NN Group Capital Markets Day: Committed to sustainable value creation
NN is committed to resilient and growing long-term capital generation and cash flows for shareholders
Accelerating management actions to grow operating capital generation (OCG) to EUR 1.5 billion in 2023
Mid-single digit annual growth of OCG over time
Free cash flow (FCF) to be in a range around OCG over time
Active management of interest rate and credit spread risks ensuring resilient cash flows
Clear ambition to achieve sustainable value creation for all stakeholders
Becoming a customer-centric and data-driven company; evolving current skills while developing new capabilities and an entrepreneurial mindset to meet changing customer demands and to stay competitive and relevant in the future
Targets set around excellent customer experience, engaged employees and positive contribution to society
Disciplined capital deployment
Investing in organic growth, applying strict hurdle rates to ensure long-term cash flows
Clear capital return policy: progressive dividend per share, annual share buyback of at least EUR 250 million and additional excess capital to be returned to shareholders unless used for value-creating opportunities
Thorough management of our portfolio of businesses; committed to optimising our businesses to achieve attractive returns
Resilient during volatile financial markets
NN’s business mix, robust capital position and conservative investment portfolio provide stability
Well capitalised with an estimated Solvency II ratio of approximately 227% at the end of May 2020, including the impact of the longevity transactions announced on 19 May 2020
Estimated net impact of COVID-19 of EUR -100 million on 2020 operating result and OCG; mitigating actions taken to offset earnings pressure
David Knibbe, CEO NN Group:
‘With the strategy update presented today, we share our strong commitment to long-term value creation for our stakeholders. We will continue to build on the solid foundations of the company, while becoming a more customer-centric and data-driven company, accelerating management actions to increase operating capital generation and driving growth in attractive markets. Our target is to grow OCG to EUR 1.5 billion in 2023 and our free cash flow to be in a range around OCG over time. The targets for our segments drive efficiency of our businesses and underpin our commitment to long-term capital generation with sustainable and attractive capital returns to our shareholders. Our approach to capital deployment will be disciplined. We assess all individual businesses on their ability to generate attractive returns, and thus actively manage our portfolio going forward. We have a clear ambition to become an industry leader, known for our customer engagement, talented employees and contribution to society. With our strong management team, and our proven capabilities to improve performance and generate value, we will deliver on these ambitious targets.’
COVID-19 update
It is our priority to support the well-being of our customers, colleagues and society at large during the COVID-19 pandemic, and we have launched several initiatives to help our different stakeholder groups. The impact on claims experience so far is limited, as we have no or limited exposure to business interruption, travel and health insurance. Our sales in Europe and Japan will likely be affected, leading to lower premiums, and we expect market volatility to result in lower fee income in our asset management business. In the past months we have taken mitigating actions, such as seizing opportunities to accelerate the shift to higher yielding assets at Netherlands Life. We currently estimate that the net impact will be EUR -100 million on the 2020 operating result and operating capital generation.
Resilient balance sheet and strong capital position allow for sustainable cash flows and attractive capital return
NN has a strong and resilient balance sheet, and is well-positioned to navigate market volatility. The company is well capitalised with an estimated Solvency II ratio of approximately 227% at the end of May 2020, including the impact of the longevity transactions announced on 19 May 2020. Also against peers, NN’s balance sheet and asset mix screens well. With its conservative asset mix, heavily geared to high quality government bonds, NN has low sensitivity to interest rate and credit spread risks. Our low economic interest rate position is supporting stable free cash flows. The solidity and stability of our balance sheet, also in volatile market conditions, as well as the optionality that this provides, underlines our robust and resilient profile.
Leading positions and strong cash flow in the Netherlands
NN has leading market positions in the Netherlands, reinforced by the recent acquisitions of Delta Lloyd and VIVAT Non-life. Realising EUR 618 million in cost savings since 2014, NN has made strong progress in reducing expenses and optimising its operations. The acceleration of management actions, and our continued focus on further improving efficiency, will increase our cash flow generation further.
Netherlands Life will continue to shift to higher-yielding assets, manage longevity risk efficiently from a risk-return perspective and reduce expenses in line with the run-off of its portfolio.
The profitability of the Non-life business has recovered well and the business is now focusing on the integration of VIVAT Non-Life, extracting the synergy benefits from this transaction and further reducing expenses. We will continue to optimise the Non-life business by building data capabilities and leveraging on its additional scale.
NN Bank will further improve its profitability and increase its capital generation contribution to NN Group over time. It will continue to originate Dutch residential mortgages, the majority of which are transferred to the investment portfolios of the insurance companies, or to the Dutch residential mortgage fund managed by NN Investment Partners. Dutch residential mortgages are attractive assets from a risk-return perspective. NN Bank will continue to drive sales through enhanced engagement with retail customers in the Netherlands.
NN Investment Partners manages EUR 276 billion of assets, including third-party assets and the proprietary assets of the Group’s insurance companies. It is a leader in responsible investing and will continue to focus on delivering a consistent investment performance, a digital and personal client experience, and efficiencies to provide an attractive return on equity.
Profitable growth in attractive markets: Europe and Japan
We have strong positions in high-growth life protection markets with attractive margins in Europe and Japan. We will leverage our unique in-house distribution network of tied agents, and our valuable bancassurance partnerships, and will continue to shift to protection products. This will provide profitable growth and sustainability in our long-term cash flows.
Overall, we have seen strong growth of new business in Europe, with Value of New Business (VNB) increasing at an average annual rate of more than 20% since 2017, despite pension reforms in several countries. We will use digital capabilities to increase productivity and retention of our tied agent network, and drive sales through our bancassurance partnerships.
In Belgium we will reshape our product portfolio, optimise the risk return on the investment portfolio, and achieve cost efficiencies to improve Return on Own Funds.
We are a market leader in the large and attractive Corporate Owned Life Insurance (COLI) segment in Japan, and over the years have built unique capabilities that set us apart from the rest of the market. Japan is the largest driver of attractive VNB growth and provides clear diversification benefits to NN Group. We will continue to grow COLI protection and reactivate sales of COLI financial solutions following the tax rule changes in 2019.
Disciplined approach to capital deployment
NN will continue to be disciplined in its capital allocation, invest in profitable organic growth and provide attractive capital returns to shareholders. Our capital return policy of a progressive dividend per share and an annual share buyback of at least EUR 250 million provides clarity on the annual capital return that shareholders can expect. Our progressive dividend policy means that we aim to grow our dividend per share over time. The long-term growth pattern of our annual dividends is ultimately linked to the growth of our capital generation. Excess capital will be returned to shareholders, unless used for value-creating opportunities. We remain very disciplined in our M&A activities and will only proceed if there is a clear strategic rationale and if financial hurdles are met. We regularly asses our portfolio of businesses considering a number of criteria at both the business unit and market level, and will apply strict hurdle rates to achieve attractive returns.
Creating value for all our stakeholders
At NN, we put our resources, expertise, and networks to use for the well-being of our customers, for the advancement of our communities, the preservation of our planet, and for the promotion of a stable, inclusive, and sustainable economy. Our purpose is to help people care for what matters most to them. It is our ambition to be an industry leader, known for our customer engagement, talented people, and contribution to society. With today’s update of our strategic and financial priorities, NN aims to achieve sustainable value creation for shareholders and other stakeholders.