Read more on our approach to reporting on page 57 of the Annual Review.
The world around us ............................................................... 9 Determining material topics ........................................... 10 Managing our risks ................................................................... 11 3 Our performance
NN Group’s strategic priorities ...................................... 15 Delivering on our strategy ................................................ 18
Our values .................................................................................... 45 How we are organised ....................................................... 48 Stakeholder engagement and international commitments ................................. 50 Response to the Task Force on Climate-related Financial Disclosures .................. 52 6 Facts and figures
SparkLab location * Outside Europe and Japan, NN Investment Partners has offices in Montevideo, New York and Singapore.
Free cash flow to the holding was EUR 1.2 billion in 2019, reflecting net remittances from subsidiaries of EUR 1.4 billion partly offset by holding company expenses, interest on loans and debt and other holding company cash flows.
Solvency II ratio of 218% reflects capital flows to shareholders and market impacts, partly offset by operating capital generation.
Total expenses at the units in the scope of the integration of EUR 360 million compared with the 2016 administrative expense base, well on track to reaching the EUR 400 million target by end of 2020.
Total asset under Management of NN IP increased to EUR 276 billion from EUR 246 billion in 2018 mainly due to positive market performance.
Down 8.3% on 2018, reflecting lower sales at Japan Life due to tax changes, partly compensated by improved business mix and higher life and pension sales at Insurance Europe.
We aim to increase our NPS every year. In 2019, 9 of our 11 insurance business units maintained or improved their relational NPS compared with 2018. In 2 markets the relational NPS decreased, which has our full attention.
We aim to increase our employee engagement every year. In 2019, engagement showed an increase of 0.3 points compared with 2018.
(around 18 million customers) • Business partners and suppliers • Other key stakeholders
Our values care, clear, commit 4 NN Group N.V. 2019 Annual Review
NN at a glance – How we create and share value continued
We have chosen the capitals most relevant to our business: Financial capital (pool of funds available to a company, including debt and equity finance); Human and Intellectual capital (employees’ skills, competencies and experience; institutional, innovation and digitalisation knowledge; processes developed within the organisation); Social and Relationship capital (relationships with stakeholders, communities and other networks necessary to continue our business operations and maintain our long-term license to operate).
Employees To our employees we pay salaries and benefits. We offer an attractive, stimulating and diverse environment to work, and invest in their skills and personal development to help them reach their full potential. We aim to create an engaged workforce. Read more on pages 32-34.
Investors We maintain a strong balance sheet and take a disciplined approach to capital management, aiming to provide attractive long-term returns for our investors. We aim to have loyal investors. Read more on pages 35-36.
Financial capital • Pension benefits and claims paid to customers EUR 13.9bn
EUR 2bn • AuM in sustainable and impact investment strategies EUR 22.7bn
How do you assess NN Group’s performance in 2019? NN Group is doing well. In 2019, we delivered a solid financial performance, with all businesses reporting decent results. Our customer engagement improved during the year, with the Net Promoter Score increasing 5 points from -1 in 2018 to +4. It demonstrates that we are making progress on our goal to reach out to our customers at the right time in a personal way, with products, content and services that are relevant to them. The profitability of the Dutch Non-life business has improved. The market share of our defined contribution business has increased. We reported 21% growth in the value of new business at Insurance Europe. The origination of new mortgages by NN Bank hit an all-time high. And we successfully completed the integration of Delta Lloyd. However, for the longer term, and given the challenges as well as the opportunities our industry is facing, we need to further refine our strategy and put more focus on the capabilities we want to build. And that is exactly what we are currently doing.
Given all these factors, do you feel you are making enough progress in transforming the company? We need to speed up and take additional steps. Throughout 2019, we continued on our transformation journey, by optimising our business model as well as creating new capabilities. Increasing scale and optimisation are important prerequisites of sustainable and profitable growth. For example through the acquisitions of Delta Lloyd and VIVAT Non-life in our home market. And internationally, by acquiring the Aegon life and pension businesses in the Czech Republic and Slovakia. Next to that, we are creating and expanding innovation capabilities, for example with AI and through new strategic partnerships. The acquisition of Human Capital Services (HCS) in the Netherlands, for instance, has reinforced our position with regard to sustainable employability, and supports our broader aim to progressively shift from insurance products to service solutions. I believe it is vital to maintain focus and consider investment choices.
Our products aim to have a clear added value for the societies in which we work and live, and we contribute actively to societal discussions, and introduce solutions beneficial to the people we serve. In 2019, we continued to invest in being a trusted corporate citizen, one that does business with the future in mind, and supported by our values: care, clear, commit. As part of our efforts to support the Paris Agreement on climate change, we implemented a coal policy. By placing investment restrictions on thermal coal mining companies and intensifying our dialogue with power generation companies, we aim to accelerate the transition to a low-carbon economy. To strengthen our engagement efforts with palm oil companies, NN Investment Partners joined forces with other asset managers in the Netherlands and became a member of the Roundtable on Sustainable Palm Oil. We are delighted these efforts resulted in our inclusion in the Dow Jones Sustainability Indices for the third year in a row, and in receiving the highest score in the Dutch VBDO Tax Transparency Benchmark 2019.
Ever since we were founded, we have always been focused on serving our customers, as our primary and most important stakeholders, and on continuously adapting to their changing needs.
Economic and political factors After a period of strong growth, the global economy is stabilising at somewhat lower levels. EU projections foresee annual real GDP increasing by a little over 1% up to and including 2022. Private consumption is steady, but trade and manufacturing are lagging. Tense trade relations, for example between the US and China, and Brexit on 31 January 2020, have kept markets unpredictable and volatile. Growth remains reasonably healthy in Central and Eastern Europe.
Interest rates have continued to drop and there are now negative interest rates in many countries. As a result, various new financial risks are emerging. For NN and our customers, this has implications, and we are looking into possible solutions, such as an accelerated shift to defined contribution pension products in the Netherlands, and a shift towards protection products in the market in general.
Changing regulations An extensive package of regulation for the financial services industry has been put in place in recent years, which brings long-term financial stability and security to the sector and for society as a whole. These new regulations increasingly require greater capacity within financial institutions, for example around compliance.
For the European insurance industry, arguably the most important regulatory framework is Solvency II. It is being reviewed in 2020, including elements such as longterm guarantee measures, macro prudential issues, and reporting and disclosure. For NN, it is important that stability within the framework, including long-term guarantee measures, is maintained.
New rules and regulations have also been introduced in the area of sustainability, which are supported by NN. For example, the EU Action Plan on Sustainable Finance (including an EU Taxonomy), which is aimed at creating a greener and more sustainable economy. Greater transparency is at the heart of both the EU Directive on Non-Financial Disclosures and the recommendations of the Task Force on Climate-related Financial Disclosures.
New consumer protection requirements are being introduced. And with new ethical dilemmas arising around how organisations use personal data, society expects that companies have policies and processes in place that protect people’s privacy, something we take very seriously.
Transition towards a sustainable economy Society is expecting more and more of companies, including those active in the financial services industry. Not only are citizens and businesses looking for products and services that suit their specific needs, they also expect companies to act responsibly.
Determining material topics NN conducts a regular review of its operating environment to identify our material issues – that is, those issues that have the most impact on our business and/or stakeholders, and where we can potentially create the most value.
The relatively lower score of the impact of the transition to a sustainable economy, may largely be explained by the 12-month timeframe of this materiality assessment, as the impact of the transition may have a longer horizon.
We use the results of this assessment as input for strategy development and risk management activities, and to bring more focus to our annual reporting.
Methodologically, a long list of around 100 topics was compiled, based on an analysis of internal and external sources. From this list, a shortlist of 13 topics was created using the following criteria: the impact of the topic on NN Group and/or on our different stakeholders; and the ‘likelihood’ and ‘location’ of the impact. The latter involves the key markets where NN is active. These criteria were applied with a timeframe in mind of the coming 12 months.
Compared with the 2018 assessment, the shortlist shows more emerging topics where we can potentially create the most value for our stakeholders, rather than business-asusual activities such as risk management and compliance.
Through an online survey, stakeholders (including customers, employees, investors, regulators, business partners and societal organisations) were asked to rank the topics on the shortlist in order of their impact on them (y-axis). NN Group’s senior management (the Management Board and their direct reports) were asked to rank the topics in order of their impact on NN Group (x-axis).
Im pa ct o n st ak eh ol de rs
Managing our risks Strong risk management is an essential link between our strategy, our capital plan and the successful execution of our business plan, while taking external developments into account. This helps us define and achieve our financial and non-financial objectives.
For our in-force business, we focus on managing our businesses efficiently, exploiting new technologies or economies of scale (for example, through the expected acquisition of VIVAT Non-life in the Netherlands).
Key risksMaterial topics Strategic priorities 1 Increased political uncertainty 2 Changes to pension regulation 5 Expanding distribution 6 Development of new products and services 8 Customer experience 9 ESG integration into investment decisions 10 Transition to a sustainable economy 12 Need for new skills and talent attraction 3 Turbulence in financial markets 4 Persistently low interest rates 7 Data protection, privacy and cybersecurity 11 Integration of acquired business 13 Cost reduction and efficiency
Strategic challenges Longer-term business model Geopolitical and governmental instability Regulatory environment Talent management Good corporate citizenship
Strong balance sheet Asset and Liability Management (ALM) and investments Longevity
One of the major upcoming regulatory changes is the Solvency II 2020 review. This covers important items in the Solvency II framework, mainly focusing on long-term guarantee measures. At NN, we closely follow the development of future regulation, regularly assessing its potential impact on our solvency position. We actively manage our relationships with regulators and supervisors to ensure NN can make an effective contribution to legislative processes and that our concerns are consistently raised in relevant forums.
Talent management: risk of being unable to attract, retain or pay world-class talent due to competition within and outside our industry, thus increasing the risk of being unable to manage our business effectively.
Read more in chapter Supporting our people in times of change, pages 32-34.
Society’s norms and values are evolving, and are not always codified in formal legislation. Responding inadequately to increased stakeholder expectations around doing business responsibly can lead to reputational damage, consumers buying fewer products and/or investors being unwilling to invest in our company.
Read more in chapters Creating a positive impact on society, pages 37-41, and Our response to the Task Force on Climate-related Financial Disclosures, pages 52-55.
ALM and investments: risk of reduced available capital due to financial market turmoil or missed investment opportunities.
Market risks are managed through a well-diversified portfolio, under a number of relevant policies within clearly defined and monitored limits and tolerances, and with the option to reduce downside risk through hedging programmes. In addition, our strategic asset allocation aims to optimise capital generation within the boundaries of adequate diversification, acceptable risk levels and cash flow matching mismatch limits (as justified, based on regular ALM studies).
In recent years, given the illiquid nature of NN’s insurance liabilities, we have been rebalancing our asset portfolio. Partly replacing low-yielding liquid sovereign bonds with less-liquid assets, such as residential mortgages.
Longevity risk: risk of higher technical provisions or required capital if life expectancy increases quicker than anticipated.
Client and product suitability: risk of products failing to appropriately cover clients’ interests over the full product lifetime.
NN wants to become a more agile organisation, able to move faster and encourage entrepreneurship. At the same time, risks must be managed well, and shown to be. We therefore use a risk control framework, which ensures that risks are understood and managed through effective controls, and that robust processes are in place that show effectiveness of controls, and compliance with policies, standards and governance.
Technical developments are reshaping our business model and impacting our operations. Increasing data volumes, mobilising data access, and making IT more agile and flexible have helped drive the adoption of cloud services. In addition, providing a customer experience that is digital, personalised and relevant, means our IT operations are increasingly connected to the outside world, and end users and endpoints (e.g. laptops, mobiles and tablets) are therefore more vulnerable to external threats.
Our Information & Infrastructure Security function leads all efforts within the Group to enhance our information security, collaborating with business unit security officers to provide 24/7 protection against cyberthreats. Education and awareness raising are part of our security strategy at every organisational level.
Our ambition is to be a company that truly matters in the lives of our stakeholders. Therefore, we aim to: • Offer value-added products and services to our customers • As an employer, attract and retain talent by offering an interesting work environment • Offer attractive long-term returns for our investors • Invest our own assets and those entrusted to us in a responsible way • Use our resources, expertise and reach to help society achieve long-term prosperity
Several of these stakeholder commitments, and the strategic priorities below, are reflected in the financial and non-financial performance objectives set for our Executive Board. Read more in the Remuneration report included in the Financial Report, pages 32-37.
Third, we strive for an agile and costefficient operating model, which is important to ensure long-term growth. This involves simplifying our processes to deliver better value for money; stimulating a costconscious culture; exploring different 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. Business units are at different stages of our agile journey. Across our businesses, operational manual activities are increasingly being automated with robotic process automation.
Financial medium-term targets The strategic priorities of NN Group translate into the following medium-term financial targets: 1. Achieving EUR 400 million in cost reductions by 2020. This applies to those business units that fall within the scope of the integration following the acquisition of Delta Lloyd in 2017.
2. Achieving an annual growth rate of operating result before tax of 5-7% on average in the medium term (based on the 2017 operating result).
Over time, generate free cash available to shareholders in a range around the net operating result3
FY17 FY18 FY19 3. Over time, generating free cash available to shareholders in a range around the net operating result (based on the net operating result, adjusted to reflect the deduction of the accrued coupon on undated subordinated notes classified in equity; and assuming normal markets, no material regulatory changes and no material special items other than restructuring charges).
1 In total for the following units: Netherlands Life, Netherlands Non-life, Belgium, Asset Management, Banking and Corporate/Holding entities, excluding acquisitions as from 2019. Representing part of total administrative expenses as disclosed on page 2 of the Financial Report.
We have always prioritised a strong balance sheet 4Q15 4Q16 4Q17 4Q18 4Q19
• Healthy cash capital, with target range of EUR 0.5-1.5bn • Consistent and diversified capital flows from all segments
Focus going forward Looking ahead, and in the context of our overall strategic approach, we will be focusing on a number of priorities.
First, we want to deliver on completing the integration of Delta Lloyd and prepare for the integration of the VIVAT Non-life business in the Netherlands. We will do this by following the clear roadmap that aims at delivering financial and non-financial benefits within the expected timelines. We also expect that strengthened competitive positions will bring us a sustainable cash flow.
Our final priority is to continue allocating capital rationally. By generating cash flow in all business segments and upstreaming cash to the holding, we will be able to return excess capital to our shareholders, unless it can be used for value-creating opportunities. We announced an update of our dividend policy on 13 February 2020. Going forward, NN Group intends to pay a progressive ordinary dividend per share and intends to execute a recurring annual share buyback of at least EUR 250 million.
1 Percentages based on total operating result (EUR 1,794m) excluding the segment Other (EUR -144m) for 2019.
We took decisive actions to consolidate our Dutch market position and we are working hard to further integrate and transform the business. Tjeerd Bosklopper CEO Netherlands ad interim and Chief Transformation Officer
Aside from innovation, building capabilities and entering into strategic partnerships, NN is responding to the new paradigm by optimising and expanding current platforms. In 2019, we carried out acquisitions and subsequent integrations without any negative impact on overall customer or broker satisfaction, or employee engagement scores. I think that’s something we can be very proud of. And in June 2019, we also announced that we intend to acquire VIVAT Non-life.
Where do you see room for improvement? We made a good start with the company’s transformation: NN Group has developed its innovation hypothesis; we built new capabilities; and we are exploring the potential of ecosystems and interconnected platforms around themes such as Vitality & Health, Carefree Retirement, Mobility, Cybersecurity and Home. However, transformation is a complex process and, given our considerable ambitions for the future, this is an area where we will need to step up the pace even more.
What were the highlights of Life? On the pension side, we saw good commercial progress and rising customer satisfaction this year. The shift to capitallight defined contribution propositions continues to accelerate in the current low-interest environment. We see intensified competition and unbundled Premium Pension Institution (PPI) vehicles increasing cost transparency, and we therefore monitor market developments closely so we can continue to offer competitive pricing. A value proposition’s investment performance (in terms of design, performance and cost) will be increasingly important.
Within the small individual life market that remains, we have migrated nearly two million policies to our target platforms; few companies in the world have ever migrated so many policies.
The shift from monthly premiums to payper -use is an important trend. This year we continued testing and scaling Bundelz, developed in our innovation lab, SparkLab. It is the first Dutch pre-paid car insurance, and allows customers to buy a 1,000 km car insurance bundle rather than pay monthly premiums.
And we can look back on a successful Savings and Investments migration following the acquisition of Delta Lloyd Bank. As part of which, our Banking app and portal became fully available to former Delta Lloyd customers in 4Q 2019.
6.7m Customers in the Netherlands 19 NN Group N.V. 2019 Annual Review
Life: Top 1 position in group pensions, 40% market share, and 23% market share in individual life
Non-life: Top 1 position in Disability & Accidents, 29% market share and Top 2 position in Property & Casualty, 20% market share
Bank: Originated a record amount of EUR 7.9 billion in mortgages in 2019
• Non-life: motor, fire, liability, transport, individual disability, group income, accident, health insurance
Our main brands • Nationale-Nederlanden, OHRA, Movir, AZL, BeFrank, ABN AMRO Verzekeringen
• Perfect Day: a cybersecurity service for SMEs that provides insights into cyber-risks and vulnerabilities. The services include specific solutions to prevent cyber incidents and manage cyber-risks. If they want, the SME can also take out cybersecurity insurance (also offered by NN).
• Crunchr: a B2B service that gives HR professionals insights into HR data to help them make data-driven decisions and better manage workforce processes
• We continued with our agile transition programme launched in 2018. Teams are organised by product and, wherever possible, autonomously, making it easier for them to create the optimum customer journey.
Our dedicated and passionate teams in the countries played a crucial role in our performance and in meeting customers’ needs. Fabian Rupprecht CEO International Insurance
In Poland, the pension legislation changed, requiring companies with over 250 employees to choose their pension provider. We engaged in constructive dialogue with all relevant parties to better understand companies’ needs. Following the first wave of this reform, Nationale-Nederlanden Poland and NN Investment Partners Poland have a combined market share of 24% in Assets under Management and serve 726 firms making NN the biggest private manager of this reform.
In each market, we try to leverage our own channels to develop mutually beneficial partnerships. For example, our reciprocal distribution partnership with ING Bank in Spain allows our 2,000 tied agents to distribute mortgages for the bank.
Can you give some examples of new protection products? In Romania, we launched a series of products with add-on coverages (modular riders) which customers can choose from, depending on their needs. The products complete our protection portfolio by offering financial protection for critical illness, and work incapacity due to permanent disability or accident recovery.
In Turkey, we started offering complementary health insurance that covers the surcharges for medical services from private medical institutions that are contracted by the state social security system. This product is available to Turkish citizens who do not have private health insurance.
Our protection share (measured by value of new business) grew by 8% in Europe and by 12% in Japan compared with 2018.
We launched our first product on the Oxygen platform, a home insurance for Spanish citizens. Through Oxygen, we will be able to provide digital insurance solutions to various distributors.
The low interest rates pose a challenge for us in guaranteed savings products. To adapt to this challenge, we are looking to adjust our portfolio through innovative offerings. In Greece, for example, we introduced a growing guarantee product, ‘Smart Move’, that lets customers build up a long-term investment through regular payments.
The changing regulations in some markets present both challenges and opportunities. In Poland, a move is anticipated from Open Pension Funds in the Pillar 2 pensions to Individual Pensions Accounts in Pillar 3. This will give Polish people freedom to leverage their assets, and change how these funds are taxed. We are studying these developments and engaging with all relevant parties.
In Japan, the tax rules have changed, impacting our business. We believe all stakeholders – independent advisors, agents, banks and customers – need time to adjust to the new, more complex tax rules. According to SME owners’ feedback the new rules continue to be attractive, but require more advice. We therefore focus on educating independent advisors on how to advise SME customers and find the most suitable solution for them. We are confident that this will help our customers and our business in Japan in the long term.
From an operational perspective, we need to further intensify our transformation efforts by extending our digital service models and developing relevant capabilities. We are investing in Customer Relationship Management and lead management capabilities while developing a customer engagement framework to maximise output from our business initiatives. At the end of the year, we announced the appointment of a Chief Digital Officer to drive transformation and coordinate our efforts in becoming a more data-driven, customercentric company.
Despite our challenges, we had a solid year. Our dedicated and passionate teams in the countries played a crucial role in our performance and in meeting customers’ needs.
What strategic direction have you set for the future? We believe the need for protection products across Europe and Japan will further increase, and that customers will continue to need personal advice, and more personalised products and services.
For our part, we will increase the pace of our digital transformation in order to stay close to our customers. And continue to leverage our distribution by improving the way we work with existing partners and potentially collaborate with new partners.
Products and services • Life insurance (all countries) • Property & casualty
• In the Czech Republic, our brokers, tied agents and banking partners use the Stela digital sales platform, enabling a paperless business origination process, faster processing times and fewer interventions
• NN Life Japan launched a responsive design-based, mobilefriendly portal for new customers who buy NN products through insurance agencies and use digital application processes. Following the pilot, NN plans to launch the portal to existing COLI customers.
Distinctive, responsible and client-focused Our Asset Manager has further sharpened its product offering and customer experience. Through sustainable solutions, we create value for our clients and wider society.
Can you elaborate on the progress around NN IP’s core business (investments)? NN IP focuses on distinctive investment capabilities, being specialised fixed income, alternative credit, multi-asset and specialised equity strategies. Alongside fundamental research, the backbone of an active asset manager’s process, we have investigated other sources of investment return (or as we say, alpha) for clients.
Responsible investing is a key investment belief of NN IP. We are convinced we can have a positive impact on society while achieving sustainable and strong risk-adjusted returns for our clients.
What have you done to increase efficiency? We allocate resources to core activities: investing clients’ money, delivering riskadjusted returns and ensuring good client experience. Non-core activities can, if needed, be sourced from partners. For example, we further leverage on our strong investment platform and outsource and decommission other tools and systems that can be migrated or are not essential.
What is the biggest challenge experienced by asset managers? People are living longer and therefore need to put more aside for retirement, healthcare, et cetera. At the same time, responsibilities are shifting to individuals. We believe this challenging environment gives rise to an increasing need for asset management and advice.
Finally, asset management is a scalable business, as we saw with the integration of Delta Lloyd Asset Management (DLAM) at almost no additional cost. Scale remains important, and while continuing to make the right choices organically, we will also look to supplement organic growth with partnerships and bolt-on acquisitions. Though, as with any business decision we make, these will need to meet strict financial and non-financial criteria, and support our strategic direction.
Assets under Management (AuM in EUR billion) • Of which third-party
Fees/average AuM (bps) 17 19 25 NN Group N.V. 2019 Annual Review
A+ Score by Principles for Responsible Investment 68% Percentage of assets ESG-integrated
Products and services • Specialised fixed income, alternative credit, specialised equity, automated investing strategies, multi-asset and fixed income solutions
• ESG factors form an integral part of the investment process
• Optimally leveraging our scalable operating systems, including our global investment platform Aladdin, while decommissioning other systems. For example, decommissioning MSCI RiskMetrics by migrating it to Aladdin.
• Outsourcing non-differentiated commoditised activities, including Dutch fund accounting and formal accounting for institutional clients
• Strengthening our investment capabilities. Examples include implementing recommendations from the 2018 outside-in assessment and broadening our loan investment offering by taking a majority stake in Venn Hypotheken.
• Building Papyrus, an in-house central innovation, responsible investing and research platform that connects strategies and users across all departments
• Increase number of products and services that help our customers address societal challenges
BeFrank launched a sustainable pension scheme option in the Netherlands where companies can make their invested pension capital completely CO2 neutral via a tree-planting scheme. BeFrank’s clients can compensate the CO2 footprint of their invested pension funds via reforestation projects.
The CO2 footprint of a client is calculated based on data provided by investment funds. Using this information, Land Life Company generates a model to estimate how many trees should be planted to compensate for the footprint.
Creating value for our customers Our customers want products that help them in realising their financial goals. From buying a home, saving or investing for their retirement, or buying a new car, to protecting their valued assets or the loss of income as the result of an illness.
Further improving the customer experience A widespread challenge facing insurers is how to reach out to customers and prospects at the right time in a personal way, and understand their needs so that we provide relevant products, content and services. For example, by providing fast and flawless claim support.
It is currently difficult for financial services companies to differentiate themselves through their product offering, so reputation and customer experience are crucial to achieving a competitive edge. To further improve the NN customer experience, we aim to be a customer-focused, data-driven company that contributes to a sustainable society while creating value for money in a personalised, relevant way.
Our focus is not only on pensions and healthcare. For example, in Spain we aim to be the financial coach of families, and we launched a modular savings value proposition: Contigo Futuro (The future with you).
It enables customers to be disciplined about saving and makes it easier to achieve key life goals, such as a good education for their children, starting their own business and carefree retirement. Contigo Futuro also promotes socially and environmentally sustainable investments.
Omnichannel and ecosystems We want to establish an omnichannel approach so we can better engage with our customers, business partners and the wider insurance ecosystem to deliver personalised, relevant, value-adding products. For example, in the Netherlands, call centre agents can switch seamlessly between different contact channels while helping callers, and are therefore able to more quickly help our customers.
Nevertheless, despite the increasing commoditisation of insurance (in part due to the proliferation of price comparison websites), for many customers price is not the sole criterion when choosing products. Driven by the preferences of millennials, today’s insurance is increasingly focused on premium service, reward and even, where appropriate, a fun experience.
In the Netherlands, we will employ artificial intelligence and advanced data analytics to classify, process and automatically route some 60% of all emails.
NN Bank has begun a transition to a modernised IT architecture based on open source development frameworks, continuous integration and delivery, cloud, and automated testing. This will improve the performance, availability and flexibility of our IT, positively impacting the customer experience.
Unit-linked products in the Netherlands In the Netherlands, unit-linked products have received negative public attention since the end of 2006. We have taken this criticism to heart, as our aim is to support our customers as best we can. The Dutch insurance subsidiaries of NN Group reached out to all individual customers who purchased unit-linked products in the past (‘activeren’).
Dealing conscientiously with data As digitalisation moves forward rapidly, the importance of securing the (personal) data of our customers also increases. We are conscious that we need to be responsible and handle their (personal) data with care and thereby safeguard their privacy. We do so by complying with data protection legislative requirements of which the most important is the EU General Data Protection Regulation (GDPR).
Besides the focus on the data that we manage and protect, we also provide our customers with services regarding data and cyber security. The consequences of cyber insecurity can be wide-ranging for individuals and companies.
Financial economic crime NN cautiously guards against money laundering, funding of terrorism, tax evasion and other forms of financial economic crime (FEC), as these can harm confidence in NN as a financial service provider. Digitalisation and dependency on digital systems has significantly increased the potential impact of FEC. NN actively takes preventative measures and we do not tolerate any deviation from relevant FEC laws and regulations.
In Poland, we launched a campaign about fatherhood, focusing on security and insurance tailored to these changing family circumstances.
In Spain, we introduced Contigo Familia as an insurance protection solution for families. Customers can choose the protection mix that suits their lifestyle and life stage, and access health services via an app that lets them chat real-time 24/7 with specialists.
NN has been active in the sport of running since 2015; a natural fit with our role as insurer as running contributes to the health and well-being of many. In Europe, there are approximately 50 million active runners. Through our sponsorship activities we can support all types of runners, from beginners to professional athletes.
We organise activations to contribute to the experience of running, such as the Running Supporter. Through a recorded video message from a loved one, runners are encouraged through the final kilometres of a marathon.
We believe running is a team sport and since 2017 we have been the title sponsor of the NN Running team, the first professional running team in the world. The team brings together young talents and world-class marathoners like Eliud Kipchoge to train alongside each other.
Methods We conduct four types of research: • Traditional online interviews: short, structured questionnaires sent out to the general public
Four of our insurance businesses had a better relationship NPS (NPS-r) than the market average. Within International Insurance, there were some significant changes, with a huge NPS-r increase in Hungary and Romania achieving an all-time record score.
We measure NPS-r to estimate the strength of our relationship with customers and to get a high-level understanding of customer satisfaction levels for our products and services over the long term. Though we monitor scores closely, we are also cautious not to infer too much from an NPS-r score increase or decrease over just one year.
NN Group measures NPS-r scores in all its markets for banking, life insurance and pensions business lines. NPS-r and customer satisfaction measurements for asset management are carried out amongst institutional clients once a year.
Attracting and retaining talent Our employees are vital for us in ensuring the success of our business. The current economic environment creates challenges for NN Group to attract and retain talent, as we compete with players both within and outside our industry. To maintain our performance now and in the future, we must continue to attract professionals with the right mindset and relevant (digital) skills.
We aim to be an employer of choice by creating a ‘You matter’ culture. We want to provide our colleagues a stimulating, diverse work environment, and give them the opportunities they need to develop their skills and fulfil their potential. Our human resources strategy focuses on the moments that matter in the careers of our employees, before, during and after employment at NN.
− 36% women in senior management positions – up three percentage points
In December, Nationale-Nederlanden, signed a new work code designed to prevent unacceptable differences in the Dutch labour market between fixed and flex contracts. The code should contribute to a more fair and balanced labour market in the future. The code covers equal treatment of permanent staff and freelance employees, providing access to disability and pension provisions, and personal development instruments.
Investing in development In a continuously transforming world, everyone needs to learn and adapt constantly. We want to support our employees to enable lifelong learning. To help them build valuable networks, we offer long- and short-term internal assignments, within other departments or business units. Job rotation schemes provide additional opportunities to explore new career paths.
We also support our leaders, as our strategic priorities require that management embraces new ways of working, becomes more aware of their impact as leaders, and drives results without resorting to traditional top-down leadership. In 2019, we amended our leadership profile to determine the desired profile for our leaders. The changes reflect that our leaders should drive change, engage in constructive conversations, give and seek feedback, and lead with a close eye on what customers and society expect from us.
In light of strong competition in financial markets and the ongoing Delta Lloyd integration, redundancies are sometimes unavoidable. We aim to take our responsibility when it comes to being a good employer. For example, the new social plan in the Netherlands, introduced as part of the collective labour agreement, focuses on helping people from work to work, with guidance on finding a new job and supporting internal mobility.
In 2019, we reached a new collective labour agreement (CLA) for our employees in the Netherlands. The new CLA was an important milestone in the integration of Delta Lloyd, as it harmonised employment conditions. At the same time, it provided the opportunity to introduce important new elements, such as more parental leave and a diversity day. The new CLA also established a consistent remuneration framework that was applied to the group-wide job family framework.
Diversity and inclusion All employees should feel respected and valued for who they are, regardless of gender, age or background. NN measures its diversity in areas such as age and gender, and we are developing an NN group-wide diversity policy that will also include diversity of thinking. In the beginning of 2020, employees in the Netherlands launched the first NN LGBT+ network, in order to help further promote diversity at NN.
An overview of the Central Works Council members and European Works Council members of NN Group can be found on page 38 of the Financial Report.
Employee engagement Engagement of employees is monitored and evaluated through the annual global employee engagement survey. Insights from the survey help us to better understand our priorities and strengths, to improve our service to our customers, and to create an engaging work environment. Given our efforts in this area, we are satisfied with the results of the 2019 survey. 85% of employees participated in the survey and our overall engagement score increased to 7.4 (2018: 7.1). Particularly in the areas of performance alignment and meaningful work the scores were high. Further improvement is needed around efficient processes, better explaining our strategy to our employees, and better connecting how our employees relate to our mission.
We support healthy lifestyles, as they lead to improved well-being and reduced absenteeism. That vitality is an important topic for our colleagues is shown in our annual global engagement survey. We will continue to implement initiatives in this area in all our countries.
The authorised share capital of NN Group N.V. consists of ordinary shares and preference shares. Currently, only ordinary shares are issued, while a call option to acquire preference shares has been granted to the NN Group Continuity Foundation (Stichting Continuïteit NN Group). Read more on page 28 of the Financial Report.
Major shareholders According to the AFM register as at 9 March 2020, the following shareholders have an interest of 3% or more in NN Group on the notification date: Blackrock, Inc. 4.80% (21 February 2020), P.E. Singer 3.04% (17 February 2020), Norges Bank 3.03% (12 April 2019), APG Asset Management N.V. 3.00% (2 August 2017), RRJ Capital II Ltd. 9.60% (23 May 2017).
We aim to be transparent by providing investors with high-quality, clear, accurate and timely information to enable them to make informed investment decisions.
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
• For 2019, we aimed to pay an ordinary dividend in line with our medium-term financial performance and envisage a sustainable ordinary dividend per share and a pay-out ratio of 40-50% of the net operating result
• We intend to maintain financial leverage and fixed-cost cover ratio consistent with a Single ‘A’ financial strength rating
− Latest financial strength ratings awarded by Fitch (‘A+’) and Standard & Poor’s (‘A’) in line with guidance
Dividend policy For the financial year 2019, NN Group aimed to pay an ordinary dividend in line with its medium-term financial performance and envisages an ordinary dividend pay-out ratio of 40-50% of the net operating result. NN Group intends to pay interim dividends calculated at approximately 40% of the prior year’s full-year dividend. Barring unforeseen circumstances, NN Group intends to declare an interim dividend with the disclosure of the first half-year results and to propose a final dividend at the annual general meeting (AGM) of shareholders. When proposing a dividend, NN Group takes into account, amongst other things, the capital position, the leverage and liquidity position, regulatory requirements and strategic considerations, as well as any expected developments in these areas.
At the AGM on 28 May 2020, a final dividend for 2019 will be proposed of EUR 1.40 per ordinary share. Together with the 2019 interim dividend of EUR 0.76 per ordinary share paid in September 2019, NN Group’s total dividend for 2019 will be EUR 2.16 per ordinary share, which is equivalent to a dividend pay-out ratio of 50% of NN Group’s full-year 2019 net operating result.
On 13 February 2020, NN Group announced a new share buyback programme of EUR 250 million, commencing on 2 March 2020 and to be completed within 12 months.
NN Group reports on the progress of the share buyback programmes on its corporate website ( Investors.htm) on a weekly basis.
Credit ratings On 18 September 2019, Standard & Poor’s published a report confirming NN Group’s ‘A’ financial strength rating and a ‘BBB+’ credit rating with a stable outlook. On 10 March 2020, Fitch confirmed NN Group’s ‘A+’ financial strength rating and ‘A’ credit rating, and upgraded the outlook from stable to positive .
ESG ratings In the area of sustainability, we are rated by specialised research agencies and included in indices such as the Dow Jones Sustainability Indices. Read more on page 60. We proactively inform the market about our sustainability approach and performance by publishing and regularly updating an environmental, social and governance (ESG) presentation on our website and during one-on-one investor meetings.
Responsible investment NN Group’s Responsible Investment (RI) Framework policy sets out our vision and approach in this area: we integrate environmental, social and governance (ESG) factors into our investment process and active ownership practices. We prefer inclusion backed by engagement to exclusion, but we also uphold restrictions; and our asset manager offers clients a range of ESG-integrated, sustainable and impact investment strategies.
These companies are placed on NN’s restricted list, which applies to all investments. We believe this restriction will contribute to de-risking our portfolios in terms of our carbon footprint, which is in line with our responsible investment ambition, and contribute to the overall energy transition. To create consistency throughout our business, we will implement an insurance underwriting policy that is aligned with the approach for investments. We feel the various elements of this policy statement reinforce each other.
NN IP has strengthened its approach by including a stringent definition of ESG integration that sharpens our focus. For each individual investment analysis, the integration of ESG factors needs to be demonstrated and documented in a consistent way. At year-end 2019, ESG criteria were consistently integrated for roughly two-thirds (68%) of NN IP’s AuM, amounting to EUR 189 billion. This includes those assets managed under the sustainable and impact strategies. NN IP is committed to further increasing the number of assets where we integrate ESG factors into the investment process where relevant.
• Continue to increase our Assets under Management (AuM) in sustainable and impact strategies
• Reduce direct CO2 emissions (tonnes) by 3% per FTE per year
To support our business in implementing our RI Framework policy, the NN IP Responsible Investment team was doubled from 4 to 9 FTE.
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. To ensure proper governance, we have separate voting committees in place for the different asset types, and publish our voting record on a dedicated website. Some of the voting is outsourced to a proxy service provider, which votes by following our customised proxy voting guidelines.
For example, in the case of board elections, we generally support resolutions regarding the (re)appointment of candidates put forward by the company. However, we rejected several board-related items due to a lack of independent board members, poor diversity or when there was no proactive and comprehensive board oversight of environmental and social risks.
We believe in the importance of an ongoing dialogue with companies and issuers in whom we invest. Through engagement, we aim to raise their awareness of ESG issues and encourage them to improve their ESG policies and practices. Because of the active investment strategies of NN IP, our equity and fixed income analysts and portfolio managers are in frequent dialogue with investee companies. Our ESG specialists also enter into dialogue with corporate and sovereign issuers, and whenever ESG issues are a topic of discussion during company meetings, we log them in a dedicated database.
In addition to our own engagement efforts, we use the services of Sustainalytics Stewardship Services. They carry out engagements with companies on our behalf, primarily focused on compliance with internationally recognised conventions and guidelines on ESG issues.
For NN Group’s own assets, too, we look for investments that have a positive impact on society while still meeting our investment criteria. For instance, we invest in green bonds, and finance infrastructure debt projects in the area of renewable energy and resource efficiency (specifically: solar and windfarms, district heating projects, and water and wastewater treatment facilities). In total, these investments amounted to EUR 821 million at year-end 2019.
We also continue to make our own private real estate portfolio more sustainable. We use the Global Real Estate Sustainability Benchmark (GRESB) as the primary measure of our progress. In 2019, the GRESB score for NN’s portfolio of funds, joint ventures and directly-owned buildings rose for the fifth year running to 85 out of 100, well above the 77 of the European private real estate benchmark.
Please also note our Analysis of the carbon footprint of proprietary assets, published on the same date as this review. It contains information on the measurement of the carbon footprint of 80% of our total asset portfolio including residential mortgages. It also provides an overview of NN Group’s efforts to address climate change risks in our investment process and how we aim to contribute to a low-carbon economy through our investment activities.
We are pleased that this effort was recognised by external stakeholders, with NN the top-scoring company in the annual Tax Transparency Benchmark published by the Dutch Association of Investors for Sustainable Development (VBDO). This benchmark provides a comparative study of Dutch, stock listed companies’ fiscal transparency.
Sustainable sourcing 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, where we implement sustainable and circular solutions. Our relationship with suppliers is based on our NN values, and we aim to work together in a mutually beneficial way. We have a supplier qualification process and governance in place for managing social, environmental and financial aspects of the procurement process.
Managing our direct environmental footprint We manage our environmental performance through efficient use of natural resources, and identifying and implementing green alternatives. We have been carbon neutral since 2007 by purchasing voluntary carbon credits to compensate our CO2 emissions. Our target is to reduce our CO2 emissions from direct operations by 3% per FTE per year. In 2019, our CO2 emissions decreased by 14% per FTE per year.
The Amsterdam University of Applied Sciences researches the programme’s impact. It found that 26% of respondents remain debt-free over the long term and after the programme, this group also had more money available for unexpected one-off expenses, such as replacing costly but essential household whitegoods. In 2019, 2,983 households were supported.
In addition to financial support, 171 NN employees volunteered 3,518 hours of their time and expertise to projects that further the foundation’s goals.
Community investment NN Group’s overarching community investment programme is NN Future Matters. This programme aims to help improve people’s financial circumstances, with a particular focus on 10- to 25-year-olds and underserved groups. In 2019, we supported 25,421 young people, while 87% of our total EUR 3.2 million charitable donations went to NN Future Matters-related target areas.
In Bulgaria, with local partners we developed a personal finance textbook, reaching over 600 students and lecturers across five universities. Together with the Financial Literacy Foundation, we launched a financial education website to share useful financial information with the wider public. A national tour of the play ‘Money Carousel’ to four regional cities was also organised, using theatre to educate children about financial well-being.
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.
In Greece, the digital career orientation programme My Career was launched to help young people make an informed career study choice that suits their personality and links opportunities in the employers’ market with their personal interests. Making the tool available online ensures that young people in both urban and rural areas are reached.
In 2019, for example, we organised several fundraising initiatives with colleagues in partnership with the LINDA.foundation, which helps Dutch families in financial distress. To celebrate NN Future Matters’ fifth anniversary, and to help NN countries strengthen their partnerships with relevant local charities, we made additional donations of EUR 80,000 to local charities in eight NN markets.
During 2018, we provided the Dutch Central Bank (DNB) with input via a survey and expert session, thus contributing to a DNB report on sustainability risks and goals in the Dutch financial sector. During NN’s
International Leadership Conference, our senior leaders reconfirmed our impact areas and discussed how NN can further contribute to the SDGs and further align our target-setting. Through our membership of the UN Global Compact Network Netherlands, we contributed to the development of an SDG Game that was launched at the UN Global Compact Leaders Summit in New York in September 2019, and which helps companies raise awareness about the SDGs and engage their employees in creating a sustainable company.
However, some of our activities have a negative impact on the SDGs. For example, we are still involved in activities that generate carbon emissions. In future, we want to better define our impact, by measuring not just our positive but also our negative impact on the SDGs we have identified.
The Sustainable Development Goals (SDGs) address the world’s largest societal challenges, such as poverty, climate change, health care and education. At NN, we believe the public and private sector should work together to help achieve these goals. In 2019, we took steps to further link the SDGs to the themes in our strategic agenda: healthy and safe living, a sustainable planet and an inclusive economy.
SDG Impact and opportunity Performance in 2019 Theme Impact through job creation, procurement activities and community investment
• Reducing our CO2 emissions per FTE by 14% and purchasing 72% electricity from renewable resources
These high-quality investments have attractive growth potential, as their products and services offer solutions benefiting from the tailwind of rising capital spend on the SDGs. Environmental, social and governance (ESG) factors are integrated throughout the investment process, and we engage with all portfolio holdings to ensure the investment case is attractive and the solutions make a positive contribution to a cleaner environment and better world.
Our range of impact strategies, which includes listed equity, fixed income and direct loan funds, currently holds EUR 3.5 billion AuM. This includes our
As part of our global engagement survey, we asked colleagues how they felt their manager performs on living our values. Particularly encouraging were the scores of 8 for the statement ‘I feel encouraged by my manager to meet our high standard of integrity’ (2018: 7.9) and 7.8 for ‘My manager consistently acts as a role model when it comes to living our NN values’ (2018: 7.7).
Consultation with stakeholders In general, the feedback from business units was that the three values: care, clear, commit, remain very recognisable for employees, so there is no urgent need to change them. This was reflected in the NN Group-wide response to the engagement survey question on whether employees feel connected with our values: 7.9 (2018: 7.8; external benchmark: 7.6).
Way forward In 2020, to help improve cooperation, we will develop a communications and culture programme around the theme ‘Connect’ and implement the other improvements proposed by the review process.
As part of the maintenance of our values, we will also seek feedback from various external stakeholders, such as supervisory bodies. We will also take into account that the wording remains in tune with both the environment in which our company operates and regulatory requirements, such as the Oath for Financial Institutions in the Netherlands.
Care ‘In our team we genuinely care about our customers and treat them with respect’
Consumer perception The perception of customers and the general public on how NN is living its values is measured using the Global Brand Health Monitor (GBHM). The 2019 GBHM showed that the values remained strongly embedded in the NN brand, with at least 55% of customers recognising each of the values in all markets, except for Japan.
The Management Board is responsible for ensuring our values continue to foster a culture focused on long-term value creation. In 2019, with the NN values five years old, it seemed a natural moment to review whether the wording of the NN statement of Living our Values was still relevant.
NN Code of Conduct Founded on the NN statement of Living our Values, the NN Code of Conduct offers clear guidance in a single, comprehensible document on how we as NN employees should behave: how we interact with colleagues and customers; how we deal with information and data; how we deal with conflicts of interest, fraud, corruption and financial economic crime; how we use equipment and the internet; and how we report and deal with breaches.
Employees must formally acknowledge annually that they understand the content of the NN Code of Conduct and that they can and will apply the policies and standards. Formal acknowledgement of the NN Code of Conduct has been mandatory for all business units for several years. In October 2019 we achieved an acknowledgement score of 100% for internal NN staff (excluding employees on long-term leave and sick leave).
Conduct and culture within our Risk Control framework Prior to sending out the NN Code of Conduct acknowledgement email in 2019, we launched the online learning platform Conduct Matters. The aim of this learning platform is to raise awareness of the NN Code of Conduct and is accessible for all employees in all local languages. The platform includes exercises, dilemmas, examples of important conduct-related topics, films, articles and hands-on guidance on how to act according the NN Code of Conduct.
Risk Culture Check-in In January 2019, Group Risk and Group Compliance launched the Risk Culture Check-in. All business units performed a selfassessment on how they perceived the risk culture within the business unit. The business units also assessed head office control functions on their risk culture.
Other incidents and concerns In 2019, Corporate Security & Investigations was involved in 95 cases (2018: 100 cases). In six cases, disciplinary measures were taken (e.g. a warning, reprimand, termination of employment or instant dismissal). Employees concerned were informed in writing by the imposed disciplinary measures.
NN’s commitment to long-term value creation is anchored in the NN statement of Living our Values. Here we emphasise 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 short-term gains’ and ‘carefully balance the interests of our stakeholders’. Read more in the corporate governance section on our corporate website.
Read more in the Corporate governance chapter on pages 21-31 of the Financial Report.
NN Group N.V. (NN Group) is a public limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands.
NN Group Compliance Function Charter 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 of good corporate governance. The purpose of the NN Group Compliance Function Charter is to help businesses effectively manage their compliance risks. This document is available for download on the NN Group corporate website.
From left to right: Satish Bapat Chief Executive Officer NN Investment Partners Dailah Nihot Chief Organisation and Corporate Relations Tjeerd Bosklopper Chief Executive Officer Netherlands ad interim and Chief Transformation Officer David Knibbe Chief Executive Officer and chair of the Executive Board and Management Board
During 2019, we considered a number of different developments and topics that were brought to our attention by and/or discussed with different stakeholders. For a non-exhaustive overview, see the next page.
Our approach to human rights Respect for human rights is an integral part of our values, as confirmed in the NN statement of Living Our Values. The principles contained in the UN Guiding Principles for Business and Human Rights guide us in implementing human rights in our business activities and interaction with stakeholders.
Stimulate good cooperation, increase financial advisor satisfaction, ultimately leading to customer satisfaction
Investee companies Voting at shareholder meetings, dialogue with company management, engagement
Create value through consistent and transparent voting behaviour, improved disclosures, improved decision-making, including on ESG issues
Investments in coal-related companies, controversial weapons and weapon trade, benchmarking methods
Governance The NN Group Executive Board ensures that the company has adequate internal risk management and control systems in place so that it is aware of any material risks run by our company and that these risks can be managed properly. Each year, the Executive Board defines the company’s risk appetite, related limits and tolerances. This is ratified by the Supervisory Board. Risk management processes are covered as part of the NN Group Financial Report (Note 49).
The Executive Board’s responsibilities include the formulation of the company’s strategy in line with its view on long-term value creation. This includes the nonfinancial aspects relevant to NN, such as environmental, social and governance (ESG) matters. The Supervisory Board supervises the policy pursued by the Executive Board, while the Management Board is responsible for the company’s day-to-day management and overall strategic direction. These responsibilities are laid out in the respective charters of these Boards as published on our corporate website.
In May 2019, as part of our Supervisory Board’s permanent education programme, there was a session on NN’s approach to addressing climate-related risks and opportunities. In March 2020, NN’s Management Board discussed and confirmed NN’s approach to climate change risks and opportunities.
ESG-related governance within our investment activities The NN Group Responsible Investment (RI) Framework policy describes our approach to taking into account ESG factors in our investment process. The Management Board decides on adjustments to the RI Framework policy and related restricted list, taking into account the recommendation of the ESG Committee of NN Investment Partners (NN IP). In 2019, responsible investing-related items appeared on the agenda of the Management Board four times.
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, which report to the CIO of NN IP.
Strategy Climate change already presents current risks and opportunities, and it is expected that these will increase over the mid to long term. NN Group therefore considers climate change to be an emerging development with potential for considerable risk to our longterm business model and strategy.
• Many of our product development and strategy updates are based on three-to five-year time frames
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 can lead to higher expenditures (claims and operational costs), thus affecting the margins of our P&C insurance products. Several studies show that the occurrence of these severe weather events will be more likely in the future. Our business unit NN Non-life offers P&C insurance solutions to the Dutch and Belgian markets. In addition, NN offers a range of non-life products in Spain and Poland.
Climate-related opportunities Despite the various threats it poses to the world, climate change could also create opportunities. Helping our customers adapt to climate change, or supporting them in opportunities related to a lower carbon economy, could generate new sources of revenue. For example: • Within our asset management business, we continue to see strong interest from investors interested in impact investing and green bond solutions. NN IP is the largest market participant of open-ended green bond funds. During 2019, NN IP expanded its green bonds range of funds by adding a short-duration variant.
Scenario analysis for investments To get more insight into specific drivers of climate-related risks and opportunities that may impact investment performance, NN has worked on scenario analyses for our proprietary assets. Supported by external sustainability consultant, ERM, we have developed various distinctive analysis and models, focused on the largest asset categories on the NN Group balance sheet: (i) government bonds (approximate 36% of total balance sheet assets), (ii) residential mortgages (23%) and (iii) non-financial corporate exposures (15%). Where possible we considered a relevant short-, medium-, and long-term scenario, aligned with the TCFD recommendations.
For this assessment, we used data from local institutions (‘Risicokaart’ for the baseline scenario and ‘Klimaateffectatlas’ for the future scenario) that have projected flooding hazards. The future data set considers the projected impact of climate change (associated with a 2°C temperature rise by 2050) and planned improvements to the Dutch water defence systems during the coming decades (as defined in the Water Act). By comparing the data to properties in NN’s mortgage portfolio, we assessed which regions and properties have a high or higher flooding risk, both in the baseline and future scenarios (2050). We also compared this regional data with more specific data on houseowners that gives an indication of the financial ability of the houseowner to cope with potential damages as a result of flooding.
Solvency and resilience testing In our insurance business, we explicitly consider large catastrophic losses in economic capital modelling in order 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-in200 -year event, over a one-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.
The impact of climate change on our underwriting business is also included as part of NN Group’s ORSA. A stress test conducted by our NN Non-life entity was used to evaluate the impact of climate change on the consolidated balance sheet and capital position of NN Group. The modelled scenario included a sudden shock caused by four windstorm events in Europe, and was partly based on the stress test initiated in 2018 by the European Insurance and Occupational Pensions Authority (EIOPA). While noting that this scenario showed negative effects for NN Non-life, it also shows that those effects would be manageable on NN Group’s consolidated balance sheet. This was in line with stress tests performed in 2018.
NN Non-life also studied the impact of climate change leading to a gradual but systemic increase in catastrophic events, and the impact of this on the consolidated balance sheet and capital position. The study concluded that climate change will not materially affect Non-life business in the short term (3-5 years), pointing out that this is an area for further consideration in the longer run (2030-2050).
At an industry level, NN Group cooperates with 17 other insurance companies in the TCFD Insurer Pilot, as part of the UN Principles of Sustainable Insurance (PSI). We do this as part of our efforts to further develop risk assessment tools and better understand the impact of climate change on our insurance underwriting business. This initiative aims to jointly establish standards, methods and tools that will support scenario analysis by including the assessment of climate-related physical and transition risks within insurance portfolios.
To learn about further actions that we could take to support the objectives of the Paris Agreement, NN joined the Paris Aligned Investment Initiative of the Institutional Investor Group on Climate Change (IIGCC). The Initiative aims to help develop a common understanding of concepts relating to alignment with the Paris Agreement, and explore options for approaches and
Processes within insurance underwriting Within our P&C insurance business, we manage physical climate risks in a number of ways. NN helps customers take precautionary measures, with the aim of preventing and minimising claims caused by windstorms, fire or other events. We monitor our claims experience, and reprice or adjust contract conditions where necessary. NN’s P&C portfolio is predominantly annually renewable, allowing repricing over the short term. We apply such measures cautiously, as over the longer term insurance product affordability for our clients remains an important consideration for us when making strategic choices.
Portfolio diversification and tracking concentration risks are other key riskmitigating steps. NN’s wide product range offers a broad variety of non-life insurance protection cover options against damage and loss from a wide range of causes. In addition to our P&C products, our portfolio comprises income products, such as disability and accident insurance, that are less sensitive to windstorm or climate change.
Carbon footprint – proprietary assets NN Group measures the carbon footprint of its proprietary assets. In 2019, we measured the carbon footprint of our residential mortgage portfolio for the first time. Combined with the already established analysis of government bonds, corporate fixed income investments and listed equity, the total assessed amount is now EUR 165 billion. This represents 80% of our total asset portfolio which comprises general account assets of the insurance entities, and the assets of NN Bank and NN Group.
We also calculated the weighted average carbon intensity for the listed equity and fixed income portfolio. Compared to 2018, the total carbon intensity figure remained stable, although it somewhat declined for corporate fixed income while increased for equities. Refer also to the table on page 62. Further background on the methodology and analysis of the results is available in a separate publication, called ‘Analysis of carbon footprint of proprietary assets’, on NN Group’s corporate website in the Investors/Annual Report section.
• Amount of green bonds and infrastructure debt projects in the areas of energy and resource efficiency held in the proprietary fixed income portfolio: EUR 821 million by year-end 2019
• GRESB score, as an indicator of the sustainability performance of the proprietary private real estate portfolio: 85 out of 100. Amount the assessment covers: EUR 7 billion or 93% of total real estate exposure
• Amount of securities covered by the coal phase-out strategy for the proprietary portfolio: EUR 2 billion
• Number of company dialogues and engagements conducted by NN IP analysts and ESG specialists: 662
• Percentage of shareholder resolutions focused on environmental issues and climate change where NN IP voted ‘for’: 96% (71 out of 74 proposals)
We take an integrated approach to reporting, and our Annual Report consists of two parts: this Annual Review and the Financial Report. It is prepared in accordance with Dutch law and relevant reporting standards.
Structure In the Annual Review, we aim to provide a concise, accurate and balanced account of NN Group’s financial and non-financial performance over the past year. It is structured around six sections: NN at a glance, The world around us, Our performance, Creating value for our stakeholders, Our culture and governance, and Facts and figures.
Relevant topics Relevant topics were selected for the 2019 Annual Review, through a materiality assessment using internal and external research, and other sources. This assessment included a survey amongst internal and external stakeholders, see page 10.
External assurance We aim to be transparent and provide reported content that is reliable. For this reason, our external auditor, KPMG, provided limited assurance on the non-financial information in the Annual Review.
Going forward Going forward, we will continue to tailor our reporting to serve different stakeholder groups. We will aim for further integration of financial and non-financial information to provide stakeholders with a complete picture of how we create long-term value for our company and our stakeholders. This includes (re)defining key performance indicators and setting targets which are aligned with the refinement of our strategy, to be launched mid-2020.
– designated as at fair value through profit or loss 1,184 722
Consolidated profit and loss account (in EUR million) For the year ended 31 December notes 2019 2018
Assets under Management (end of period, in EUR billion) 276 246 246
NN Group share price (last trading day of the year, in EUR) 33.82 34.80 36.12
– insurance business units scoring on/above level previous year1 82% 42% 91%
Assets under Management in sustainable and impact funds and mandates (end of period – in EUR million) 22,740 16,549 10,852
– as part of the total Assets under Management 8.2% 6.7% 4.4%
Young people reached through NN Future Matters programme 25,421 38,536 37,208
Dow Jones Sustainability Index (out of 100) 78 (Included) 77 (Included) 80 (Included)
– as part of total Assets under Management NN Investment Partners 8.2% 6.7% 4.4%
Shareholder resolutions on which we voted by topic 706 596 348
Private real estate – portfolio average (vs. benchmark average) 85 (77) 80 (66) 74 (61)
1 Previously: Delta Lloyd Equity Sustainable Global Fund. 2 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/EURm of revenue) – excl. mortgages 106 107 231
Scope of our carbon footprint disclosure In 2019, we measured the carbon footprint of our residential mortgage portfolio for the first time. This brought the assessed AuM up to EUR 165 billion. This represents 80% of our total asset portfolio which comprises general account assets of the insurance entities, and the assets of NN Bank and NN Group. The main asset categories that were not in scope of this carbon footprint analysis included real estate, private equity, and cash. The fixed income holdings that we assessed included government bonds and corporate fixed income securities. The corporate fixed income portfolio comprised mainly corporate bonds, but also asset-backed securities and loans (although the data availability on these two asset categories was limited).
In 2019, we made a change in the way we calculate the carbon footprint metric as we now use enterprise value (a measure of a company’s total value) as a denominator to attribute emissions to both equity and debt positions within our portfolio. This change contributed to the decrease in the portfolio carbon footprint for these asset categories. Note that the 2018/2017 comparison was distorted by a methodology improvement for sovereign bonds, which contributed to the large decline in the portfolio carbon footprint and carbon intensity for this asset category. More information on the methodology and results can be found in a separate report, called ‘Analysis of carbon footprint of proprietary assets’, published on the NN Group website.
2 By further refining the segmentation of employees per business unit data may differ from the previous year (i.e. NN Bank is now separately presented where in 2017 it was allocated to Other).
Of which investigated by Corporate Security & Investigations 3 4 3
Total employee wages and benefits (in EUR million) 1,545 1,500 1,496
Total number of young people reached through NN Future Matters programme3 25,421 38,536 37,208
– Renewable electricity as % of total electricity 72% 66% 69%
– Sustainable paper as % of total paper 64% 78% 87%
1 Increase in total waste due to refurbishment of the NN Group headquarters in The Hague.
Basis for our conclusion We have performed our review on the Non-Financial Information in accordance with Dutch law, including Dutch Standard 3810N: ‘Assurance-opdrachten inzake maatschappelijke verslagen’ (Assurance engagements relating to sustainability reports). We are independent of NN Group N.V. in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics). We believe that the assurance evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.
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 57 of the report.
Responsibilities of the Executive Board and the Supervisory Board for the Non-Financial Information The Executive Board of NN Group is responsible for the preparation of the Non-Financial Information in accordance with the GRI Standards and the applied supplemental reporting criteria as disclosed in ‘Our approach to reporting’ on page 57, including the identification of stakeholders and the definition of material matters. The choices made by the Executive Board regarding the scope of the Non-Financial Information and the reporting policy are summarised in ‘Our approach to reporting’ of the Annual Review. The Executive Board is also responsible for such internal control as it determines is necessary to enable the preparation of the Non-Financial Information that is free from material misstatement, whether due to fraud or error. The Supervisory Board is responsible for overseeing NN Group’s reporting process.
Our responsibilities for the review of the Non-Financial Information Our objective is to plan and perform the review in a manner that allows us to obtain sufficient and appropriate assurance evidence for our conclusion. Procedures performed to obtain a limited level of assurance are aimed to determining the plausibility of information and vary in nature and timing from, and are less in extent, than for an audit 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. The materiality affects the nature, timing and extent of our review procedures and the evaluation of the effect of identified misstatements on our conclusion. We apply the ‘Nadere voorschriften kwaliteitssystemen’ (NVKS, Regulations on quality management systems) and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. We have exercised professional judgement and have maintained professional scepticism throughout the review, in accordance with the Dutch Standard 3810N, ethical requirements and independence requirements.
Assets managed with a specific focus on sustainability, for example strategies that focus on today’s and tomorrow’s sustainability leaders and companies that make a clear positive contribution to the UN SDGs.
Required by the Dutch Works Council Act 2013, a standing works council formed by representatives from, in NN Group’s case, eight Dutch work councils. The NN CWC is informed and/or consulted about important NN Group developments in the Netherlands, and about developments internationally to the extent that they influence Dutch interests.
Net Promoter Score (NPS) A management tool to gauge the loyalty of a firm’s customer relationships. It serves as an alternative to traditional customer satisfaction research.
The NN Group N.V. 2019 Report of the management board (Bestuursverslag), as referred to in section 2:391 of the Dutch Civil Code. It includes the Annual Review and the following chapters in the Financial Report: Financial Developments, the Report of the Supervisory Board, Corporate Governance, the Remuneration Report, and the Dutch Financial Supervision Act and Dutch Corporate Governance Code statements.
Sets out a company’s vision, approach and key principles on responsible investment. NN Group defines RI as the systematic integration of relevant ESG factors into investment decision-making and active ownership practices.
SparkLab NN innovation labs that work to foster innovative ideas by identifying and exploring growth opportunities. The concept was pioneered in the Netherlands in 2016 and has since been replicated in Hungary, Japan, Poland, Romania, Spain and Turkey.
An industry-led initiative of the Financial Stability Board to develop recommendations on climate-related financial disclosures. The Task Force published its final recommendations in June 2017.
Disclaimer NN Group’s 2019 Annual Report consists of two documents: the 2019 Annual Review and the 2019 Financial Report. More information – for example the Solvency and Financial Condition Report (SFCR) and the GRI Index Table – is available on the corporate website in the Investors/Annual Report section.
Certain of the statements in this 2019 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.