Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NN Group NV (NNGPF, Financial) reported robust business results with an Operating Capital Generation (OCG) of EUR959 million for the first half of 2024, keeping them on track to meet their EUR1.9 billion OCG target for 2025.
- The group solvency ratio stands at a strong 192%, at the upper end of their comfort range of 150% to 200%.
- The value of new business increased by 23%, driven by higher volumes in Central and Eastern Europe and the Netherlands.
- The defined contribution pension business saw a net inflow of EUR1.2 billion, increasing total DC-related AUM to EUR36 billion, surpassing the EUR32 billion target for 2025.
- NN Group NV (NNGPF) announced an interim dividend of EUR1.28 per share, a 40% increase from last year, demonstrating their commitment to shareholder returns.
Negative Points
- OCG saw a minor decline compared to the same period last year due to lower claims in the Netherlands non-life segment and reinsurance business.
- The Netherlands non-life OCG decreased versus H1 2023, impacted by increased P&C claims, including some large fire claims in the first quarter.
- The operating result for Netherlands life decreased, largely driven by a lower investment result due to reporting refinements.
- The business improvement order in Japan continues to impact new business contributions, with no expected improvement before the beginning of 2025.
- The solvency ratio could face pressure from future pension buyouts, which are expected to be back-end loaded, potentially impacting capital strain.
Q & A Highlights
Q: You keep the EUR1.5 billion OCG target for next year unchanged, but the composition seems to be a little bit adjusted in life, a little bit lower in Europe and other better. Could you elaborate a little bit more on why the life OCG is a little bit lower?
A: We are still working towards the EUR1.9 billion OCG target. For life, we did EUR1.25 billion in '23 and expect it to increase in '24 and '25. The base reported in H1 is relatively clean to work from. The target for life is market-dependent, particularly on spreads in '25 and selective re-risking. We remain confident in life OCG growth.
Q: Could you give some comments on the re-risking speed? Why don't you re-risk faster?
A: We are mainly optimizing our investment portfolio, focusing on private loans, green bonds, and other investments. This is a gradual shift, and no larger steps are envisaged.
Q: On pension buyouts, at this moment, in the EUR1.9 billion, you don't have any benefits for all the pension buyouts that you will probably do in the coming years. Will you give an update in May and include the pension buyouts in the OCG?
A: The pension reform will be more back-end loaded. We estimate the market to be around EUR25 billion, with our market share at 40%, translating to around EUR10 billion. This would give roughly EUR100 million of OCG. We will discuss this further at the Capital Markets Day in May.
Q: Could you give us some indication of the market effects on the solvency ratio of the group and Dutch life so far in Q3?
A: Solvency is relatively stable since June, with small negative impacts from interest rates offset by positive impacts on our mid-cap equity portfolio. Mortgage spreads have widened, which could reduce the group solvency ratio by roughly 3%. For life, the dynamics are similar but more pronounced.
Q: Could you talk about the implication from lower interest rates and lower equities on the recovery of your Japanese business?
A: The appreciation of the yen is beneficial for our Japanese business. We have limited equity exposure in Japan, so the recent market turmoil has had minimal effect.
Q: What was the contribution from reinsurance within the segment other?
A: NN Re contributed EUR41 million in the segment other, compared to a normal annual run rate of around EUR50 million per year.
Q: Could you give a little bit more detail on the parameters we should think about for life OCG growth?
A: Life OCG is market-related. We expect OCG to continue increasing in '24 and '25. The main sensitivities are mortgage spreads and other market movements.
Q: Could you outline how tariff increases compare to claims inflation in the non-life segment?
A: Non-life premium growth was 3% in the first half, with 1.2% from volume and 1.8% from price increases. We expect continued premium growth driven by necessary premium increases to maintain our combined ratio within the 91% to 93% range.
Q: What kind of solvency benefit do you expect from the Solvency II reform?
A: We expect the long-term impact of the Solvency II 2020 review to be broadly neutral for NN Group, including management actions. The impact on OCG is also expected to be neutral.
Q: Could you give us an update on the threshold for Japan and the impact on OCG?
A: The business improvement order in Japan is not expected to be lifted this year. The retention of the book is holding up well, and we expect to achieve the EUR125 million OCG target for 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
