We aim to increase our AuM in sustainable and impact strategies every year. In 2019, these assets represented 8% of total AuM, while at the same time showing an increase of 37% compared to 2018.
How we create and share value We aim to create long-term value for our stakeholders. This simplified version of our business model shows how we use the resources (‘capitals’) in our organisation to create value as a result of our activities or outputs.
We aim to add value for our stakeholders, contribute actively to societal discussions, and introduce solutions beneficial to the people we serve.
In what way did the company contribute to society? We have an important responsibility to be clear on what people can expect from us, and what our added value is to society. We want to be open to different perspectives, and since my start, I have had the opportunity to meet with many of our stakeholders. The insights our customers, employees, shareholders, regulators and other parties in society share with us are of key importance, and I would like to thank them all for their support for our company.
Artificial intelligence, more extensive use of big data and the Internet of Things are just a few examples of technologies that are enabling companies to act faster, and deliver products and services that meet customer needs more precisely. At the same time, we are conscious that these opportunities require us to carefully assess the impact on our customers, for example, around data privacy and cybersecurity.
Longer-term business model: risk of not timely adapting our business model to the changing world around us
We integrate environmental, social and governance (ESG) criteria into our decision-making by formulating clear policies and monitoring adherence. Examples include our Responsible Investment Framework policy, Remuneration Framework and Tax Risk Management policy.
Operational and IT effectiveness: risk of material failures in processes or IT systems leading to higher expenses, operational losses, disruption of operations and/or reputational damage.
Second, we focus on innovating our business. We seek innovative ways to meet our customers’ needs and keep up with changing market dynamics. We identify new customer segments and develop a customer experience that is as personalised and relevant as possible. Within NN, our Strategic Transformation Office aims to explore new value propositions and build internal innovation capabilities. In 2019, we launched our NN Innovation Method, a framework that provides simple tools and methods inspired by Design Thinking and the Lean Start-up Methodology. Innovation starts with the right mindset, and through this framework we can help colleagues work in a more innovative way.
EUR ~400m cost reduction1 by 2020 compared with 2016 full-year expense base (in EUR million)
NN Group has a diversified portfolio of businesses. The mature insurance businesses in the home markets have strong cash and capital generating capacity which allows for the possibility to invest in growth areas in other business lines. Details on the performance of the different business units are given in the chapters that follow, where Netherlands comprises Netherlands Life, Netherlands Non-life and Banking, and International Insurance consists of Insurance Europe and Japan Life.
Second, we want to further improve our performance by striving for enhanced profitability of our business units and by capturing growth opportunities in a disciplined manner.
Diversified portfolio of our businesses NN Group operating result before tax1
On the customer side, too, I would like to have seen a bit more progress. On average, customer Net Promoter Scores (NPS) and Global Brand Health Monitor (GBHM) scores were maintained, which is positive given the large integration programmes that have taken place. In some areas, the scores could rise if we can further improve the customer experience. Our customers want to be able to interact with us instantly in the ways that they prefer. Speed is a distinct competitive advantage here, with customers expecting social rewards and instant gratification. Things that technology can facilitate and reinforce.
Fabian, what were the highlights of 2019 for International Insurance? International Insurance made a strong contribution to NN Group’s performance in terms of financial results, as we reached an operating result of EUR 0.5 billion – an important milestone. And we made progress across our business segments. To highlight a few areas: we contributed to the public pension debate in Romania and Poland; we strengthened our partnerships; we increased our protection business through new products; and we sharpened our customer focus.
We are also exploring the use of artificial intelligence techniques and big data to enhance fundamental research. For example, by testing the use of Natural Language Processing techniques in our European equity strategies. To maximise the value of our data usage, we have recruited people with the right skills from within and outside our industry, and added data scientists to our investment teams.
Can you say more about your partnerships? Partnerships are key to us and span geographies. From Voya in the US, ING and ILIM in Europe and Nomura, Rakuten and China AMC in Asia. Our partnership with ING in Poland for example enables us to reach more clients; with China AMC we collaborate in multiple ways: from shaping our joint product offering to identifying how best to leverage each other’s presence and know-how.
An activation campaign by BeFrank won the 2019 Pensioenwegwijzer (Pension Signpost) award for helping people make smart retirement choices.
Employee representation Our works councils facilitate employee consultation in many NN countries in Europe. In the Netherlands, all works councils held elections in October, with those elected taking up their roles in January 2020.
Disciplined capital allocation Through disciplined capital management and a focus on generating capital, we ensure our cash capital position and Solvency II ratio remain strong. Excess capital will be returned to shareholders unless it can be used for value-creating opportunities, for example the expected acquisition of VIVAT Non-life, which further strengthens our Non-life platform in the Netherlands.
Also for book-year 2019, we published a TTC Report. This report is separately published on our corporate website. Where our previous report only recognised the Netherlands as a separate country, this year’s report provides insight on the taxes being borne and collected on a country-bycountry basis. In addition, we explain new developments such as the signing of an Advance Pricing Agreement with the Dutch tax authorities regarding the arm’s length pricing of the intragroup services towards its International business units.
In Spain, we are an Aldeas Infantiles Future Builder, helping teenagers aged between 16 and 19 in risk of social exclusion with their social skills, personal development, academic qualifications and employability. The programme aims to promote social and labour inclusion in the hospitality business.
Evaluate As part of our programme cycle, we use the monitoring results to continually improve the programme. This assessment is discussed in the Management Board and Supervisory Board annually.
Commitment of the financial sector to the Dutch Climate Agreement In July 2019, along with some 50 other financial institutions, NN signed a commitment to the Dutch Climate Agreement. In doing so, a financial institution commits to contribute to the reduction of greenhouse gas emissions and the financing of energy transition. Signatories should disclose the carbon footprint of their relevant investments from book year 2020 onwards, and disclose action plans that contribute to achievement of climate goals by 2022 the latest.
In 2019, NN refined its Responsible Investment (RI) Framework policy. Amongst other things, by publishing our Statement on Coal (see page 37). We also engaged with issuers to address ESG risks and support their transition to a more sustainable economy. Read more on pages 38-39 and in NN IP’s Responsible Investing Report 2019. For an overview of fixedincome bonds by type of issuer held on the NN Group balance sheet, see page 142 of the Financial Report (Note 49).
Our NN Group Human Rights Statement serves as an umbrella document and relates to various policies, such as our Human Capital and RI Framework policies, and a Guidance paper on Human Rights for Investors.
As best practice methodologies are still developing, we continue to assess the best ways to consistently measure the carbon footprint for our portfolio. In 2019, we made a change in the way we calculate the portfolio carbon footprint metric. We now use a company’s enterprise value (a measure of a company’s total value) as a denominator to attribute emissions to both equity and debt positions within our portfolio. This change contributed to the decrease in the portfolio carbon footprint for these asset categories. The new methodology is in line with recommendations made by the Platform Carbon Accounting Financials (PCAF) as it better represents the share of a total company value that has been financed by investors with both equity and bond positions, and avoids double counting.
Carbon footprinting can help us understand carbon and climate change-related risks within our investment portfolio, and can also be useful to inform corporate engagement. In the context of an investment portfolio, a carbon footprint measures the amount of greenhouse gas (GHG) emissions and intensity associated with the underlying portfolio holdings. The footprint is measured in carbon dioxide equivalents (CO2e).