Yes, good afternoon, ladies and gentlemen, and welcome to Storebrand's fourth quarter 2016 conference call. I'm Head of Investor Relations at Storebrand, and together with me today, I have Group CEO, Odd Arild Grefstad, CFO Lars Løddesøl, Finance Director Sigbjørn Birkeland, and Head of Economic Capital, Trond Finn Eriksen. In the presentation today, Odd Arild will give an overall view of the development in the fourth quarter and the full year. And Lars will give some more details on the numbers and some special elements in the results. The slides will be similar to the analyst presentation released this morning, and are available on our webpage. After the presentation, the operator will open up for questions. To be able to ask questions, you will need to dial into the conference call.
With that short introduction, I will leave the word to Storebrand's CEO, Odd Arild Grefstad, who will start the presentation on slide two.
Thank you, Kjetil. This year, Storebrand celebrates its 250th anniversary, and it goes without saying that you don't survive that long without being sustainable. Therefore, it's a pleasure to start off by briefly highlighting Storebrand's strong performance in the annual Global 100 Sustainability Ranking, which was published at the World Economic Forum in Davos. Storebrand was ranked the most sustainable insurer and financial sector company overall, and the second most sustainable company in any category. The award makes us proud, and it is important to us because it proves Storebrand's world-class capabilities within sustainable investments. Sustainability is an important part of our commercial growth within asset management, and going forward, we will leverage this position to further differentiate our brand in the retail area. If we move to slide number three, and turns to the results.
The group result before amortization and writedowns was NOK 912 million for the quarter, and NOK 2.913 billion for the full year. This is a strong result, which was driven by good financial results and reduced costs. The growth within savings and insurance continues, while the guaranteed products are in long-term run-off. This is illustrated by a premium growth of 16% within unit linked in 2016, and a growth of 32% within retail loans. The underlying solvency position is increased by 20 percentage points during the year to 144% after the proposed dividend. This represents a normalization of our capital position. Therefore, we are ready to resume dividend payments after several years of solvency strengthening. The board proposes a dividend of 1.55 NOK per share for the year.
If we then move to slide four. Storebrand's dividend policy implies a normal dividend above 35% for the group's result after tax, before amortization. The board has previously signaled at least half of the dividend for 2016. After an overall evaluation, the board proposes a dividend payout ratio of 27% of the result, equivalent to NOK 695 million, or NOK 1.55 per share. The board expects a dividend payout ratio of more than 35% of the result for 2017, as illustrated on the slide. It is expected a gradual increase in the solvency position going forward, which implies a further gradual increase in the dividend payout ratio. If we then move to slide five, the transformation of the business model.
This slide illustrates the twofold strategy we have been implementing consistently throughout the past five years. Today, we have reached an important milestone with the return to a normalized capital position and resuming dividend payments. However, the twofold strategy will continue to be important going forward, with capital-light growth within savings and insurance, and capital re-release from the guaranteed back book, which now has reached its peak capital consumption level. Slide number six. Let's go a bit deeper into the growth part of our strategy. To better illustrate the underlying growth, we have adjusted the growth numbers for currency effects related to the weakening of the Swedish krona. The currency-adjusted growth in unit-linked reserves was 15% compared with the previous year, and 6% within asset management. The growth within insurance was 5%.
This is lower than our long-term ambition of 10%, and is caused by the shift from expensive external distribution to more cost-effective distribution. This, together with the transition to a new disability pension product in Norway, implies a lower growth rate in 2016 and 2017 when it comes to insurance. Last but not least, 2016 was a successful year for us in retail banking. We grew our lending portfolio by over 30%. The new loans are mainly placed on the life balance sheet. Slide seven. To innovate the customer journey is important to drive growth. Storebrand's functional organization reflects the customer value chain. We use insights from sales front and customer service to develop technological solutions, products, and concepts that meet the customer demand.
On the slide, some selected initiatives that we have implemented is illustrated. I would like to go a bit deeper into the example on the far right. That's on slide number eight. Storebrand's mission is to give people a future to look forward to. An important part of fulfilling this mission is to make sure people get the pension they desire. Today, making the right decision about your pension is quite complicated. You have to deal with difficult concepts, such as risk-adjusted returns and asset allocation. Many people have got a mix of guaranteed and non-guaranteed pension certificates, which further complicates the matter. At Storebrand, we want to make pension easy for our customers. To help our customers make the right decision, we have built a digital pension advisor based on our existing pension tools.
We have boiled down all the complicated stuff to a few simple questions and recommendations. The tool uses advanced data analytics to give personalized recommendation on the best action available to give a better pension. Based on the pension's unique mix of different pension certificates and paid-up policies. The best action might be to converting your paid-up policy to a paid-up policy with investment choice, or it might be topping up your certificates with extra savings. We have also built in a purchasing tool into the digital pension advisor, and after we have launched the advisor, we have seen a tripling of the traffic and a doubling of the sales rates. That is very promising for the growth in savings going forward. And with that, I will leave the word to our CFO, Lars Løddesøl.
Good afternoon, everybody. Let's dig into the numbers on page nine, and in the upper left-hand corner, the result development is described in different colors. The red color is the operating result, and is the core earnings of the group, and it's satisfactory to see the positive development during the year. This does include the performance fees from one of our DNB Global funds, which was NOK 45 million in the fourth quarter. That should be seen in the context of being higher at NOK 94 million in the fourth quarter of 2015. So you can see, even with lower performance fees, the underlying earnings is growing satisfactory in this period. On top of that, we've had a very satisfactory financial result throughout 2016 in the lighter blue area.
There has been certain special items that has impacted the results on a quarterly basis. In this quarter, -NOK 52 million in the green area, is primarily related to a shorter shortening of the write-off period for immaterial or IT systems, basically. So in a digital world, we see that the IT systems that we invest in have a shorter lifespan, and we therefore decrease the amortization period. Earnings per share is strong at NOK 1.64 in the quarter. In addition to being supported by the strong results, it's also supported by a low tax rate, which is a result, first and foremost, of sale of certain properties which had tax liabilities connected to them. So by selling the properties with the tax liabilities, the overall tax rate shrunk to 14% for the year as a whole.
Solvency capital is maintained at a high level, and customer buffers are stable. Moving over to page 10, the solvency position of Storebrand Group, we see a very strong improvement in the underlying solvency position from 131 to 144%. On the following page, I will describe this development a little further. What I would like to emphasize here is that while the transitional rules have decreased from 34 to 13, with the increased interest rates in the last quarter, the transitional rules have less impact on the overall regulatory solvency. And if you look on the right-hand side of the same page 10, you see the sensitivities going forward.
And it's particularly interesting to look at the interest rates with a 50 basis points fall in interest rates from this level, the solvency position without transitional rules will decrease from 144 to 130, while the transitional rules will increase in value to 30, which gives an improvement in the overall or regulatory solvency position. And the same thing is actually happening if interest rates were to increase, then the underlying solvency position increases to 157. The transitional rules decrease to 5, and the total regulatory solvency as at 162. So actually, to make this simple, the regulatory solvency is not going to be significantly impacted by interest rate movements from here on.
Obviously, a significant fall in the equity markets or spreads or real estate markets could still impact the overall solvency, but we are fairly neutralized from interest rate movements from here on. The underlying solvency has strengthened. That's the most important point, and I would like to move over to page 11, describing the development during the quarter. First, we started off at 131, then you can reduce that by three percentage points, primarily due to the fact that the stress under the Solvency II standard model was increased from 34- 38 percent for listed stocks in the quarter as part of the framework.
Then interest rates increased, which decreased liabilities and improved the solvency position by 15 percentage points, and the increase in interest rates were 49 basis points in the 10-year swap, both in Norway and in Sweden. And then there are some twists on the curve in addition to that. Then we issued, as you are well aware, a subordinated loan back in October, which was SEK 750 million, which improved solvency by three percentage points, ending up at 146 percentage points before interest rate, sorry, before dividends.
Then you can add on top of that, the transitional rules, which were, as I described on the previous page, reduced by the higher interest rates, leaving us with a fourth quarter solvency rate of 160% before the dividends of NOK 695 million, which decreases that again to 157%. Moving over to page 12, we see the results of the group in the traditional schedule. Fee and administration income was slightly down in 2016 compared to 2015. The run-off on revenues from guaranteed business was slightly higher than the increase in revenues from the non-guaranteed savings business and insurance business. Looking into 2017, we expect that the total revenues will increase during this year.
Insurance result improved during the year, and the operational cost was down quite significantly year over year. In actual fact, NOK 861 million in operational cost in the fourth quarter includes about NOK 50 million in the special effects I mentioned a little earlier, so the underlying number is even better than this. Then the financial items was significantly improved in the fourth quarter and last year over 2015, partly as a result of, or in the quarter, the most important impact on this number was that we had profit split in the individual portfolios in Norway. That is something we don't expect to see additional profit split revenues in 2017, but gradually, going forward, there could be profit split in certain portfolios.
But in the fourth quarter, we had, due to exceptionally good book return in the guaranteed portfolio in the individual portfolio in Norway, we managed to take out NOK 139 million in a one-off profit split in the individual portfolios in Norway. In Sweden, we also had very good return, well, throughout 2016 and in the fourth quarter in particular, both from real estate, from equities, and from credit spreads, which gave profit split also in this book. In addition, for the full year, the results were lifted by a strong return on company portfolios, especially in the second and third quarter. Tax I already mentioned, but it was 17% in the fourth quarter and 14.5% for the year as a whole.
And, lastly, on page 13, this is basically the same numbers as on the previous page, but in the profit per line of business box on the bottom, we see that the result improvement in savings and non-guaranteed and insurance improved during the year of 2016, and even in the quarter-over-quarter. While the biggest, I guess, to some extent, a surprise to analysts and to compare to what were the forecasts out there, was that the profit split in the Swedish and the Norwegian guaranteed portfolios lifted the results significantly in the fourth quarter on which I talked about a moment ago. And in other profit, you have the company portfolios and a number of small subsidiaries, which had a slightly weak result for the quarter.
But overall, this line was strong for the year as a whole. This ends up in giving us a result for profit before amortization and longevity of NOK 912 million in the quarter, and NOK 2,913 million for the full year. And I will end my number exercise here, but be happy to take questions on any other numbers or other questions you may have.
Thank you, Lars. The operator will now open up for questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. I can see we have a couple of questions already coming in, so please, those who already have pressed star one, do not press star one. I would introduce the first speaker, and it's Peter Eliot from Kepler Cheuvreux. Please go ahead, your line is now open.
Thank you very much. Just a little bit, the first thing I want to ask, I was a little bit confused by the convexity of the interest rate sensitivity. You show on slide 10 that the solvency ratio increases. This is without, sorry, with transitional rules, increases for both higher and lower interest rates. I was wondering if you could just explain how that's the case? And then secondly, on slide 11, when you show the sort of the waterfall, you haven't got anything in there for the sort of underlying solvency capital generation. I mean, I know it's more on a quarterly basis, but, can we sort of add something into that? Or are you able to tell us roughly what is happening there?
Perhaps if I'm allowed a third one, I was wondering if you could just tell us the latest on the payroll tax, that is up for debate. Thank you very much.
Well, on the sensitivity, you know, that the transitional rules, they look at the liabilities under Solvency I and the liabilities under Solvency II. They do not take account for, changes in assets, only in the liabilities. Furthermore, they don't take into account. There are not transitional rules for the Swedish business. So basically, you have to look at the dynamics under Solvency I and the dynamics for the liabilities under Solvency II, and look at the difference between the two. Important factor is that there is some convexity, and we are at the low point in terms of the overall, how low it can fall with interest rate movements, neither either up or down.
I think also, Lars, that it's important to say that you should expect actually, by the dynamics you have seen in the fourth quarter, that an interest rate of 50 basis points up will should decrease the transition rules even further. But I think the point here is that by this transition, the 50 percentage points up, you will be out of the transition rules when it comes to interest rates. It's just some transitional rules that is aligned to shares that is still on the balance sheet. So from this point up, you're really out of the transition rules, and the uplift in solvency is the same, of course, with without transition rules.
So the five percentage points there is only the equity stress.
Okay, thanks. Thank you. Yeah.
When it comes to the movement of the solvency position, Peter, it's many ways that you can slice such a movement, and we have decided to slice it this way. One way to look at it is that you could also slice it, so you show the quarterly results after tax of just about 600 million, and that would correspond to just about two percentage points of the solvency ratio as such.
Yeah, but on top of that, you will also have solvency generation from excess return above the discount rates in the quarter. And that is built into. A lot of that is what you see in the 15-day 15 percentage points increase due to increased interest rates.
To sum it together, Trump in what we gave as an estimate on our capital markets day of a normalized growth in the solvency position of, well, say six-seven percentage points a year. That is still a very good estimate of what we expect in a normalized situation.
That's correct. When it comes to finance tax and on the payroll area, we have, first of all, now taken care of that into the balance sheet, so it's all implemented, the numbers we have year-end. Going forward, we have looked more closely into the numbers, and our best estimate is that this will increase our cost of 2017, everything equal, with NOK 55 million before tax. And of course, we work very hard on cost to also reduce the effect of this in total over the year.
Okay. Thank you.
Okay, thank you.
The next questions come from Matti Ahokas from Danske Bank. Please go ahead, your line is now open.
Yes, good afternoon. It's Matti here from Danske.
Hi.
Question on slide number four, where you have the dividend. I'm a bit puzzled, and I was hoping if you could clarify it a bit more. Obviously, the payout ratio for 2016 was clearly higher than what you kind of originally anticipated, roughly half or more than half of the normal dividend. But when you talk about in bold, more than 35% dividend payout ratio, what are the moving parts there? Is it the solvency ratio, or are there under- what should we be looking at when we try to estimate what it should be in 2017? And basically, how high could this basically go if you look at 2018 onwards?
Are you looking for a kind of graphically nice growing path, or how should we interpret this? And then just a bigger question on the guaranteed pension, the NOK 139 million, again, in individual life and pension Norway. I guess that was largely related to the sale of the properties. But was there something else kind of one-off in the guaranteed pension? Thanks.
Should we clarify with the individual portfolio again?
Yeah.
Your starting point.
The individual portfolio in Norway, that's those are old tax incentivized insurance saving schemes with guarantees. And in that portfolio, we had a book return of above 6%, and for certain contracts, that meant that there was a surplus that was profit split. These portfolios are profit split 35% to customers, and sorry, 65% to customers and 35% to Storebrand. And this generated a result of NOK 139 million for Storebrand, and therefore increased the, t here was an allocation to customer of NOK 270 million or so.
Yeah. So this is nothing to do with the real estate portfolio. This is to do really with our guaranteed business in Norway. I think what is a bit surprising is that we now already are at levels on these guarantees where we have a very comfortable buffer situation, and where we gradually can start profit sharing again. But we had a very special situation with a very high book return in this portfolio in 2016, and that's why you should not expect this kind of element to come back in this portfolio in 2017. An interesting discussion is, of course, also on the paid-up policy that has very much so the same characteristics, where you have 80/20 profit split.
And it's also clear that we start to have a very good buffer capital situation for some of these portfolios. But in 2027, you should expect us to use the surplus in this portfolio to fulfill the remaining longevity reservation that is now on a very low level. It's of just NOK 350 million. And we expect to then finish all the reservation for longevity based on surplus return of policy on these funds in 2017. And that also lead me, actually, to your first question about the dividends.
In 2016, we had no dividend from the life insurance company up to the holding company, and that was because we were still in a reservation process for the life insurance company to fulfill the full obligation about the longevity. And as I said, we started this some years ago and had NOK 12.4 billion to really reserve for. It's just NOK 350 million left now, and it will be completed during 2017. But as long as we are in this scheme, it's not possible for us to take a dividend from life insurance company to the holding company. That's why we also had lower than a 35% dividend payout in 2016.
By that, we expect to lift that ban on the life insurance company during 2017, and also have a much larger upstreaming to the holding company. And that's why also, that's one of the element, together with, of course, the solvency position, that is important for us to decide on the payout ratio, when it comes to the dividends. And of course, as we have talked about before, we are now in a situation with a peak capital on the guaranteed book of business.
Very much of our growth in the front book is capital light, and that gives opportunities to still, of course, do some strengthening on the solvency position, to keep the underlying solvency position above 150% gradually, but also to have a payout ratio that should be above 35%, as illustrated on slide number four.
The question obviously is how much above 35%?
Yeah. Yeah, that is a very good question. We tried to give an illustration here, of course, on slide number four, about what we expect in 2017. I think what we wanted to stress is that when we have a dividend policy saying above 35%, it means above. And we believe it could be a payoff ratio that is higher than 35% in 2017, but we don't want to be very exact on the numbers on this stage. And also say that going forward, we see capital like growth. We see that gradually, a larger part of the annual results could be distributed to the shareholders as long as we follow the path that we expect to do to build solvency capital going forward.
Great, that's very clear. Just a clarification. What would you say is the normal kind of dividend that it would upstream from the life company into the, to the holding company? What level are we talking of in millions of NOK?
We haven't talked about the level of it, but of course, again, it's very much about the solvency position. As long as the solvency position in the life insurance company is at the right levels, you can expect to upstream a large part of the results of the life insurance company to the holding company.
Great. Very helpful. Thanks.
The next question comes from Paul De'Ath from RBC. Please go ahead, your line is now open.
Yeah, hi there. I just wanted to clarify a point that you've—I think you just made in the last answer, that you're saying you're actually now at the peak capital point. Because I think, you know, at the Investor Day or the Capital Markets Day, you talked about that potentially coming in 2018. But has that now been advanced by a couple of years? And what does that mean in terms of then the future roll-off of capital? And then second point, just on the Solvency II ratio, and the fact that obviously the transitional element has shrunk down quite a lot.
Is there any situation in the future where you could see the transitionals actually being a negative in terms of the solvency ratio, or would that not be possible? Thanks.
Just to be clear on the last one, you can think about the transitionals as a security net. If you have falling interest rates from this level, you will still have a strong solvency position with transitional rules, because then the transitional will increase again. But you will never have negative effect on transitionals. Then you are out of the transitionals, and you look at the underlying solvency position and just that. Yeah, peak capital. Well, first of all, I think we are in 2017 now, so it's just one year to 2018. But anyway, what has happened since Capital Markets Day is, of course, that we have been a lot of rolling forward as such in the balances.
But the most important is that we have seen an increased interest rate level compared to what we had back then. And increased interest rate levels that makes the peak capital timing coming closer to us. And we estimate that we are at that level now. Of course, also, higher interest rates will also have something to say when it comes to the trade-off of this capital release, so to say, from the guaranteed portfolios. But I think we, Kjetil, we'd like to come back on that at a later stage. It would be natural to have some more discussions around economic capital when we present our first quarter numbers with some updated calculations from the economic capital team.
Excellent. Thanks very much.
Thank you.
UBS, please go ahead, the line is now open.
Great. Hi there. Thanks for taking my questions. Just a quick one on the dividend. So obviously, you're talking about the payout ratio increasing, which is great. But, I mean, have you formally committed to a dividend ratchet as well? Because obviously earnings could come down, so even if the payout ratio goes up, that might not be great for dividend growth. Secondly, just on the outlook for operating profits. So slide nine is useful, shows us the development through the quarters. But it looks to me like there's about NOK 500 million per quarter of operating results. Do you think that's a fair assumption for 2017 and beyond? Thanks very much.
On the last question, I can confirm that the operating results have been fairly stable and slightly increasing during the last several quarters, and that we anticipate that to continue.
Around 500 with a bit of growth, then?
Well, as you see, it has gone, it was in the second quarter at 411, so it can go below 500 as well, but, in the area of 500 and over time increasing, that would be our objective to deliver.
Thanks.
When it comes to payout ratio or dividends, what we are talking about all the time is, of course, solvency ratios and dividend payout based on our results after tax and before amortization. And that might create a situation where we have preparations in the nominal number of payout from one year to another, but that is what we are aiming on when we are guiding here.
Okay. But there's no formal commitment not to lower the dividend, then?
No, the nominal number can be both higher and then lower. What we aim to do is to have a payout that make us have the right capital situation in the company at all time, and don't keep any capital on top of what we need, think is needed to run the business most effectively.
Okay. Thank you. That's great.
Before we let the next person ask the questions. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. The next question comes from Blair Stewart from Bank of America. Please go ahead, your line is now open.
Thank you. Good afternoon. First question, just on slide 12. Excuse me. The, I'm just wondering, of the NOK 924 million financial items and risk result in Life, how much of that would you regard as genuinely one-off? And assuming we just have a normal financial market set of conditions, what should that number be, very roughly, in your own modeling? The second question is on the loan growth, that's now being transacted into the Life business. I just wonder, what's the return on those loans, and what assumptions are you making for defaults over time? And then on the capital levels, I noticed that your solvency capital requirements actually went up quarter-on-quarter, from 23.8- 24.2, 24.3.
Just with relation to the comment about peak capitalization or, sorry, peak capital levels, I just wonder if you'd comment on that. And I'd also noticed that if you take out the transitionals, the reconciliation reserve has practically doubled in the last year, from NOK 12 billion up to just over NOK 20 billion, and that's presumably just in-force value. Is that simply the gearing to interest rates? Thank you.
If I can start on the solvency questions, Blair. First of all, the increase in solvency capital requirement is very much related to increased equity stresses from 34- 38 for type one, and from 44- 48 for type two. That's very much related to that. When it comes to the increase in reconciliation reserve, yes, you're right. It's a lot of that related to interest rates and the decrease in liabilities, or technical provisions, due to increased interest rates.
It's a very big number, Trond, from 12- 20. Interest rates have gone up by about 50 basis points over the year, if I'm not wrong.
Yeah, it's actually over the year, it's actually not that much up. I have to look a little bit more into that number, Blair, before giving you. But I'll refer to you with a more detailed answer to that.
Yeah. There's probably other factors, credit, credit spreads, equity markets, et cetera, but it'd be useful to know. Thank you.
I think it had to be that, because if you look year by year, the interest rate movement has been marginal, actually.
Yeah. But, it's been quite, quite a heavy, heavy, heavy outperformance in the portfolios-
Yeah.
market, mass market, which will contribute to that, and especially, real estate with the strong returns and, and credit spreads.
I'm just wondering, because you don't publish an embedded value report anymore, and I'm just trying to get a feeling for whether there's been changes in your assumptions as to the future profitability of the book.
No, it's actually the profit, the assumption changes and model changes over the years is close to zero. There has been a lot of underlying changes, but they are really net out.
Thank you.
Thank you.
Should we then move to the operating result, Lars?
Yes, on the financial items in the 924, that's a combination of the profit split that we saw in Norway and Sweden, especially in the fourth quarter, as I mentioned before. In the Norwegian market, you should not expect a profit split in the next few years. In the Swedish market, with normalized returns, the normalized or the expected returns will be slightly higher than what you run up in the solvency curve, or discount curve, and therefore, you should have, on a normalized basis, a positive result from the Swedish guaranteed business. Last, the last major item here is the company portfolios and the returns there.
When interest rates in Sweden are around zero, you should expect around zero in financial result from the Swedish portfolio. While in the Norwegian portfolios, there is a positive positive return, but much lower than it has been during 2016, where we had a credit spread contraction, which has contributed to extraordinary results. So, there are, you know, several moving parts here, especially short-term interest rates, that will impact this number, as well as developments in different asset classes. But if you take very much like a normalized approach to this, then expected number is around one third of this number.
Yeah, okay. That's what I was getting to. What would be the investment income, the expected investment yield on the company portfolio in Norway?
Well, in Norway, the short-term interest rate is around 1%, so, maybe between 1% and 1.5%, and in Sweden, around 0%.
Yes, I got the Swedish part. That's great. Thanks very much.
On the loans, a very big increase in the loan.
Yeah, it's a large increase in the loan, and it's an important part for us also to really get our business-to-consumer strategy going. Because we see that on top of the loans, we get, of course, deposits from our customers, and we also get the cross-sell going into more risk products and also savings products. So this is an important part of also the whole retail strategy overall. But we have a return on equity target for our banking activities standalone of 10%, about 10%, after tax. And when we price our loans, it's also based on to ensure that we will reach a 10% return on equity target as such.
I also add that, if you look at the loan-to-value on this book, it's for mortgages in Norway. It's historically, I would say—well, as long as we have been doing loans in Norway, actually, it's been close to zero in losses in this portfolio. Of course, we have our models taking account for some losses, but still with the loan-to-value that we are working with here, and especially what we also put in the life insurance balance sheet, very limited as we view it, risk of of heavy losses in such a portfolio.
Did you get the loan-to-value number?
What we put on the life balance sheet, I think it's below 70%. Yeah. The ones that goes on the balance sheet of the life company is less than 70% in LTV, and that is most of the growth, as you see.
And as a, sorry to ask again, but as, as an asset for the life company, what, what's the yield on the, on the asset?
You have to look at the yield for the life company as compared to buying covered bonds or similar asset classes, and this gives a good solvency capital adjusted return compared to similar asset classes.
Yeah, I would expect it to be a good return. Yeah. Are you prepared to say what the yield is?
Well, basically, we're now lending at around 2%, and they're paying about 40 basis points to the bank to administer these loans, so then you end up with 1.6%.
Okay. But obviously, very low levels of capital.
Yes.
Yeah.
Sure.
Okay. Thank you. Sorry for asking so many questions. Thank you.
No, bye.
Ladies and gentlemen, we're gonna do one more time a reminder. If you would like to ask a question, please press star one on your telephone keypad. The next question comes from Peter Eliot from Kepler Cheuvreux. Please go ahead. Your line is open.
Actually, I thought I'd canceled mine, actually, because my question was answered. Thanks a lot.
Then we take the next question from Johnny Sheridan from UBS. Please go ahead. Your line is now open.
Thanks. Thanks for the hold. Just a quick clarification on the capital generation. So, you're sticking to the five-10 guidance, and at the top end of that, we'll expect an organic build of six-seven post-dividend. Is that right?
That's right.
Thank you.
There are no further questions coming through, so I will hand the call back. Thank you.
Then I would like to thank all of you for following the call, and wish you all a pleasant afternoon.
Thank you for joining today's conference. You may now replace your handsets to end the call. Thank you.