NN Re NN Re is NN Group’s reinsurer. It primarily reinsures risks with NN Group and retrocedes or hedges risks with the market.
How we performed Full-year 2017 operating result of the ongoing business increased to EUR 1,586 million, up from EUR 1,227 million in 2016, mainly driven by improved results in most segments and the EUR 205 million contribution of the Delta Lloyd businesses.
2018 onwards Our operating environment changes rapidly, but with our company’s financial strength, solid balance sheet and diverse set of businesses, we are well-positioned to face challenges, capture growth and contribute to an economy that works for people, societies and the environment. We made good progress in 2017 and took important steps to facilitate future success. But, as always, work remains to be done. We are determined to further accelerate our pace of change in 2018, by combining our strengths, transitioning to agile ways of working and by fostering the entrepreneurial mindset that is starting to bloom.
We have set ambitious targets for the integration process. In 2018, we plan to rebrand all Delta Lloyd products to NN. As of 1 January 2018, the legal mergers of NN Bank and Delta Lloyd Bank, and NN Investment Partners and Delta Lloyd Asset Management were completed. A legal merger of NN and Delta Lloyd Insurance in Belgium is expected in the first half of 2018.
Asset valuations are becoming stretched in some markets, as investors accept higher credit and liquidity risk.
Changing pension systems Low interest rates, digitalisation and the move to passive investment solutions continue to put pressure on the asset management industry. The outlook for life insurance and pension products differs across countries. On a global scale, life insurers have managed to restore profits allowing them to retain earnings, raise capital buffers, and adapt their business models in response to the low‑yield environment. Also, insurers have been adjusting their asset mix to higher‑yielding and less liquid assets. In the Netherlands, the market for (individual) life and pension products is challenging. The new Dutch government announced initial ambitions to reform the second pillar of the pension system. The Central and Eastern European (CEE) region maintains significant potential for future growth, and witnessed rising demand for life insurance products and continued growth of the insurance sector in the region.
The most material topics, indicated in the upper right quarter of the matrix, and NN Group’s response to them are described in the next chapter of this Annual Review. Although climate change is placed outside the upper right quarter, we address climate change risks and opportunities in this chapter, and in our response to the recommendations of the Taskforce Climate‑related Financial Disclosures (on pages 58‑61).
Our response We want to be the intuitive partner for our customers when it comes to planning their financial futures. This can take many forms, including digitalisation, developing new products to anticipate changing customer demands and finding new ways to distribute our products.
Strategic focus for the year ahead Going forward, our focus will remain on the integration with Delta Lloyd and unlocking the potential of the combined company. Our large customer base provides the opportunity to build a substantial online platform for financial services. The starting point is to offer our products and services through our existing channels, expanding to offerings from and via potentially third parties, in order to create new business opportunities. To take advantage of opportunities that are arising in different market spaces, we are focusing on three key innovation areas: cybersecurity, carefree retirement and vitality. Startup techniques are used to explore these new opportunities.
Over the course of 2017, the focus on meeting the evolving needs of customers was strengthened through new tailormade products and services. For example, Nationale-Nederlanden Spain launched ‘Plan Creciente Empresas’, a growing guarantee concept for the employee benefits market. It is a unit-linked product that offers the possibility of attractive returns in the long term, while limiting potential losses, thanks to an innovative financial protection system.
Robotisation and the agile way of working have been further implemented throughout NN IP
Strategic focus for the year ahead The acquisition of DL AM brings both scale and skills to our business. Going forward, NN IP will sharpen its focus on core investment capabilities, increase the agility of the organisation and further develop its distinctive identity. In this way, NN IP will be able to further create value for stakeholders, both third-party and NN insurance businesses.
‘I am repeating myself, but I am 200% sincere: thank you!’ Ivo De Smedt, Belgium
Delta Lloyd Foundation set up the Coalition against Debt to help low-income households get rid of their long-term debt. Together with health insurer CZ, Delta Lloyd Foundation took the initiative to work with other creditors on solutions to the increasing problem of payment arrears and debts. This is done by working together and exchanging knowledge to facilitate and promote healthy payment behaviour among customers. Creditors that participate in the coalition adhere to ten principles which prescribe an ethical way of approaching customers.
In Japan, we offer a life insurance product that provides critical illness coverage in case of cancer, acute cardiac infarct and stroke. It was developed to support small business owners who are unable to manage their company due to critical illness.
At the Annual General Meeting on 31 May 2018, a final dividend for 2017 will be proposed of EUR 1.04 per ordinary share. Together with the 2017 interim dividend of EUR 0.62 per ordinary share paid in September 2017, NN Group’s total dividend for 2017 will be EUR 1.66 per ordinary share, which is equivalent to a dividend payout ratio of around 45% of NN Group’s full-year 2017 net operating result of the ongoing business.
• Annual earnings growth of 5-7% on average in the medium term2
To support the implementation of NN Group’s RI Framework policy, we continued our development of investment guidance papers that address areas defined by the UN Global Compact. In 2016 we published a paper on human rights. In 2017 we added a paper on the environment.
Additionally, we are developing new ways of working based on the agile philosophy. Our business units in Poland and Hungary are the first to pilot this new way of working, focused on giving people more autonomy and accountability in achieving their strategic agenda.
Impact companies make a positive contribution to society by their business product or operating model. Once we have our universe of preferred impact stocks, we create a portfolio of 35 to 60 names diversified across our impact themes.
Climate change dialogue In 2017, a multi-disciplined working group, called the Climate Change Dialogue, was set up to align our reporting with the TCFD framework. Relevant disciplines represented are: risk management, finance, legal, insurance, reinsurance, investment and corporate citizenship. The group convened to discuss a gap analysis of current reporting with the TCFD framework and a qualitative mapping of risks and opportunities.
Finally, the transition might confront corporates in some instances with new legal or future regulatory challenges and associated fines for shortfalls in their responsibilities to the broader environment or society. Such climate change-related litigation remains an emerging and evolving area, making it difficult to assess. Given the relative size of NN’s general liability insurance portfolio to corporate clients, we currently foresee risks in this area to be low. However, we will monitor developments.
Customer trust and satisfaction issues can negatively impact our revenues. For example, flood risk is not covered in most P&C products, such as building and contents insurance in the Netherlands. This is also the case for NN Group. Faced with large damages, customer satisfaction could be affected when our customers are unaware of uninsured risks. Such aspects may occasionally lead to reviews of national risk management approaches, such as in the UK, where a national flood risk pool has been established for high risk areas. At this moment, there is not such a pool in the Netherlands, but the topic is regularly discussed amongst stakeholders.
The Procurement policy governs our approach to manage and control business operations risks, non-financial and reputation risks in our supply chain. Suppliers are asked to provide detailed information on their policies regarding human rights, environmental care, labour rights, antibribery and corruption. Our procurement employees are trained to integrate sustainability aspects into the supplier qualification process.
We consider active stewardship to be one of the most important tools to manage climate risks. We believe it is a responsibility for us as long-term investors. Through voting, we support shareholder resolutions related to climate risk, disclosure and performance. Furthermore, we engage in-depth with investee companies to address the risks associated with climate change. For more detail refer to pages 41-44.
Insurance Property insurance is impacted by climate risks, as buildings and their contents are exposed to natural catastrophes including storms, hail or impacts of rainfall. Some metrics we use to assess the future performance of our property insurance business on catastrophe or climate risks are the Probable Maximum Loss (PML) and the mitigation of risk.
Assets under Management in SRI funds and mandates (end of period) 10,852 5,062 4,509
5 For more information, refer to the Remuneration report on pages 28-32 of the Financial Report.
The Executive Board of NN Group is responsible for the preparation of the Non-Financial Information in accordance with the GRI Standards and the applied supplemental reporting criteria as disclosed in ‘Our approach to reporting’ on page 62, including the identification of stakeholders and the definition of material matters. The choices made by the Executive Board regarding the scope of the Non-Financial Information and the reporting policy are summarised in ‘Our approach to reporting’ of the Annual Review. The Executive Board is also responsible for such internal control as it determines is necessary to enable the preparation of the Non-Financial Information that is free from material misstatement, whether due to fraud or error.
We have exercised professional judgement and have maintained professional scepticism throughout the review, in accordance with the Dutch Standard 3810N, ethical requirements and independence requirements.
Junior Achievement Europe Junior Achievement Europe is Europe’s largest provider of education programmes for entrepreneurship, work readiness and financial literacy.
NN Group’s Partial Internal Model was approved by the Dutch regulator (DNB) in December 2015.
Solvency II ratio Measurement of NN Group’s capital position, calculated as the ratio of Own Funds (OF) to the Solvency Capital Requirement (SCR) based on NN Group’s approved Partial Internal Model.