The 2018 Annual Report consists of the 2018 Annual Review and the 2018 Financial Report. It provides an integrated review of the performance of our company.
NN Group’s strategic priorities .................................... 20 Delivering on our strategy ............................................... 22
International Insurance ................................................ 26 Asset Management ........................................................ 30 4 Creating and sharing value
Management Board ....................................................... 58 Stakeholder engagement and international commitments ................................. 60 6 Facts and figures
Sustainability indices and ratings ....................... 70 Customer-related indicators ..................................... 71 Responsible investment indicators ...................... 71 Human capital indicators ........................................... 72 Community investment indicators ...................... 74 Environmental indicators ............................................ 74
The Annual Review covers NN Group’s operating environment, key trends and material issues, it describes how we create value, and provides information on our strategy, our objectives and business performance. Also achievements and dilemmas related to our business are included. It is targeted at a broad range of NN Group stakeholders.
Japan * Outside Europe and Japan, NN Investment Partners has offices in New York and Singapore.
How we performed Free cash flow to the holding of EUR 1.2 billion, mainly reflecting EUR 1.6 billion of dividends received from subsidiaries, partly offset by holding and funding costs.
How we performed Total expenses reductions at the units in scope of the integration of EUR 289 million compared with the 2016 administrative expense base. Well on track to reaching the target: EUR 400 million by end of 2020.
How we performed Total Assets under Management of NN Investment Partners stable at EUR 246 billion compared with year-end 2017.
Where we stand We aim to increase our NPS scores every year. In 2018, 5 of our 12 insurance business units maintained or improved their relational NPS scores compared with 2017. Other units saw their scores decrease, which has our full attention.
Where we stand We exceeded our target to have 30% women in senior management positions by 2020. We will continue to strengthen our efforts in this area.
Where we stand Since the start of our programme in 2014, we have reached 112,937 young people, exceeding our 2020 target to positively impact the futures of 100,000 young people. We aim to continue to grow this number.
How we create and share value We aim to create long-term value for our stakeholders. The value creation model shows how we use the resources and expertise at our disposal, and the value this creates for our stakeholders.
** Relationships developed within and outside the organisation. It includes relationships with customers, business partners and suppliers.
Financial Capital • EUR 13.3bn gross premium income • EUR 246bn Assets under
Human and Intellectual* Capital • 14,953 employees • Values-driven culture • Responsible business standards
We use our resources, expertise and reach to help society achieve long-term prosperity. We invest in a responsible way, ensure fair tax policies, minimise our direct environmental footprint, and support local communities. Read more on pages 44-51.
We maintain a strong balance sheet and take a disciplined approach to capital management, so we can offer attractive long-term returns for our investors. Read more on pages 42-43.
Customers We offer products and services that are easy to understand and that meet our customers’ needs, helping them to secure their financial futures throughout the different stages of their lives. Read more on pages 22-32 and 35-37.
We offer an attractive, stimulating and diverse work environment to our employees. We invest in their skills and personal development to help them reach their full potential. Read more on pages 38-41.
4. Japan Life 1 Certain changes will be made to the segment reporting of NN Group as from the first quarter of 2019. The banking business, which is currently included in the segment ‘Other’, will be reported as a separate segment. At the same time, the segment Japan Closed Block VA will no longer be reported separately. Going forward, the results of Japan Closed Block VA will be included in the segment ‘Other’ as a non-operating item (‘Market & other impacts’).
2 Excluding health and broker business. 3 Percentages based on total operating result before tax of the ongoing business (EUR 1,626m)
Proven track record in improving the customer experience whilst reducing expenses
Solvency II ratio 255% NN Life Solvency II ratio 180% Delta Lloyd life
Assets under EUR 246bn Management – for third parties EUR 81bn
The segment ‘Other’ is part of the ongoing business. It comprises NN Bank and NN Re (excluding reinsurance of the Japan Closed Block VA portfolio), the holding result and other results.
NN Bank operates in the Netherlands and offers a range of retail banking products, for example, mortgages and savings products.
Net operating ROE 13.1% banking business5 5. Asset Management 6. Other 7. Japan Closed Block
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 Life6, AZL, the life results of ABN AMRO Insurance and BeFrank • Netherlands Non-life includes the results Nationale-Nederlanden Non-life, Delta Lloyd Non-life6, the non-life results of ABN AMRO Insurance, Movir, OHRA, and the broker results related to health insurance products
How did the integration process progress in 2018? It has been nearly two years since the acquisition of the Delta Lloyd businesses. Throughout 2018, our teams worked hard on migrating systems, increasing efficiency, and introducing new products and services. The rebranding of Delta Lloyd’s products and services to Nationale-Nederlanden is now virtually complete. Naturally, an integration process of this scale is impactful and also brings challenges along the way. For example, integrating and decommissioning certain IT systems at times proved to be more complex than anticipated, and organisational changes often come with levels of uncertainty.
Being entrusted with people’s financial matters is a responsibility we take very seriously.
Well-positioned to capture further growth 2018 was a good year for our company and I am pleased with our overall performance. Internationally we further strengthened our footprint, and in the Netherlands and Belgium we made significant progress integrating Delta Lloyd into NN and together achieved important milestones. Our company’s financial position is strong. We are well-positioned to capture further growth opportunities and to continue to help our customers secure their financial futures.
In the Netherlands and Belgium, we achieved total cost reductions by year-end 2018 of EUR 289 million, which brings us to 72% of our target for 2020. Our financial position is robust, with a cash capital position of EUR 2,005 million and a Solvency II ratio of 230%. The latter already reflects the deduction of the final dividend of EUR 1.24 per ordinary share that will be proposed at our Annual General Meeting of Shareholders on 29 May 2019. Combined with the interim dividend paid, this brings our full-year 2018 dividend per ordinary share to EUR 1.90, a 14.5% increase compared with 2017.
What was NN’s impact on society in 2018? We take our responsibility as corporate citizen seriously. There are large societal challenges to be addressed – as exemplified in the Sustainable Development Goals – and we want to play our part in finding solutions. It is my firm belief that the private and public sector should work together to address these challenges. As an insurer, an institutional investor, employer and buyer of goods and services, we are committed to making a positive contribution to society.
Through our community investment programme Future Matters, that is focused on promoting financial empowerment and economic opportunities, we have reached a total of 112,937 young people since 2014, surpassing our target of reaching 100,000 young people by 2020. Our aim is to continue to grow this number.
What is next? We will continue to build on our solid foundation, and I feel privileged to do this alongside nearly 15,000 hard-working colleagues committed to making this company one that truly matters. We are grateful for the trust our customers and business partners have in us, and for the continued support of our stakeholders.
Dynamic environment The external environment remained dynamic throughout 2018. Though economic conditions remained favourable and new opportunities arose from technological innovation, developments such as protectionism, instability in financial markets, rising levels of debt and climate change continued to cause uncertainty.
Mixed picture on global economic growth Favourable monetary and financial conditions have for some years been benefiting the economy. Global economic growth was firm in 2018, with the Dutch, and Central and Eastern European economies outgrowing the European average. However, economic growth is being impacted by (geo)political developments, such as tense international trade relations influencing investments, as well as Brexit and tension within the Eurozone and the European Union at large. As a consequence, the financial sector may be confronted with reduced consumer and producer confidence, continued volatility in financial markets, and a prolonged period of low interest rates.
Adapting to new regulations An extensive package of regulations for the financial services industry was put in place following the financial crisis in 2008. This aims to bring more financial stability and security for society as a whole. European and national regulations impact the way insurers do business and manage their balance sheet. For the European insurance industry, the Solvency II framework, which determines how much capital an insurance company should hold, is arguably the most important regulatory framework.
Changes to regulation can have a significant impact on our customers and business when they materialise in the markets in which we operate, and therefore require careful monitoring.
Regulations that were particularly relevant to our business in 2018 included the Insurance Distribution Directive (IDD, 2018), Standards 9 & 17 of the International Financial Reporting Standards (IFRS) and the General Data Protection Regulation (GDPR, 2018). In addition, Dutch legislation has been introduced in 2019 on planning for the recovery and resolution of insurance companies in order to deal with future failing insurance firms. The Netherlands, along with France and Romania, are European frontrunners in this area.
The strength of competition is increasing, both from within the sector and from newcomers (predominantly data, tech and platform companies) that want to leverage experiences in other businesses within financial services. The financial industry needs to react and anticipate quickly. Implementation of new technology remains a challenge in view of legacy infrastructure and technology, and huge investments are often needed to implement change. From an employee perspective, technological developments can require different (sometimes scarce) skillsets. However, digitalisation also brings opportunities: new players emerge that offer relevant services for our customers, which can lead to new opportunities for partnerships.
Increased focus on sustainable development There is increased focus within the financial sector on the environmental, social and governance (ESG) aspects of doing business. This reflects global trends and challenges, such as climate change, scarcity of resources and social inequality, and the expectations of stakeholders related to these matters. International initiatives and guidelines, such as the EU Action Plan on Sustainable Finance and the recommendations of the Task Force on Climate-related Financial Disclosures, also drive this trend.
Environmental risks, such as risk of draught, storms and fire, are affecting the insurance industry. The industry needs to anticipate these changes in its underwriting and product offering processes. At the same time, ESG aspects provide an additional lens through which to identify and manage risks and opportunities in investment portfolios. Next to integrating ESG factors in investment processes, the industry is able to use its influence to support the transition to a sustainable economy by engaging with the companies it invests in. Furthermore, specialised sustainable and impact investing strategies are offered to customers. Read more on pages 30-32 and 44-46.
The most material topics as indicated by our internal and external stakeholders are found in the upper-right quarter of the matrix. Some of these relate to the trends described on the previous pages. Other topics, including customer centricity, data privacy and (cyber)security, business ethics, and environmental, social and governance (ESG) integration into products and services, are described on pages 14-15.
To validate the outcome of the plotting exercise, we organised a dialogue session with 20 internal stakeholders representing different business units and relevant staff functions and including two Management Board members. To ensure a balanced and independent discussion, the process was facilitated by an external specialist agency. Subsequently, the materiality matrix was validated by NN Group’s Management Board and the Supervisory Board as part of the approval process of the Annual Review. The outcome of the process is reflected in the chart below.
Our customers, employees, shareholders, business partners, regulators and the organisations representing wider society, are all important stakeholders to us. We regularly engage with these different groups to discuss their views and observations, and to identify aspects that might be material to our company.
Reading the materiality matrix For the external stakeholder perspective (the y axis in the materiality matrix), we conducted desk research, analysing documents covering our dialogue with various stakeholder groups. The x axis shows NN’s impact on each topic, in line with the GRI Standards. Trends such as demographic change and low interest rates fall in the lower left-hand corner of the matrix because – although highly relevant to our business – our impact on these trends is limited. Read more on pages 11-12.
2 New technology and innovation New technologies are fundamentally changing the behaviours, needs and requirements of our customers. We want to become even more relevant in our customers’ lives. We are therefore exploring the potential of ecosystems and platforms around themes such as Vitality & Health, Carefree retirement, Mobility and Home. Within the business units, we are innovating our existing offerings, processes and services to create a customer experience that is digital, personalised and relevant. Read more in the business chapters on pages 22-32, and the chapter Excellent customer service on pages 35-37.
3 Data privacy and (cyber)security Financial services companies possess large amounts of payment data and/or personal information about their customers, making security awareness and data protection vitally important. Cyberattacks on financial services companies can have a major impact, resulting in not only damage for our customers and company, but also a loss of trust. A major breach can seriously impact a company’s reputation.
All European businesses and NN Group have appointed a Data Protection Officer (DPO) and formally established their position and roles and responsibilities. Furthermore, all permanent and temporary employees completed a mandatory e-learning on the GDPR, all customers were informed about their rights under the GDPR, updated Privacy Statements have been published on the local customer websites of all our European businesses, relevant policies and standards were updated and all measures were taken to properly handle the requests of our customers and employees with regard to exercising their legal rights related to their personal data. Businesses were aligned closely on areas of joint responsibility, resulting in, for example, a joint Privacy Statement of Dutch Businesses. The DPOs will continuously monitor compliance with the GDPR.
The GDPR corresponds with our NN statement of Living our Values, which states that we use our knowledge responsibly, keep confidential what is entrusted to us and communicate proactively and honestly.
All our employees are expected to adhere to applicable laws, regulations and ethical standards, and management is responsible for ensuring compliance. We have checks and balances in place to confirm that our products, activities and processes are in line with relevant internal and external requirements. We support our employees in making difficult decisions and encourage open dialogue on dilemmas.
Our values, which embody responsible business conduct and corporate citizenship, are published in our NN statement of Living our Values. NN’s Code of Conduct gives more detailed guidelines for specific behaviour and interactions with our stakeholders. Read more in the section Our culture and governance on pages 53-56.
7 Financial performance Prudent financial management is NN Group’s main driver for maintaining a strong balance sheet. It 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 and generate attractive returns. For 2018, our Solvency II ratio and cash capital position remained robust, at 230% and EUR 2,005 million respectively. Our operating performance was strong, with the operating result of the ongoing business at EUR 1,626 million. We generated free cash flow of EUR 1,216 million. Our total Assets under Management (AuM) remained stable at EUR 246 billion.
11 ESG integration in products and services Societal developments, such as climate change and scarcity of resources, are impacting the communities in which we operate. For our business to remain sustainable, we need to address these issues, which might pose risks to our activities and performance, but also bring opportunities to develop new products and services.
We therefore embed ESG aspects into our strategy, policies and activities. Since the turn of the millennium, we have been integrating ESG analyses into our investment process and active-ownership activities, which we believe optimises the risk/return profile of our portfolios, helps reflect NN’s values in the investment process, and aligns our business with the broader objectives and expectations of society. In addition, NN Investment Partners offers a range of sustainable and impact investment funds and mandates, totalling EUR 16.5 billion AuM at year-end 2018. Within our insurance businesses, we also offer products that address social issues and/or align with the circular economy. Read more on pages 30-32, 36-37 and 44-46.
Technological developments and digitalisation have led to an increase of available data in recent years. This data now allows us to better estimate risks, and further optimise and match our services to customer needs. The increase of available data can also allow us to make connections between different data sets, often leading to new information and insights.
The question of whether and how to use this data is increasingly relevant. For NN, the legal (mainly privacy) and ethical aspects of our data science are key issues. We are conscious of the personal data which our customers entrust to us. To ensure we handle any data available to us with the utmost consideration and make balanced decisions on its use in current or new processes, we have developed an internal decision-making process based on three criteria: • Are we legally allowed to use the data? • Do we want to use the data, and would doing so be in line with our NN Group Statement of Living our Values and the NN Code of Conduct?
Accepting and managing risks appropriately Strong risk management helps us define and achieve our financial and non-financial objectives. It enables us to continue to meet our obligations to stakeholders.
Risk management is an essential link between our strategy, our capital plan and the successful execution of our business plan. Strong risk management helps us define and achieve our financial and nonfinancial objectives. We track key financial risk indicators, such as our Solvency II ratio, as well as several non-financial indicators related to our operations.
The objectives are, amongst others, that the management teams of the business units and the heads of the support functions: (1) Ensure relevant risks are understood at all levels of their organisation/ department and mitigated through appropriate controls
(4) Can confirm that they operate within the risk appetite; and if not, know what the issues are and what mitigating actions are required
Risks as a result of integrating NN Group and Delta Lloyd not being successful in terms of operations, commerce or organisation. This category also includes the general risk related to talent management in case we are not able to attract, retain and pay world-class talent as we are unable to achieve sustainable success without the right people. This risk is mitigated through a dedicated Integration Management Office that helps ensure a timely and well-controlled integration process. Specific programmes at pre-defined moments in a talent’s career are also in place, as well as a renewed Employee Value Proposition to attract talent.
Effective risk management will enable NN Group to adapt to an ever-changing external environment in a controlled way, which is essential to secure NN Group’s long-term future.
Any form of financial economic crime (FEC), defined as any involvement in money laundering, the funding of terrorism, or other criminal activities, can harm the confidence in NN as a financial services provider. Within NN, we actively take preventative measures and do not tolerate any deviation from relevant FEC laws and regulations.
2018 milestones The integration of Delta Lloyd was an important focus area for risk management throughout 2018. During the year, we worked on further integrating the Delta Lloyd entities in our risk control framework. Material risk arose from challenges arising from IT system migration and decommissioning, some of which turned out to be more complicated than originally assumed, as well as retention of key staff. The importance of business continuity remains paramount.
Much work was done on financial reporting, as Delta Lloyd’s accounting system had to be integrated into NN’s systems. NN Group also decided to apply for approval to expand the scope of its approved Partial Internal Model (PIM) to improve the accuracy of the Solvency Capital Requirement (SCR) of the combined company.
The main objective was to develop a single PIM for NN Group that ensures appropriate risk measurement and management for both NN and Delta Lloyd entities, and the combined company. The PIM expansion is based on a comprehensive assessment of the risk profiles, portfolios and existing models of NN and Delta Lloyd, which showed broad alignment in terms of risk characteristics.
With respect to the financial position, the company was further strengthened in 2018 through capital generation, resulting in a stronger capital position than NN Group had prior to the Delta Lloyd acquisition.
Looking ahead Identifying risks is part of NN’s yearly business planning. The increased level of (geo)political instability (such as trade disputes, Brexit) and the speed of change in many societies require risk management to be alert to emerging risks.
Long-term value creation We want to contribute to a stable, inclusive and sustainable economy and society. We do business with the future in mind, supported by our values: care, clear, commit.
As an employer, we want to attract and retain talent by offering a stimulating workplace where everyone is valued for who they are, and by investing in training and development.
We seek innovative ways to meet our customers’ needs and keep up with changing market dynamics. Focusing on innovating our business and our industry, we identify new customer segments and develop a customer experience that is as personalised and relevant as possible.
To this end, we are embedding new ways of working within our organisation and have established seven SparkLabs within our business units that continuously explore ways to innovate our business, products and services. These innovation labs are directly linked to the local business units. Our innovation approach is based on the Lean Startup and design thinking methodology. Innovation starts with the right mindset, exploring new growth opportunities, and testing potential solutions quickly in the market.
Having an agile and cost-efficient operating model is important to ensuring long-term growth. This involves simplifying our processes to deliver better value for money; stimulating a cost-conscious culture; exploring new ways of working, like agile, in order to deepen our understanding of the customer journey; sharpening our customer intelligence skills; and developing an omnichannel approach.
By year-end 2018, we had reached 72% of our cost-reduction target (EUR 400 million) for 2020 compared with the 2016 full-year expense base.
Different business units are at different stages of our agile journey, and across our businesses, operational manual activities, such as data checks and extracting data from applications, are increasingly automated with robotic process automation.
Our asset manager offers a range of sustainable and impact investing funds and mandates to its clients. We believe that this optimises the risk/return profile of the investment portfolios, thereby adding value for our clients. Furthermore, incorporating ESG factors helps to reflect NN’s values in the investment process and to align our business with the broader objectives and expectations of society.
Looking ahead To continue to successfully meet the challenges and opportunities of the future, we will keep adapting our business models, and prepare for new dynamics. As our operating environment changes and customer expectations evolve, strengthening the relationship with our customers and servicing them well, where and when it matters most, remains our priority.
At the end of 2018, as part of a process to sharpen our long-term direction, we identified the areas that will be instrumental to drive growth going forward. Our existing businesses, which are the foundation of our company, remain our focus – while at the same time we will explore new opportunities. We want to realise the untapped potential of our current portfolio, and explore options to expand it across the markets we operate in. With our extensive and diverse suite of products and services, we have a competitive advantage. We can leverage this even more, by continuing to build partnerships and by investing in technology and analytics that will help us to further improve our distribution capabilities. This is the case not only for our insurance and banking business, but also for our in-house asset management business, NN Investment Partners. We aim to grow this business further, significantly strengthen its capabilities, reach and brand, and make it a more competitive, focused, and sustainable third-party partner.
We are leveraging our combined scale and customer base to build a sustainable omnichannel platform for financial services. At the same time, we are exploring how we can tap into the potential of ecosystems and platforms around themes relevant to our customers.
Our progress in 2018 During 2018, we continued to unlock the potential of the combined company by further integrating the Delta Lloyd businesses, and optimising and growing our company based on our Digital, Personal, Relevant strategy. The 2018 operating results of Netherlands increased in all segments: Life (+8.5% versus 2017), Non-life (+213.5% versus 2017) and Bank, as part of segment ‘Other’ (+3.5% versus 2017). In anticipation of evolving customer needs and market developments, we also explored new business models and opportunities that can help make our organisation ready for tomorrow. At the same time, in response to current market trends, we made modifications to selected portfolios, for example, by adjusting pricing to better match underlying risk.
Our ambition is to offer products and services that are relevant to our customers. That is why we are developing our distribution channels, and are teaming up with new business partners.
A comprehensive strategic asset allocation (SAA) study was carried out for the combined Life organisation to define an asset mix tailored to the needs of the combined entity. By year-end, we received the regulator’s approval to extend the use of the Partial Internal Model (PIM) to include the Delta Lloyd Life and Non-life entities in the Netherlands; the entities were subsequently merged into NN Life and NN Non-life.
Integration The joining of forces of NN and Delta Lloyd in 2017 was an important step for our company. The integration was and continues to be an intensive process, impacting colleagues across our businesses. Yet despite the many changes and restructuring, in 2018, customer satisfaction and intermediary satisfaction remained stable, and employee engagement increased to 7.0 (+ 0.2 versus 2017).
The process is also an opportunity to create expense synergy. For the total integration scope, the expense base was reduced by EUR 289 million (compared with the 2016 baseline).
With the legal mergers, rebranding and works council approvals now in place, integration activities for 2019 will focus predominantly on migrating IT systems, products and policies to target systems, and on decommissioning (redundant) legacy systems. Our aim is to achieve further synergies and organisational efficiencies. This is a challenging endeavour, given the complex IT landscape and major migrations still in scope, and it will have our undivided attention. Overall, the process remains on track with expense reductions progressing well.
Developing business Alongside the integration, and in line with our strategy, new initiatives were launched across business lines designed to anticipate evolving customer needs and market developments.
The combination of redemption and issuance has improved the overall redemption profile of the combined NN Bank, by removing previously overlapping maturity dates for some of its securitisation issuances.
To ensure we can continue to offer relevant products and services to our customers, we are constantly striving to innovate, increase efficiencies and make doing business with us more intuitive for our customers. At the same time, we are embedding new ways of working within our organisation, further diversifying our portfolio, developing new partnerships and exploring options for potential new opportunities around themes such as Vitality, Cybersecurity and Carefree retirement.
We increased customer satisfaction and significantly lowered operating costs in NN Life’s Pension Services division, where business process management and robotics are helping improve operational processes. As a result, customer response time and service quality has improved.
To secure long-term growth and continue servicing our customers where and when they want, we invest in making our organisation more agile and our operating model more efficient, allowing us to react rapidly to market changes and reduce our time to market.
We now offer our Non-life intermediaries a more digitalised service, as a result of outsourcing the administration of policies sold by intermediaries to retail customers to Voogd & Voogd. In doing so, we benefit from a leading IT system in the market and can decommission multiple internal IT systems to create a more cost-efficient administration. Overall, the integration of Delta Lloyd has left the combined company with multiple systems and platforms for similar product groups. We will therefore continue to decommission systems and migrate policies to avoid unnecessary duplication and enhance efficiencies. Where possible and beneficial, we will move applications to the cloud to increase scalability, flexibility, cost-efficiency and/or security.
Vitality As an employer and insurer, we want to play our part when it comes to sustainable employability and vitality. Rather than only reduce absenteeism, we want to help people remain employable in the long run.
To this end, we developed a vitality programme in 2017, starting with a pilot for a small group of employees to test the service and its effectiveness internally before offering it to customers.
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. This year, NN Non-life successfully launched the NN Health proposition, which included welcoming 220,000 former Delta Lloyd Health customers.
NN Life introduced a new defined contribution (DC) proposition, which offers unique features, such as the option to adjust risk appetite on a yearly basis, and best-in-class partner pension coverage. BeFrank introduced a new, transparent online pension product that gives customers more insight, flexibility and options than before and contributed to the company’s commercial success.
(iii) Personal life-cycles allows participants in DC accumulation products to tailor their asset investment to their personal circumstances
For more complex risks, the renewed ‘Zekerheid op Maat’ was introduced, which allows SMEs to customise their insurance product.
Also in 2018, we announced plans to implement a new mortgage pricing system, under which mortgage rates charged to customers are automatically adjusted during the fixed-rate period if the loan moves to a risk category with a lower risk premium as a result of redemptions. In addition, the mortgage rate will be adjusted to reflect a higher property valuation upon request of the customer if this leads to a lower risk premium. Facilitating this from 1 January 2019 onwards has proven to be more technically complex than expected. Customers that are entitled to a lower risk premium due to repayment of the mortgage will be compensated for the period from 1 January 2019 until final implementation.
In line with our Digital, Personal, Relevant strategy, our omnichannel approach means our customers can do business with us in the ways they want. At the same time, we are teaming up with business partners and exploring the potential of ecosystems and platforms around themes relevant to our customers, such as those discussed in this chapter: Vitality, Cybersecurity and Carefree retirement.
Cybersecurity In January 2019, Nationale-Nederlanden, along with a number of intermediaries, launched Perfect Day cybersecurity. Perfect Day, which originated in our SparkLab, is a service focused exclusively on SMEs that offers insights, helps with concrete solutions and makes security affordable.
Perfect Day looks at a company’s vulnerabilities around technology and legislation (e.g. the General Data Protection Regulation), but also around employees (e.g. processes, behaviour and knowledge), as some 90% of hacks and data leaks are due to human actions.
Where possible, quick fixes are performed directly by the Perfect Day cyber expert. With a to-do list and detailed report on the findings, the SME is equipped to improve its cybersecurity.
NN’s international insurance businesses encompass activities in Europe (Insurance Europe) and Japan Life. We build on a strong foundation of more than 11 million customers, a widespread distribution base with a welldeveloped tied agent channel, and strong partnerships. In Japan, we have a strong niche position offering products for small- and medium-sized enterprises (SMEs).
We want to expand our activities in these growth markets, and see continued opportunities for long-term savings and protection across both developed and underpenetrated markets in Europe and Japan. We are well positioned to deliver on this ambition and made good progress in 2018. There is ongoing demand for relevant, value-added products, delivered through trusted advisors and seamless digital experiences.
Optimising and growing our business In our international businesses, we aim to engage with our customers in a personalised and relevant way, and increase our interaction with them through a variety of distribution channels.
To further improve our services for customers, we are digitalising our back office, improving data capabilities, optimising and differentiating agent and broker distribution, and further strengthening our relationships with partners.
Our ambition is to be the leading company when it comes to helping people secure every aspect of their financial future through personalised customer interaction, valuable partnerships and constant innovation.
Developing businesses With the help of an array of new emerging technologies, we further expanded our omnichannel capabilities. We have also improved our data-collection capabilities and data generation in customer relationship management, and have been developing relevant value propositions for customers based on data analytics. By offering relevant products at the right moment, and seamlessly connecting data analytics across all distribution channels and sales points, we aim to further enhance distribution and customer relationships.
Across our footprint, we are investing in existing and new bancassurance partnerships. For example, we invested in a collaboration with one of the biggest Slovak banks, Slovenská sporiteľňa, and enhanced our collaboration with our broker, Partners Group SK. Both distribution partners will sell our pillar II and III pension products, and we are looking at expanding our product offering.
NN Bulgaria continued to develop its distribution capabilities in the bancassurance channel by further strengthening partnerships and expanding its product portfolio, which is currently distributed via five banking relationships. The distributed products vary from credit life and transactional protection products to mandatory and voluntary pension products.
Through disciplined capital allocation, we can both ensure our cash capital position and Solvency II ratios remain strong, and be in a position to invest in value-creating opportunities.
The bolt-on acquisition of Aegon’s life insurance business in the Czech Republic, and its life insurance and pension businesses in Slovakia have strengthened our position in the life insurance market, our distribution network in both countries, and our lead position in the Slovak pension market.
The support of our internal reinsurance business, NN Re, also contributed to disciplined capital allocation for our international businesses. Reinsurance deals guide a more efficient use of capital in Spain, Belgium and Japan; and pool risks towards NN Re to achieve greater purchasing power for NN Group.
With a focus on innovating our business and our industry, we are continuously trying to identify new customer segments and ways to create a more personal and relevant customer experience. In 2018, we set up a centre of excellence, the NN Data Science Hub, in order to strengthen our analytics capabilities and accelerate data-driven transformation. Analytics are used to improve processes throughout the value chain, from product development to marketing and sales, and from risk assessment and underwriting to claims management. For example in Spain, a pilot for a weather-alert system for home insurance customers was launched in collaboration with the NN Data Science Hub. When the official Spanish weather forecast website expects severe weather conditions, an alert is sent to NN customers so they can take appropriate measures to prevent damage to their home.
Having an agile, cost-efficient operating model is important to ensure Insurance International’s long-term growth. By simplifying our processes and removing administrative burdens we can lower costs, deliver better value for money, reduce time to market and increase customer responsiveness.
Cultivating the right innovation mindset is key to ensuring we deliver truly customeroriented solutions. Our six innovation labs, SparkLabs, work on fostering innovative ideas, identifying and exploring growth. For example, in Romania, the SparkLab team focuses on identifying promising products and services for the local market, such as insurance for cyclists, which is now being tested in various market segments. SparkLab Turkey integrated its systems with the market leader in online loan aggregation, Hesapkurdu.com, to offer insurance cover to customers who apply for a mortgage or consumer loan via the platform. The straight-through, no-hassle process lets customers bundle their loan applications with relevant insurance coverage and complete the entire process online, without leaving the aggregator website.
Protect.me In Hungary, a growing group of people want relevant and accessible digital services with zero entry thresholds. As a result, ecommerce and online banking are growing rapidly. These changing customer needs and trends make digitalisation a priority for NN Hungary. In response, we launched protect.me, an app-based life and accident insurance that covers risks related to recreational activities.
In the Czech Republic and Slovakia, we have been investing in a new digital customer engagement platform, NN Stela, which offers brokers real-time, individualised solutions on any device. This decreases processing time and improves the user experience. The next phase will be to migrate remaining distribution channels (tied agents and bancassurance partners) to the platform, to include pension products on Stela and to automate underwriting.
In 2018, Nationale-Nederlanden Spain was the most recommended life and savings insurer for the third consecutive year, according to a study conducted by GfK, and was also recognised as the Best Customer Service in the Life Insurance Category 2019. We launched a new modular insurance protection solution for families, Contigo Familia, that offers choice, flexibility and simplicity. Customers can adjust coverage based on their changing needs and circumstances. Contigo Familia offers a wide range of coverage and allows customers to enjoy additional health services, such as an app that provides unlimited, real-time access to chat with doctors and specialists.
Based on NN research that found that only a third of parents in Hungary have life insurance cover to provide for their children, NN Hungary launched a proposition for families with children that combines savings and protection elements. The product offers four types of optional cover for children: critical diseases, hospital stay, accidents and common childhood diseases.
Nationale-Nederlanden Poland received a license to sell non-life insurance in 2017. This important step allowed us to further develop our distribution channels by supplementing our offering. In 2018, we successfully launched new non-life products, such as a travel insurance product, a health expense coverage insurance for children, and home insurance.
In Romania, alongside the public pension system, private pension funds are seen as essential for managing savings for the future. However, the public system is under increasing pressure due to the current macroeconomic environment and an increasing State budget deficit. To support customers, NN Romania reduced fees for its mandatory private pension funds in April 2018. In December 2018, the government approved significant changes to the second pension pillar system. The impact of these changes is being closely studied by NN.
We actively integrate environmental, social and governance (ESG) criteria into our investment process and active ownership activities. In addition, we offer a variety of dedicated sustainable and impact investing products.
Solutions-driven with a distinctive identity NN Investment Partners helps clients achieve their financial goals by managing their assets responsibly, through income-driven products and advice-embedded solutions.
General progress in 2018 In 2018, we performed a thorough assessment of our investment capabilities, made clear choices, and are now focusing on our core areas. Our investment strategy focuses on distinctive, solutions-based capabilities, delivered by integrated teams that include analysts, client portfolio managers and next-generation researchers. We also invested in an innovation platform (a team of people dedicated to fostering and helping innovation happen), data scientists, Big and Alternative Data, and Automated Intelligence techniques to explore new potential sources of return.
Senior positions held by women 30 NN Group N.V. 2018 Annual Review
Our ambition is to further strengthen our organisation by making clear choices, focusing on distinctive capabilities, while embedding ESG factors throughout the entire investment process.
We further strengthened our Responsible Investment policy with norms-based criteria. As a result, we decided in May 2018 to exclude tobacco from all our investments. We aim to divest all equity and fixed income holdings of tobacco manufacturers held within NN IP mutual funds within one year. For client assets that are managed in a discretionary way, NN IP does not divest without prior consultation. With regards to NN Group’s general account assets, the existing tobacco investments are all corporate bonds and are divested immediately or brought to maturity.
In October 2018, we placed restrictions on companies involved in oil sands and controversial pipelines. In addition to NN’s own assets, these restrictions will apply to all funds managed on behalf of customers.
During 2018, we focused our efforts on becoming more efficient and adaptable. A key milestone was the completion of the legal merger and integration of Delta Lloyd Asset Management (DLAM), demonstrating our ability to scale up.
All DLAM portfolios were onboarded onto NN IP’s operating model and systems, and the majority of the old DLAM systems have been decommissioned.
NN IP was directly and indirectly affected by numerous regulatory changes. These included the Markets in Financial Instruments Directive II (MIFID II), with additional product supervision and transparency requirements for investment firms; and the General Data Protection Regulation (GDPR), which unifies data protection for all individuals within the EU. To integrate these new regimes into our ongoing business, we analysed all processes involving personal data; evaluated the regulation’s implications, particularly for our sales, investment, trading and distribution processes; and addressed any regulatory issues we identified.
We continue to invest in our company, both directly and via partnerships. We make clear choices on where we can both credibly and profitably innovate and strengthen capabilities, and best drive our growth to meet the interests of our clients.
We are currently making significant investments in data, technology and people to strengthen key capabilities and fund research & development. This includes investments in combining new techniques, such as machine learning and behavioural analysis, with more traditional portfolio analysis. This can give us greater insight into how a market’s ecology is evolving over time and how we can improve our decision-making processes.
An example of innovation to support our end-client is the risk-profiling tool with robo-matching module we launched in Poland. This tool measures risk propensity using insights and research into representative samples of the Polish population made available by a third-party financial institution.
To actively encourage an agile way of working, we redesigned our office environment into a more inspirational and flexible space that facilitates collaboration and experimentation.
A number of our operational manual activities, such as data checks and extracting data from applications, are being automated using robotic process automation. For example, our front office needed to download 7,300 files from a website: a repetitive task that would have taken an employee around six weeks to complete. It took a robot just three days.
We monitor the impact of technological developments on our business and employees, and will continue to act in line with our business principles.
We aim to develop the right skills, and employ the right combination of man, machine and behavioural analysis, to improve our decision-making processes and make a difference.
Similarly, in 2018 Nomura Asset Management became delegated portfolio manager for our Asia Income and Greater China Funds.
While new technologies are transforming our business, asset management is still mainly driven by human brainpower. Technology may help us make better decisions, but it takes human creativity to make the connections needed to thrive in such a competitive and increasingly unpredictable environment.
As an investment company with a global perspective, we believe a diverse workforce provides variety in thought, skills and experience, and better equips us for whatever the future may bring.
How does an engagement trajectory work? ‘We take our stewardship responsibility seriously,’ says Satish. ‘So, we encourage companies to strengthen their approach to ESG issues. To influence their behaviour, we may engage with a company individually on a specific ESG issue, or join forces with other investors. Our collaborative engagements usually take a thematic approach. For instance, we are a member of the PRIcoordinated collaborative engagement on palm oil, and we are leading the engagement with three major chemical companies to help address climate change through the global investor initiative, Climate Action 100+.’
What guides you in deciding to engage or exclude? ‘Sometimes engagement with a sector is clearly having no positive impact on how companies run their business,’ explains Satish. ‘For example, in early 2018 we concluded that engagement with the tobacco industry wasn’t going to lead to any fundamental changes.’
Dailah concurs. ‘As a company, we attach great value to health and vitality. We simply do not believe it is possible to use tobacco products responsibly. What’s more, the health costs of tobacco are an economic burden on society. This type of decision is certainly not taken overnight. Decisions to exclude are made carefully, and with the involvement of relevant stakeholders. In October, we also decided to exclude oil sands. Climate change presents a risk to our investments, but can also offer opportunities if business models are adjusted in time. Though our preferred approach is to engage with companies to support them in the transition to a low-carbon economy, we also want to direct our efforts towards those sectors where we believe we can potentially add most value.’
‘To ensure we develop and maintain the in-house knowledge to discuss these cases,’ says Dailah, ‘we regularly meet with various stakeholders to discuss sustainability issues and ESG factors. Aside from discussions around investment decisions, the topic also comes up in other contexts. For example, when recruiting talent, talking with our investors or meeting with shareholders at our Annual General Meeting.’
When it comes to environmental, social and governance (ESG) issues, NN Group believes that engaging with companies is the best way to encourage them to improve their conduct. But if this does not lead to positive results, exclusion is also an option.
‘We manage EUR 246 billion in assets for our customers and consider ESG analyses throughout the investment process,’ explains Satish. ‘But such factors are not static. They are based on insights into ESG policies and the behaviour of companies, derived from both independent research agencies, as well as our own research and materiality assessments. We invest in many different sectors and have developed our own vision on social and environmental issues, which also takes into account evolving stakeholder expectations.’
‘It is important to us that any investment is in line with the NN values (care, clear, commit),’ says Dailah. ‘These values express how we want to contribute to the economic and social well-being of the world in which we operate. We actively engage with NGOs, who share and discuss their insights and concerns with us, which provides us with invaluable input.’
Creating value for our customers To meet our customers’ needs, we aim to deliver value-adding products and services for every stage of their lives. For example, through life insurance products that protect people against the financial risk of a long life without sufficient means of support, or dying at an early age; through non-life products that protect their valued assets; through our banking businesses helping customers save money and buy a home; and, as an asset manager, by offering savings and investment products that help ensure people’s longterm income.
To ensure they are transparent and serve the customer’s interests, all our products undergo a careful product approval and review process (PARP) before we introduce or adapt them.
Customer satisfaction and our brand To measure how our customers value our products and services, we use the Net Promoter Score (NPS). NPS allows us to collect, evaluate and act on a continuous stream of customer feedback, so we can drive improvements in our product portfolio and customer service.
To track how our brand is perceived externally we use the NN Global Brand Health Monitor (GBHM). At least twice a year, we measure key brand indicators and obtain insights into NN’s brand performance and development. Aided brand awareness improved significantly in Belgium and Poland. In all other markets aided brand awareness remained at the same level, except for Hungary.
• Increase the number of products and services with social and environmental added value¹
How we performed in 2018 • Our customers do recognise us as the ‘You matter’ company. Recognition increased in 4 out of 12 markets
We want to empower customers to make the right financial decisions in life. By providing products, services and tools that are easy to understand, transparent and offer fair value.
We measure the NPS-r to assess the strength of our relationship with customers. This score provides a high-level understanding of customer satisfaction levels regarding our products and services over a long-term period. The sample base in the GBHM consists of NN customers who did not necessarily have contact with NN. This is therefore a different NPS metric than the NPS reported in the Delivering on our strategy – Netherlands chapter. We measure the NN NPS-r score for the individual business units.
Green lifecycle BeFrank, NN’s premium pension institution (PPI) in the Netherlands, offers a special ‘green’ lifecycle with sustainable funds of Triodos Investment Management. For pension scheme members in this lifecycle, BeFrank introduced a Sustainable Impact Dashboard: an overview of the environmental impact of their pension capital. The impact is shown on the basis of three pillars: waste production, water consumption and CO2 emissions.
As at 31 December 2018, the portfolios of Dutch insurance subsidiaries of NN Group comprised approximately 450,000 active policies. In a limited number of cases (less than 1,000), Dutch insurance subsidiaries of NN Group have settled disputes with individual customers. These are tailormade solutions.
A limited number of individual customers and several consumer protection organisations have initiated legal proceedings against Dutch insurance subsidiaries of NN Group. Read more on pages 121-123 of the Financial Report (note 42).
NN is a member of the Creditors Coalition (Schuldeiserscoalitie), where creditors cooperate to find solutions to the increasing problem of payment arrears and debts. As a coalition partner, NN promises to adhere to ten principles that prescribe an ethical way of approaching customers.
To get closer to our customers and further improve our products, we are continuously exploring new forms of collaboration that can help transform our business.
A continuing focus for our Human Resources department is to assist those employees whose jobs are affected. The Outplacement Centre helps employees who have been made redundant. Of those who chose ‘from job to job’ support in 2018, approximately 70% were successfully placed within the provided timeframe.
We want our colleagues to thrive. By providing a stimulating, diverse work environment, we give them the opportunities they need to develop their skills and fulfil their potential.
For International Insurance, we are supporting leaders with adaptive leadership sessions. In 2018, we invested in workshops on five themes aimed at improving the management of leadership challenges. These efforts will continue in 2019, including in the Netherlands.
Building a culture of performance and development In 2016, we piloted an adjusted performance management cycle, with additional pilots in 2017 in the Netherlands and Poland. In 2018, we reviewed the findings from the pilot groups and implemented quarterly reviews across the company to stimulate a more continuous dialogue. The pilot group found that more frequent dialogue led to higher engagement and employees taking greater ownership of their performance.
To offer our people unique learning opportunities and help them build valuable networks, we offer long- and shortterm internal assignments, within other departments or businesses. Job rotation schemes provide additional opportunities to explore new career paths.
Digitalisation We continue to digitalise HR processes and systems across the company and are exploring how best to use data for decision-making. We already use robotic process automation (RPA) to make processes more efficient. Last year, we used seven robotic processes to automate our onboarding. By experimenting with and testing new processes in the Netherlands before they are rolled-out internationally, we aim to create a smoother experience for our colleagues.
Our commitment to ensuring the security of our data extends to our colleagues. The General Data Protection Regulation (GDPR) was implemented for our HR systems in Europe, and all employees were required to complete an e-learning on the GDPR.
Enhancing onboarding In 2018, we introduced an onboarding app in the Netherlands, previously used for NN Investment Partners (NN IP) globally and Delta Lloyd, which was developed to improve the onboarding experience of new internal and external employees.
The My Onboarding app provides information to new employees before they start at NN on our work environment and values. NN Netherlands has exchanged best practices with NN Poland, who also introduced an onboarding app, to improve both applications. We are also exploring the possibility of using the app in other countries.
NN WE is our internal network that promotes diversity and inclusion. During NN Values week in the Netherlands, NN WE held an event on diversity that examined how employees can align their personal values with the NN values of care, clear, commit. NN also participated in the 2018 Rotterdam Pride Walk. Read more on Values week on pages 53-54.
TEDxAmsterdamWomen, part of the global TEDxWomen conference, provided a stage for inspiring women under the theme ‘Bridging the Gap’. The conference focused on the unique way in which women contribute to shaping the future. In addition to sponsoring the event, NN offered mentoring to two of the event’s speakers.
Female leadership NN Group is committed to promoting female leadership, including through facilitating awareness discussions and training sessions. We have also set targets: our aim is for a minimum of 50% of new recruits to management roles and 30% to senior leadership positions to be female. In 2018, 33% of our senior leaders and two out of four appointments to the NN Group Management Board were women.
In 2018, we completed an analysis on equal pay. We identified that discrepancies in equal pay are limited, but we see room for improvement in certain areas. In the Netherlands, for example, we found that men have a longer tenure, leading to a relatively higher position on salary scales. We do see, however, that women – who represent 48% of our workforce – are on the rise throughout our businesses. This is also reflected in the representation at senior levels. Equal pay is a recurrent topic on the agenda of the Management Board and Supervisory Board.
Where traditionally traineeships and entry-level jobs at large corporates were attractive and popular amongst talented graduates, many large corporates must now reinvent themselves to attract these in-demand (digital) talents. More than ever, young talents are considering starting their career at a startup or scaleup, or as an entrepreneur.
In addition, research shows that many young talents are looking for meaningful work. They highly value companies that put an emphasis on sustainability and have a social mission. They care about the impact of their work and want to know how a company’s products and services impact society. This also creates opportunities: where previously young startups and large corporates were cautious about interacting with each other, today we see many such partnerships and collaborations taking place. At NN we understand the importance of collaborating with and supporting startups. We do so through various partnerships as well as through our innovation labs, known as SparkLabs.
In 2018, negotiations started for a single, integrated collective labour agreement (CLA) for NN and former Delta Lloyd employees in the Netherlands. The results of the CLA negotiations were announced in December and subsequently voted on in January 2019. As a majority of the trade union members did not vote for the proposed CLA, the Delta Lloyd CLA still applies and the NN CLA remains in force.
I feel I am given enough freedom to decide how to do my work
The interactive Peakon platform provides greater insights and more advanced analytics, and allows for more frequent measurements. Managers received a results dashboard one week after the survey, compared with four to six weeks previously. Employees can leave anonymous comments, encouraging frank feedback. More than 50,000 comments were made during the global survey, leading to useful insights, context and background.
Major shareholders According to the AFM register as at 12 March 2019, the following shareholders have an interest of 3% or more in NN Group on the notification date1: BlackRock, Inc. (3.89% – 19 June 2018), APG Asset Management N.V. (3.00% – 2 August 2017), RRJ Capital II Ltd. (9.60% – 23 May 2017), and Franklin Mutual Series Fund Inc. (3.87% – 27 May 2015).
Listing NN Group ordinary shares are listed and traded on Euronext Amsterdam under the symbol NN.
• Over time, generate free cash available to shareholders in a range around the net operating result of the ongoing business4
2 In total for the following units: Netherlands Life, Netherlands Non-life, Belgium, Asset Management, Banking business, and Corporate/Holding entities.
3 Annual growth rate of operating result before tax of the ongoing business on average in the medium term; based on 2017 operating result.
In February 2019, NN Group announced that it would execute an open market share buyback programme for an amount up to EUR 500 million over 12 months, which commenced on 1 March 2019. NN Group intends to cancel all of the shares acquired under the programme. NN Group will report on the progress of the share buyback programme on a weekly basis on its corporate website: www.nn-group.com.
Warrant agreement The warrant agreement entered into between NN Group and ING Group on 10 June 2014 was terminated on 15 November 2018 for a consideration of EUR 76 million. This transaction eliminated potential share dilution.
Credit ratings On 6 June 2018, Standard & Poor’s published a report confirming NN Group’s ‘A’ financial strength rating and ‘BBB+’ credit rating with a stable outlook. On 20 June 2018, Fitch confirmed NN Group’s ‘A+’ financial strength rating and ‘A’ credit rating with a stable outlook.
ESG ratings In the area of sustainability, we are rated by specialised research agencies and included in indices, such as the Dow Jones Sustainability index. Read more on page 70.
Diverse shareholder base IHS Markit shareholder analysis at 31 January 2019 (%)
We have an open and constructive dialogue with the investment community with the aim of providing a full and clear understanding of NN Group to the market, and at the same time receiving valuable feedback from our shareholders and bondholders.
Responsible investment NN Group’s Responsible Investment (RI) Framework policy sets out our responsible investment vision and approach: we integrate environmental, social and governance (ESG) factors into our investment processes and ownership practices; we prefer inclusion backed by active ownership to exclusion, but also have restrictions; our asset manager offers a range of sustainable and impact investment strategies.
Supporting ESG integration In 2018, NN Group revised its RI Framework policy. Norms-based criteria were introduced reflecting our investment beliefs and values, relevant laws, and internationally-recognised norms and standards. These criteria guide the investment process across NN Group.
We apply an engagement-led divestment approach. This means restriction is chosen only when we feel engagement cannot change a company’s conduct or involvement in specific activities. Responsibility for assessing whether an issuer fails to meet our norms-based criteria lies with the ESG Committee of NN Investment Partners (NN IP), who are advised by the newly installed NN IP Controversy & Engagement Council. In 2018, this council met 6 times and discussed 69 individual cases.
The revision of our policy led to restrictions in two areas. First, we decided to exclude tobacco from all our investments, as we believe engagement with the tobacco sector is unlikely to solve any issues or improve the impact of tobacco use. Second, we placed restrictions on companies whose business models are dependent on the extraction of oil sands, including pipeline operators involved in oil sands transportation projects that are in dispute and where we do not expect engagement to achieve the desired results. All restricted companies have been put on our publicly available exclusion list.
• Reach out to at least 100,000 young people through NN Future Matters programme; help 11,625 households out of poverty and debt
How we performed in 2018 • Revised RI Framework policy, including broadening of exclusionary criteria
• Strong (+53%) increase in our AuM in sustainable and impact funds and mandates to EUR 16.5 billion
We want to have a positive impact on society, by investing our assets responsibly, managing our direct environmental footprint, and through our activities in the communities where we operate.
Influencing companies to take responsibility Voting is one of the most powerful tools of active ownership and we therefore vote at shareholder meetings (AGMs) on behalf of our own and our clients’ assets. We have separate voting committees in place for the different asset types, and publish our voting record on a special website. Some of the voting is outsourced to a proxy service provider, who votes by following our proxy voting guidelines. We monitor these outsourced activities and always make voting decisions internally on a case-by-case basis for our own assets, companies on our engagement list or NN IP sustainable funds.
During 2018, NN IP voted at 2,118 AGMs on 26,839 agenda items. The increase in voting activity compared with last year reflects the addition of Delta Lloyd funds and assets. We cast more votes against management proposals, which was in part the result of our greater emphasis on climate change. NN IP voted against the election of board members where companies in carbonintensive industries do not disclose their carbon emissions. At several AGMs we also asked the board to commit to the Climate Action 100+ programme. This is a collective engagement effort by investors with over USD 32 trillion AuM, which NN IP joined in 2018 to urge companies in the chemicals sector to take action on climate change.
In addition, we supported a large number of shareholder resolutions linked to social and environmental topics (73% and 95%, respectively). An example of a resolution which we supported is at the AGM of Royal Dutch Shell (Shell).
We also extended our collaboration with the service provider; GES, who carried out engagements with 119 companies, focusing on compliance with internationally recognised conventions and guidelines on ESG issues.
In 2018, NN IP concluded a three-year engagement with 20 companies in the power utility sector. Aided by GES, we encouraged best practice in managing carbon emissions and climate risk. During the engagement period, there were overall improvements in the companies’ proactive stance on climate issues and especially in their reporting of greenhouse gas emissions. Several of the Asian companies showed increasing interest during the final year of engagement, partly reflecting growing regulatory reporting requirements and government pension fund demands. There was also progress on emissions reduction targets and action plans, as companies are being increasingly evaluated on their adherence to sciencebased targets or similar disclosure. However, results remained unchanged in areas such as risk assessment and mitigation strategies for over half of the engagement companies. We are currently defining steps for follow-up and further engagement.
In an effort to ensure consistency in its engagement efforts, in 2018 NN IP carried out an analysis of 49 companies in the Oil & Gas sector globally, and found significant variation in the level of detail they disclose on their activities and the associated climate change risks. European Oil & Gas giants, for example, are far more transparent about the integration of climaterelated risk into their models than their American counterparts, and Oil & Gas companies in emerging markets appear even more reluctant to publish details. To try to address these inconsistencies between companies, NN IP developed engagement targets that expect all companies in the Oil & Gas sector to develop a clearly outlined transition plan (for more details, please see NN IP’s publication ESG Perspective – The risks of climate change in the Oil and Gas Sector, November 2018).
Making a positive impact through our investments NN IP offers a wide range of sustainable and impact investing strategies to meet customers’ growing demand for products that both have a positive impact on society and the environment, and generate solid financial returns. Total AuM in our sustainable and impact investing products grew by 53% to EUR 16.5 billion at yearend 2018. This increase was helped by the addition of the Belgian Star Fund and the NN-FMO Emerging Markets Loans Fund, as well as the merging of Delta Lloyd funds with NN sustainable funds.
In 2018, NN Group committed to helping Dutch municipalities to make public-use real estate, such as schools and town halls more energy efficient. Read more on our cooperation with Bewust Investeren BV and BNG Bank on page 51. Other investments aligned with the SDGs include NN’s investment in the NN-FMO Emerging Markets Loan Funds as well as a private equity fund focused on investing in the areas of resource efficiency and pollution control in Europe. Each fund will measure the contribution to the SDGs using its own impact methodologies.
Finally, we continue to invest in increasing the energy-efficiency of our private real estate assets, using the Global Real Estate Sustainability Benchmark (GRESB) as the primary tool to evaluate our progress. In the 2018 assessment, NN’s portfolio of funds, joint ventures and directly-owned buildings improved its score for the fourth consecutive year, scoring 80 out of 100, well above the benchmark of 66 for European private real estate.
The results so far Several companies have shown a commitment to sustainability and most have now established a detailed policy. For example, one company has implemented a sustainability policy, in which they included no deforestation, no peat, no exploitation (NDPE) conditions and an assessment of high conservation value (HCV) areas, that commits them not to develop these. We will monitor the implementation of the policy. For many retailers, growers and traders, implementation of their policies and improving transparency will be the next challenges.
Sustainable supplier management With an annual spend of around EUR 1 billion, our procurement activities support our business strategy. A substantial part of this investment goes towards professional services, IT, real estate and facility management. Our relationship with suppliers is based on our NN values, and we aim to work together in a mutually beneficial way. We have the supplier qualification process and governance in place for managing social, environmental and financial aspects of the procurement process.
Managing our direct environmental footprint In 2018, we continued to manage our direct environmental footprint by efficient use of natural resources, and identifying and implementing green alternatives. By purchasing voluntary carbon credits to compensate our CO2 emissions, we have been carbon neutral since 2007. However, we also aim to reduce our carbon emissions from direct operations (energy consumption on NN sites and business travel) by 3% per year. Our carbon emissions decreased by 8% and we purchased 66% of our electricity from renewable resources (our goal is at least 70%).
We continued to improve our environmental performance regarding office buildings. We encourage less paper consumption and waste in our offices by recycling materials and reducing use of plastic. In our headquarters in The Hague, we highlighted the issues around single-use plastics. Circular projects in the Netherlands included a focus during refurbishments on working towards zero waste and using materials that can be upcycled. We were also a launching partner of Plastic Whale Circular Furniture. This is a collection of high-end office furniture made from plastic collected from Amsterdam’s canals.
Responsible tax strategy We believe that a responsible approach to tax is an essential part of good citizenship. The planning of our tax position is consistent with our business operations, reflects our corporate strategy and takes into account relevant international guidelines, such as the OECD Guidelines for Multinational Enterprises. Being a responsible taxpayer also means that our tax planning takes long-term considerations into account and carefully weighs all stakeholder interests. We have a set of tax principles to which we adhere and communicate publicly on our website through our ‘Tax Strategy and Principles’ and the ‘NN Group Tax Charter’.
Within NN, we aim to create tax awareness via the intranet, on which we share information and developments on taxation. Group Tax also organises internal trainings and courses for senior leaders and business units on different tax areas, i.e. V.A.T., wage tax, Transfer Pricing and corporate income tax. NN shares its tax strategy with stakeholders, including the tax authorities, with whom we seek to maintain good, open working relations. In the Netherlands, these are based on the ‘horizontal monitoring’ principle.
We also engage in dialogues with other stakeholders on taxation. For example, in April 2018, NN spoke at a roundtable organised by the Ministry of Finance on tax avoidance and evasion. NN supports the Dutch government’s approach towards this issue. We believe it is important that profits are taxed against a socially accepted tariff, where those profits are realised. This is in line with one of the key principles of NN’s taxation policy: we structure our tax affairs based on a business rationale. This means we do not make use of tax havens or taxavoiding structures. Another key principle
NN Future Matters focuses efforts, resources and expertise on three complementary target areas: promoting financial empowerment, creating economic opportunities and alleviating financial distress. These themes align with both our purpose and our employees’ knowledge and expertise, and have a proven positive impact on communities. By involving international and local partners, the programme aims to be both globally consistent and locally relevant.
Promoting financial empowerment Sound financial knowledge helps people move towards a secure financial future. Our initiatives focus on the young, as responsible financial behaviour is often best developed at an early age.
Creating economic opportunities Helping young people develop useful skills increases their labour market opportunities. In collaboration with Dutch not-for-profit organisation JINC, NN colleagues provide job training to young people who may lack specific role models or supportive networks. Through Stichting FutureNL, we joined Expedition micro:bit to help familiarise students with coding and programming, increasingly important skills in today’s job market. NN Group made a financial contribution and 58 NN volunteers gave talks at 33 schools.
From Debt to Opportunities Since 2018, the From Debt to Opportunities Foundation has been part of NN Group’s Future Matters programme. With 30 local not-for-profit partners, the foundation helps the 1-in-5 Dutch households with structural debt problems to acquire the financial skills to escape poverty and debt, and achieve sustainable financial security.
I learned so many things that I would like to implement to my family business – like the importance of longterm perspective, and social and environmental responsibility, but also the importance of the visual presentation of your business.
NN Life Japan also organised a study tour to the Netherlands for three students: the potential successors of an egg farm, a construction & packaging business, and a golf course company. The tour inspired the students by showing them new business perspectives and environments. They also learned about sustainability, branding and design thinking.
In 2018, in partnership with the LINDA. foundation, which helps Dutch families in financial distress, we organised several fundraising initiatives with colleagues and suppliers.
Meeting the succession challenge 49 NN Group N.V. 2018 Annual Review
How we identified our impact areas In dialogue with both internal and external stakeholders, NN Group has chosen to focus on Sustainable Development Goals (SDGs) where the company has the biggest impact: SDG 8 (Decent work and economic growth) and SDG 12 (Responsible consumption and production).
Stakeholder dialogues In 2018, we held a number of stakeholder dialogues on the SDGs. We provided input to the Dutch Central Bank (DNB) through a survey and an expert session. This resulted in a DNB report on sustainability risks and goals in the Dutch financial sector. Furthermore, during NN’s International Leadership Conference in December 2018, a workshop was organised in which we discussed how NN can further contribute to the SDGs, and how we can measure progress and set targets.
Going forward, we aim to sharpen our strategy by focusing on three themes: Inclusive Economy, Sustainable Planet, and Healthy and Secure Living. We realise that not all our activities only contribute positively, as we are for example still involved in activities that generate carbon emissions. We intend to improve our performance and the way we measure our progress on an annual basis.
The Sustainable Development Goals address the world’s largest societal challenges, such as poverty, climate change, health care and education. We believe that the public and private sector should work together to help achieve these goals.
SDG Impact and opportunity Performance in 2018 Impact through job creation, procurement activities and community investment
• Employee engagement: 7.1 (up 0.1 point) • EUR 16.5 billion in AuM in sustainable and impact funds and mandates, an increase of 53% • 38,536 young people reached through NN Future Matters
Impact and opportunities through reduction of our direct carbon footprint and integration of ESG factors in investments
• Reducing our CO2 emissions per FTE by 6% and purchasing 66% electricity from renewable resources in 2018
Impact through our insurance products • Seven countries providing products and services with social added value that promote good health and well-being for customers
Investing in the SDGs Finance and the financial sector have an important societal function, steering funds towards the most productive investments, including societal costs and benefits. Willem Schramade, Senior Portfolio Manager Impact Investing at NN IP, explains: ‘The most interesting SDGs to invest in are those where corporates have most transformational potential, and can make a real difference. For example, leading companies invent new health solutions, boost the transition to renewable energy and provide breakthrough innovations and sustainable products & services.’ In order to measure investee companies’ contributions to the SDGs, NN IP has adopted a method of tagging companies’ contributions with plusses (where it seems significantly positive), zeros (where it seems insignificant), and minuses (where it seems significantly negative).
Improving energy efficiency of real estate In 2018, NN Group committed to helping Dutch municipalities to make public-use real estate, such as schools and town halls more energy efficient. Together with Bewust Investeren BV and BNG Bank, NN IP developed a special financing proposition, whereby a foundation set up within the municipality can purchase a building and pay to make it more sustainable. After 30 years, ownership of the building will revert back to the municipality. BNG Bank and NN Group have together made EUR 300 million in funding available over the next two years. The intention is to measure progress against impact KPIs that will be developed in cooperation with Dutch academic institutions and linked to the SDGs.
Creating and sharing value – Sustainable Development Goals continued 51 NN Group N.V. 2018 Annual Review
The Living our Values programme was launched in 2014 to encourage and support employees in applying the values in their daily work. Read more on our values and what they mean to NN in the NN statement of Living our Values on the Group website.
Values week across the world In October 2018, we held our third annual NN Values week across 12 countries. The week is an opportunity to reflect on and discuss the values, and address dilemmas people may face in their day-to-day work.
We act with integrity and do business with the future in mind
Greece, Spain and Turkey hosted townhalls and discussion sessions with senior leaders on the values. Japan organised a values week café and displayed colleagues’ messages about themselves and the company’s values on walls. Hungary organised dilemma sessions. In Bulgaria and Greece, there were volunteering and charity initiatives. The Czech Republic organised a Fit Day, and health was also a theme in Poland. Bulgaria, the Czech Republic, Poland, Romania and Spain all organised activities designed to help them become even more closely connected to their customers.
Values and the Delta Lloyd integration Various initiatives, such as an interactive values dialogue session, were launched in 2018 to help us ensure the NN values form the foundation for the culture of the combined company in the Netherlands and Belgium. Surveys showed that awareness of the NN values amongst Delta Lloyd colleagues continued to rise: from 71% in July 2017 to 76% in October 2017 and 84% in March 2018.
Recruitment To ensure we hire people who feel at home at NN, we have made the values an integral part of our employee value proposition. A personality/culture matching tool is available on the recruitment website so candidates can assess how much their personality and values match NN’s culture and values. For our NN traineeship programme, we use a special tool to look for traits in candidates that correspond with our values.
Feedback Our annual employee engagement survey gives employees an opportunity to express their opinions on various topics, including the extent to which we are living our values.
In 2018 we introduced a new version of this survey. In addition to questions around the values themselves (see chart below) the survey now also focuses on how connected people feel to our values. This produced a 7.8 Peakon score. Read more on the Peakon scores on page 41.
As part of our engagement survey, we asked colleagues how they feel their managers behave when it comes to living our values. The scores for the Peakon survey statements ‘I feel encouraged by my manager to meet our high standard of integrity’ (7.9) and ‘My manager consistently acts as a role model when it comes to living our NN values (care, clear, commit)’ (7.7) were both the same as in 2017.
Stimulating open dialogue The Management Board plays an active role in the Living our Values programme and in stimulating an open dialogue. For example, in 2018, all Management Board members participated in Walk & Talk sessions, where they discussed a topic raised by colleagues during an informal walk. We published an internal video of these walks. Hungary also used the format for their local Values week.
Values week in the Netherlands In the Netherlands, the Dutch business units, NN IP and all staff functions joined forces to organise the Values week, during which 715 employees were involved in some 50 activities across 7 office locations. Colleagues were encouraged to reflect on what we stand for as a company across a broad variety of themes including mental health, innovative thinking, the ethics of robotics, change management, coping with debt, responsible investing and the circular economy. A survey found that 81% of participants in the Netherlands felt the Values week provided a good opportunity to reflect on our values (2017: 74 %), 70% felt it stimulated discussion (2017: 57 %) and 98% would encourage colleagues to join the next Values Week (2017: 95%). Suggestions for improvements were also collected for the next edition.
Clear: On our team we are ready to approach and communicate proactively and honestly
Commit: In our team we take responsibility for our actions and deliver on our promises 54 NN Group N.V. 2018 Annual Review
Customer and general public perceptions are measured through the Global Brand Health Monitor (GBHM), and employee perceptions through Peakon.
An example of where we feel we can improve is the statement in the Peakon survey ‘In our team, we openly discuss consistency of our actions with NN values’, which scored a relatively low 7.3.
Written acknowledgement of the NN Code of Conduct has been mandatory in several businesses for a number of years, and became mandatory for employees of NN in 2017. In October 2018, NN reached an acknowledgement score of nearly 100% for internal NN staff, including former Delta Lloyd employees, who were asked to acknowledge the NN Code of Conduct as of May 2018. During 2018, we also increased acknowledgement amongst external staff.
In line with the Dutch Corporate Governance Code, the NN Group Management Board is responsible for creating a culture aimed at long-term value creation. NN’s focus on longterm value creation is reflected in the Charters of our Executive Board and Management Board, and embedded in the NN statement of Living our Values, which emphasises the importance of doing business with the future in mind. It states, amongst other things, that we ‘respect each other and the world we live in’, ‘value long-term objectives over shortterm gains’ and ‘carefully balance the interests of our stakeholders’. Read more in the corporate governance section on our corporate website.
NN Group uses a model (see diagram) consisting of eight Conduct Drivers: Clarity, Role modelling, Commitment, Achievability, Transparency, Open dialogue, Calling someone to account and Enforcement. Some Conduct Drivers are preventative (help prevent undesirable behaviour), some are detective (help identify undesirable behaviour) and some are responsive (help ensure an adequate response when undesirable behaviour occurs). Conduct Drivers can be used to underpin hard controls within the control framework, thus strengthening the overall internal control of risks at NN.
In 2018, we introduced the Conduct Drivers Methodology, and provided training to local teams with additional tooling.
In 2019, we will develop and roll out an online Conduct Drivers tool, with which we can measure the impact of the Conduct Drivers. We will use the first results to get baseline figures and thereafter use the tool for ongoing relative measurement of conduct within business units. With the results, we aim to support management in influencing behaviour and addressing key improvement areas.
All local business units have a target to roll out the methodology and use the supporting online tool during 2019.
To strengthen the effectiveness of the Risk control framework, NN also promotes a strong risk culture. With this in mind, in the fourth quarter of 2018, an improved methodology for assessing our risk culture, and discussing outcomes in a structured and constructive manner was rolled out to all business units for implementation in the first quarter of 2019. The methodology will provide insights into the degree to which colleagues live our values, know and understand the conduct-related policies and standards, and adhere to the related processes.
NN Group N.V. (NN Group) is a public limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands. NN Group has a two-tier board structure consisting of an Executive Board and a Supervisory Board. NN Group also has a Management Board.
Dutch Corporate Governance Code NN Group is subject to the Dutch Corporate Governance Code (the Code). The application of the Code by NN Group during the financial year 2018 is described in the publication Application of the Dutch Corporate Governance Code by NN Group, dated 13 March 2019, which is available on the website of NN Group. This publication is to be read in conjunction with the Corporate governance chapter on pages 21-31 of the Financial Report.
NN Group Compliance Charter & Framework NN Group is committed to upholding its reputation and integrity through compliance with applicable laws, regulations and ethical standards in each of the markets in which the company operates. All employees are expected to adhere to these laws, regulations and ethical standards, and management is responsible for ensuring such compliance. Compliance is therefore an essential ingredient or good corporate governance. The purpose of the NN Group Compliance Charter and Framework is to help businesses effectively manage their compliance risks. This document is available for download on the NN Group corporate website.
The Supervisory Board is responsible for supervising the management of the Executive Board and the general course of affairs of NN Group and its businesses. The Supervisory Board also assists the Executive Board with advice.
The Management Board is entrusted with the day-to-day management and overall strategic direction of NN Group. In August 2018, we announced a new composition of the Management Board, focused on driving the long-term strategy of the company.
Management Board members stepped down 1. Lard Friese 2. Delfin Rueda 3. Satish Bapat 4. Tjeerd Bosklopper 5. Jan-Hendrik Erasmus 6. David Knibbe 7. Dailah Nihot 8. Fabian Rupprecht 9. Janet Stuijt 58 NN Group N.V. 2018 Annual Review
5. Jan-Hendrik Erasmus (1980) Chief Risk Officer Appointed: 2016 Nationality: South African and British Jan-Hendrik Erasmus was appointed member of the Management Board of NN Group on 1 September 2016 and as Chief Risk Officer (CRO) of NN Group on 1 October 2016. He is also responsible for Reinsurance and Procurement globally.
7. Dailah Nihot (1973) Chief Organisation & Corporate Relations Appointed: 2018 Nationality: Dutch Dailah Nihot was appointed as Chief Organisation & Corporate Relations and member of the Management Board of NN Group on 1 September 2018. She is responsible for NN Group’s overall corporate relations, sustainability, branding, public affairs, human resources and facility management functions.
8. Fabian Rupprecht (1969) Chief Executive Officer International Insurance Appointed: 2018 Nationality: Swiss and German Fabian Rupprecht was appointed as CEO of International Insurance and member of the Management Board of NN Group on 1 September 2018. He is responsible for NN’s Insurance Europe, Japan Life, and Japan Closed Block VA businesses.
Dorothee van Vredenburch (1964) Chief Change and Organisation Stepped down: 1 October 2018 Nationality: Dutch Dorothee van Vredenburch was appointed to the Management Board of NN Group as Chief Change and Organisation (CCO) on 7 July 2014. She joined the company in 2009 as managing director of Corporate Communications and Affairs of ING Group. As of 1 October 2018, she pursues her career outside of the company.
We see this as a vital part of our efforts to earn the trust and support of stakeholders, and of our duty as a socially-responsible and engaged company. NN Group identifies stakeholders based on their potential to influence or be influenced by our business. Important stakeholder groups are customers, employees, investors, business partners and society, including regulators and societal organisations. We seek feedback from these groups on key topics so that we know what issues they find important. This feedback helps us align our business interests with the needs and expectations of relevant stakeholder groups, and is a key source of information for strategy development and decisionmaking processes.
Our dialogue with stakeholders takes many forms: day-to-day interactions and regular feedback sessions with customers on our products and services; roundtable sessions with policymakers, academics and peers; works council meetings and continued dialogue with our employees; regular bilateral contact with regulatory bodies, government agencies and other organisations (including non-governmental agencies, trade unions and industry organisations); and briefing sessions and roadshows for journalists, analysts and investors.
International Corporate Social Responsibility (ICSR) sector covenant In July 2018, the Dutch insurance sector, six NGOs, the largest labour union, and the Ministries of Finance and Foreign Trade & Development Cooperation signed the International Corporate Social Responsibility (ICSR) covenant for the insurance sector. This agreement aims to ensure that investments made by Dutch insurers identify and improve environmental, social and governance (ESG) issues. Investing some EUR 500 billion in companies, governments and countries, the Dutch insurance sector has since 2012 been operating according to the ‘Code for Sustainable Investing’ of the Dutch Association for Insurers. The ICSR covenant is a broader and more ambitious agreement designed to contribute to further improvements on ESG themes.
The ICSR covenant has a term of five years and the fulfilment of the agreements will be monitored by an independent Monitoring Committee. A Steering Committee (of which NN Group is a member, and is together with the Dutch Association of Insurers representing the insurance sector) and various working groups have also been installed.
At NN, we further refined our Responsible Investment (RI) Framework policy in 2018. This included adding norms-based responsible investment criteria, and putting restrictions on tobacco producers and companies involved in oil sands and controversial pipelines. Read more on pages 44-45.
NN also engaged with issuers in order to address ESG risks and support their transition to a more sustainable economy. Read more on pages 45-46 and in NN IP’s Responsible Investing report 2018.
Our NN Group Human Rights Statement serves as an umbrella document and relates to various policies, such as our Human Capital Policy and RI Framework policy. To provide our stakeholders with more insight and to guide our analysts in their assessment, we published a Guidance paper on human rights in 2017. The anticipated Guidance paper on labour rights will be published in 2019 instead of 2018.
Economic and financial market developments, risks assessments, regulation, ICSR sector covenant, sustainable finance
The Executive Board’s responsibilities also include the formulation of the company’s strategy in line with its view on long-term value creation. Non-financial aspects relevant to the company, such as environmental, social and governance (ESG) matters, are taken into account. The Supervisory Board supervises the policy pursued by the Executive Board, whilst the Management Board is entrusted with the day-to-day management and the overall strategic direction of our company. These responsibilities are laid out in the charters of these Boards as published on our corporate website.
At NN IP, the executive team provides strategic direction and oversees the implementation of the RI Framework policy in the investment processes. The executive team receives input from NN IP’s ESG Committee. The committee is chaired by the Chief Investment Officer (CIO) of NN IP and comprises the Responsible Investment team and senior representatives from NN IP’s various business segments, as well as the CIO of NN Group and representatives of Corporate Citizenship.
To support the investment teams in the integration of ESG within the investment process, and to further drive the development of responsible investing and engagement, NN IP has a dedicated Responsible Investment team of five people. This team reports directly to the CIO of NN IP.
Climate change dialogue To advise the Management Board on climate risks and opportunities, we have a multi-disciplined working group in place, called the Climate Change Dialogue. In 2018, the Dialogue convened to discuss a benchmarking analysis of our TCFD disclosures, and to consider how to incorporate climate-related scenario analysis within our organisation. It was decided to prioritise the investment portfolio of NN Group (general account, or proprietary assets) and to prepare a climate change scenario analysis in 2019. On the insurance side, we chose to cooperate with 16 insurers and reinsurers by joining the TCFD Insurer Pilot of the UNEP FI. The main goal of this group is to develop analytical tools to better understand the impacts of climate change on their business. This approach was endorsed and confirmed by the Management Board in February 2019.
Transition risks The Paris Agreement’s long-term goal is to limit the increase in global temperature to well below 2°C above pre-industrial levels. To reach the agreement’s goals, governments around the world need to introduce stringent climate-related policies and regulations. If not prepared, the transition to lower carbon economies may adversely affect individual businesses, sectors and the broader economy, thereby also having an impact on the asset side of our balance sheet through our investment portfolio. Besides public policy, the pricing of financial assets could be influenced by factors such as technological developments and changing consumer preferences. Impacts are most likely to occur in the medium term, but our investments might also be exposed to short-term risks such as, for example, a sudden change in market sentiment around climate risks for the specific industries in which we invest.
NN’s contribution to the paper was to support the review of existing research in order to provide a view on the implications for the insurance underwriting side. The paper highlights that: • Extreme weather events will lead to higher costs
• Insurability will be an issue if global warming exceeds 3°C, particularly in regions most affected by climate change
Physical risks Physical risks relate to the physical consequences of climate change. These risks are particularly relevant to our non-life insurance business, where weather events, such as windstorms or hail, result in higher expenditures (claims and operational costs), influencing the margins of our property & casualty (P&C) insurance products. Our business unit NN Non-Life offers P&C insurance solutions to the Dutch and Belgian markets. Several studies show that the occurrence of these severe weather events will be more likely in the future. It should be noted that P&C is predominantly a one-year renewal business, making it possible to adjust our risk models and define premiums (or introduce excess) to reflect predicted possible losses. Moreover, external reinsurance will, under certain conditions, partially mitigate potential impacts.
Physical risks might also impact our investment portfolio. For example, a severe windstorm or flood that damages the buildings within our real estate portfolio could result in asset impairments. We use the Global Real Estate Sustainability Benchmark (GRESB) to understand the climate resilience and broader sustainability of individual properties and funds. All of our real estate investments are located in Europe.
Finally, prolonged and multiple periods of heat waves and other consequences of rising temperatures may result in increased mortality and morbidity, thereby impacting our life and income insurance liabilities. Although it is difficult to predict long-term threats, we currently expect that it would have less impact on our life and income insurance liabilities than other risks, such as changes in demographics or pandemics.
Resilience of investment strategy The Dutch Central Bank (DNB) has developed a stress test to gain insight into the possible impact on the Dutch financial sector of a disruptive energy transition. On the basis of four stress scenarios involving policy and technology shocks, the stress test investigates how financial institutions might be affected. The results suggest that a disruptive energy transition could lead to sizeable losses for financial institutions. Governments can help avoid unnecessary losses through timely implementation of effective climate policies, while financial institutions can mitigate their vulnerability to a disruptive energy transition by including energy transition risks in their risk management and performing scenario analyses.
Undertaking scenario analysis is also one of the key recommendations made by the TCFD. To improve our knowledge, we participated in a working group of the Institutional Investors Group on Climate Change (IIGCC) to help produce a guide called Navigating climate scenario analysis. This guide, published in November 2018, sets out a framework to help asset owners and managers use scenario analysis to understand how climate changes drive financial impacts across their portfolios. Using the insights, we initiated a process to select a third-party provider to help us carry out such an analysis for our general account investment portfolio. We have chosen to partner with a provider that can assist us in developing an in-house model in 2019. The scenarios should cover both transition and physical risks and opportunities, and be closely aligned with published data sets from the International Energy Agency (IEA) and IPCC. We will consider several global warming scenarios, and run the analysis for time horizons that are most relevant for our investment portfolio. By developing our model in-house, we want to ensure that our own investment and risk managers can easily understand the developed methods and update the scenarios in the future. It should also provide a basis for tools that can help us better understand how to align our portfolio to the global climate goals.
Resilience of insurance underwriting 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 its own ORSA, NN Non-life modelled a scenario which was aligned with a stress test initiated in 2018 by the European Insurance and Occupational Pensions Authority (EIOPA). Through this test, EIOPA aimed to assess the resilience of insurers to a succession of natural catastrophe events in European countries occurring over a period of three years. These events included a series of windstorms in the Netherlands and Belgium, and therefore impacting our business. The stress test results revealed that European insurers, including NN Non-life, would be relatively resilient to this scenario, which saw the asset/liability ratios drop to a limited extent. This is in line with the findings from an analysis that DNB performed earlier among Dutch non-life insurers.
In addition, NN Non-life conducted a stress test of a more severe nature with the aim of understanding our resilience with respect to windstorm and climate change. The test revealed that NN Non-life can withstand these events in the short term, given the reinsurance programme in place. In order to ensure continued profitability, it is important to recognise a trend change in time so that we can adapt our processes. On an ongoing basis, we participate in platforms and committees to monitor climate change developments. Furthermore, we perform regular studies to model the impact of climate trends on our portfolio. For example, the number of (severe) rainstorms is expected to increase in the coming years. In 2018, we therefore asked our external vendor to model the NN Non-life portfolio on the basis of Royal Netherlands Meteorological Institute (KNMI) precipitation forecasts.
Although we prefer to change behaviour through engagement, we may decide to exclude when a company is not willing to cooperate, or where we believe not enough progress is being made. Regarding environmental issues and climate change, several companies were placed on our exclusion list in 2018 due to their involvement in oil sands. Furthermore, we started working on a thermal coal policy, which we aim to introduce in 2019. This also helps limit our exposure to companies that are not taking sufficient steps to drive the transition to a low-carbon economy, as set out by the Paris Agreement.
Processes within insurance underwriting Within our P&C insurance business, we manage climate risks in a few ways. By helping our customers to take precautionary measures, we prevent and minimise claims that are caused by storm, fire, or other events. Furthermore, we monitor claims experience. Because contracts are generally short-term, we have the ability to reprice or adjust contract conditions. Our underwriting process is guided by catastrophe models. We use external vendor models, which use meteorological modelling reflecting observed storms and patterns, to estimate the impact and damage caused by large natural catastrophes such as windstorms. NN uses a multi-year forward looking approach. These catastrophe models also inform the risk used in the risk management process in terms of solvency/ capital management.
Metrics and targets Own operations NN Group is committed to reducing the environmental impact of our own operations. We have set quantitative targets to reduce our greenhouse gas (GHG) emissions and consumption of scarce resources. Read more on page 47.
Investments NN Group measures the carbon footprint for the fixed income and equity securities that it holds on behalf of the own account. The carbon footprint, measured on EUR 108 billion or 58% of the total proprietary investment portfolio. This decrease is due to the alignment of the calculation of government bonds to the methodology recommended by the Platform Carbon Accounting Financials (PCAF). We now allocate emissions to a sovereign bond by taking into account the emissions that are directly caused by the government’s own activity, as well as the emissions from government financing in other sectors within a country. This as opposed to the previous methodology where the emissions were allocated using a production based approach reflecting the direct GHG emissions stemming from all domestic production of goods and services within a country. This change results in a smaller ownership of sovereign carbon emissions, and was also the main reason behind the decline in the weighted average carbon intensity. Refer also to the table and information on page 72.
We continue to be committed to increasing our investment in those activities that are needed to support the transition to a lowercarbon and resource-efficient economy. In 2018, we signed EUR 100 million in new infrastructure debt investment into off-shore windfarms, district heating, and water and wastewater treatment facilities. NN Group also invests in green bonds. In total, our investments in climate-related infrastructure projects and green bonds amounted to EUR 663 million at year-end 2018.
Facts and figures Our facts and figures outline our financial and non-financial performance year-on-year, and offer an overview in line with our integrated reporting approach.
NN Group also publishes a Solvency and Financial Condition Report (SFCR), which includes public quantitative and qualitative disclosures on Solvency II. The SFCR is published on NN Group’s corporate website in the Investors/Annual Report section.
We aim to provide transparency and enhance the reliability of the reported content for our stakeholders. Therefore, our external auditor, KPMG, provided limited assurance on the non-financial information in the Annual Review. The non-financial information in scope of the assurance engagement of KPMG is defined as related to the material topics as defined on pages 13-15 of the Annual Review and include the indicators in the key financial and nonfinancial indicators related to these topics.
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, unless otherwise stated. The scope for community investment and environmental data is all businesses with more than 100 FTE.
The acquisition of Delta Lloyd had an impact on our scope. All 2016 numbers are for NN Group standalone. The 2017 numbers include Delta Lloyd since 1 April 2017. All 2018 data include Delta Lloyd for the full year. The acquisition did not change our corporate citizenship ambition, strategy, definitions and reported data.
Reporting guidelines The information and data in the NN Group Annual Review is prepared in accordance with the Sustainability Standards (Core) from the Global Reporting Initiative (GRI). It aims to make information available in a manner that is understandable and accessible to stakeholders using the report and reflects different aspects of the organisation’s performance to enable a reasoned assessment of overall performance.
Consolidated balance sheet As at 31 December Amounts in millions of euros, unless stated otherwise notes 2018 2017
– designated as at fair value through profit or loss 722 934
Net result 1,133 2,132 69 NN Group N.V. 2018 Annual Review
– as part of the total Assets under Management 6.7% 4.4% 2.6%
Dow Jones Sustainability Index (out of 100) 77 (Included) 80 (Included) 77
Assets under Management in sustainable and impact investing funds and mandates (end of period) 16,549 10,852 5,062
– as part of total Assets under Management NN Investment Partners 6.7% 4.4% 2.6%
– NN (L) Euro Sustainable Credit (excluding Financials) 491 679 587
Shareholder resolutions on which we voted by topic 596 348 347
Private real estate – portfolio average (vs. benchmark average) 80 (66) 74 (61) 72 (59)
1 Previously: Delta Lloyd Equity Sustainable Global Fund. 2 Excludes voting related to Delta Lloyd assets. 3 NN calculates the GRESB scores on a value-weighted basis, and compares these to the relevant benchmark average. Scores are on a scale of 1 to 100. The real estate portfolios are part of NN Group’s proprietary assets.
Weighted average carbon intensity (tCO2e/EUR million of revenue) 107 231 232
The analysis is based on 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 86%.
More information on the results and insights can be found in NN’s ‘Carbon Footprint Disclosure’ report, published on the NN Group website.
Total employee wages and benefits (in EUR million) 1,500 1,496 1,160
2 Netherlands only; this counts for 60% of the total organisation. 3 In 2018 we introduced a new metric for measuring engagement. The previous measurement for 2017 was 66%; with the new metric this is 7.0. 4 The 2018 number covers data from our global organisation (where in 2017 and 2016 it accounted for the Netherlands only). It does not include the complaints received in relation to the integration process of
– Renewable electricity as % of total electricity 66% 69% 45%
– Sustainable paper as % of total paper 78% 87% 84%
The reporting criteria used for the preparation of the Non-Financial Information are the Sustainability Reporting Standards of the Global Reporting Initiative (GRI) and the applied internal reporting criteria as disclosed on page 67 of the report.
This matter was addressed in the context of our review of the Non-Financial Information within the scope of our engagement as a whole and in forming our conclusion thereon, and we do not provide a separate opinion on this matter.
Our response We have performed assurance procedures aimed at the balance and complete representation for key topics in the report of NN Group. Those procedures started by obtaining an understanding of the processes NN Group applied to collect and document information as the basis for preparing the Annual Review. We interviewed relevant staff responsible for preparing the Annual Review and assessed proper inclusion of both achievements and challenges in the reporting. Furthermore we have reviewed underlying documentation.
Assurance report of independent auditors continued 76 NN Group N.V. 2018 Annual Review
Finally we performed an overall assessment of the Annual Review based on our knowledge of the company and evidence obtained to determine whether the Annual Review presents a balanced overall picture of NN Group’s (non-financial) performance and activities over the year.
Limitations to the scope of our review 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.
Procedures performed to obtain a limited level of assurance are aimed to determining the plausibility of information and vary in nature and timing from, and are less in extent, than for a reasonable assurance engagement. The level of assurance obtained in review engagements with a limited level of assurance is therefore substantially less than the assurance obtained in audit engagements.
Misstatements can arise from fraud or errors and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of users taken on the basis of the Non-Financial Information.
— Evaluating the consistency of the Non-Financial Information with the information in the report which is not included in the scope of our review; — Evaluating the presentation, structure and content of the Non-Financial Information; Assurance report of independent auditors continued 78 NN Group N.V. 2018 Annual Review
Agile Our business units are investing in becoming more agile to secure long-term growth. In the agile methodology, people of different expertise and teams are given autonomy and work together towards a common goal. The goal of agile is faster product and service delivery.
Assets that are managed with a specific focus on sustainability. This includes our Socially Responsible Investing (SRI) funds and mandates.
Central Works Council The Central Works Council (CWC) is an entity required by the Dutch Works Council Act of 2013. It is a standing works council formed by representatives from eight Dutch work councils. The CWC is informed or consulted about important NN Group developments in the Netherlands and international developments to the extent that Dutch interests are influenced.
Climate Action 100+ A five-year initiative led by investors to engage with the world’s largest corporate greenhouse gas emitters to improve governance on climate change, curb emissions and strengthen climate-related financial disclosures.
Emerging markets An emerging market describes a nation’s economy that is progressing toward becoming more advanced, usually by means of rapid growth and industrialisation. These countries experience an expanding role both in the world economy and on the political frontier.
The EVP represents what our employees experience and benefit from during their employment period within NN and what we expect from them. It is the rational and emotional articulation of the tangible benefits employees receive as a result of working for NN Group. The EVP highlights the factors that make NN attractive to the labour market.
Euronext Amsterdam A conglomerate of the former entities: Amsterdam Stock Exchange, Brussels Stock Exchange and Paris Stock Exchange. Located in Amsterdam, the Netherlands.
A standing works council body as required by the 2009 European Works Council Directive 2009/38 of the European Commission. The EWC is formed by chosen employee representatives of all 11 European countries where NN Group is active. EWC-members are informed about transnational matters twice a year.
Any involvement in money laundering, the funding of terrorism, or other criminal activities that could harm stakeholder confidence in NN as a financial services provider.
Internet of Things (IoT) A network of devices that can connect to the internet and to each other, allowing the devices to be controlled remotely and data to be transferred. The Internet of Things is among the technologies expected to spur a transformation of the financial services industry.
NN Group’s PIM was approved by the Dutch Central Bank (DNB) in December 2015. In 2018, NN received approval from the DNB to expand the PIM to include the Delta Lloyd entities.
Qredits A microfinancing organisation assisting entrepreneurs with loans, mentoring and e-learning.
Social Innovation Relay The Social Innovation Relay is an initiative of Junior Achievement Europe supported by NN Group. It works to inspire secondary school students to develop innovative business concepts that address social challenges.
The Financial Stability Board launched the industry-led TCFD to develop recommendations on climate-related financial disclosures. The Task Force published its final recommendations in June 2017.
Certain of the statements in this 2018 Annual Report are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation: (1) changes in general economic conditions, in particular economic conditions in NN Group’s core markets, (2) changes in performance of financial markets, including developing markets, (3) consequences of a potential (partial) breakup of the euro or European Union countries leaving the European Union, (4) changes in the availability of, and costs associated with, sources of liquidity as well as conditions in the credit markets generally, (5) the frequency and severity of insured loss events, (6) changes affecting mortality and morbidity levels and trends, (7) changes affecting persistency levels, (8) changes affecting interest rate levels, (9) changes affecting currency exchange rates, (10) changes in investor, customer and policyholder behaviour, (11) changes in general competitive factors, (12) changes in laws and regulations and the interpretation and application thereof, (13) changes in the policies and actions of governments and/or regulatory authorities, (14) conclusions with regard to accounting assumptions and methodologies, (15) changes in ownership that could affect the future availability to NN Group of net operating loss, net capital and built-in loss carry forwards, (16) changes in credit and financial strength ratings, (17) NN Group’s ability to achieve projected operational synergies, (18) catastrophes and terrorist-related events, (19) adverse developments in legal and other proceedings and (20) the other risks and uncertainties detailed in the Risk management section and/or contained in recent public disclosures made by NN Group and/or related to NN Group.