asset management discussion first, I will ask Delfin to comment on the other two questions that you had. First, on the asset management business. We want our asset management to grow its third-party flows. That's our objective. We want also our asset manager to improve its earnings over time. We've given a target for that at the time of the IPO. What we're seeing, this is against the backdrop that is a reality for the active management industry, but also our asset manager is not immune to that, is that we've seen outflows. We obviously would like to change that profile moving forward and make sure that we get the growth that we want to achieve there. Why?
Because we've invested, for instance, in a platform to rewire the asset manager, ensure that we can take on more assets. Secondly, because we believe that there is a lot of good strategies that we have that can attract new flows. What we've done to sharpen that focus and to make sure that we achieve our objectives moving forward, we have done a couple of things. We've designed a new program, which goes by the name of Focus, Simplify and Optimise, that pertains to a number of things. First of all, we will focus on selected areas, meaning that we will focus on some flagship strategies in the income space, multi-asset space, the liability-driven investments, sustainable impact, emerging markets, real assets, and private debt, where we think that we have a great expertise, we combine our expertise with higher fees charged in these strategies.
Secondly, in terms of rationalizing, we think that we can rationalize our product range and our product offering. We currently have over 300 funds in seven fund domiciles, and we expect to rationalize that in the coming three years. More focus is what we want, and also in our distribution and in our target client segmenting. Sorry, targeting client segments. We want more focus on what client segments and build out distribution in those areas. We want to simplify our structure within the asset manager, and simplify the processes following the implementation of that platform that I just mentioned earlier. Now, in order to support all this, we've taken a restructuring provision of EUR 13 million in the fourth quarter operating result line of the asset manager.
This has to do with some investments that we need to make, plus also some personnel costs that are included in that. That's what we've done to ensure that we achieve our objective moving forward, which is to improve the net flows and grow the asset manager. With that, I'd like to hand over to you, Delfin, to take William's other questions that he had.
Of course. William, in terms of your first question about targets on Solvency II ratios, I think that maybe on this, we are having a slightly different approach than others, but we are not, at this time, ready to elaborate on specific targets for the subsidiaries or for the group. The reason being because we believe that these ratios, how they are interpreted remains fluid, and there still remains some uncertainties over the final numbers as we move over the next quarters. We will see how the environment pans out over the coming year. For this reason, our capital guidance at this point of time remains focused on capital generation and in the holding cash capital levels.
I think that guidance should provide you a good metric in order to grasp not only what, subject to some volatility, we will be able to generate of cash flow available to shareholders, and then how, as this accumulates in the cash capital at holding, how that will be distributed to shareholders over time within the range guidance of EUR 0.5 billion to EUR 1.5 billion. Your second question was about deferred taxes. You've got in the press release, in the capital management section in page 22, you've got the contribution to eligible own funds of the different elements. That also can allow you to do the tiering of capital. You can see there that the deferred taxes is basically all of tier 3 of EUR 735 million, representing around 6% of the total.
Great. Thanks. Sorry, I missed that last one. Thanks.
Next question comes from Cor Klaassen from Rabobank. Please go ahead, sir.
Good morning, Cor Klaassen, Rabobank. I've got a few questions. First of all, on the Solvency II ratio in the Netherlands Life business, which declined only by 5 percentage points from 225 to 220. Despite the big upstreams that you have done this quarter, could you tell what happened during the quarter? What's the go forward for that solvency development over the quarter? Second question is about energy exposure and China exposure. That's probably very small for you, but at least could you give some indication or sizes or figures on that one? That's all my questions.
Yes. Thanks, Cor. Let's start with the exposures in China and in the energy sector. Doug, can you take that? I'm asking Delfin to take the solvency ratio and Netherlands Life.
Sure. The China is, I think you used the word nonexistent. I think we would not have any material exposure to China directly. In terms of the energy sector, we have in the appendix, we show 3% under utilities and natural resources. About EUR 1.2 billion of that is exposed to oil. There could be, of course, again, indirect exposure, but that would be more difficult to quantify. In total, you're talking about 1% of the general account investments exposed to oil and essentially no exposure directly to China.
Okay. The metals business?
Metals?
Yeah.
I think that would be in our utilities and natural resources. The total exposure we would have is 3% of our assets.
Okay. Thanks.
The evolution of the Solvency II ratio in life, basically you have to take here into account, first, the market impact has not been this quarter that significant. The variance from the previous quarter are mainly driven by the dividend payment of EUR 125 million that is being deducted from the Solvency. Obviously, the operating result that has contributed positively over the quarter.
Okay. Thank you.
The next question comes from Farquhar Murray from Autonomous. Please go ahead, sir.
Morning, gentlemen. It's Farquhar from Autonomous here. Just two questions, if I may. Just starting on the holding cash target, could you just explain the reasoning or framework behind the EUR 0.5 billion-EUR 1.5 billion target there? Also, could you just explain whether there's been any incremental upstreams from the subsidiaries to the group in the first quarter to date? Then just a little bit of an extension on the question from Ashik on the dividend. Obviously, net operating profit in 2015 was kind of boosted by high private equity dividend. My question therefore, to a certain extent is, when you think about the dividend trajectory, did you look through those perhaps with an intention of at least maintaining a stable nominal? I think the answer is very much yes, I just want to confirm that. Thanks.
Thanks, Farquhar. I'll hand over to Delfin for these questions.
Farquhar, the 1st question about the way of looking at the targets of the whole company cash levels. Maybe if I refer back at the time of the IPO, we did explain that the free cash available to shareholders will be in the range of the net operating profit of the ongoing business. We have repeated that several times. What we have given you now is more clarity on the cash capital position at the holding, on which we think that the range of EUR 0.5 billion-EUR 1.5 billion is our target. The cash capital, you have to think of it as the amount we believe that we require to cover stress events and to fund the holding cost. This amount depends, therefore, on the risk in our units relative to their financial position.
As I said during the presentation, as we take more risk, then we need to have more cash capital at holding, and also it depends what is the level of solvency in the system at the subsidiaries. This is a, if you like, a dynamic situation on which also levels of interest rates and other valuations of financial assets impact your solvency over time. The combination of these two statements, how much we are expecting to generate of cash flow and how to move from there should provide you a good guidance. Obviously, you should not expect that this target is a complete fix. That means that there will be times on which we are outside of the range, and obviously, as any target, we will aim taking the right actions in order to move towards the range again.
Dividends in the 1st quarter in terms of upstream?
In terms of dividends for the first quarter, basically, just as a reminder, the dividends for Europe tends to come into the second quarter. I think that one element maybe to highlight is that in the case of Belgium, because part of the portfolio is running off, we are expecting to release during the period 2016 and 2018, a bit more dividends than in the past. For Netherlands Life and for the other operating units, the capital above the commercial target is upstream to the holding company as it comes through. We expect this remittance of Netherlands Life to be larger than the net operating result, as I have said. I don't think there is anything in particular to flag for the existing quarter.
Finally, I think, Delfin, that Farquhar also had a final question around the dividend policy in general, the 40%-50% range, and how we think about that. Maybe you want to take that as well.
Yes, I think the dividend policy, on the ordinary dividend, I stated already that we're looking for a stable evolution on that respect. Obviously, the private equity contribution as others can be volatile. I think that the right definition is to look at sustainable, hopefully, growing dividend over time.
Okay. Thanks very much indeed.
Next question comes from Farooq Hanif from Citi. Please go ahead, sir.
I want to return to the hold co cash target because you're clearly going back into the target range now, having been above it. I just want to understand what this means because we are in a time of stress with lots of potential risk, but at the same time, you've got very good capital in your subsidiaries. Should we interpret you being below that EUR 1.5 billion range as, look, if you're within the range, buybacks, we should assume in this climate don't happen until you get above the range. What happens when you get to EUR 0.5 billion? What is the range of different actions that you take within that range? If you could just explain a little bit more. My second question is, you've given the EUR 1.8 billion of Solvency I capital generation.
Was the Solvency II capital generation in 2015 greater than this or less than this? Can you make a general comment on Solvency II capital generation versus the Solvency I generation that we've seen before? Thank you.
Farooq, thanks for your question. Let's start with Delfin on the range and how to think about that.
When considering how we return excess capital, I think we have to take into account different factors. Our own risk and solvency assessment, current and future capital generation, market volatility, regulatory uncertainties, litigation risk as a unit link. Many factors need to be taken into account when we take a decision to return excess capital. For this reason, we have given a guidance that cover most scenarios within that range. As I said, you should not look at the EUR 1.5 billion or EUR 0.5 billion as hard target. We will, over time, come back to the range, and that does not mean that if we are below EUR 1.5 billion, that we don't have capacity to do share buybacks or distribute further dividends on top of the ordinary dividend. That's why there is a range.
Again, within that range, then what we will look is into considering all these factors, the solvency of the subsidiaries, the situation of the risk profile at that point of time. We will decide on the share buybacks. The range, I would say, if anything, give us financial flexibility in order to aim for the sustainable return to shareholders.
Doug, can you take the second piece of the question, Farooq?
I think, maybe just to focus on the differences between the Solvency I and Solvency II regime, and primarily in the Netherlands. I think when you look at it in life, where the change in the assets is very similar between the two. On the liabilities, there is a credit risk adjustment and a volatility adjuster that you have to take into account that was not there in Solvency I because it was on the swap curve. During 2015, that was a net positive, so that would have been a little bit lower capital generation for the fixed income and the liabilities. The other main difference is the risk margins. The risk margins are generally a little bit higher under Solvency II than under Solvency I, so that would generate a little bit higher capital.
Those are the types of points that I think are the key differences.
I think Delfin can give a bit more on the capital generation.
Yes. I think maybe the best reference for you to look at, Farooq, is again, in the capital management section, when you can see the evolution of the solvency capital ratio in the quarter. You can see that in terms of the solvency capital requirement has been very flat. Around EUR 5.6 billion capital requirement. There has been, however, a reduction of half a billion EUR in the eligible own funds. When you look into that, you can see that there are two elements impacting that. Basic own funds decrease not much by around EUR 200, and it has been the increase in the non-eligible own funds. The non-available own funds, sorry, and the non-eligible own funds. The main driver for the reduction of the basic own funds is, of course, the proposed final dividend of EUR 341 million.
You have to take into account that the solvency requirements, and the basic own funds already reflects the EUR 340 million dividend.
The implication of what you're saying is a kind of normalized run rate is essentially similar to the final dividend payment in the quarter.
Sorry, Farooq, can you ask the question again?
Yeah, sorry. I was just trying to do some math in my head. What you're saying is that the SCR was flat.
Yes.
The own funds were down mainly due to the dividend. If we take the final dividend payment, that gives you an idea of the operational solvency generation in that quarter.
Yes. Actually, I think that if you were to exclude the impact of the dividend, instead of 239, it will be 245%. Excluding the dividend, it is a decrease of two percentage points from 247 to 245%. The majority of that is explained by basically the non-available own funds and the non-eligible own funds that has increased somehow. The markets have not had much impact during the quarter for both NN Life or the Group.
Okay. Thank you very much.
Next question comes from Ms. Nadine van der Velde from Morgan Stanley. Go ahead, ma'am.
Hi, good morning. Firstly, I suppose on Netherlands Life, the value of new business was a little low. You mentioned declining interest rates. What are your expectations here going forward? What's in your mind sort of a more normalized level going forward? In that light, perhaps you can comment also on the development of new products like APFs, et cetera. The second question is, previously you mentioned there are regions where you see the potential to reduce solvency positions. Can you remind us which regions and how much capital you expect to be released from lowering this in the coming years? Thirdly, on the P&C performance, clearly the last three years above 100%. Apart from further expenses, what actions are you taking to improve this?
Lastly, can you, as far as you can say, give an indication of your appetite for acquisitions, given that you still have quite low leverage, strong capital, and low growth? Thank you.
Yeah. Thanks, Nadine. Let me start with taking a couple of these, and then I'll make sure that the, I think the solvency ratio is definitely something
For you, and then the remainder I will take to a large extent. First, on the appetite for M&A. Our focus and priority is on the existing businesses and activities and making them stronger in the markets where we operate. Obviously, we monitor the developments in the various markets where we operate closely. Nothing has changed in that sense in the IPO. If we have excess cash, our base case is to repatriate that back to shareholders, unless there's a corporate opportunity that presents itself and creates a lot of shareholder value. In that sense, nothing has changed. When it comes to our property and casualty business and the combined ratio of the non-life company. As you know, let me start by repeating the target that we have for this is 97% or better by the end of 2018.
In spite of the fact that the full year, the combined ratio has gone up, we're going to continue to get after that target and work towards it. In order to go deeper into this, we need to dive a bit deeper into the various segments of the non-life company. Disability and accident, which is a large piece, like 45% of the premiums of the non-life business, is actually in a decent place. It's down at 97.6%, and don't forget that is a healthy level for a D&A business where we also have reserves on the balance sheet. You also make money on the investments there. When it comes to property and casualty, there's a number of dimensions here.
Over the full year, we have seen an increase of the combined ratio there, which was mainly driven by the first three quarters in which we saw large fires in our fire book, and quite some weather related claims. You may recall the hail storms, even the summer storms that we had this summer. We saw that coming through. We've looked extensively at whether these large fire claims would constitute a pattern. We've looked ourselves. We've made sure that we had proper diligence done on that. Nothing came out that was signaling towards a trend in that area. Also Q4 actually confirmed that, because in Q4, we didn't have these large fires and the combined ratio for fire, for instance, in Q4 was back to 88%.
That gives you a dynamic which has been important for understanding the driver of our combined ratio evolution in the non-life business. The motor book is something that we focused on, and I mentioned that in earlier quarters. There we have improved, actually, over the year from 111% combined ratio to 109%. Obviously that's not where it should be. We continue down that path to bring the combined ratio in a better place for the motor book. What we have done so far is the following things. We have taken individual approach to frequent claimers. We terminated large car fleets. We introduced usage-based car insurance. We had some differentiated premium rate increases, 6% roughly round numbers in 2015. For small car fleets, round numbers 10%-20%, depending on the experience that we have with a particular client.
For the next steps, we will take ongoing measures on loss-making pools, mandated broker portfolios, and additional car fleets pruning. We will continue to do this and also adjust premiums based on risk reviews. We'll do that in a sophisticated manner to ensure that we improve the overall risk profile of that book. Bottom line is, combined with the expense reductions, we aim for the target of 97% combined. That's for the non-life business. For life, VNB was low. I want to start by saying that actually the sales growth in the life business in the Netherlands is obviously very small since it mostly constitutes of the pension business where we have a lumpy evolution of renegotiating of existing pension contracts. In the individual life insurance space, we basically sell term life.
For the remainder, the long-term savings needs are catered for by the savings products that we offer through the NN Bank business that we have, which is growing quite nicely. We focus especially on the DC and the PPI, et cetera. Which is no guarantee or very low guarantee, and therefore less capital intense new business in the defined contribution space. That's where we do think that there's growth opportunity. We have launched new products there, and also launched the APF as a new vehicle to capture DC arrangements. With that, I'd like to hand over to Delfin for the question about potentially reducing Solvency II ratios in various markets.
Hi, Nadine. We are well capitalized across the different subsidiaries, that give us a good position. Maybe the best reference I can give you, Nadine, is what we described already in the Capital Markets Day. We expressed that for Netherlands Life, for some entities within Insurance Europe, and certainly for the Japan Closed Block VA, is where the reduction from the level of surplus capital will be also a contributor to the cash generation coming from these segments. Within Europe, I have already mentioned Belgium as being the entity with the largest potential for releasing capital due to the run-off of part of their business there.
Thank you very much.
Gordon Aitken from RBC. Please go ahead, sir.
Good morning. Thanks. Firstly, one of your competitors yesterday was saying it's not currently profitable to write defined benefit and showed a negative new business margin. I'm just wondering, is it profitable currently for you? I notice the IRR has declined. As you said, you've renewed a few large group contracts. Is it possible in this market to take schemes from other providers? Would you look at doing that? If that's not possible, can you simply just up your prices that you're charging the schemes? That's the first question. The second one is on Solvency II. In UFR, I see you've given some sensitivity for 100 basis points move south. What's your view as to the likelihood of this happening? Thanks.
Thanks, Gordon. Let me start with the pension business in the Netherlands. We have always maintained a view that when it comes to writing pension business, you need to be disciplined. We have our own pricing discipline, and as a result, you did not see us participating as much as some of the others did in the buyout space, for instance. We maintain that discipline also when renewing new pension contracts, where we do observe, given the low rates and the quotes that we would give in the renegotiations to our clients, that obviously it's become quite expensive. As a result, you see a move to defined contribution, or at least to renewals on a different basis, where you have more of a hybrid system that employers offer to their employees or really defined contribution business.
We will continue to maintain our pricing discipline, and as a result, that's how we migrate and help our clients towards, let's say, less capital-intensive and affordable pension plans. When it comes to the margin of the DC business, they are lower indeed. Having said that, the capital that is associated with this business is also quite low. As a result, the return on capital, of course, looks also different in this area. We believe that over time, and it will take time because the existing stock on the balance sheet of our company is there, and that represents the past accruals and past rights of pensioners. That over time, we clearly see a move towards a defined contribution. Over time, that will happen.
It is accelerating at this point in time, especially for new business, but it will take time before our total balance sheet has migrated into that direction. When it comes to the Solvency II sensitivities, I'll hand over to Doug for this.
Thank you. I think the question we showed is UFR sensitivity. I think the question is, what's the likelihood of that? Of course, we don't really assign a likelihood. That's something that will go through the process of EIOPA. They will review this. It's one part of Solvency II as well. It's not necessarily likely that only one part will be reviewed. We will see how it plays out during 2016, and see what the nature is. I think one point that's not mentioned on the slide is important, though, to remember, is if it were to be adjusted, while that would have the impact on the solvency ratio that we show, that would also increase capital generation going forward. This is one where there is a trade-off between the two.
Great. Thanks.
Next question is from William [Albuquen] from Goldman Sachs. Please go ahead, sir.
Thank you. Good morning, everyone. Most of my question has been asked and answered, I just wondered, can you give us any other how we should be thinking about this very, very strong solvency you're showing in the Dutch Life business? I know you've made comments around the holding company and previous comments around capital generation. Is there anything more you can add in terms of where your major uncertainties are, or how and when some of that excess capital may return to the holding company?
Yes. Delfin, please.
Thank you, William. No, I don't think that there is anything special or uncertain there. Obviously, the impact of the Loss-Absorbing Capacity of Deferred Taxes, and actually of any of the sensitivities that we have shown in the presentation, very much impact in Life as being the largest and the most important general entity. Nothing special to indicate in terms of how the capital will be generated or will flow into dividends to the holding company. As we explained in the Capital Markets Day, we do expect to have a positive evolution on the own funds, but also in the Solvency Capital Requirement. We expect to have decreasing capital requirements due to the individual Life portfolio. For the pension business, depends on how things play out in relationship to ensure Defined Contribution.
Keep in mind that as the business shift towards Defined Contribution, that is very capital light and more management fee based. We have already said that Netherlands Life has a strong solvency ratio. A reduction from the current level of solvency ratio might also be a contributor to cash flow generation towards the holding.
Thank you.
Next question comes from Matthijs van den Adel from KBC. Please go ahead.
Yes, good morning. To come back on the question of the dividends paid to the holding companies as part of the year. Still not entirely clear whether or not you did remit any cash, especially related to the Netherlands, where in last year in Q4, you announced that you paid the dividend in February. Wonder whether you did do that again. Could you link to that, also remind me when the international and Dutch operations typically pay their annual dividends to the holding company? I thought it was Q2 for international and Q1 for the main dividends from the Netherlands. Secondly, on Solvency II, I understood you were working on some optimization initiatives or looking at them, including longevity swaps, the refinancing of the non-eligible hybrids, and a number of other actions. Could you update us in this respect? Thank you.
Yes. Matthijs, good morning, and thank you. Delfin, would you take those questions, please?
Yes. Okay. The microphone is now on. Matthijs, on the dividends paid from Netherlands Life, I think there is no particular quarter on which that's going to be done. Actually, when you look at how 2015 has developed, we paid EUR 350 million in the first quarter. We paid EUR 150 million in the 3rd quarter, and EUR 250 million in the 4th quarter. That's a total of EUR 750 million, which actually, you should add to that approximately EUR 10 million per quarter that we do receive as part of the coupon or the interest on the hybrids that has been lent from the holding to Netherlands Life. The same happens with other business units, like NN Investment Partners or NN Re, that don't have so much of a bias toward the 2nd quarter, and this is more distributed across the year.
Okay. For Insurance Europe and Japan, it's-
Yeah.
-more the second quarter.
Japan as well.
Okay.
Japan as well, it tends to be in the second quarter or maybe the third quarter.
Okay. on the dividends received in this part of the year, because normally you announce it when you remit cash from the Netherlands, you announce it that what was paid after the quarter ended.
Yes.
You didn't do this this year. Any different timing or?
No. I think, one has to be, it can be a little bit misleading, and one is to read carefully, because every time we announce a dividend, it's already reflected in the solvency ratio of that entity. However, if you were to look at the graphs or the numbers in relationship to the cash flow to the holding, obviously cash flow is only accounted when the actual cash transfer from the subsidiary to the holding. Basically, what we have already paid has been EUR 125 million in the month of October from Netherlands Life, another EUR 125 million in the month of December, and we have not announced anything yet from Netherlands Life so far. Otherwise, would have been highlighted and also included in the solvency ratio as of 31st December.
Okay, that's clear. On Solvency II optimization?
In terms of Solvency II optimization, I think there are a few things that we are looking at. One clear one is the longevity, on which we are looking into what is the possibility of doing a transaction. I think this is something that we have to be very careful with in the sense that it has different elements, and one has to be sure that when we do the transfer of longevity risk, it's done based on the right basis. Another potential action is reducing expenses faster than our expense assumptions, and that will have a positive impact. It is more marginal, is if we were to apply some transitionals on the countries for the technical provisions in the countries in Europe under the standard formula. That will have a very marginal impact on the overall solvency.
That's clear. Thanks a lot.
Next question comes from Jan Willem Knoll from ABN AMRO. Please go ahead, sir.
Yes, good morning. Thanks for taking my questions. A couple of brief questions. On non-life, do you think the combined ratio in D&A can improve much below the current 97.6%? Or will the improvement in the group P&C ratio fully have to come from the P&C business? Then on disability, specifically, do you think that on the back of the economic recovery in the Netherlands, you will see some positive impact on the claims ratio in the disability business? Actually, both in P&C and D&A, how much room do you have to reprice the business? Or is that quite difficult given the competitive environment? Just on the longevity swaps, I guess that's partly a choice between capital now and capital generation in the future. Given your strong capital ratios, why would you sort of consider doing all the effort in executing longevity swaps?
Then briefly also, sorry for that, coming back on the capital target of holding. You made very clear that the target depends on, amongst other things, the risks in underlying businesses. You could argue that looking at the risks and developments in the underlying business, that the risks are rising. You are re-risking the general account still. It seems that risks in the financial markets are rising, at least in my view. Not all your litigation risks have been resolved. Given these risks and developments, is it fair to assume that you will aim to keep the cash capital in the upper half of the guided range? Maybe lastly, on your asset quality, you talked about your exposure to energy and mining. We use the utility and natural resources exposure as a proxy.
What % of these portfolios is below investment grade, and what sort of credit migration have you seen in the first quarter, and do you expect in the rest of the year? Basically similar on your exposure to financial institutions, how much exposure do you have to AT1s, if any? Thanks.
Well, good morning. That's quite a number of questions. We'll try to answer them in an orderly fashion for you. Let's take them one by one. First, the non-life questions that you had. The disability and accident business runs at a 97.6% combined. I already mentioned earlier that on a break-even level, you can also run this business at 100% combined. 97.6 combined is a very healthy level of this business. Obviously, we do think that most of the improvement that we need to get to the 97% or better by the end of 2018 needs to come from the property casualty side of the house. Having said that, we will also aim to improve the combined ratio on the D&A side by especially lowering expenses, et cetera. Most of the improvement we expect to have to come from the property and casualty business.
When it comes to the economic developments in the Netherlands, will it have a positive impact on D&A? It's not a one-on-one relationship, but it is true that if the economies are better, usually you see a better risk profile emerging in the D&A portfolio. That is true, but I'm not going to be more concrete on that moving forward. The bottom line is most of the improvement will need to come from P&C, and D&A is in a healthy position right now, but we aim to improve it further through expense reductions and improvements of the underwriting performance. Then we go to the longevity swaps, which is the second question you had. I ask Doug to comment on that.
Yeah, I think we have a few considerations when we look at the longevity swaps. One is it's simply a risk concentration for our company, so it's one of our biggest single concentrations, and we need to consider if we want to adjust that over time. Then, of course, how to do that, because these contracts can be very long dated. So you have to be very careful that you're entering into something that you're comfortable with. Of course, we also want to look at the capital efficiency of it, and whether that improves our return on capital. These are probably the two biggest things that we will look at and consider as we continue to work through that.
Okay, the questions on the holdco cash capital levels subsequently the energy exposure question. Let's move to Delfin.
We have given a range for a reason in order to cover most scenarios. I think it should not be that appropriate just to speculate if we are going to be on the very top of the range or come down below that element. The only thing I would highlight once more, that the subsidiaries are strongly capitalized, and that the level of the cash capital at holding is strong. As a consequence, unless there is extraordinary circumstances, markets are moving very badly, the sustainable return to shareholders should be maintained over the next quarters. Keep in mind that so far, as Lard emphasized during his presentation, we have given back EUR 1.4 billion to our shareholders since the time of the IPO.
That has been done at a time where obviously we have benefited from positive impacts of the market, because while doing so, we have increased at the same time the level of solvency and the level of cash capital at the holding. There is some flexibility there, I would say. In terms of the exposure to energy and investment grade and the CoCo or AT1, first, our overall exposure to financials is very low. We basically don't have any exposure to CoCo. You can also see in the appendix the breakdown of the fixed-income securities by category. You can see that as part other, that will include non-rated or not investment grade is very limited, with a total of 2%. I said, again, this includes also non-rated securities.
In terms of the exposure of energy, it is also very limited, and I think it was 2% of the total, of which oil related is 1%.
Okay.
Yeah. In terms of credit quality of the specific oil and mining exposures, what % of that is below investment grade?
I think we have to get back to you on that specific question. Again, I think it's good to note that it's very limited, the exposure that we have. On that particular question, we'll get back to you, Willem.
Yeah, thanks.
For additional questions or remarks, you can still press star one. Next question is from Farquhar Murray from Autonomous. Please go ahead, sir.
Hi, gentlemen. Thanks for letting me come back. I just have two quick questions for you. Several of your peers have given Solvency II targets for subsidiaries and for group level already. Could you just explain which uncertainties are driving your decision not to give these, and are these specific to NN? More broadly, you have stated before that there is excess capital within NN Life, and certainly 220% looks extremely strong versus peers. At the same time, you seem to be now saying that the EUR 0.5 billion-EUR 1.5 billion holding cash target builds in the position of the subsidiaries.
Does that mean that if you upstreamed from NN Life and lowered the capital in that subsidiary, that there would be an offsetting increase in the cash target of the holding, and would that be an offset be one to one, or is that far too extreme a kind of interpretation of what you're saying? Thanks.
Thanks, Farquhar. Delfin.
Yes. Starting with your first question about any specific uncertainties driving our approach to provide guidance on capital management, the answer is no. I don't think there is anything specific. Obviously, each company has its own characteristics and risk profile. Maybe it's also a question of style and approach that we have taken from the very start at the time of the IPO. I think that we've been clear on which uncertainties do exist at this point of time. We just think that maybe at this point of time, providing specific targets for the subsidiaries might, in certain scenarios going forward, prove not to be that helpful. We better provide a guidance that gives you, as I said already, indication of how cash flow might be generated and how it can be distributed to shareholders going forward.
Your second question, if indeed NN Life continues having a healthy and a strong dividend flow to the holding, there is not a one by one need to increase it at the holding company. Obviously, the levels of 0.5 to 1.5 is designed for covering most scenarios over time. That means that there is flexibility within that range and it's not mathematical one by one.
Could I just extend that question? If you took the position in NN Life below, say, 200, does it become one to one at that stage? I can't imagine it does, but I just think the way you spoke to that comment, it just opened up a point of uncertainty.
Obviously, you treat the cash capital at holding differently if your largest subsidiary is at 220% solvency or that is at 120% solvency for the sake of argument. That's obviously the case. One has to consider the flexibility that currently exists in the solvency ratio of Netherlands Life in order to cover any uncertainty or risk that they can be facing. 220%, as you have said, it is a very strong solvency ratio, and certainly compared with other peers.
Okay. Thanks very much indeed.
For additional questions or remarks, you can still press star one. Star one for your question or remark. There are no further questions. Please continue.
I would like to thank all of you for your questions and for your participation in this call this morning. I'd like to round off by saying that we are pleased with the strong results for 2015 and the progress we have made during the year to achieve our financial targets and to generate value. We reached an important milestone in December when our Solvency II partial internal model was approved by the Dutch regulator. We believe that our strong capital position will allow us to deal with any remaining uncertainties in market volatility. It also allows us to keep delivering on our promise to return capital to shareholders by proposing a final dividend for 2015 of EUR 1.05 for ordinary share.
We still have a lot of work to do in 2016 to further improve performance. This goes hand in hand with delivering an excellent customer experience by offering transparent products and services that serve our customers' lifetime needs, being a company that truly matters in the lives of our stakeholders. I wish you all a very good day.
Ladies and gentlemen, this concludes the NN Group conference call. You may now disconnect your line. Thank you.