The 2017 Annual Report consists of the 2017 Annual Review and the 2017 Financial Report. It provides an integrated review of the performance of our company.
The Annual Report is prepared in accordance with applicable Dutch law and the International Financial Reporting Standards (IFRS), which are endorsed by the European Union. It also complies with the Global Reporting Initiative’s Sustainability Standards and the guidelines of the International Integrated Reporting Council. The Annual Report aligns relevant information about our strategy, governance systems, performance and future prospects in a way that reflects the economic, environmental and social contexts in which we operate. Read more about ‘Our approach to reporting’ on page 62 of the Annual Review.
NN Group also publishes a Solvency and Financial Condition Report (SFCR), including public quantitative and qualitative disclosures on Solvency II. The SFCR is published on NN Group’s corporate website in the Investors/Annual Report section.
Our strategy Our strategy and priorities 24 Core skills that enable our strategy 25 Delivering on our strategy 28
Governance Governance and compliance 53 Our Management Board 54 Stakeholder engagement and our international commitments 56 Our approach to reporting 62
Facts and figures Consolidated balance sheet 63 Consolidated profit and loss account 64 Key financial and non-financial indicators 65 Customer-related indicators 66 Responsible investment indicators 66 Human capital indicators 68 Community investment indicators 69 Environmental indicators 69 Assurance report of the independent auditor 70 Glossary 74 Contact and legal information IBC
The Financial Report covers NN Group’s financial developments and annual accounts, the report of the Supervisory Board and our approach to risk management, capital management and corporate governance. The target audiences for this section are shareholders, rating agencies and other stakeholders interested in the financials and governance of NN Group.
Cover photo: Runners crossing the finish line during City-Pier-City run, The Hague Photographer: Bart Hoogveld
We are a financial services company active in 18 countries, with a strong presence in a number of European countries and Japan. Our roots lie in the Netherlands, with a rich history that stretches back more than 170 years. Life is about living. That is why we do our very best to help our customers achieve their dreams and overcome adversity along the way.
Through our retirement services, insurance, investments and banking products, we are committed to helping people secure their financial futures. That is our purpose at NN.
The relationship between these elements, and how we create long-term value for our stakeholders, is illustrated in this diagram. The elements form the structure of our business and this report. More detail on each element can be found throughout the reporting suite, along with our performance measures and targets.
• EUR 15,412 million eligible own funds page 161 of the Financial Report (Note 51)
3 Including EUR 500 million capital injection into Delta Lloyd Life.
Total provision EUR 114 billion for insurance & investment contracts – of which for risk EUR 21 billion policyholder
Customers Owners and employees of small- and medium-sized enterprises (SMEs), where the company is both the policyholder and the beneficiary of the policy
4. Japan Life 1 Not final until filed with the regulators; NN Life SII ratio based on the Partial Internal Model; Delta Lloyd Life SII ratio based on the standard formula.
2 Including health and broker business. 3 As of 2017 the calculation method excludes the discount rate unwind on D&A insurance liabilities. 4 Excluding health and broker business. 5 The ‘Common Equity Tier I ratio phased in’ is not final until filed with the regulators. 6 (Annualised) net operating result of the segment, divided by (average) adjusted allocated equity. 7 Expected run-off Japan Closed Block: measured from the end of 2017.
Continuing in this Annual Review, our reporting segments are grouped as follows: • Netherlands Life, Netherlands Non-life and NN Bank are part of Netherlands • Netherlands Life includes the results of Nationale-Nederlanden Life, Delta Lloyd Life, AZL, the life results of ABN AMRO Insurance and BeFrank • Netherlands Non-life includes the results Nationale-Nederlanden Non-life, Delta Lloyd Non-life, the non-life results of ABN AMRO Insurance, Movir, OHRA, and the broker results related to health insurance products
• Insurance Europe, Japan Life, Japan Closed Block VA and NN Re are part of International Insurance • NN Investment Partners and Delta Lloyd Asset Management are part of Asset Management
2017 was a memorable year with solid financial and non-financial performance
How we performed Our Solvency II ratio remained robust at 199%, in line with our disciplined approach to managing our capital. The decline from 241% at the end of 2016 reflects the acquisition of Delta Lloyd, partly offset by operating capital generation.
How we performed In 2017, total new sales were EUR 1,791 million, up 33.9% compared to 2016 on a constant currency basis, driven by higher sales at Netherlands Life, Insurance Europe and Japan Life.
How we performed In 2017, all of our insurance businesses maintained or improved their relational NPS scores compared with the previous year, with the exception of NN Life Hungary. Their NPS is still well above market average. We aim to increase our NPS scores every year.
How we performed Assets under Management in Socially Responsible Investment (SRI) funds and mandates increased by 114% compared to 2016. NN Investment Partners launched new SRI products that contributed to this growth. We aim to grow our Assets under Management and product offering in this area every year.
“ Our company aims to be a positive force in people’s lives, now and for generations to come.”
At our Capital Markets Day in November 2017 we outlined our strategy and updated targets for the combined company going forward. Our top priorities are to deliver on the Delta Lloyd transaction, extract synergies and capitalise on our combined strengths. However, we recognise that an integration process of this scale is impactful and does not only bring benefits. It also entails the loss of an appreciated brand, a change in functions, and positions becoming redundant. Last year, we saw a reduction of approximately 900 jobs in our Dutch and Belgian businesses. We are committed to go through this process with respect and care, and I extend my warmest thanks to all colleagues who over the years contributed to where the company is today.
2017 was a memorable year for NN Group. We succeeded in further strengthening our businesses, and solidified our position in the Netherlands and Belgium through the acquisition of Delta Lloyd.
Solid financial performance With the persistent low interest rate environment, various geopolitical and regulatory developments and circumstances caused by for example weather-related events, 2017 also was a tumultuous year. Still, we maintained commercial momentum and delivered on our cost saving targets, demonstrating the resilience of our businesses.
Our financial performance in 2017 remained robust and our capital allocation disciplined. Our full-year operating results of the ongoing businesses – reflecting a strong contribution of Delta Lloyd and an improved performance of our insurance operations in Europe and Japan – increased by 29.3% to EUR 1,586 million and our net result1 increased by 77.5% to EUR 2,110 million. Our cash capital position and Solvency II ratio are solid, at EUR 1,434 million and 199% respectively, with our Solvency II ratio reflecting the deduction of the final 2017 dividend of EUR 1.04 per ordinary share that will be proposed at our Annual General Meeting of Shareholders on 31 May 2018. Combined with the interim dividend paid in September 2017, this brings the payout ratio to 45% of the 2017 full-year net operating result of the ongoing business.
NN also invested in RightIndem, which offers digital, customer-driven claims management solutions, and in Dopay, a company that simplifies payroll management and disbursement in developing countries.
Commitment to teamwork In our industry, trust is essential and living up to our stakeholders’ expectations is key. In order to deliver on our promises, our more than 15,000 colleagues need to feel engaged, appreciated and equipped, especially in times of change. We were pleased to be named top employer in Poland, Spain and Turkey in 2017, and know there is further room for improvement. Regrettably, our Yearly Engagement Survey showed a decrease in employee engagement from 71% to 66%. Given the uncertainty around the integration process in the Netherlands and Belgium, this outcome is understandable. As we progress on our journey, this will have our full attention.
In support of our societal commitments and to promote transparency, we made progress in aligning our reporting with the recommendations of the Task Force on Climate-related Financial Disclosures and we indicate how we contribute to the Sustainable Development Goals.
After the IPO in July 2014, NN Group developed into a solid standalone company, with a strong capital position, businesses that perform well, and with colleagues dedicated to serving our customers.
Consolidation We are committed to returning capital in excess of our capital ambition to shareholders, unless it can be used for appropriate corporate purposes, including investments in value-creating opportunities. We continuously perform strategic assessments of each of our businesses within the NN Group portfolio.
In recent years, structural changes have confronted the financial services industry. The Dutch insurance market in particular faces declining margins and a challenging market environment, involving low interest rates, expiring life insurance portfolios, the transition from defined benefit to defined contribution pension schemes, and a fragmented non-life market with premiums under pressure.
People integration In the integration process, the NN brand promise ‘You matter’ and our values: care, clear, commit, are leading.
of senior leaders are strongly supportive of the combined company of colleagues recognise that the combining of the companies is necessary to ensure our future success
Senior leadership appointments To support and lead our people during the integration and beyond, a strong and collaborative leadership group needed to be appointed. After the settlement of the offer (12 April 2017), announcing the senior management of the combined company was a top priority. To do this respectfully and with due care, the guiding principle for the senior management selection process was the ‘best person for the job’ concept, based on a non-discriminatory, fair and business-oriented set of criteria.
Reorganisation framework The next step was to agree on a reorganisation framework with the trade unions in the Netherlands. This framework, as agreed on in September 2017, sets out clear definitions and procedures that apply to all reorganisations that are part of the integration process. Plans are submitted between 1 September 2017 and 1 January 2019. Subsequently, a new job framework for the combined company was introduced.
Rebranding The combined company will continue under the NN Group brand architecture: a strong brand that is clearly identifiable in the market. The Delta Lloyd brand will be phased out gradually as of 2018.
In the Netherlands, all businesses will be NN-branded by 1 July 2018. The current Delta Lloyd brands Ohra and BeFrank will remain. The main aim in the Belgian market is to restore aided brand awareness levels for the NN brand (25%) to the Delta Lloyd level (75%). By year-end 2018, most products and services will be rebranded. For NN IP, selected fund ranges will be renamed in the second half of 2018, with a focus on client communications.
Measurement To successfully integrate companies, employees need to be well-informed and engaged regarding the shared future. Every two months, a survey is conducted to collect feedback on the integration process. It measures if people feel ready, willing and able to embrace the changes involved in forming a combined company. The results show how and where we are making progress, and guide us in determining necessary adjustments.
April Approval from all regulators; Offer for Delta Lloyd declared unconditional
Delta Lloyd acquired by Commercial Union (now Aviva), Delta Lloyd delisted
Merger of Hollandsche Sociëteit van Levensverzekeringen with Amstleven into Delta Verzekeringsgroep
Our values: care, clear, commit, serve as a compass for decision-making and guide us in our everyday work
Over the next few pages, we describe how our values are implemented across our businesses, in particular in the integration process of NN Group and Delta Lloyd in the Netherlands and Belgium, and how they support us in creating long-term value for our company and our stakeholders.
Living our Values programme The ‘Living our Values’ programme raises awareness, involves our employees and enables them to integrate the values into their work. Our senior managers are expected to act as role models in living our values, which is also reflected in our company’s leadership profile. The key elements of our NN Leadership profile are: demonstrating integrity, customer focus, and creating a culture of clear direction and open feedback.
Values week The ‘Living our Values’ programme encourages our colleagues to actively engage with the values. The annual NN Values week provides an opportunity to reflect on our values, to talk with colleagues about the values, and address dilemmas people may face in their day-today work. In October 2017, all our businesses organised one or more internal valuesrelated activities during NN Values week.
NN Code of Conduct While our values provide us with a compass for decision-making, our NN Code of Conduct gives us more detailed guidelines for specific behaviour. It contains a general Code for all employees, and a Manager Annex describing specific management responsibilities in raising awareness and upholding standards.
Written acknowledgement of the NN Code of Conduct has already been mandatory in several businesses for a number of years, and became mandatory for NN Group as a whole in the first half of 2017. In May 2017, NN started an annual process for acknowledgement of the Code of Conduct by every employee via the HR system Workday. In October 2017, NN reached an acknowledgement score of almost 100% for internal NN staff. We have started the acknowledgement for external staff and will further implement this over 2018.
My manager consistently acts as a role model when it comes to living our NN values (care, clear, commit)
Raising concerns The NN Group Whistleblower Policy enables every employee to report, also anonymously, a concern outside the normal reporting channels. NN Group guarantees several rights, including protection from retaliation, for an employee who reports a concern in good faith, who provides information, who causes information to be provided, or who otherwise assists in an investigation. The main outlines of the Whistleblower policy are explained in our Code of Conduct. Training materials regarding this subject have been developed and made available for all business units.
To ensure we hire employees who fit well within our organisation, we have made the values an integral part of our employee value proposition. A personality/culture matching tool has been part of the recruitment website since 2016. With this self-assessment tool, candidates can assess to what extent their personality and values match the culture and values of NN. For our NN traineeship programme, we look for traits in candidates that correspond with our values. We use a special tool called TalentPitch to select this group of employees.
For all new employees, we have an onboarding programme that explains the NN values and the expectation that employees uphold them. In the Netherlands, new employees are also required to take the Oath for Financial Institutions, which is fully integrated in the ‘NN statement of Living our Values’.
77% of employees feel their manager consistently acts a a role model when it comes to living our NN values (care, clear, commit)
According to the Code, creating long-term value also means companies are expected to take responsibility for the environment within which the enterprise operates and upon which it has an impact. For NN Group, this responsibility is an integrated part of our values, our Corporate Citizenship statements, policies and programmes. In 2017, we took a number of steps to ensure long-term value creation for our stakeholders is better reflected in our value-creation model, our refined strategy framework (pages 2-3) and our non-financial KPIs (pages 65-69). In addition, in 2017, the Management Board and Supervisory Board discussed and approved the ‘NN Group Human Rights Statement’ and the ‘NN Group Environmental Statement’, which explain how our business impacts these themes.
Another element of long-term value creation is the management’s awareness and anticipation of new developments in technology and changes in business models. By making innovation part of our strategic priorities, these issues are constantly and thoroughly addressed.
The charters of the Executive Board, Management Board and Supervisory Board have been revised, amongst others to ensure the focus on long-term value creation, and to ensure that the stakeholder interests that are relevant in this context are taken into account. Future value creation is also part of the strategic planning cycle, target setting and performance management of our leadership.
Values as part of the Delta Lloyd integration The Delta Lloyd core values and the NN values have a lot in common, focusing on honesty, clarity and integrity. From the start of the integration, it was determined that the culture of NN Group, based on the three NN values, would serve as the blueprint for the culture of the combined company in the Netherlands and Belgium. Therefore, the NN values were introduced as a fundamental part of the integration process. This means they serve as a guide throughout the different stages of the integration, from employee communications to Human Resources processes, such as personnel selection. A multidisciplinary NN/Delta Lloyd workstream was set up to provide advice and guidance on all aspects of the integration of Delta Lloyd from a values perspective.
Our culture Continued 85% employee engagement with our brand and values 90% of employees feel their team cares about customers and treats them with respect
Monitoring performance Each year, the Management Board assesses the effectiveness of the implementation of our ‘Living our Values’ programme and discusses points for improvement. This evaluation is also discussed with the Supervisory Board. We established a number of monitoring instruments to assess how well our values are embedded in our corporate culture. The perception of customers and the general public on how we are living our values is measured through the Global Brand Health Monitor (GBHM). Our employee perception is measured through YES. If there is a decrease or stagnation in performance, this is reported to and discussed with the business units so they can take appropriate action.
Through YES, our employees can express their opinions on different topics, including the extent to which we are living our values and acting with integrity. The 2017 YES showed 85% employee engagement with our brand and values, a decrease of 1% compared to 2016, which is considered to be insignificant.
As a first step to raise awareness of the NN values, all Delta Lloyd employees in the Netherlands and Belgium received several emails and video messages from NN Group CEO Lard Friese and Netherlands CEO David Knibbe, informing them about the NN values and the importance of common values for the new combined company.
In addition, we again used the ‘NN Values challenge’ in the Netherlands and Belgium. This game helps employees to apply our values in different work-related situations and stimulates discussion around the values.
Going forward Overall employee engagement with our brand and values remains high – at 85%. However, we will continue our ‘Living our Values’ programme, based on the concept of a global theme and a framework for local initiatives. We will continue to promote and monitor values awareness as part of the integration process. Furthermore, we will keep investing in the role model behaviour of managers, as we believe this is a key component of success in the long term.
77% favourable employee perception on openly discussing consistency of actions with values 82% of our employees feel that their colleagues demonstrate a high standard of integrity
Several external factors impact the environment in which the financial services industry operates
Despite a persistent low interest rate environment, global economic conditions developed positively, also in the countries in which NN Group is active. At the same time, regulatory, demographic and climate change require the sector to continue to adapt.
The global economy is stronger than it has been over the past decade. In advanced economies, growth momentum was broad‑based, with stronger activity in the United States, Europe and Japan.
The outlook for the medium term is more subdued as demographic factors may negatively impact future growth. With fertility rates decreasing and populations ageing, the working‑age population is projected to decline in the coming years, which will put pressure on pension and health care systems.
Low interest rates and financial market stability Market sentiment remained strong and volatility continued to be low in 2017. On the monetary policy front, the US Federal Reserve raised short‑term interest rates in March, June and December. In most other advanced economies, the monetary policy stance remained broadly unchanged, with the exception of the European Central Bank’s (ECB) announcement that it will halve the pace of its bond‑buying asset purchase programme, starting in January 2018.
In 2017, legislation was proposed by the Dutch Government with regard to recovery and resolution planning for insurance companies in the Netherlands. This legislative process is likely to be finalised in 2018. Also at a European level, the topic of recovery and resolution of insurance companies is given attention. Consumer‑related legislation, such as the EU Insurance Distribution Directive (IDD), will help insurance firms further improve the quality and transparency of information provided to consumers. Also important is the EU General Data Protection Regulation (GDPR) that will become applicable on 25 May 2018. The GDPR will have a significant impact, as it will provide for a truly unified, high and consistent level of protection of personal data within the European Union (a.o.) introducing new rights for natural persons and obligations for organisations that process personal data. Data protection refers to the protection of personal data of individuals and is derived from the right to Privacy. Both the right to privacy and data protection are fundamental human rights. As a large financial services company, NN processes large numbers of (sensitive) personal data of our customers and employees. This places an extra responsibility on us to do our best to properly and in a timely manner comply with the GDPR.
Competitive landscape Digital innovations will continue to drive change across the financial services value chain, particularly in the property and casualty (P&C) market and asset management industry. This affects product development and underwriting, back‑office operations and online distribution. Social, mobile, analytics and cloud technologies will become utility assets as insurers focus on smarter technologies, such as artificial intelligence, blockchain and the Internet of Things. Digitalisation also brings opportunities for financial services companies to broaden and deepen product offerings and increase partnerships with insurtech startups. The use of (big) data for analysing client propositions offers opportunities to strengthen interaction with customers and create more intuitive partnerships, as well as create better and tailor‑made product solutions. Insurers and asset managers are aware this requires ensuring a proper balance between individual choices, privacy and solidarity.
Uncertain geopolitical developments In the refinement of business strategies, financial services companies should take due account of other developments, such as ambiguity around geopolitical developments, which potentially lead to uncertainties in the economy and markets. The increased frequency and severity of major weather events mean that climate change has enlarged the risks and costs of insurance. Cyber risks to business and governments are growing, as events in 2017 demonstrated, with a sizable increase in the impact and sophistication of financially motivated cyber‑attacks on financial institutions. A greater reliance on technology, combined with the interconnectedness of the global financial system, means that many participants in the system could potentially be at risk.
To validate the outcome of this exercise, we organised a dialogue session with a group of 20 internal and external stakeholders. The latter included investors, regulators, NGOs and experts in the area of sustainability.
Internally, we invited representatives from different business units and relevant staff functions. During the session, all topics were discussed and rated on a scale of one to five. The process was supported by an external specialised agency to ensure it was balanced and independent.
A number of topics, resulting from the materiality assessment and our own analysis, impact the financial services industry and our company
The fundamental need of people to protect themselves against life’s uncertainties will continue to drive growth in the insurance industry over the long term. But we are living in a new world: people are increasingly independent. They expect, and are used to, financial services companies delivering 24/7, no threshold access, through any means or device. A company’s business model and the way it offers products and services must support this.
For example, in the Netherlands, we have defined ‘Next Best Actions’. These are relevant and personal propositions that we offer during our contact with our customers. We use a self‑learning engine to determine the most suitable recommendations, resulting in higher customer satisfaction and improved cross‑sell ratios.
Cultivating the right innovation mindset is key to ensuring that we have the necessary agility to deliver truly customer‑oriented solutions and shorten the time to market. Our six international innovation labs – Sparklabs – provide an out‑of‑office environment to foster innovative ideas and infuse innovative thinking into our company. In 2017, we had more than 120 experiments (sparks) in our innovation pipeline. When new start‑up products or services become successful, we may integrate them into our regular businesses.
We also believe that innovating our customer experience is supported by connecting with relevant partners. An example is our strategic partnership with Hesapkurdu.com, the leading online loan aggregator for mortgages and consumer loans in Turkey. This partnership provides for the exclusive distribution of NN Hayat ve Emeklilik’s life and pension products for a period of 15 years.
Read more about our innovation efforts to create the customer experience of tomorrow on pages 35-38 of this Annual Review.
Opportunities and risks Financial services companies are investing in new digital platforms to facilitate connectivity and benefit from these new technologies. At the same time, they possess large amounts of payment data or personal information about their customers. Therefore security awareness and data protection are vitally important.
Attacks on financial services companies can have a major impact, such as claims and lawsuits, but also a loss of trust, driven by customers’ concerns about whether their information is truly safe. A major breach can seriously impact a company’s reputation and brand.
Our response Protecting financial and customer data is a key component in our daily business operations. We make every effort to provide optimal security and ensure confidentiality of our customers’ data and transactions. Cyber security is an integral part of our risk management strategy, both internally and externally.
Through education and awareness, security strategies are implemented at all levels of the organisation. Examples are periodic instructions to all employees on how data are to be stored and managed, phishing security tests, and awareness campaigns on password protection. We constantly perform security scans and employ security guidelines which our businesses must meet to properly protect data.
Several factors play a role in the success of a company that are beyond the scope of customer centricity and generating good financial returns alone. Business ethics and being transparent are crucial for ensuring long‑term success. Customers ask for transparent products and services that are easy to understand and also have a positive impact on society and the environment, enabling them to make the right choices. They increasingly care about how companies integrate sustainability aspects into their business and product offerings. Businesses must be committed to operating from a transparent and ethical foundation as it relates to the treatment of employees, respect to the environment, and fair market practices in terms of pricing and consumer treatment.
Read more about our values on pages 13-16 and responsible business standards on page 26 of this Annual Review.
NN Group’s role is to support customers in building and protecting their assets and covering their risks. Our risk and capital management activities seek to keep the company safe and profitable, in the interest of our stakeholders. NN Group adapts our risk management practices to new developments to ensure the business operates in a controlled way.
For more information, refer to the ‘Core skills that enable our strategy’ chapter on pages 25-27 of this Annual Review, and the ‘Risk management’ in our Financial Report on pages 129-158 (Note 50).
Prudent financial management is NN Group’s main driver to maintain a strong balance sheet. This is key to absorbing market volatility and ensuring NN Group and our operating entities are sufficiently capitalised at all times. This is how we ensure good financial performance, keeping our customers’ money safe and generating attractive returns. For 2017, our Solvency II ratio and cash capital position remained robust, at 199% and EUR 1,434 million respectively, in line with our disciplined approach to managing our capital. Our operating performance was strong, with the operating result of the ongoing business at EUR 1,586 million. Our total Assets under Management increased to EUR 246 billion.
Dutch unit-linked products In the Netherlands, unit‑linked products have received negative public attention since the end of 2006. We have taken this criticism to heart, as our aim is to support our customers as best we can. In recent years, Dutch insurance subsidiaries of NN Group have made significant progress in reaching out to individual customers who purchased unit‑linked products in the past, addressing vulnerable customer groups as a priority (‘activeren’).
To date, Dutch insurance subsidiaries of NN Group have reached out to 100% of customers with a unit‑linked policy. We encouraged all customers to carefully assess their unit‑linked products in order to enable them to address their personal situation and offered customers the option to switch to another product or make changes to their policy free of charge.
As at 31 December 2017, the portfolios of Dutch insurance subsidiaries of NN Group comprised approximately 500,000 active policies. Dutch subsidiaries of NN Group will continue to support customers with a unit‑linked policy by providing aftercare. In a limited number of cases (less than 1,000), Dutch insurance subsidiaries of NN Group have settled disputes with individual customers. These are tailor‑made solutions. A limited number of individual customers and several consumer protection organisations have initiated legal proceedings against Dutch insurance subsidiaries of NN Group.
Risks and opportunities We are exposed to climate risks primarily through our non‑life insurance policies, which cover damage caused by weather events such as windstorms or hail, and through our investment holdings in companies which may be affected by tightening regulation, technological developments and changing consumer preferences. At the same time, climate change creates opportunities for the development of new products and investments that contribute to climate change solutions for ourselves and for the clients and beneficiaries on behalf of whom we invest.
Our response We manage our greenhouse gas emissions to mitigate the impacts of our direct operations and are a carbon‑neutral company. We further improve our understanding of climate risks to provide adequate protection for our customers through our insurance products, while managing the risks posed to our investment portfolio, and using our influence and expertise to encourage investee companies to play their part in the transition to a lower‑carbon economy.
We believe that collaboration is important to tackle climate change. In 2017, we strengthened our network by joining the Institutional Investors Group on Climate Change. NN Investment Partners, our asset manager, endorsed the ‘Letter from Global Investors to Governments of the G7 and G20 nations’ urging them to stand by the Paris Agreement, and expanded its engagement on climate risk by joining the collaborative Climate Action 100+ initiative.
Our Responsible Investment Policy Framework sets out our vision and approach on Responsible Investment (RI), which we define as the integration of environmental, social and governance (ESG) aspects in our investment processes and ownership practices. NN Investment Partners (NN IP) formalised its commitment to Responsible Investment by signing the United Nations‑supported Principles for Responsible Investment in 2008. NN IP has since made the consideration of ESG factors an integral part of its investment decisions, in the conviction that these may impact both risks and returns. For clients who want to take sustainability a step further, NN IP also offers specialised Socially Responsible Investment (SRI) strategies and tailor‑made RI solutions.
For more information, please refer to the chapter on responsible investment on pages 41-44 of this Annual Review.
The strong foundation of our purpose, brand, values and ambition, combined with a focus on our strategic priorities, enables us to create long-term value
This is how we deliver on our ambition to be a respected company that truly matters in the lives of our stakeholders. Underpinning our strategy are four medium-term strategic priorities.
Capital generated in excess of NN Group’s capital ambition will be returned to shareholders, unless it can be used for other appropriate corporate purposes, including investments in value-creating opportunities. We continuously perform strategic assessments of each of our businesses within the NN Group portfolio.
In the Netherlands and Belgium, our focus is on successfully integrating Delta Lloyd into NN Group and extracting the envisaged synergies.
Internationally, our primary focus is on organic growth. We are also open to merger and acquisition opportunities and portfolio optimisation. Any acquisitions will be subject to strict financial and non-financial criteria to assess the attractiveness of these opportunities.
Going forward, we need to further accelerate our innovation efforts. For example, by embedding new ways of working within our organisation, increasing our portfolio of options, and creating new partnerships within the innovation ecosystems in which we operate.
To secure long-term growth, we invest in making our organisation more efficient and agile. Our operating model aims to further stimulate a culture of entrepreneurship and accountability, and is based on clear responsibilities, streamlined decision-making and simplified governance.
The core of our business model is to help people carry risks that they cannot bear alone, providing protection for what matters most to them. As such, we offer life insurance products to protect people against the financial risk of living a long life without sufficient means of support, or dying at an early age. In some markets, we also offer non-life products to protect the assets that matter to our customers, and savings and investment products to ensure their long-term income.
We invest in our core skills to enable our businesses to deliver on our strategy
How this helps to create value Each of our business units offers its own products and services via a multi-channel approach. We share knowledge, data analytics and talent-creating synergies between our different businesses. Our scale enables us to achieve lower costs per customer and invest in digital capabilities and building new channels.
To further drive the delivery on underwriting improvement plans in our businesses, we launched the International Underwriting Programme. With this programme, we aim to drive sustainable competitive advantage through enhanced underwriting capabilities. Furthermore, we are executing our IT roadmap to drive innovation and increase efficiency. We are investing in new technologies, such as cloud, robotics and machine learning.
How this helps to create value As a financial services company, NN Group is committed to further improving the operating performance of our business units. For example, in Japan we now have a long-term, beneficial partnership with Sumitomo Life. Its sales network of about 35,000 agents can offer their customers NN Life Japan’s innovative COLI products. This partnership also contributes substantially to NN Japan Life’s sales.
What we do NN Group is committed to maintaining a caring, healthy, diverse and respectful workplace in which people can work and thrive. NN Group’s ambition to become more agile, and to place customer-driven innovation at the core of our business model, drives our efforts to empower our people and to support an entrepreneurial culture. We facilitate training, internships and assignments to provide our people with the opportunity to find out what career steps are feasible and suitable for them in the future.
How this helps to create value Our operating model aims to further stimulate a culture of entrepreneurship and accountability within NN, and is based on clear responsibilities, streamlined decision-making and simplified governance. We pay our employees attractive salaries and benefits. We invest in our people by offering training and development. Not only to allow our people to be at their best within NN and to optimally serve our customers and other stakeholders, but also to ensure personal and professional development in the longer term. Furthermore, we strive to have a workforce that reflects the markets in which we operate.
How this helps to create value The statements, guidelines and standards set out our approach to different topics in our roles as an employer, an insurer, a business partner, an investor and a corporate citizen.
What we do differently All relevant standards can be linked to our values. We consider the interests of different stakeholders in the way we do business, in our role as an insurer, investor, employer and as a business partner.
What we do Risk taking is integral to the business model for insurance, asset management and banking organisations such as NN Group. Through our Risk and Capital Management practices, we seek to meet our obligations to customers and creditors, ensure the business operates in a controlled manor, manage our capital efficiently and comply with applicable laws and regulations.
What we do differently Our philosophy is built on a risk control cycle and a comprehensive framework that outlines our risk appetite. We have formulated three key risk appetite statements for the areas of strategic challenges, a strong balance sheet and sound business performance. These are further detailed in nine sub-statements that are used for internal steering. We work systematically, aim for completeness and document what we do. Each risk analysis performed is shared with the responsible management.
Financial market exposure relates to adverse market movements and volatility. A well-diversified portfolio, a natural hedge with our liabilities and specific hedging programmes aim to keep this risk within set limits.
Client and product suitability refers to the risk that products do not cover clients’ interests over the full lifetime against a reasonable price. A product approval and review process ensures products meet our criteria.
Just like any large organisation, we have a risk of ineffective operations and related inefficiencies, which can lead to slow or incorrect decision-making, a cost base that is too high, and reputational damage.
Without attracting and retaining the right people, the ability to effectively manage our business for sustainable success will be compromised. Good talent management is crucial to attract, retain and develop world-class talent. We invest proactively in development throughout the careers of our employees.
We invest our assets responsibly. By incorporating environmental, social and governance (ESG) aspects, we optimise the risk-return profile of our assets.
In line with our strategic focus to become more digital, we introduced several new concepts and services, for example ‘Bundelz’, ‘Gappie’ and ‘Brickler’
The increased scale and strong market position of Netherlands enable us to improve our customer experience, drive efficiency and deliver on cross-sell ambitions.
These are the building blocks that we believe will create a consistent, omnichannel customer experience, through the offering of innovative solutions, delivered by an organisation that operates efficiently.
Our general progress in 2017 In 2017, we improved our customer experience, became more digital and introduced innovative products and services.
In Life, we offer pension solutions in both defined benefits (DB) and defined contribution (DC), with and without guarantees, delivered through efficient IT platforms. Our increase in sales of DC products, which have lower capital requirements, contributed to managing the liability risks of the Life business. The full-year operating result increased to EUR 896 million from EUR 710 million in 2016.
In Non-life, we increased our Net Promoter Score and achieved our expense targets. The full-year operating result of Non-life decreased from EUR 62 million in 2016 to EUR 30 million in 2017, mainly attributable to lower results in Disability & Accident, partly compensated by improved Property & Casualty results. We aim to improve our combined ratio to a level of 97% or lower, through a clear road map, including expense reductions (~20%), premium adjustments, portfolio rationalisation, investments in data, and strengthened underwriting capabilities.
The full-year operating result of Netherlands’ banking business was EUR 124 million. The mortgage portfolio of the banking business increased to EUR 17.6 billion, and the customer savings portfolio increased by EUR 4 billion to EUR 14.1 billion.
We continue to allocate capital rationally. As a first priority, we ensure that our businesses have the capital they need to realise their strategy. At the same time, we want them to keep improving their market and business positions, whether that be in terms of efficiency, growth or return on capital.
To increase its commercial strength, NN Life uses predictive analytics algorithms. Closed book operations are robotised to lower unit costs in line with the declining portfolio.
Sparklab, Non-life’s innovation lab, launched a variety of initiatives in 2017. For example, ‘Bundelz’ is the first prepaid car insurance for drivers who only drive occasionally, or for short distances. ‘Gappie’ is an app customers can use to buy on-demand car insurance when borrowing a car from family or friends.
NN Bank, together with several key partners, is actively participating in a pilot to process mortgage applications through blockchain. This pilot aims to increase process efficiency and customer satisfaction, and decrease fraud risk
Increasing efficiency is at the core of our ‘Digital, Personal, Relevant’ strategy. To realise this, NN Life is reducing the number of platforms used for administration, and has split the pension organisation into a new business domain and a services domain, to create more agility. We outsourced business and IT processes in order to bring in expertise and variabilise expenses for closed block portfolios. We are moving to straight through processes and introducing robotics to support processes in existing legacy environments.
In line with the strategic focus to become more digital, personal and relevant, Netherlands introduced several new products, services and initiatives.
ABN AMRO Verzekeringen, the joint venture of NN Group (51%) and ABN AMRO Bank (49%), was ranked best insurer by Dutch magazine Management Team and achieved a top three position in all three categories: customer focus, product leadership and excellent implementation.
1.5 million ‘Next Best Actions’ We are strengthening distribution channels through improved service leveraging.
For example, we provide ‘Next Best Actions’ (NBAs) for our customers, giving them relevant purchase or service suggestions through our online, email and call channels.
In addition, we serve our intermediaries by creating relevant NBAs in the online intermediary portal adviseur.nn.nl, for them to use when advising their clients. So if a customer calls us, for example, about car insurance, the intermediary can follow up with a relevant product extension.
Accelerating growth and generating value International Insurance operates in 11 countries across Europe and Japan. In Central and Eastern Europe, we are a leader in Life and Pensions. In Japan, we are a top player in corporate-owned life insurance for small- and medium-sized enterprises (SMEs).
NN Life Japan entered into a distribution agreement with Sumitomo Life, which started selling NN Life Japan’s products in April 2017 through its nationwide network of 35,000 agents. International Insurance expanded its distribution through partnerships with banks in Greece, Poland, Japan, Turkey, Czech Republic, Slovakia and Bulgaria.
Efforts to innovate and develop new protection propositions across all markets were intensified with a focus on engaging our customers through digital channels at times when it really matters. This has led to improved engagement and high Net Promoter Scores (NPS). In addition, it has allowed us to be even more efficient. This has also resulted in lower lapses and capturing maturing policyholders.
Capital is allocated to those product lines where good value of new business (VNB) margins are generated. In particular, there is strong progress in selling a greater proportion of protection business where margins remain healthy and we are introducing new compelling propositions. In the savings business, capital light products represent 88% of total sales. In addition, the capital tied up in low-return back books will be reduced.
Significant steps were taken to develop an innovation-driven mindset across all markets
We expanded the distribution of our products through new bancassurance relationships and partnership agreements. In Greece, we renewed the bancassurance agreement with Piraeus Bank.
A specific example of capital allocation and the strengthening of the company is NN Belgium’s joining of forces with Delta Lloyd Belgium.
Innovation is also a strategic priority in International Insurance. In 2017, significant steps were taken to improve our innovationdriven mindset across all markets.
Sparklab Turkey partnered with the leading Turkish online loan aggregator Hesapkurdu.com. The exclusive partnership with this fintech startup gives us the opportunity to reach and serve their two million unique users online.
A non-Sparklab initiative is the creation of a data analytics and underwriting hub in Prague, Czech Republic, serving the international businesses. This will enhance customer segmentation, improve pricing and claims and help the business to identify and grow in larger, more profitable segments.
To facilitate agile working and cost efficiency, NN Life Japan developed and released ‘Tamotsu-kun’, a premium calculation app designed for iPhone/iPad. With ‘Tamotsukun ’, the marketing and sales teams are able to accurately calculate the premium for a proposal anytime and anywhere. This enables them to deliver a more compelling and specific proposal for customers, and accelerate the sales process.
NN Hungary launched a comprehensive agile transformation programme. The objective was to strengthen our capability to promptly react to the frequently changing business and legal environment. NN Hungary also launched ‘Green Lane’ for three single products. The project aims at a total automation of policy issuance, without any human intervention after the submission of the e-application. It was expanded to regular premium products and sales to existing clients.
Strategic focus for the year ahead To further accelerate growth and generate value, we will continue investing in new protection propositions and in bancassurance distribution, as well as in improving our underwriting capabilities, better data analytics, and in emerging capabilities such as digitalisation and organisational agility. These investments are optimised and enabled through convergent technology and platforms.
‘Stela’ – innovating our business model NN Insurance Czech Republic and Slovakia have the ambition to become a leader of digitalisation in our sector. An important initiative to improve the customer experience is ‘Stela’. This is a salesforce-based platform which offers customers real-time, individualised offerings. ‘Stela’ achieves this through combining a significantly upgraded broker portal, sales and lead management, and straight through processing (STP), together with underwriting improvements. In addition, it supports the decommissioning of multiple legacy systems. The platform is a cloud-based Salesforce/Vlocity solution and will change the way we sell, the way we market and the way we support our business.
NN Investment Partners (NN IP) plays an essential role in NN Group by managing the underlying assets of our insurance companies and their clients, and co-developing investment capabilities. Additionally, NN IP gathers third-party assets and provides earnings diversification.
To support the shift from defined benefit (DB) to defined contribution (DC) assets, triggered by the rapid change in composition of pension savings, NN IP developed new products and engaged with customers to advise them on these developments.
Read more about NN Group’s ESG approach on pages 41-44 of this Annual Review.
The activities of Delta Lloyd Asset Management (DL AM) are integrated in the NN IP organisation, which brings combined strength through additional capabilities and significant economies of scale and cost synergies. The result will be a well-diversified player with a strong position in the Dutch and Belgian markets for asset management. By leveraging the existing BlackRock Aladdin platform, the organisation can absorb this scale at limited cost.
Across the whole spectrum of NN IP’s investment capabilities, the focus is on reducing complexity and developing a number of innovation themes. For example, investment decisions are based on a combination of fundamental analysis, behavioural analysis and ‘man and machine’, meaning machine rigour combined with human creativity and analysis.
This approach allows us to leverage data to make better-informed investment decisions and to spot opportunities in the market at an early stage. NN IP’s impact investing fund already fully exploits behavioural analysis, and in multi-asset it is combined with both a traditional fundamental and quantitative approach.
We invested in a broad programme to improve our digital capabilities across various areas: client service, customer journeys, direct distribution and customer relationship management.
Robotisation and the agile way of working have been further implemented throughout NN IP. Small IT teams work together with business teams to deliver suitable solutions. At the same time, the teams are empowered to apply innovative technologies and to continuously increase value. NN IP is robotising operational manual activities, which were initially transitioned for offshore manual execution and subsequently robotised offshore. In this way, the transition is smoothed and benefits in efficiency are obtained rapidly.
In 2017, we introduced ‘Alternative Credit’ as a new asset class for institutional investors. To improve their financial decision-making we developed a 150+ page book on this asset class. In the book, we introduce a unique way to evaluate the various investments within this asset class.
We also explain in depth all alternative credit investments available in the market, not only the strategies we provide. Institutional investors can download this book for free on our website. We distributed the content of the book through advertorials in various institutional markets and spoke at many seminars about this topic.
In the second half of 2017, we introduced a similar campaign on the radical changes currently occurring in the fixed-income asset class. For this campaign we again offer many different publications, such as our ‘SpotLights’, ‘FocusPoints’ and ‘MindScopes’, about how institutional investors can benefit from the new normal in this market.
In Japan, Sumitomo Life, started selling NN Life Japan’s products through its nationwide network of 35,000 agents 2m Partner and leading Turkish online loan aggregator Hesapkurdu.com gives us the opportunity to reach their 2 million unique users online
NN IP voted at 1,507 shareholder meetings on 18,978 agenda items and 348 resolutions put forward by shareholders
• Deliver value-added propositions that are easy to understand and serve our customers’ lifetime needs
• Be there where our customers want us to be through our multi-access distribution approach
• Educate people about finance, raising their financial awareness through campaigns and (online) tools
• Be recognised by general public as a ‘You matter’ company: a peopleoriented service provider in the longterm financial planning industry
• Increase the number of products and services with social and environmental added value1
• Aided brand awareness improved compared to 2016 in most countries
Through our risk management practices, we seek to meet our obligations to customers and creditors, manage our capital efficiently and comply with applicable laws and regulations. Our underwriters perform a variety of roles that are needed to understand, manage and price risks. We use data analytics to create personal and relevant products and services for our customers.
Through our multi-access distribution approach, we are there where our customers want us to be.
We aim to become a more agile organisation, to deliver value for money for our customers and secure long-term growth. Our focus on customer-driven innovation drives our efforts to empower our people and to support a more entrepreneurial culture.
Truly matter in the lives of our customers NN Group wants to be known as the ‘You matter’ company: a people-oriented financial services provider.
We strive to meet customers’ needs throughout all stages of their lives, for which understanding their needs and interests is crucial. This is clearly expressed in our Customer Golden Rules: • We offer fair value to customers • We explain the risks, returns and costs of our products and services • We regularly assess products, services and distribution practices • We only work with professional and licensed distributors
Our Customer Golden Rules form a key component in our approach towards becoming a customer-driven company, and are an integral part of our PARP process.
Customer empowerment Creating long-term value for our customers is also a matter of empowering them to improve their own financial decision-making. This includes increasing their understanding of financial concepts, offering financial planning tools, and collaborating with specialised partners.
We launched the ‘Your Later Service’ campaign via our Nationale-Nederlanden website in the Netherlands. This campaign encourages people to visit our online tools which increase awareness of their personal financial situation.
introduction of the new study financing system in the Netherlands, parents and grandparents have found alternative ways to put money aside to fund their (grand) children’s education. The tuition fee plan provides insight into the risks as well as the expected yield of the investment.
Linked to this is the introduction of ‘StudieFit’, an investment solution to fund the education of loved ones. ‘StudieFit’ was developed together with Nibud and includes an online tool which customers can tailor to their personal situation. It includes an online calculator that illustrates possible financial scenarios.
NN IP also introduced alternative credit as a new asset class for institutional investors. To provide investors with financial decisionmaking tools, a book on this asset class was published that explains all alternative credit investments available in this market. Investors can download the book for free on the NN IP website.
In addition to raising awareness, we consider it important that our customers find our policies and materials accessible and understandable. For example, OHRA made policies easier to read and understand though the use of icons, a clearer structure and useful examples.
Also in the Netherlands, we introduced a tool to support our brokers in their duty of care for our customers. We reached out to all brokers and customers for whom this was relevant.
Fitvermogen.nl, the online platform for investment funds of NN Investment Partners (NN IP), cooperated with Startpunt Geldzaken to launch a free online financial plan. Startpunt Geldzaken is a partnership of Nibud and a number of other organisations focused on financial matters. Since the
Supporting customers in arrears We try to be there for our customers not only when things are going well, but also during difficult times.
Financial inclusion NN reaches out to people who may not have access to insurance and who could benefit from additional support. We are aware of the financial and social challenges that people may face in life. Therefore, we try to anticipate these specific needs and individual situations, and provide a positive and inclusive experience for many different groups of people.
In Romania, we offer a health insurance product that provides affordable access to private care, as health care is becoming increasingly expensive for lower- and middle-income families. The core of this new proposition is extensive care for patients and less financial worry for their families. This health care product also aims to address the long-term sustainability of Romanian public healthcare.
NN Group is involved in the Netherlands Investment Institution (NLII), which gives institutional investors the opportunity to invest in the Dutch economy, and allows entrepreneurs and SMEs to benefit from additional financing opportunities. We also have a partnership with microfinance organisation Qredits through our membership of the Dutch Association of Insurers (Verbond van Verzekeraars).
NN Group is involved with the Foundation for Sustainable Micro Pensions in Developing Countries (SDMO), through our membership of the Dutch Association of Insurers. In Ghana, SDMO supports a micro pension project which targets employees in the informal sector. They will be able to save for their pension via a defined contribution scheme. The payment of contributions and information provision is arranged via mobile phone. A license to start business was obtained from the Ghanese supervisor in 2016, and the first few thousands of clients were entered into the books in early 2017.
We consider digital innovation to be an important driver for our long-term success. One way of innovating our business is by launching a minimum viable product (MVP): a product that has enough features to attract early adaptors, providing us with feedback that enables us to adjust the product if necessary. To develop relevant MVPs, we define clear focus areas for innovation that fit the company’s long-term strategy.
However, when introducing an MVP, the purpose is to iterate and adapt while developing, so we intentionally do not define long-term objectives or gains. This short-term approach to experimenting, which is based on trial and error, may result in a distorted view of innovation. The challenge is finding the right balance in developing MVPs while not losing sight of the long-term vision of the company. This is a dilemma jointly faced by the innovation teams and the finance and risk teams – how much capital do we invest, and how much risk are we willing to take today to help prepare our company for tomorrow’s success?
Measuring our brand and reputation We measure how our customers value our products and services using, amongst others, the Net Promoter Score (NPS). With NPS we collect, evaluate, and act on a constant stream of customer feedback. This information drives improvements in our product portfolio and customer service, thereby helping us to become a more customer-driven company. In 2017, all of our insurance businesses maintained or improved their relationship NPS (NPS-r) scores compared with the previous year, with the exception of NN Life Hungary. Their NPS is still well above market average.
We measure NPS in all our markets, for all business lines covering banking, life insurance and pensions. Our insurance business in Japan is included in a separate study. Measurements for asset management are conducted amongst both institutional and retail investors. For institutional clients we report the overall NPS (+25).
Creating value as a listed company To manage our business, we raise financial capital from equity and debt investors. Maintaining a strong balance sheet is key to absorbing market volatility and ensuring NN Group and our operating entities are sufficiently capitalised at all times.
Dividends NN Group intends to pay an ordinary dividend in line with our medium-term financial performance and envisages an ordinary dividend payout ratio of 40-50% of the net operating result from ongoing business. NN Group intends to pay interim dividends calculated at approximately 40% of the prior year’s full-year dividend. Barring unforeseen circumstances, NN Group intends to declare an interim dividend with the disclosure of our secondquarter results and to propose a final dividend at the annual general meeting of shareholders. When proposing a dividend, NN Group takes into account, among others, the capital position, leverage and liquidity position, regulatory requirements, and strategic considerations, as well as the expected developments thereof.
Dividends are paid either in cash, after deduction of withholding tax if applicable, or in ordinary shares from the share premium reserve at the election of the shareholder. We intend to neutralise the dilutive effect of the stock dividend through repurchase of ordinary shares. In addition, capital generated in excess of NN Group’s capital ambition is expected to be returned to shareholders unless it can be used for any other appropriate corporate purposes, including investments in value-creating opportunities. NN Group is committed to distributing excess capital in a form which is most appropriate and efficient for shareholders at that specific point in time, such as special dividends or share buybacks.
Read more about the Delta Lloyd transaction and integration on pages 10-12 of this Annual Review and pages 119-123 of the Financial Report (Note 44).
On 11 September 2017, NN Group issued 2,346,671 ordinary shares as stock dividend related to the 2017 interim dividend, representing an aggregate value of EUR 78 million.
To neutralise the dilutive effect of stock dividends, we repurchased in 2017 ordinary
In this chapter, we describe how we remain financially strong and competitive, and create value for our investors.
2 Annual growth rate of operating result before tax of the ongoing business on average in the medium term; new targets based on 2017 operating result.
5 Administrative expense base of the business units in scope: Netherlands Life, Netherlands Non-life, Belgium, Asset Management, Banking business and Corporate/Holding entities.
• Over time, generate free cash available to shareholders in a range around the net operating result of the ongoing business3
In January 2017, NN Group also issued EUR 850 million of subordinated notes with a maturity of 31 years, and first callable after 11 years, with a fixed rate coupon of 4.625% per annum until the first call date and a floating rate coupon thereafter. These subordinated notes qualify as Tier 2 capital under Solvency II. The proceeds were used to repay the EUR 823 million remaining hybrids loans outstanding with ING Group.
In June 2017, NN Group issued two senior unsecured notes with a total issue size of EUR 900 million to fully repay the
Diverse shareholder base (IPREO shareholder analysis as at 31 January 2018 (%))
United States 37 Asia 18 United Kingdom 12 The Netherlands 6 Rest of Europe 25 Rest of the World 2
Credit ratings On 11 May 2017, Standard & Poor’s lowered our financial strength rating by one notch to ‘A’ and our long-term counterparty credit rating by one notch to ‘BBB+’. On 23 October 2017, Fitch affirmed our ‘A+’ financial strength rating and ‘A’ credit rating with a stable outlook. On 26 October 2017, Standard & Poor’s affirmed our ‘A’ financial strength rating and ‘BBB+’ credit rating with a stable outlook.
Shareholder investment According to the AFM register as at 12 March 2018, the following shareholders have an interest of 3% or more in NN Group on the notification date: APG Asset Management N.V. (3% – 2 August 2017), BlackRock, Inc. (3.60% – 29 May 2017), RRJ Capital II Ltd. (9.6% – 23 May 2017), Norges Bank (4.91% – 2 May 2017), Thornburg Investment Management (3.03% – 7 Aug 2016), and Franklin Mutual Series Fund Inc. (3.87% – 27 May 2015). The stated percentages are the interests reported by the relevant shareholder to the AFM on the indicated dates. It is possible that the stated interests differ from the current interests of the relevant shareholder.
More information about our financial management is available in the Financial Report, and on our corporate website: www.nn-group.com/Investors.htm
NN Group’s Responsible Investment (RI) Framework policy sets out our vision and approach on responsible investment, which we define as the integration of environmental, social and governance (ESG) aspects in our investment processes and ownership practices.
These papers are available on our corporate website: www.nn-group.com/In-society/ Responsible-investment/Responsibleinvestment -policy-framework.htm.
Influencing companies to take responsibility An important part of our strategy is to earn long-term returns from the companies in which we invest. One of the most powerful tools of active ownership is well-informed proxy voting. Voting rights are exercised on behalf of: (i) the proprietary portfolio and (ii) the Dutch, Belgian and Luxembourg funds with at least EUR 100 million Assets under Management. As part of the information barriers, there are separate voting committees in place for proprietary and client assets.
During 2017, NN IP voted at 1,507 shareholder meetings (97% of total votable meetings) on 18,978 agenda items and 348 resolutions put forward by shareholders. These resolutions focus on ESG issues. We supported shareholder resolutions related to environmental and social matters in a large number of cases. We abstained from voting or voted against when these resolutions would not provide proportionate benefits to shareholders or society at large. For two examples of how we voted on environmental shareholder resolutions, please refer to the box on the next page.
• Integration of environmental, social and governance (ESG) factors into our investment process
• Continue to grow Assets under Management in SRI funds and mandates, and expand product offering
• More than doubled (+114%) our Assets under Management in SRI funds and mandates to EUR 10.9 billion
As in previous years, we supported the annual Information Request that the Carbon Disclosure Project (CDP) sends to publicly listed companies worldwide. Through this request, companies are encouraged to adopt a long-term mindset, and to provide better disclosure on risks and opportunities related to climate change and water. In 2017, we also became an investor signatory of the CDP Forests programme.
Since the beginning of 2016, NN IP has proactively engaged on climate risks with 20 large companies in the power utility sector. Through this effort, supported by Global Engagement Services (GES), one of Europe’s leading engagement providers, we encourage companies to achieve a long-term carbon risk exposure reduction and improved competitiveness in a lower-carbon economy. We have had constructive dialogues with most of the companies. As an example, NN IP helped one of the largest US power utility companies to improve its two-degree scenario planning. We focused our engagement on showing that the company can do more to find a balance between short-term financial performance and long-term expectations for a switch to renewable energy production.
Climate-related shareholder resolutions at oil & gas majors We supported resolutions at the AGMs of oil and gas majors Occidental Petroleum and ExxonMobil, seeking the publication of an annual assessment of the long-term impact of climate change on their businesses. These resolutions received support of 66% and 62% at their respective AGMs. Meanwhile, the shareholder resolution filed at Royal Dutch Shell (RDS) was supported by 6% of the votes cast, and was therefore rejected by the AGM. This resolution requested that RDS sets companywide greenhouse gas emission targets that are in line with the Paris climate agreement to keep global warming to well below 2°C. We voted ‘abstain’ because we believed that the resolution went too far due to the request to set targets for the emissions from the use of its products by customers (Scope 3).
However, in the remarks we made at the AGM, we expressed that RDS should improve its disclosures on the GHG emissions that are within the managerial sphere of RDS, and we continued to engage with them. Positively, RDS announced in November 2017 its ambition to halve the emissions from its operations and energy use, and those resulting from the use of its end products by 2050. In addition, it seeks to increase its spending on clean energy.
The Climate Action 100+ was initiated by different regional investor climate change platforms, including the European Institutional Investor Group on Climate Change (IIGCC), in partnership with the PRI. NN Group joined the IIGCC in July 2017 to benefit from access to IIGCC’s platform for knowledge sharing and collective influence.
On behalf of NN Group’s proprietary assets, we consider opportunities that will have a positive impact on society whilst meeting our investment criteria. Our combined investments in green bonds and renewable projects in our infrastructure debt portfolio amounted to EUR 540 million at year-end 2017. We also invest in measures that improve the energy efficiency of our own real estate investments, and use the Global Real Estate Sustainability Benchmark (GRESB) to assess the environmental and broader sustainability performance of this portfolio. In the 2017 Real Estate Assessment, NN’s portfolio performed well, improving its score for the third consecutive year and outperforming the majority of the 850 GRESB participants. We also participated in the GRESB Debt Assessment for the first time: our commercial real estate loan portfolio, managed by NN IP, received a score above the benchmark average. For our GRESB scores, please refer to page 66.
Engaging on palm oil Through its investments, NN Investment Partners is exposed to palm oil. We believe we can use our influence to improve environmental and social standards in the sector. Due to the complexity of the supply chain of palm oil, we do not think that excluding palm oil producers is beneficial at this point in time. Engagement is, in our view, a better approach, and through our engagement we will focus not only on the palm oil producers, but also on the traders, processors, food producers, and retailers. All these different companies can influence the supply chain and work towards the overall improvement of the sector and acceptance of higher standards. For our engagement approach, we have developed several objectives that focus on different stakeholders in the sector. We published an ESG perspective on this engagement to raise attention to the issue and how we act on it.
Communication on ESG to clients NN IP plays an active role in advocating the importance of ESG integration within the investment industry. 2017 initiatives include the following: • We contributed to a permanent education programme of the Dutch Association of Investment Analysts (VBA). NN IP shared perspectives on the value of adding green bonds and sustainable alternative credit possibilities to a matching portfolio.
NN is committed to actively engaging with stakeholders and building long-term relationships with relevant parties in the communities in which we operate. As an asset manager, we want to invest based on criteria that are aligned with our values and meet the broader expectations of society. However, as stakeholders have varying views, and solutions to issues are rarely straightforward, it can be difficult to set a clear direction or strike the right balance.
For example, investing in the food manufacturing sector poses potential dilemmas as it exposes us to food and beverage companies that manufacture products containing high levels of sugar. Sugar is considered to be one of the biggest contributors to obesity, and almost all packaged foods and beverages contain this component. Companies that produce foods that contain high levels of sugar may, in the long run, be exposed to financial, regulatory and reputational risks due to the health impact of their product range.
Engaged employees In this chapter, we describe how our business model enables us to support our 15,000 colleagues by nurturing a culture where their ideas, talents and personalities matter.
Integration process Delta Lloyd HR activities in 2017 were to a large extent determined by the integration process of Delta Lloyd and NN Group in the Netherlands and Belgium. Top priorities in this regard were the selection process of senior management by mid-July 2017, the approval of the Reorganisation Framework by the members of the trade unions in September 2017, and subsequently introducing an updated and uniform Job Framework, which contributed to a fair integration process and a focus on equal opportunities.
We remain committed to supporting the employees who are directly affected by the organisational changes as a result of the integration process. To guide and help them through these challenging times, we introduced various initiatives to provide employees with training, coaching and advice. In addition, we stimulate and enable ongoing development, with a view to improve and strengthen the employability of all our employees.
Please read more details of the strategic considerations of the transaction and integration process, and the role of HR in the people integration process, on pages 10-12 of this Annual Review.
Diversity programme at NN Investment Partners Creating a network and inspire employees NN Investment Partners is continuing efforts related to diversity. A dedicated community and magazine ‘Added value’ was launched, which aims to inspire employees. The Diversity Network was created as a space for all NN IP employees to explore the various facets of diversity, to connect and inspire each other on this topic. We continue to sponsor employee participation in several female professional and development networks as well as attendance of female leadership programmes at business schools. Currently, a recruitment game is being developed to better attract people with diverse backgrounds to our company.
‘You matter’ culture To recruit and retain the best people within our industry, we accelerated our activities to reach our ambition to become an employer of choice. In 2017, we won awards for being a Top Employer in Spain, Poland and Turkey.
Building on this approach, we are gradually promoting our employer brand in our key markets by enhancing our presence on various online and social career platforms. To increase our visibility as an employer of choice in the Netherlands, we posted vlogs of employees on our career website to support and personalise our vacancies.
The recruitment strategy of attracting young people to our company takes into consideration a tightening labour market, and aims to mitigate the risks of an aging workforce. To realise this on an international scale, we developed a global traineeship programme, combining the current initiatives within NN Investment Partners, International Insurance and the Dutch NN and Delta Lloyd entities.
Training and development NN is committed to life-long learning and offers many options for managers and employees to develop new insights, competencies and skills. Training and development is a fundamental part of our performance management approach. In 2017, NN Group invested EUR 21.4 million in training and development.
The promote from within policy is embedded in a structured Talent and Succession Plan that is updated annually and reviewed by the Management Board. It ensures we have the right leaders, with the right forward-looking skills, in the right positions at the right time. Special attention in succession planning is given to displaying role model behaviour in line with our values.
At the same time, we are looking for new ways to optimise how experienced employees apply their knowledge and pass down their skills, while working side by side with younger employees. This exchange works both ways, as is reflected in our reverse mentoring programme that was introduced in 2017. The programme matches junior with senior employees to, for example, familiarise them with how to attract younger generations to the workplace.
Equal opportunities and diversity NN is an international company with a diverse business culture that combines the talents, experiences and insights of many individuals. In 2017, 48% of our total workforce were female. Of our senior leaders, 32% were female and 35% had a non-Dutch nationality.
Our aim is to further increase female leadership, better balance our cultural diversity, bring in more young talent, and build an inclusive climate with no barriers with regard to gender, religious beliefs, sexual orientation or otherwise.
In 2017, NN We was established, an internal network that promotes diversity and inclusion. NN We introduced the Collaboration Awards, an award open to all colleagues that aims to recognise initiatives and success stories of colleagues that showed inclusiveness and collaboration. In 2017, 19 teams competed for the award.
The integration of NN Group and Delta Lloyd offers opportunities to further develop the inclusiveness and diversity of the combined company. In 2017, the Young NN and Delta Lloyd networks merged to create NN Young Professionals.
Our open dialogue with the work councils accommodates collective interests and facilitates the sharing of information and indirect participation by all employees.
At NN Group level, we work with a Central Works Council and a European Works Council. Delta Lloyd also has a Central Works Council. Over time the integration will lead to a unified employee representation for the combined company. Until the integration process merits a unified employee consultation structure, the current structures will remain in place. An overview of the Central Works Council members of NN Group and Delta Lloyd, and the European Works Council members of NN Group can be found on page 33 of the Financial Report.
The majority of NN Group’s and Delta Lloyd’s employees are covered by a collective labour agreement (CLA), or locally agreed policies. The existing CLAs, Social Plans and Pension Schemes of NN and Delta Lloyd will remain applicable to their respective employees until new plans for the combined company have been agreed with the trade unions. The negotiations will start in 2018. The new combined CLA and Social Plan will be applicable to all employees in the Netherlands and is expected to be introduced in January 2019.
Other new wellbeing programmes were launched in Spain, Romania and Hungary. These programmes were aimed at the physical, mental and emotional wellbeing of our employees. The programmes included, for example, healthy breakfasts, yoga, mindfulness and different online challenges. NN Life in Japan successfully introduced an online stress test and follow up by the company doctor.
Engagement levels To understand how our employees feel about our company, and to get an understanding of their engagement levels, we ask their opinion and get their views through a Yearly Engagement Survey (YES). In 2017, 73% of all employees (NN and DL) completed the survey, which shows the commitment of our employees to have their voice heard and make our company an even better place to work.
Electricity 19 Renewable electricity 40 Natural gas 22 District heating 19
Managing our environmental footprint We recognise that we have a responsibility to help protect the environment with regard to our own operations. As a financial service provider, our direct environmental impact is limited as we mainly operate in an office environment. Nevertheless, we are committed to minimising our footprint by efficiently using natural resources, by identifying and implementing green alternatives, and ultimately by compensating the remainder of our carbon footprint.
NN has a target to reduce carbon emissions covering emissions from our direct operations: emissions from energy consumed on NN sites, and emissions from our business travel (air and car). Our target is to reduce our carbon emissions by 15% by 2020 (base year: 2014). In 2017, the carbon emissions increased by 15.2% reflecting the integration of Delta Lloyd. However, CO2 per FTE decreased by 10.5%.
Following the trend for further digitalisation, we continue to focus our sustainability initiatives on energy and business travel efficiency and paper-use reduction. We also encourage the recycling of materials inside our office buildings. NN Group’s Facility Management teams work to improve the energy efficiency of our buildings. For example, in Romania, we installed temperature sensors and a smart lighting system which saves energy.
• Reach out to at least 100,000 young people through our NN Future Matters programme; help 11,625 households out of poverty and debt1
• Reduce direct CO2 emissions by 15% (base year 2014) or approximately 3% per year
• 15.2% increase in direct CO2 emissions, due to the integration of Delta Lloyd and NN; CO2 emissions (tonnes) per FTE decreased by 10.5%
1 Delta Lloyd Foundation annual report available on 1 May 2018.
Responsible tax strategy Good tax management is a responsibility of any company. NN Group does not make use of tax havens or tax-avoiding structures. While executing our tax strategy, we take our set of tax principles and applicable law into account. This is also the reference when choosing business partners or when structuring transactions.
The focus of NN Group’s Tax department in 2017 was on integrating the Delta Lloyd activities with regard to the NN tax standards and procedures, and on the tax reporting lines. To create a future-proof tax department, a roadmap was designed for the years 2018-2020. Targets include set-up and improvement of the tax control framework on operational taxes, a more proactive management of tax risks within the businesses, and further enhancing tax transparency towards stakeholders. This roadmap was discussed with the Audit Committee of the Supervisory Board as part of the regular review of NN Group’s tax strategy and risks.
In 2017, new Base Erosion and Profit Shifting (BEPS) reporting requirements came into effect. NN was able to timely deliver all necessary information to the responsible tax authorities.
Financial tax disclosures The income tax charge of EUR 392 million in 2017 represents an effective tax rate of 15.5% (2016: 18.7%). The effective tax rate in 2017 was lower than the weighted average statutory tax rate of 24.6% mainly caused by tax exempt income and certain prior year adjustments. More information on the effective tax rate is available on pages 98-100 of the Financial Report (Note 33).
Refer to pages 95-98 of the Financial Report for a full country-by-country report (Note 32).
As a result of the joining of forces of NN Group and Delta Lloyd, in the Netherlands NN’s community investment programme NN Future Matters and the Delta Lloyd Foundation work closely together to increase financial wellbeing in our communities. In 2017, steps were taken to prepare for the integration of NN and Delta Lloyd’s community investment activities. This process will continue in 2018.
Since 2014, we have gradually targeted our overall charitable giving towards the NN Future Matters focus areas. In 2017, 82% of our total charitable donations of EUR 2.4 million went to NN Future Matters related target areas.
Impact measurement The Social Innovation Relay (SIR) is a global competition that challenges students to develop an innovative business concept that addresses a social need. NN employees act as mentors for the students. Based on the Theory of Change methodology, researchers at the Impact Centre Erasmus surveyed students at three different points during their participation.
‘The overall experience broadened my perspective and taught me valuable lessons that I think will be essential to me as I progress in life.’ Student testimonial
We focus our efforts, resources and expertise on three complementary target areas: promoting financial empowerment, creating economic opportunities and alleviating financial distress. These three themes align with both our purpose and with the knowledge and expertise of our employees, and have been proven to positively impact communities. With the involvement of international and local partners, the programme aims to be both globally consistent and locally relevant.
Through Stichting FutureNL we joined Expedition micro:bit to support students to become familiar with coding and programming, as these skills are increasingly important in schools and in today’s job market. Each participating school received a ‘Digi-klooikoffer’ with 30 micro:bit computers. Besides a financial contribution, 38 volunteers from NN Group provided guest lectures at 19 schools.
Another way of creating economic opportunities is by encouraging entrepreneurship. In 2017, the Social Innovation Relay (SIR) again took place as the flagship programme of the NN Group and Junior Achievement Europe partnership. The SIR is a global competition that challenges secondary school students to develop an innovative business concept that addresses a social need. A total of 14,232 students participated in 10 countries.
For example, in the Netherlands, we partner with the LINDA.foundation, a charity that helps families in financial distress. In 2017, we organised several initiatives with colleagues and suppliers to raise funds. Our customers are also involved in the LINDA.foundation through our credit card that donates EUR 0.10 for each transaction to the LINDA.foundation.
In Japan, NN Life made a donation for every charity runner who completed the NaHa marathon. The donation supports an effort to provide educational support to children living in foster homes in Okinawa and is part of our local corporate citizenship programme, ‘Mirai no Shacho’ (Future CEO).
Other good causes In addition to the global community investment target areas under the NN Future Matters umbrella, our businesses and corporate foundations support other local initiatives within the areas of health and environmental care. With these activities, we connect with our employees, customers and business partners, and address societal needs together.
EUR 2.4m donations to charitable organisations young people reached through NN Future Matters programme 18 NN Future Matters scholarship students
As the Sustainable Development Goals (SDGs) address the world’s largest societal challenges, such as poverty, climate, health care and education, we believe that the public and private sector should work together to help achieve these goals.
To better understand and implement the SDGs, we have been cooperating with peers and other stakeholders. Following the 2016 report ‘Building Highways to SDG Investing’ to which NN contributed, we engaged with a group of companies on the development of metrics for the SDGs in 2017.
Focusing our efforts To further refine our approach to the SDGs, in early 2017, we invited a group of 20 stakeholders to engage in a conversation on our potential impact on the SDGs, and how these relate to our strategy. The dialogue, which was attended by government representatives, regulators, investors, NGOs, academics and peers, was hosted by Dorothee van Vredenburch, Chief Change and Organisation of NN Group and member of our Management Board.
SDG 1 (No poverty) and SDG 4 (Quality education) can be addressed through our insurance products and services, and community investment activities.
NN IP’s impact themes, Diminish stress on ecosystems, Health and well-being, and Fulfilment of lives, form the starting point of the investment process. Using our proprietary database, we identify stocks that have a material exposure to these themes. The next step is to look at intentionality.
Going forward In the coming years, we will track the progress we make in addressing the SDGs, in particular the goals we focus on. As the SDGs are set for 2030, we seek to improve our performance and the way we measure our progress every year.
• Offering specialised SRI funds and mandates that often use a best-in-class approach (EUR 10.9 billion in AuM)
• Reaching out to 37,208 young people in 2017 to create economic and labour market opportunities through NN Future Matters
• Embedding ESG aspects in our procurement activities (EUR 1 billion)
• Integrating ESG factors in our investment process and decisionmaking (EUR 246 billion in AuM)
• Investing EUR 0.9 million by Delta Lloyd Foundation to alleviate poverty. Aiming to impact 11,625 low-income households in the Netherlands by 2020
• Providing EUR 2.4 million donations to charitable organisations (in total)
• Spending EUR 21.4 million on training and development of our employees
• Providing scholarships to 18 students from 11 countries as part of NN Future Matters, our global community investment programme
• Products and services with social added value that promote good health and well-being for customers (a.o. cancer treatment in Spain, Poland)
• NN is carbon neutral by offsetting our remaining carbon emissions through the purchase of 25 kt. voluntary CO2 credits
• Insuring renewable energy projects thereby contributing to the generation of sustainable energy for households
• Investing EUR 356 million of own assets in direct renewable infrastructure projects and green bonds used for renewable energy
Creating and sharing value Contribution to the Sustainable Development Goals Continued
The Executive Board is entrusted with the management, strategy and operations of NN Group under the supervision of the Supervisory Board.
More information about corporate governance is available in the ‘Corporate governance’ chapter, pages 18-27 of the Financial Report.
The interests of NN Group and our stakeholders In performing their duties, the Boards must carefully consider and act in accordance with the interests of NN Group and our associated business, taking into consideration the interests of NN Group’s stakeholders. The organisation, duties and working methods of the Executive Board, Management Board and Supervisory Board are detailed in the charters of these Boards. These charters are available for download on the NN Group corporate website.
Read more information on the governance relating to our corporate citizenship approach at www.nn-group.com/ In-society/Governance-memberships- and-endorsements.htm.
Robin Spencer was appointed to the Management Board on 1 August 2014 and as CEO International Insurance on 1 September 2014. He is responsible for NN’s Insurance Europe, Japan Life, Japan Closed Block VA and NN Re businesses. Robin was previously Chief Executive Officer of Aviva UK & Ireland General Insurance. He has experience in the financial services industry dating from 1995, across life, non-life and asset management in the UK and internationally.
Robin Spencer will step down as CEO of International Insurance and member of the Management Board of NN Group effective 1 June 2018.
Stan Beckers joined NN Group as CEO of NN Investment Partners on 1 July 2013. After 38 years in the financial services industry, he retired on 1 April 2017.
Dorothee van Vredenburch was appointed to the Management Board of NN Group as Chief Change and Organisation (CCO) on 7 July 2014. Dorothee is responsible for NN’s human resources, communications and sustainability. She joined the company in 2009 as managing director of Corporate Communications and Affairs of ING Group. She has experience in the financial services industry dating from 1987, starting as an investment banker. She has held leadership positions at Citigate First Financial, amongst others.
Delfin Rueda was appointed to the Executive Board as Chief Financial Officer (CFO) on 1 March 2014 and member of the Management Board on 7 July 2014. Previously he was CFO and member of the Management Board ING Insurance Eurasia N.V. since 2012. Delfin is responsible for NN’s finance departments and investor relations. He has experience in the financial services industry dating from 1993, most recently with Atradius. Prior to joining ING in 2012, he was Chief Financial and Risk Officer and member of the Management Board at Atradius. He has also held leadership positions at J.P. Morgan, UBS and Andersen Consulting.
To underline our ambition, NN Group and/or our respective businesses endorsed various international initiatives, such as: • Principles for Sustainable Insurance • Principles for Responsible Investment • Carbon Disclosure Project • Recommendations of the Taskforce
We are a member of various (inter)national network organisations, including: • UN Global Compact • United Nations Environment Programme
In 2017, we organised two specific multi-stakeholder dialogues, one on the Sustainable Development Goals and one on materiality. Furthermore, we were confronted with various developments, issues and challenges. These were brought to our attention by and/or discussed with different stakeholders. Please find a non-exhaustive overview of the key topics discussed with different stakeholders on the next page.
Continuously Products and services Stimulate good cooperation to achieve greater satisfaction among financial advisors, ultimately leading to customer satisfaction.
Employees Townhall meetings, Hello You surveys, works councils, unions, International Leadership Conference
Investee companies Voting at shareholder meetings, dialogues with company management, engagement
Promote value through consistent and transparent voting behaviour. Obtain better disclosures. Improve decision-making, including environmental, social and governance aspects.
Share knowledge, reach mutual understanding and work on an IMVO covenant for the insurance sector.
Our response to the Financial Stability Board’s Taskforce on Climate‑related Financial Disclosures (TCFD).
Governance The NN Group Executive Board ensures that the company has adequate internal risk-management and control systems in place so that it is aware of any material risks run by our company and that these risks can be managed properly. Each year, the Executive Board defines the company’s risk appetite and tolerance statements. This is ratified by the Supervisory Board. For more detail on risk management, refer to pages 129-158 of the Financial Report.
ESG‑related governance within our investment activities Climate change is an ESG factor that we believe has the potential to materially impact the performance of investment portfolios. The consideration of ESG is part of all the investment processes, and governed by our Responsible Investment (RI) Framework policy.
In February 2018, the findings and recommendations for further alignment were discussed and validated by the Management Board. The ongoing role of the Climate Change Dialogue was confirmed, and this working group will continue to advise the Management Board on climate risk analysis, climate-related business opportunities and external developments in this area.
Strategy Climate change is a complex subject that contains significant areas of uncertainty, particularly when considering long-term horizons. The ways in which businesses might be impacted by climate change are also diverse. To align with the TCFD framework, we mapped the potential risks (and opportunities) of climate change on our business according to the categorisation: transition and physical risks.
Transition risks Transition risks are financial risks related to the emerging lower-carbon economy. In the December 2015 Paris Agreement, governments around the world committed to the goal of keeping the increase in average global temperature to well below 2°C and pursuing efforts to limit it to below 1.5°C. Staying below a 2°C threshold would require a significant shift in the trajectory of greenhouse gas (GHG) emissions. The longer it takes for GHG emissions to begin to meaningfully decline, the faster the speed of the transition required. Government action to reduce GHG emissions through policy and regulations could impact profitability of companies, particularly in carbon-intensive sectors.
The Royal Netherlands Meteorological Institute (KNMI) developed long-term weather scenarios in 2015 that indicate that the prevalence of weather conditions such as hail and rainfall and related losses will increase in the following decades. Note that P&C is predominantly a one-year renewal business, making it possible to adjust our risk models and define premiums (or introduce excess) that fit to predicted possible losses. Also, external reinsurance will under certain conditions partially mitigate potential impacts.
Customer satisfaction could also be affected should insurers have to charge customers higher insurance premiums, making affordability an issue. NN Group acknowledges the importance of trust and customer satisfaction for the insurance industry, focusing on clearly informing our customers, and being transparent about coverage, alongside helping to initiate adaption or resilience in a changing environment. We will therefore focus on actions to raise awareness on climate change among all our stakeholders.
Prolonged and multiple periods of heat waves and other consequences of rising temperatures may result in increased morbidity and mortality, thereby impacting our life and income insurance liabilities.
Climate‑related opportunities Besides risks, the energy transition could also bring opportunities for companies across sectors and industries, for example, in the area of energy efficiency and green infrastructure solutions for climate change mitigation or adaption. The latter area could provide a particularly good fit for insurance investors. The bond market is seen as having the potential to finance the large-scale investments that are needed in the transition to a lower-carbon and climate changeresilient economy.
Helping our customers adapt to climate change or supporting them in opportunities related to energy transition could generate new sources of revenue. For example, within the insurance business we offer insurance in the area of renewable energy. Delta Lloyd insured its first Dutch wind farm in 2008; we are now the largest Dutch insurer of offshore wind farms. We insure both the construction phase of a wind farm and the operational phase when the wind turbines start operating.
Resilience of our strategy In our insurance business, we explicitly consider large catastrophic losses in economic capital modelling to ensure NN Group is resilient to such extreme scenarios. The Solvency II supervisory framework requires that insurers hold sufficient capital to cover the losses of a 1-in-200-year event, over a 1-year time period. In addition, insurers also consider risks beyond this one-year time period as part of their Own Risk and Solvency Assessment (ORSA), and hold a level of capital that is in line with their defined risk appetite.
For this scenario, we anticipate a negative financial impact for NN Non-life. Our management discussions defined additional mitigating measures that we deem appropriate to manage the risk of this scenario. During 2017, we revisited and adjusted existing reinsurance contracts on catastrophe risk, taking into account the combined NN and Delta Lloyd organisation and corresponding risk appetite and risk levels. Other measures include preventive action to reduce claims through more proactive communication with clients, as well as better data analytics to determine potential concentration risks related to catastrophe risk and re-underwrite if needed.
Risk management Integration of climate factors into risk management policy framework As part of NN Group’s control framework, all business units consider social and environmental risks, supported by a comprehensive policy framework. Our policies set out our minimum standards for risk management and internal control in the relevant area within the group.
In addition to analysing individual investmentlevel risks, we also perform analysis at a portfolio level to better understand the potential risks related to climate change. In 2017, we conducted a carbon footprint analysis for a large portion of NN Group’s proprietary assets. We published the results and insights on our website, and updated the footprint and intensity numbers at year-end 2017 (refer to section on Metrics and targets). We find the analysis particularly useful to prioritise our engagement efforts with the most carbon-intense sectors in our portfolio.
Processes to manage climate risks within insurance underwriting Within our P&C insurance business, the physical risks of climate change are managed through the use of catastrophe risk modelling in underwriting, risk assessments and required capital calculations. Our nonlife insurance business and NN Re work closely together to share knowledge, insights and experience, and to ensure a consistent approach and understanding of the risks. We use external vendor models, which rely on meteorological modelling and historical storms, to estimate the impact and damage caused by large natural catastrophes such as windstorms. These models are part of the Solvency II Partial Internal Model of NN Group.
Investments To inform and monitor our exposure to carbon risks within our investment portfolio, we updated our Carbon Footprint Disclosure at year-end 2017. In 2017, the assessed Assets under Management (AuM) increased to EUR 103 billion due to the addition of Delta Lloyd’s assets. The measurement, which represented 56% of NN’s total Proprietary Assets, shows a decrease in portfolio carbon footprint (273 tCO2e/EURm invested vs 309 tCO2e/EURm invested). We also calculated the weighted average carbon intensity, which is the main metric recommended by the TCFD.
This metric remained stable at 231 tCO2/ EURm of revenue, although the intensity of Corporate Bonds somewhat increased whilst Equity decreased. For more detail, refer to page 67. Due to various limitations related to quality and availability of data, and the fact that it provides a snapshot of emissions at one particular point in time, we have not yet used the results of the carbon footprint analysis to set targets. However, we are looking at ways to make environmental or carbon criteria a more explicit consideration in the management of our portfolio.
NN seeks to increase our investments in those activities that are needed to support the transition to a lower-carbon economy. In 2017, we signed new debt investments in an offshore wind farm in Germany and a solar park in Spain. During the year, we added Delta Lloyd assets, which also include infrastructure investments in wind and solar. Upon completion the projects in the total renewable energy portfolio will have the capacity to provide electricity for around 800,000 households. Green bonds provide another way to invest in climate friendly activities and support the energy transition. At year-end 2017, our combined investments in renewable infrastructure and green bonds held on behalf of NN’s proprietary assets amounted to EUR 540 million.
For our asset management clients, NN IP offers a wide range of specialised SRI funds and responsible investment solutions. These products meet the growing demand for products that generate good financial returns alongside care for society and the environment. Our objective is to continue to grow assets in SRI funds and mandates and expand the product offering. At yearend, the AuM in our sustainable equity and fixed income products amounted to EUR 10.9 billion. This was an increase of 114% versus the prior year.
Stakeholder engagement and international commitments Taskforce on Climate‑related Financial Disclosure Continued
We aim to strengthen our integrated reporting every year. Elements such as our value creation model and our materiality matrix are again included in the Annual Review. The same applies for our performance data regarding responsible investment, human capital, community investment and environmental footprint. This review therefore aligns relevant information about our strategy, governance systems, performance and future prospects in a way that reflects the economic, environmental and social contexts in which we operate.
Reporting profile This is NN Group’s fourth Annual Report since our separation from ING Group and becoming a publicly listed company on 2 July 2014. It is published on 15 March 2018. We report annually, on a calendar year basis (1 January – 31 December).
The scope of the reported data is the range of entities over which NN Group has management control. The aforementioned applies to all material items as depicted in the materiality matrix in the Annual Review, unless otherwise stated.
Going forward Going forward, we will continue to tailor our reporting to serve different stakeholder groups. This includes further integration of financial and non-financial information and indicators to provide stakeholders with a complete picture of how we create long-term value for our company and stakeholders.
Amounts for 2016 have been restated for the changed classification of interest income/expense on derivatives for which no hedge accounting is applied. Reference is made to Note 1 ‘Accounting policies’ for more details.
Assets under Management (end of period, in EUR billion) 246 195 187
– insurance business units scoring on/above level previous year 91% 95% n.a.
Countries/business units offering tools improving financial decision-making (#) 13 13 13
– as part of the total Assets under Management 4.4% 2.6% 2.4%
Total donations to charitable organisations (x EUR 1,000)1 2,400 1,500 1,500 1 Includes cash donations to charitable causes, corporate foundations and partnerships.
Dow Jones Sustainability Index (out of 100) 80 (Included) 77 68
– as part of total Assets under Management NN Investment Partners 4.4% 2.6% 2.4%
– NN (L) Euro Sustainable Credit (excluding Financials) 679 587 471
Private real estate – portfolio average (vs. benchmark average) 74 (61) 72 (59) 66 (55)
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).
Scope of our carbon footprint disclosure The carbon footprint of NN Group’s proprietary fixed income and listed equity holdings was measured as per 31 December 2017, and is based on the latest carbon dioxide emissions data for governments and companies available to us.
The fixed income holdings that we assessed included government bonds and corporate fixed income securities. The Corporate Fixed Income portfolio comprised mainly corporate bonds, but also asset-backed securities and loans (although the data availability on these two asset categories was limited).
The analysis is based on scope 1 and 2 emissions data provided by ISS-Ethix Climate Solutions, a leading global provider of investment climate data. The coverage, or the percentage of (assessed) portfolio assets for which (actual or estimated) emissions data was available, is: 82%.
2 This number covers data of the Dutch business of NN only. It does not include the complaints received in relation to the integration process of Delta Lloyd and Nationale-Nederlanden, given the specific nature of these complaints.
4 The scope of the number of redundancies differs from the involuntary employee turnover ratio, as it is limited to (actively) managed involuntary terminations, not including i.e. people leaving because of death, or end of their fixed term contract.
CO2 emissions from energy consumed on NN sites 11 9 12
– Renewable electricity as % of total electricity 69% 45% 61%
2 The comparative figure for 2015 has been restated according to new data.
We have performed our review on the Non-Financial Information in accordance with Dutch law, including Dutch Standard 3810N: ‘Assurance-opdrachten inzake maatschappelijke verslagen’ (Assurance engagements relating to sustainability reports).
This review engagement is aimed at obtaining limited assurance. Our responsibilities under this standard are further described in the ‘Our responsibilities for the review of the NonFinancial Information‘ section of our report.
We are independent of NN Group N.V. in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).
These matters were addressed in the context of our review of the information within the scope of our engagement as a whole and in forming our conclusion thereon, and we do not provide a separate conclusion on these matters.
The Non-Financial Information includes prospective information such as ambitions, strategy, plans, expectations and estimates and risk assessments. Inherently the actual future results are uncertain. We do not provide any assurance on the assumptions and achievability of prospective information in the Non-Financial Information.
The references to external sources or websites in the Non-Financial Information are not part of the Non-Financial Information itself as reviewed by us. We therefore do not provide assurance on this information.
Based on the following procedures performed, we conclude that the other information included in other parts of the Annual Review is consistent with the Non-Financial Information and does not contain material misstatements.
We have read the other parts of the Annual Review. Based on our knowledge and understanding obtained through our review of the Non-Financial Information, we have considered whether the information included in other parts of the Annual Review contains material misstatements.
The scope of the procedures performed is substantially less than the scope of those performed in our review of the Non-Financial Information.
Our responsibility is to plan and perform the assurance engagement in a manner that allows us to obtain sufficient and appropriate assurance evidence for our conclusion.
Procedures performed to obtain a limited level of assurance are aimed to determine the plausibility of information and are less extensive than a reasonable assurance engagement. The level of assurance obtained in limited assurance engagements is therefore substantially less than the level of assurance obtained in an audit engagement.
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the review and significant findings, including any significant findings in internal control that we identify during our review.
App An application; typically a small, specialised programme downloaded onto mobile devices. Apps support NN Group’s ability to provide a quick, easy, confidential customer experience across digital channels.
Brand awareness The extent to which consumers are familiar with the distinctive qualities or image of NN; the recognisability of the NN Brand in the general public.
Carbon footprint The total amount of greenhouse gases produced to directly and indirectly support ongoing activities, usually expressed in equivalent tonnes of carbon dioxide (CO2).
Environmental footprint The effect that NN Group has on the environment, for example the amount of natural resources used and the amount of waste produced in direct operations.
Ethics statement introduced in early 2013 for employees in the Dutch financial sector, along with the introduction of a social charter and update of the Banking Code. The oath or promise applies not only to employees of banks but also to employees of other financial enterprises, including insurance companies, investment firms and financial service providers. By taking the oath or promise, employees proclaim that they are bound by the Code of Conduct attached to the oath or promise for the ethical and careful practice of their profession.
Regulation by which the European Parliament, the Council of the European Union and the European Commission intend to strengthen and unify data protection for all individuals within the European Union.
An organisation that is neither a part of a government nor a conventional for-profit business. Usually set up by citizens, NGOs may be funded by governments, foundations, businesses, or private persons.
NLII Netherlands Investment Institution – established to enable institutional investors such as pension funds and insurers to invest directly in the Dutch economy.
NN Future Matters Future Matters is the global community investment programme for NN Group. It aims to empower people in the markets where we operate to improve their financial wellbeing, and to support them in growing their economic opportunies.
Robotisation The automation of a system or process by use of robotic devices. AR p. 32, 33
The Financial Stability Board launched the industry-led Task Force on Climate-related Financial Disclosures (TCFD) to develop recommendations on climate-related financial disclosures. The Task Force published its final recommendations in June 2017.