About NN Introduction 01 How we create and share value 02 Our seven reporting segments 04 Our key figures 06 CEO statement 08 Delta Lloyd transaction and integration 10 Our culture 13
Our operating environment Trends and developments 17 Understanding and addressing our material topics 19
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 business performance, our strategy, our objectives, achievements and dilemmas related to the social, environmental and governance aspects of our business, and the statement of our CEO. It is targeted at NN Group stakeholders.
Our ambition: To truly matter in the lives of our stakeholders
This report aims to provide a balanced view of NN Group’s purpose, values, strategy, business model, operating environment and performance
• EUR 227 billion total assets of NN Group pages 65-66
• Free cash flow to the holding of EUR 881 million in 20173
With around 15,000 employees, we aim to deliver high-quality retirement services, insurance, investments, and banking products to retail, SME, large corporate and institutional customers
Combined ratio3,4 102.0% – of which Claims3,4 73.5% – of which Expenses4 28.4%
Japan Closed Block VA comprises NN Group’s closed-block single premium variable annuity (SPVA) individual life insurance portfolio in Japan. These products were predominantly sold from 2001 to 2009. The total portfolio is reinsured by NN Re in the Netherlands.
We expect 60% of the book to run-off by the end of 2019.7
This segment comprises NN Bank (including Delta Lloyd Bank), NN Re (excluding reinsurance of the Japan Closed Block VA portfolio), the holding result and other results.
NN Bank NN Bank operates in the Netherlands and offers a range of retail banking products, for example, mortgages and savings products.
NN Group operating result ongoing business before tax (excluding segment Japan Closed Block VA) (% of total – FY2017)
EUR 881m Free cash flow to the holding (2016: EUR 1,349m)
Read more about how we performed financially in the chapter ‘Attractive returns for investors’ on pages 39-40, and in the chapter ‘Facts and figures’ on pages 63-65 of this Annual Review, and in our Financial Report.
How we performed In 2017, our free cash flow to the holding was EUR 881 million, including a EUR 500 million capital injection into Delta Lloyd Life.
How we performed VNB in 2017 amounted to EUR 345 million, up 60.7% from EUR 214 million in 2016. The increase reflects higher VNB at Japan Life mainly driven by higher sales, an improved product mix and an increase in interest rates, and higher VNB at Insurance Europe driven by higher sales at better margins.
How we performed Total Assets under Management were EUR 246 billion at the end of 2017, up from EUR 195 billion at the end of 2016, mainly driven by the acquisition of Delta Lloyd Asset Management.
EUR 10.9bn Assets under Management in SRI funds and mandates (2016: EUR 5bn)
Read more about our non-financial objectives and how we performed in the chapter ‘Creating and sharing value’ on pages 35-50 of this Annual Review. For additional non-financial indicators refer to the chapter ‘Facts and figures’ on pages 63-69 of this Annual Review.
How we performed Overall employee engagement dropped compared with last year. This is mainly due to the integration of NN and Delta Lloyd in the Netherlands and Belgium. Our international business units showed an increase in engagement to 73%. We aim to increase our employee engagement going forward.
How we performed In 2017, NN Future Matters and Delta Lloyd Foundation joined forces to increase our communities’ financial wellbeing. Of our total charitable donations of EUR 2.4 million, 82% went to NN Future Matters focus areas.
How we performed Since the start of our NN Future Matters programme in 2015, we have reached out to nearly 74,000 youths in the many communities in which we operate. This brings us closer to our goal of positively impacting the futures of 100,000 young people by 2020.
How we performed CO2 emissions of our direct environmental footprint showed an increase of 15.2% due to the integration of NN and Delta Lloyd. However, the CO2 emissions per FTE decreased by 10.5%. We fully compensated our CO2 emissions by the purchase of voluntary carbon units.
Integrating Delta Lloyd Consolidation in the competitive Dutch market had been anticipated for years. The joining of forces by NN and Delta Lloyd in 2017 was a key step for us in preparing our company for the future. Both organisations have been deeply rooted in Dutch society for over 170 years and share many features and values. As a result of the integration we are well-positioned to capture opportunities the market presents, to create attractive products and services for our customers, and to establish a platform for innovation, knowledge sharing and talent development.
Since our Initial Public Offering in 2014, we have focused on building an agile, diverse and financially solid company that matters in the lives of our stakeholders.
Innovating our businesses The fundamental need of people to protect themselves against life’s uncertainties will continue to drive growth in the insurance industry over the long term. With technology and data transforming our competitive landscape, our customers’ behaviour and our cost structures, it is crucial that we are prepared to adapt as circumstances evolve. By making our operations more efficient, innovating our existing business, and branching out or joining forces with fintech companies and other business partners, we invest in the business of tomorrow.
In 2017, we continued to invest in positioning our brand across markets, and improving the customer experience. This resulted in customer satisfaction ratings going up for almost all our businesses. We also entered into new partnerships with different cultural, art and sports organisations. One of the highlights was the launch of the NN Running team, bringing together the best longdistance runners globally. And as of 2018, we will be the title sponsor of the NN North Sea Jazz festival, the largest international indoor music festival.
Being part of society We want to be a respected company and a good corporate citizen, and we recognise that this comes with responsibilities. This means we strive to bring positive change, and we avoid or manage the negative impacts our business activities may have. As an asset manager, with investments across the economy, we provide capital for households, companies and governments to finance growth. In line with our values – care, clear, commit – we further strengthened our Responsible Investment Framework policy. In 2017, we published a Stewardship Policy and a guidance paper on the Environment. We believe our engaged shareholdership contributes to generating long-term value, and we make active use of our voting rights at companies’ shareholder meetings. Our Assets under Management in SRI funds and mandates doubled to more than EUR 10 billion.
We improved our performance in the Dutch Transparency Benchmark, and are proud to be included in the Dow Jones Sustainability Indices.
After the listing of our company in 2014, we launched our community investment programme, NN Future Matters. Its activities are focused on promoting financial empowerment, a topic that fits well with our mission and the expertise of our people. Having reached nearly 74,000 youngsters since 2015, we are well on track towards meeting our goal of supporting 100,000 young people by 2020.
All this cannot be done without our colleagues’ day-to-day dedication to our company, our customers’ trust and the ongoing support of our stakeholders – for which I, also on behalf of our Management Board, express my gratitude.
The joining of forces of NN Group and Delta Lloyd in the Netherlands and Belgium is a key step in ensuring a sustainable and profitable business for the future
Both NN Group and Delta Lloyd have been rooted in Dutch society for over a century.
In this highly competitive market, size and diversification are required to be able to continue to provide value-adding offerings to our customers, at levels of return that are attractive to our shareholders.
Consolidation is seen as a solution to bring further stability to the market. Because of our strong financial position, NN Group had the opportunity to take a first step in this consolidation process in the Netherlands.
Joining forces Together, NN Group and Delta Lloyd move forward as a leading player in insurance and pensions in the Dutch market, with a strong position in Belgium. The combined company also provides attractive propositions in asset management and banking products. With this acquisition, we are aiming to combine the best of two organisations into a company that is ready to take on the future. We share similar values and our mission to help people protect what matters most to them.
Integration process For the integration of Delta Lloyd and NN in the Netherlands and Belgium, we formulated clear principles aimed at maximising synergies and execution certainty. A central Integration Management Office (IMO) steers, coordinates and aligns this process, working in close cooperation with dedicated integration teams in the business units and support functions. The NN operating model is the foundation for the combined company, while we aim to retain and integrate strong elements of the Delta Lloyd organisation, business and culture.
The integration plans incorporate the nonfinancial covenants as agreed between NN Group and Delta Lloyd.
Also in 2018, the integration of the head offices will be realised. We will start negotiations with the trade unions for a new combined collective labour agreement (CLA), to be implemented as of 1 January 2019. NN Group will also seek DNB approval to extend the Partial Internal Model to include Delta Lloyd Life and Delta Lloyd Non-Life.
The legal mergers of NN and Delta Lloyd Life and Non-life are planned to take place during 2019. We will accelerate upgrading the combined organisation, and further reduce costs by rationalisation of products, back-end systems and IT infrastructure.
Read more in the ‘Our culture’ chapter of this Annual Review, pages 13-16.
Approximately 250 senior leaders from both companies went through an intensive selection process that encompassed individual meetings with HR representatives from Delta Lloyd and NN Group, as well as management assessments by an external specialised recruitment agency, and personal meetings with members of the NN Group Management Board. This led to 125 appointments by mid-July 2017.
We are committed to respecting the talents and strengths of people in both organisations. However, the integration of the companies will, unfortunately, lead to certain positions becoming redundant. In 2017 about 900 internal and external employees (measured in FTE) left the combined company.
The overarching job framework makes job placement in the new organisation easier and more transparent, accelerates the integration process and provided NN with the opportunity to simplify and modernise job structures. The first RfAs focused on integrating teams in the combined company were submitted to the Works Councils of NN Group and Delta Lloyd in October 2017, and approved in November and December 2017. It is anticipated that the integration process for all teams will be finalised in 2020, based on a phased approach.
This integration process is guided by an open and constructive dialogue with the works councils of NN Group and Delta Lloyd, the trade unions, and regulators such as the DNB, the Dutch Authority for the Financial Markets (AFM), and the National Bank of Belgium (NBB).
Nationale-Nederlanden merged with NMB Postbank Groep, which established ING Group, Nationale-Nederlanden delisted
Merger of De Nederlanden van 1845 with Nationale Levensverzekering-Bank into Nationale-Nederlanden. Company listed on the Amsterdam Stock Exchange
Merger of Delta Verzekeringsgroep with Nedlloyd into Delta Lloyd. Company listed on the Amsterdam Stock Exchange
We empower people to be their best and respect each other and the world we live in
Our values are the foundation of our culture and provide the basis for our company-wide policy framework. Our values are reflected in our policies, standards and processes that guide our colleagues in their interactions with each other, with customers and with other stakeholders. Especially in times of change, the values support an open and honest dialogue and provide a strong basis for a healthy company culture.
In Belgium and Bulgaria, care, clear, commit days were organised. Greece, Poland and Turkey hosted townhalls and discussion sessions on the values with senior leaders. Donation activities played a central role in Bulgaria, Greece and Slovakia, ranging from society-focused activities to blood donations. In Romania, dilemmas towards (prospective) customers, colleagues, third parties and society were posted with polls on the intranet. In Spain, colleagues attended care, clear, commit training courses. NN Czech Republic organised a Fit Day. Japan will organise values-related activities in April 2018, coinciding with their Sales Awards event.
The Netherlands’ Values week survey found that 74% of participants thought Values week provided a good opportunity to reflect on our values, compared to 67% in 2016. 95% of all participants would encourage a colleague to join the next Values week, compared to 98% in 2016.
The NN Code of Conduct brings together all relevant, conduct-related standards into a small set of comprehensible documents. It outlines our standards with regard to issues such as conflicts of interest, fraud, corruption and Financial Economic Crime (FEC).
The renewed NN Code of Conduct came into effect on 1 September 2016. To provide clarity on what is and what is not acceptable behaviour, a series of workshops on the NN Code of Conduct were held in 2016 and continued throughout 2017 for all employees. The workshops evolved around a dialogue on what it means to apply both our values and our NN Code of Conduct in our day-to-day activities.
To further empower employees to ask questions, Code & Values Desks were set up in all our business units and at group level. In the second half of 2017, the business units confirmed that the Code & Values Desks were in place and that further awareness, if necessary, will be created in 2018.
The importance of role models The NN Group Management Board, our senior leadership and line managers play a crucial role in setting the example of how to live our values.
As part of our Yearly Engagement Survey (YES), we ask colleagues if their managers consistently act as role models when it comes to living our values, and if they feel encouraged to act with integrity. As demonstrated in the chart below, there was a slight decrease compared to 2016, mainly caused by the fact that business units are in the process of reorganisation.
In the annual performance evaluation and appraisal of our senior leaders, 50% is based on the extent to which they demonstrate behaviour in line with our leadership profile.
The Management Board members play an active role in the ‘Living our Values’ programme. As in 2016, the Management Board Members hosted breakfast, lunch and coffee meetings during NN Values week, where colleagues could meet with them in an informal, personal setting for an open conversation.
There is continuous formal and informal dialogue between the works councils and the management representatives for these works councils on conduct and culture in the company.
Organisational implementation Our values are an integral part of our Human Resources policies. Compliance with our values is part of our performance management and reward system.
Promoting a culture of long-term value creation On 7 September 2017, the revised Dutch Corporate Governance Code as published in December 2016 (the Code) was embedded in Dutch law. The application of the Code by NN Group during the financial year 2017 is described in the publication ‘Application of the Dutch Corporate Governance Code’ by NN Group, dated March 2017, which is available on the website of NN Group (see pages 18-27 of the 2017 Financial Report). An important element of the Code is long-term value creation. The consequences of decisions and actions for the company’s long-term value creation, and their impact on stakeholders, should be given a prominent role in decision-making processes. For NN, this approach is strongly embedded in the ‘NN statement of Living our Values’, which emphasises the importance of doing business with the future in mind. It articulates that we ‘value long-term objectives over short-term gains’ and ‘carefully balance the interests of our stakeholders’.
Read more about our strategic priorities on page 24 of this Annual Review.
Embedding conduct and culture in our Control Framework Conduct and culture are embedded in the design of our Effective Control Framework (ECF) with the purpose of managing risks related to improper employee conduct and/or the lack of a suitable risk culture. Management is in the process of implementing controls that enable them to periodically assess and report on the degree to which our employees live our values, the level of awareness on conduct-related policies and standards, the degree to which related processes are adhered to, and our risk culture.
In Belgium, 386 NN and Delta Lloyd employees participated in special Strategy and Values dialogue sessions, including interactive modules on our three values: care, clear, commit.
Measuring our progress To monitor how well the NN values are used in the integration process, questions on the values were included in the Hello You survey. This survey monitors whether employees are ready, willing and able to embrace the combined company. The awareness of the NN values, what they mean in our everyday work, and how business leaders act on the values during the integration were measured. The results of the third survey in October, compared to the second survey in July (the first time the questions on values were included), showed that awareness of the NN values amongst Delta Lloyd colleagues improved from 71% to 77%. Recognition of NN values in Delta Lloyd was around 75% in the Netherlands and 90% in Belgium in October 2017.
In this integration process, the leaders of my BU/Group Function act according to our values: care, clear, commit
This was only five months after the NN values had been introduced. This improvement was also reflected in the results of the question on knowing what the values mean for the everyday job. These improvements indicate the success of including the NN values in all corporate messaging from the start of the transaction and integration process, and initiatives such as the Values challenge.
The response to the question on how management is living the values during the integration process showed a less favourable trend. Although the percentage of employees who are positive remains stable at 54%, the amount of neutral answers remains high at 33%, indicating employees have not yet made up their mind. The percentage of employees who disagree did not change significantly, and is at 13%. The IMO has addressed this outcome with the relevant business units.
Code of Conduct and integration Besides dilemma workshops for NN employees, a new training programme was developed for all Delta Lloyd employees. As of the fourth quarter of 2017, NN Group Compliance started training all Delta Lloyd managers on the Code of Conduct via face-to-face workshops supported by a Code of Conduct toolbox. After attending these workshops, management trains the Delta Lloyd employees by organising similar face-to-face workshops. The workshops for Delta Lloyd employees were held in the fourth quarter of 2017 and the first quarter of 2018. As of May 2018, all Delta Lloyd employees will be asked to acknowledge the Code of Conduct.
Rapid progress in digitalisation and changing customer behaviour continue to transform the competitive landscape. Regulation and measures from industry regulators have influenced the offering of products and services.
Combined, these factors imply that the financial services sector as a whole, as well as individual companies, needs to formulate efficient and responsible answers to challenges, in alignment with the interests of customers and other stakeholders.
Economic and demographic changes and outlook The positive development in global economic conditions that began in the second half of 2016 gained further momentum in 2017.
Growth in Europe, with the exception of the United Kingdom (due to Brexit), reflects continued strength in domestic demand, which was supported by monetary conditions and diminished political risk and policy uncertainty, as well as an increase in exports.
Economic growth in the Netherlands was higher in 2017 compared to other mature European countries, and is expected to remain solid in the coming years. In emerging and developing Europe (including Turkey), short‑term growth was significantly above EU average growth, and growth prospects continue to be favourable for 2018. In Japan, growth was supported by accommodative fiscal and monetary policies, and by the strengthening of global demand.
In the short term, global growth forecasts are relatively balanced, with strong consumer and business confidence, including in the euro area. A disadvantage is that substantial policy uncertainty remains, reflecting, for example, difficult‑to‑predict developments in US regulatory and fiscal policies, the potential adoption of trade restrictions, the Brexit negotiations and geopolitical risks.
In 2017, long‑term sovereign bond yields stayed broadly stable in Germany, the Netherlands and Japan, and declined by 20–30 basis points in other EU countries, as spreads relative to German yields reduced sharply after the French presidential election. Prices in equity markets have continued to increase due to strong company earnings, high consumer and business confidence, and strong macroeconomic data. As the search for yield intensifies, however, vulnerabilities and market risks increase.
Regulation In 2017, consultations started to review part of the Solvency II regime. After many years of careful designing and planning for its implementation, it is important that customers, companies, regulators and investors have time to become familiarised with how the framework functions. It is important to provide for stable regulation and a level playing field in Europe. In early 2017, the new IFRS17 standard was published for the valuation of insurance liabilities, which is expected to be implemented in 2021. Together with the already published IFRS9 standard for asset valuation, accounting standards are now increasingly based on market value approaches.
Being prepared to drive change From this general assessment we can conclude that the environment in which financial services companies operate is prone to continuous change. Companies must be agile and well prepared to deal with and take advantage of the opportunities these changes bring.
To earn trust and support, we maintain an open and continuous dialogue with our stakeholders
NN considers employees, customers, shareholders, business partners and society at large (including regulators and societal organisations) to be important stakeholders. We seek their feedback on different topics in order to learn what topics they consider important.
Identifying the most relevant developments and topics within our sector, and the potential impact they have on our company, is an ongoing process, relevant also to our annual reporting efforts. The Global Reporting Initiative’s (GRI) Sustainability Standards define material aspects as those that may reasonably be considered important for influencing the decisions of stakeholders, or reflecting the organisation’s economic, environmental and social impacts.
As a result of the acquisition of Delta Lloyd, the first step in our process was the integration of the 2016 materiality matrices of NN Group and Delta Lloyd. As most topics in the matrices were similar, some topics were integrated. For example, talent attraction and retention and training and development were merged into human capital development. The scores of the topics were merged based on the number of employees per organisation.
In line with the GRI Standards, the x‑axis of the matrix was adjusted from ‘Relevance to NN’ to ‘NN’s impact on the topic’. This resulted in trends, such as demographic change and low interest rates, ending up in the left quartiles of the matrix. Although our impact on these trends is limited, they are truly relevant to our business and therefore described on pages 17‑18 of this Annual Review.
The materiality matrix was discussed with NN Group’s Management Board, and validated by the Supervisory Board. The outcome is reflected in the chart below.
Read more about the trends that are relevant to our business on pages 17-18.
Read more about the most material topics and our response to them on pages 20-23.
Innovation and digitalisation contribute to the further optimisation of product development and distribution capabilities. At the same time, they change the competitive landscape in our industry with new, non‑traditional entrants. The result is an intensified focus on customers’ needs, and a need for new and improved ways to service them.
Opportunities and risks Customers are willing to consider products and services that offer something different from traditional savings and pension models. They do, however, continue to demand transparency and prudent management of their investments.
Companies need to decide where they want to invest in order to engage with their customers and build an ecosystem that facilitates customer contact. By doing this correctly and efficiently, a real competitive advantage can be obtained. Continuous feedback and interaction with customers is needed to design easy‑to‑understand products that anticipate their future needs, and that are priced at customers’ expectations. Drivers for customer satisfaction are not only price and service, but also contributing to a more sustainable society and the quality of interaction moments.
Innovation takes place within the business units, by improving our existing offering, process and services to create a digital, personal and relevant customer experience.
Under the GDPR, customers have enhanced rights, for example, the ‘right of access’, meaning that we should be able to respond within a month to any customer’s request for information about the why, what and which of their personal data being processed by NN.
The GDPR is in line 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. NN has processes in place to safeguard personal data, and currently our businesses are busy implementing additional measures to properly and timely comply with this regulation. A central NN GDPR programme has been installed to manage the consistency and coordination of the implementation across our European businesses. All European businesses will appoint a Data Protection Officer (DPO). Through a mandatory e‑learning course, all employees will learn about the basic principles of privacy/data protection and what is expected of them.
New technologies continue to impact the digitalisation of society, which is fundamentally changing the behaviours, needs and requirements of customers. The increased availability and sharing of data enables companies to improve the way they develop and offer tailor‑made and personalised products and services. The expectation is that a variety of breakthrough technologies are set to spur a fundamental transformation of the financial services industry, such as blockchain, cloud computing, the Internet of Things, telematics, drones and artificial intelligence. With this comes increased risk and exposure to cyber crime activities and unwanted privacy breaches.
We invest in information security and data privacy and have dedicated security teams, consisting of more than 100 security professionals and our Chief Information Security Officer, with support from our NN Security Operation Centre (SoC). They collaborate with Business Unit Security Officers to provide 24/7 protection for our customers and our organisation against current and emerging cyber threats. We work with well‑known certification authorities. We use encryption and authentication mechanisms to secure online communication and transactions.
We work closely with various partners such as universities, law enforcement, other financial institutions, Team High Tech Cybercrime (THTC) and the National Cyber Security Centre (NCSC) to support our own cyber security initiatives such as the Dutch Cyber Collective (www.nederlandscybercollectief.nl) and other business innovations.
Read more about our how we approach new technology and data privacy in the business segment chapters on pages 28-34 of this Annual Review.
Opportunities and risks The reputation of a business among stakeholders is paramount in determining whether a company is a reliable supplier of products or a worthwhile investment. If a company is perceived to not operate transparently or ethically, customers are less inclined to buy its products and investors to buy its stock. Consistent ethical behaviour and transparency can contribute to a positive public image.
Our response Our values guide our interactions with our stakeholders, and embody responsible business conduct and corporate citzenship. They are published in our ‘NN statement of Living our Values’. Additionally, the NN Code of Conduct gives more detailed guidelines for specific behaviour. Written acknowledgement of the Code has been mandatory for NN Group since the first half of 2017, and needs to be acknowledged annually by all employees. Two other standards that guide us in our activities are the ‘NN Group Human Rights Statement’ and the ‘NN Group Environmental Statement’. Before introducing new products and services, they go through our product approval and review process (PARP). We review our product range regularly to ensure that they meet our customer, compliance, risk, capital and profitability requirements. We strive to manage all our assets, in an environmentally and socially responsible way, by integrating environmental, social and governance (ESG) aspects in our investment processes.
Read more about how we manage our balance sheet on pages 39-40 of this Annual Review, and page 37 of the Financial Report.
Read more on pages 117-119 of the Financial Report (Note 43).
Although not recognised as the most material topic by our stakeholders, we believe it is evident that climate change impacts our businesses. As one of the biggest challenges facing the world today, we can already see the effects of climate change with weather events such as windstorms, drought and sea level rise. The UN Intergovernmental Panel on Climate Change has predicted that if average global temperatures increase more than 2°C this century, these events will become more frequent and severe, posing a significant threat to livelihoods and the wellbeing of society. This underlines the need to take urgent action to meet the goals of the Paris Agreement to keep a global temperature rise this century to a maximum of 2°C, and striving for 1.5°C, above pre‑industrial levels.
To further understand and manage the risks and opportunities of climate change, it is important that the quality and availability of climate‑related financial disclosures continue to improve. NN Group therefore endorsed the recommendations of the Financial Stability Board’s Task Force on Climate‑related Financial Disclosures (TCFD) and made steps to integrate them in our own reporting.
For our response to the TCFD, refer to pages 58-61 of this Annual Review.
Read more on how our strategy is being implemented across our key segments on pages 28-34 of this Annual Review.
Our drive to innovate is about enhancing customer satisfaction, intuitive interaction and simultaneously driving efficiency. We continually look for new ways to meet our customers’ needs and keep up with the changing dynamics of the markets. We improve our existing product portfolio, processes and services to create a digital, personal and relevant customer experience.
Going forward, we are executing our IT roadmap not only to support innovation, but also to increase our efficiency. Our IT roadmap is built on three pillars: speed, quality and craftsmanship.
Another element is moving to a more agile way of working by empowering colleagues and removing silos, allowing them to reduce time to market and increase customer responsiveness. Based on pilots currently running in our Insurance International businesses, we aim to implement this concept in more of our operations.
Going forward, we want our customer service and responsiveness to be available 24/7, through any channel customers want to engage with us.
What we do We are there where our customers want us to be. We operate via agents, brokers, banks and direct servicing, allowing our customers to choose how and when they interact with us. It is a personal approach, with relevant products and services delivered to customers through their preferred channel.
What we do differently In the Netherlands, we are an omnichannel company offering products through our digital and offline channels, direct writers, via exclusive agreements with partners and via (mandated) brokers. We combine this with a strong brand and high brand preference, which is important in today’s digital world.
Internationally, our focus is on building our bancassurance relationships as a key growing channel and increasing the productivity of our tied agents. We significantly increased the proportion of new business sales conducted digitally with straight-through processing, introduced the concept of 100% paperless sales processes and started to issue product policies on demand in real time. We have agreed distribution partnerships with banks across Europe and Japan, where we have been selected as preferred partner because of our product offering and customer service levels.
What we do Underwriting and technology usage are essential to the insurance business. Our underwriters perform a variety of roles that are needed to understand, manage and price risks. Together with our actuarial department, our underwriters determine the level of premiums that we need to charge to insure our clients. We use technology and data analytics to create personal and relevant products and services for our customers.
What we do differently Following the concept of our Advanced Data Analytics Lab in the Netherlands, we are building a Data Analytics and Underwriting Hub in Prague, Czech Republic, serving the international businesses. This will enhance our customer segmentation, improve our pricing and claims, and identify and grow more profitable segments.
What we do differently We want to be an intuitive partner for our customers when it comes to planning their financial futures. We find new ways to distribute our products via partners in and outside the financial sector. For example, Nationale-Nederlanden Poland launched a partnership with Play, the largest telecom provider in the country, providing dedicated health products (heart and cancer insurance) through its newly launched insurance market platform, ‘Play Insurance’. Play customers will be able to buy health insurance through the Play smartphone app, making NN products available to over 14 million Play customers. By forging partnerships outside the financial sector, we can drive our innovation of the customer experience in new ways.
What we do differently Our values and our brand mantra ‘You matter’ are the compass for the way we attract, retain and develop our people.
What we do We are committed to doing business in a way that is consistent with our values, which embody responsible business conduct and corporate citizenship. The ‘NN statement of Living our Values’ is the foundation for all internal policies and standards. Two other corporate standards that guide us in our activities are the ‘NN Group Human Rights Statement’ and the ‘NN Group Environmental Statement’. These statements also reflect our endorsement of international general standards and sector-specific standards, such as the UN Global Compact, the Principles for Responsible Investment and the Principles for Sustainable Insurance; all supported by the United Nations.
Addressing material topics, see page 19 E3 S4G4E2 S2G2E1 S1G1S1 S5 G3
The 2017 process resulted in the following top risks for NN Group.
At NN Group, we perform a yearly risk assessment to identify and assess the top risks for our company
Related is the risk of instability of the Eurozone/EU. Instability could lead to dislocation of financial markets, failing bank systems, an uncertain business environment, recession or geo-political instability.
Adapting our longer-term business model to the changing world in a timely manner is managed through NN Group’s strategy process and related Business Planning cycle. The Chief Innovation Officer channels and supports innovation initiatives.
Like many other companies, NN Group may be an (in)direct target of cyberattacks. Cyber security threats are difficult to manage. Data-sets and services are accumulated in the cloud. This generates risks caused by cyber-attacks or power outages.
As a pension provider, we address the risk of longevity, which currently is the largest quantifiable risk concentration. We are planning further longevity hedges to transfer part of the risk, and seek relief in the longer term by rebalancing our portfolio.
We are strengthening our distribution channels for example by supporting our distribution partners with ’Next Best Actions’ to customers
By joining forces with Delta Lloyd, we strengthened our leading position in the Dutch market.
In the Netherlands, we offer our products and services under the following brand names: Nationale-Nederlanden, Delta Lloyd, Movir, AZL, OHRA and BeFrank, as well as via our ABN AMRO Insurance joint venture and our partnership with ING. We build and capitalise on our leading market position with our ‘Digital, Personal, Relevant’ strategy: • Digital: products and channels that customers prefer • Personal: knowing and engaging with customers based on available data • Relevant: offering the right solution, at the right time, to the right customers
In 2017, NN Group joined forces with Delta Lloyd. Our increased scale makes us more competitive. In the Netherlands, the Nationale-Nederlanden business units will integrate the activities of Delta Lloyd Life, Non-life and Bank in its current organisations.
NN Non-life reduces its claims ratio in Property and Casualty (P&C) through deploying an innovative IT system. Based on big data and artificial intelligence, the system enables Non-life to scout, match and find stolen property on the internet. If the cost of claims due to theft is reduced substantially, it can lead to lower premiums for the customer.
OHRA introduced online claims filing. Since its launch, almost half of all claims have been submitted digitally, and customers now have online insight into the status of these claims. The percentage of questions concerning claim status reduced from 29% in 2016 to 16% in 2017.
By the end of 2020, the combined company intends to deliver an overall expense reduction of EUR 350 million for all business units in scope of the integration, including Belgium, Asset Management and Holding/ Corporate activities. Reductions will be realised through integration synergies, simplifying the IT landscape and moving to the cloud, variabilising/lowering fixed expenses through an agile way of working, and continuing to invest in digital capabilities.
We have been further improving our online portal and app to address most customers’ needs. Customers can access their personal and policy details, make changes, see documents, interact with NN and receive customer service through digital portals.
The Dutch Cyber Collective, an NN initiative supporting SMEs to reduce cybercrime, launched ‘Cyberwacht’, an emergency service for hacked companies. ‘Cyberwacht’ limits damage, investigates causes and removes malicious software.
‘Brickler’ is an online platform that makes buying and selling a house easier. Brickler is part of NN Bank, but is being developed outside the existing organisaton, according to the lean startup methodology.
These specific suggestions are based on customer profiles and behavioural data. In 2017, over 1.5 million NBAs were proposed. NBAs are continuously tested for relevance, improved and scaled.
To accelerate growth, we aim to set ourselves apart in terms of the levels of engagement and service we provide to our customers. One way we are achieving this is by continually investing in new, innovative, modular protection propositions and by cross-market collaboration. Product proposition principles are developed to identify and serve customers in an increasingly personal and relevant way.
Our general progress in 2017 To strengthen our footprint in Europe and Japan, the focus in 2017 was on continuing to build bancassurance relationships and on transforming the productivity of the tied agent channel.
Good financial discipline and a relentless focus on customer service and profitable growth have led to an acceleration in the scale of our businesses in Japan, Poland and across Central and Eastern Europe.
Capital is allocated to those product lines where good value of new business margins are generated
We are adapting our businesses for our customers and partners through new ways of working
Our focus on meeting the evolving needs of customers was strengthened through new tailor-made products and services
The Sparklab innovation concept, which was pioneered in the Netherlands, has now been copied in five international markets: Japan, Poland, Hungary, Spain and Turkey. The objective of Sparklab is to work on disruptive thinking where we can experiment with new ideas, test and learn quickly. Each Sparklab focuses on a different theme. For example, in Japan we are working on the SME ecosystem, in Hungary on wellness concepts that complement our current value propositions, and in Turkey on disrupting online distribution.
NN Poland developed the ‘Banca IT’ platform with comprehensive capabilities and products (life and non-life) for bancassurance. The platform facilitates flexible and quick time-to-market for new product launches.
A few years ago, NN Romania upgraded some protection products (term, critical illness, fixed indemnity health riders) to return a percentage of the premium when no claim is made in a fixed period. This had a positive impact on customer experience at the purchase moment. In 2017, clients with fixed indemnity health riders who had made no claim in the fixed period were, for the first time, entitled to a premium return. The feature minimises the perception of some customers that an un-claimed insurance product is poor value. It is also perceived as a saving. The positive impact has been measured in the NPS for the anniversary touch point.
This will not only enable us to improve the overall value proposition and interact with our customers when and how they want, but also drive higher levels of customer engagement. Ultimately this will deliver a larger and happier customer base.
Increased focus on core investment capabilities NN Investment Partners is NN Group’s asset manager, with strong multi-asset and fixed-income capabilities. Our products are sold around the world.
At NN IP, we believe it is important to involve all relevant stakeholders in the design and maintenance of our products and solutions to ensure we have a competitive and attractive offering. As such, understanding client needs and consultation with existing or prospective clients are important elements in product development within NN IP. We also closely follow developments in the market and in society to continue to provide suitable products.
Our progress in 2017 NN IP’s performance remained strong in our core strategies of multi-asset, emerging market debt and investment grade credit. A number of assets scored very well with 4 or 5 in Morningstar’s risk rating for a three-year period. Returns for the majority of assets exceeded benchmarks.
NN IP’s focus is to further build on its distinctive capabilities: • expanding the absolute return offering in our multi-asset strategies • further developing our alternative credit capabilities in the fixed-income space • narrowing the fund ranges in equity to focus on strategies that best align with our identity and ability to deliver high performance, while leveraging our European expertise
At the same time, environmental, social and governance (ESG) strategies are becoming increasingly important. NN IP currently manages more than EUR 10.9 billion in SRI funds and mandates.
The focus is on reducing complexity and developing different innovation themes
We are committed to delivering value-added products and services that are easy to understand and meet customers’ lifetime needs
At the end of 2016, De Nationale Algemeen Pensioenfonds (Nationale APF) was established with the support of NN’s pension administrator, AZL. Nationale APF enables pension funds from different companies to merge in a pooled vehicle, offering attractive services and solutions with low costs through economies of scale. The focus is on mediumsized and large pension funds. At the end of 2017, Nationale APF had 6,000 participants and EUR 1 billion Assets under Management.
To facilitate agile working and cost efficiency, DL AM’s assets were onboarded to NN IP’s existing scalable operating platform. Substantial synergies were achieved through the creation of one platform with a high straight-through processing (STP) rate for the combined company. We expect the resulting cost synergies to be 5-10% of the 2016 combined cost base, to be realised by 2020.
NN IP is committed to delivering value-added products and services that are easy to understand and meet customers’ lifetime needs. This is why we involve relevant stakeholders in the product design processes.
An example is ‘NNTFI24’, an app introduced in Poland with transactional capabilities for retail investors and DC pension scheme clients. The app is connected to an online execution-only platform (similar to ‘FitVermogen’) through which clients can open an account and manage their investment and pension portfolio from their mobile devices.
In the Netherlands, we cooperate with independent non-profit platform Nibud for financial education and introduced ‘StudieFit’. ‘StudieFit’ is an investment solution to fund the education of people’s loved ones. The online tool is easy to use and illustrates possible investment outcomes.
Robo-profiling capacity Within our Dutch online execution-only platform ‘FitVermogen’, robo-profiling capacity was developed. It is intended to introduce improved online investment risk profiling, with the aim of providing better service for (potential) investors. For example, with the use of computerised adaptive testing and item response theory, only relevant questions are asked through an interactive approach, instead of following a set order. The smart Q&A machine provides a direct and dynamic visual feedback loop to clients based on their answers to the profiling questions and their investment goal. This makes the client feel more understood, and creates a better customer experience. The robo-profiling is still in the pilot phase and will be further developed.
4 or 5 The majority of NN IP assets scored very well with 4 or 5 in Morningstar’s risk rating. Returns for the majority of the assets exceeded benchmarks
NN Bank supported 4,400 mortgage customers at risk of being in arrears
All our businesses delivered on our strategy, building a company that truly matters in the lives of our stakeholders.
EUR 10.9bn Assets under Management in SRI funds and mandates; an increase of 114% compared to 2016
‘NN has long-term experience in financial services. It treats its customers in a correct and respectful way.’ Pavel Ninov, Bulgaria
At the end of 2017, Nationale Algemeen Pensioenfonds had 6,000 participants and EUR 1 billion Assets under Management
• Be a preferred brand and a company that truly matters in the lives of our stakeholders
Excellent customer experience In this chapter, we describe how our business model is focused on creating long-term value for our customers.
Creating value as an insurer and asset manager Our customers entrust their money to us when purchasing our products and services. Our role is to support them in building and protecting their assets and covering their risks. 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.
Meeting our customers’ needs We are committed to delivering value-added products and services that are easy to understand and meet customers’ lifetime needs. We offer life insurance products to protect people against the financial risk of living a long life without sufficient means of support, or dying at an early age. In some markets, we also offer non-life products to protect the assets that matter to our customers, and savings and investment products to ensure their long-term income.
Products that we introduce or adapt are launched after careful product approval and review processes (PARP). PARP ensures, in all our markets, that transparency and customer interest remain a top priority.
Further building our brand Our campaigns focus on understanding the deeper motivations of people in life and play an important role in becoming more relevant for customers. In 2017, we launched an international awareness campaign on social media, asking five ‘big life questions’ to people across nine European countries, with the aim of finding out what matters to them. The videos show that we all face the same kind of questions in life and try to find a response that best fits our personal situation. The campaign reached more than 17.5 million unique users, and had 4 million full video views and 100,000 engagements across several social platforms.
Our commitments 1 For our performance on increasing the number of products with social and environmental added value, we also refer to pages 29 and 31, and pages41-44.
2 NPS target setting varies by business unit. Measurements for asset management is conducted amongst both institutional and retail investors.
In the second half of 2017, our central Branding team developed a brand commerce framework in close cooperation with the business units. This framework, enabled by today’s digital possibilities, focuses on customers and their specific needs and interests. Through videos and photos, we share stories about customer value propositions and specific themes in life, for example, retirement. In these international campaigns, we aim to connect the NN brand with local commercial opportunities. As the framework has been codeveloped with the businesses, it enables us to create and roll out digital campaigns in a more cost efficient way.
To increase awareness of pensions in the Netherlands, we partnered with initiatives of Wijzer in Geldzaken, a stakeholder platform coordinated by the Dutch Ministry of Finance. After introducing our online service ‘Pension Help’ in 2016, we continued improving the tool. ‘Pension Help’ starts ten years before a person’s retirement date, and helps users by sending them customised and relevant information step-by-step. Registered customers receive relevant information three times a year, based on their personal circumstances and situation.
In the Netherlands, we worked together with online magazines Me-to-we, Saar Magazine and Mynd to contribute to pension-related blogposts to increase pension awareness, especially for women.
In Bulgaria, we broadened our value proposition and included financial advice with our pensions and life insurance products. The advice covers five areas of financial planning: pension, investment, insurance, tax and estate planning. This is new for the Bulgarian market.
ForYouWoman in Spain In Spain, Nationale-Nederlanden’s tied agents started selling ‘ForYouWoman’. It mainly offers insurance coverage in case of breast cancer, including several services such as second medical opinion, home help and childcare services for customers when they need it the most, as well as help with cancer prevention.
In 2017, NN Bank continued with a project focused on mortgage customers at risk of being in arrears. Via an early warning system, we proactively reach out to this group to offer our support. As there is no single solution to financial difficulties, we offer assistance in various ways.
Additionally through our membership of the Dutch Association of Insurers, we support another SDMO project in India. SDMO work with local partner the Development of Human Action (DHAN) Foundation. DHAN Foundation developed a defined contribution scheme of which the administration and investment management is arranged by a local provider of life insurance. Participants save an average of INR 100 per month to supplement their government pension. The goal is to have 200,000 participants in 2021.
The NN Global Brand Health Monitor tracks how our brand is perceived externally by our customers and the general public. Twice a year, we measure our main brand indicators and provide insight into the development of the brand performance. The Global Brand Health Monitor measures the brand awareness and brand preference per country, and whether customers feel we are living our values and come across as the ‘You matter’ company.
Country NPS-r compared to 2016 NPS-r compared to market average 1 Bulgaria Improved Above 2 Czech Republic Improved Above 3 Greece Improved Above 4 Hungary Decreased Above 5 Japan Improved Equal 6 Poland Improved Above 7 Romania Improved Above 8 Slovakia Improved Above 9 Spain Unchanged Equal 10 The Netherlands Improved Above 11 Turkey Unchanged Equal
In recent years, the amount of available (personal) data has increased sharply as a result of technological developments and digitalisation. For our industry, the question of whether and how to make use of data is an important one. Embracing the use of data can help further improve our product offerings and increase their relevance in order to better serve our customers. However, the abundance of data may lead to new insights that could potentially lead to differentiation (in risk profile and pricing).
For example in car insurance, customers can already opt to have their driving behaviour tracked, with the incentive that careful driving can result in lower premiums. Although differentiation can bring value to certain customer groups, it also raises questions regarding the sustainability of a foundation of insurance: the principle of solidarity. Navigating carefully, in line with our values and applicable (data protection) legislation, and engaging in dialogue with stakeholders, will continue to be key as we move forward.
Shares issued and share buyback programme On 24 April 2017, NN Group issued 8,749,237 ordinary shares, representing an aggregate value of EUR 255 million, to Stichting Fonds NutsOhra in exchange for the preference shares A held by Stichting Fonds NutsOhra and the perpetual subordinated loan provided to Delta Lloyd.
On 1 June 2017, NN Group allotted 5,069,969 ordinary shares, representing an aggregate value of EUR 165 million, as part of the legal merger of Delta Lloyd N.V. into NN Group Bidco B.V.
On 26 June 2017, NN Group issued 4,082,061 ordinary shares as stock dividend for payment of the 2016 final dividend, representing an aggregate value of EUR 129 million.
1 In total for the following units: Netherlands Life, Netherlands Non-life, Belgium, Asset Management, Banking business and Corporate/Holding entities.
3 Net operating result of the ongoing business, adjusted to reflect the deduction of the accrued coupon on undated subordinated notes classified in equity; assuming normal markets, no material regulatory changes and no material special items other than restructuring charges.
4 Operating result before tax of the ongoing business 2017 versus 2016.
7 Reflecting EUR 500 million capital injection into Delta Lloyd Life in 2017.
8 Representing a payout ratio of around 45% of the net operating results of the ongoing business.
• Further improve performance • Accelerate the transformation of the business model • Continue to allocate capital rationally
• EUR ~350 million cost reduction1 by 2020, reflecting cost synergies from Delta Lloyd acquisition and existing standalone cost reduction plans
• Reduced expense base of business units in scope by EUR 133 million5
• Proposing a total 2017 dividend of EUR 1.66 per share8
1 Including EUR 500 million capital injection into Delta Lloyd Life.
Creating and sharing value Attractive returns for investors Continued shares for EUR 347 million, related to the 2015 final dividend, the 2016 final and interim dividend and the 2017 interim dividend. NN Group reported on the progress of the share buyback programme on a weekly basis on our corporate website: www.nn-group.com/investors/sharebuyback -programme.htm.
In August 2017, 14,348,967 NN Group treasury shares were cancelled, which were repurchased under the share buyback programme. The total number of NN Group shares outstanding (net of 6,609,781 treasury shares) on 31 December 2017 was 334,140,561.
Debt instruments In March 2015, NN Group established a Debt Issuance Programme which facilitates the issuance of debt instruments.
In January 2017, NN Group issued EUR 500 million of senior unsecured notes with a fixed-rate coupon of 0.875% per annum and a maturity of six years. These notes do not qualify as Own funds under Solvency II. The proceeds were used to repay EUR 476 million of non-qualifying subordinated notes of NN Group on their first call date in May 2017.
EUR 900 million bridge loan used to finance the Delta Lloyd acquisition: EUR 300 million senior notes with a fixed rate coupon of 0.25% per annum and a maturity of three years and EUR 600 million senior notes with a fixed rate coupon of 1.625% per annum and a maturity of ten years.
NN Group effectively reduced debt by EUR 405 million through the Stichting Fonds NutsOhra transaction in April 2017 and by EUR 575 million on the repayment of the Delta Lloyd senior unsecured notes in November 2017.
Our asset management company, NN Investment Partners (NN IP), formalised its commitment to RI by signing the United Nations-supported Principles for Responsible Investment (PRI) in 2008. NN IP has since made the consideration of ESG factors an integral part of the investment process in the conviction that these may impact both risks and returns. For clients who want to take sustainability a step further, NN IP offers specialised Socially Responsible Investment (SRI) strategies and tailor-made RI solutions.
Supporting ESG integration In February 2017, NN IP established a new RI team. The team’s primary goal is to drive the further development of RI at NN IP, and to support all investment teams in their ESG integration and active ownership strategies. The team consists of three professionals, and reports to the Chief Investment Officer at NN IP.
NN IP published a Stewardship Policy, which describes our approach towards our fiduciary duty to act responsibly on behalf of the end beneficiary. As an asset manager we are responsible for improving long-term value for the end beneficiary. Our Stewardship Policy is based on seven principles, and provides an overview of how we implement our commitment to stewardship. The principles relate to various aspects of stewardship including governance and exercising our voting rights.
• Specialised Responsible Investment (RI) strategies and tailor-made responsible investment (RI) solutions
Company dialogues and engagement are part of our fundamental approach to the investment process. Because of the active investment strategies of NN IP, our analysts and portfolio managers are in frequent dialogue with investee companies. These dialogues are tracked in a database. The chart on page 44 shows the breakdown between environmental, social and governance issues as a topic of discussion during our company meetings in 2017. In total, 341 dialogues were logged by our equity analysts and ESG specialists in the database. These dialogues included 52 engagements conducted by our ESG specialists, which can be individual engagements, in collaboration with other institutional investors, or supported by an external service provider. Moreover, these engagements often also have a thematic approach, for example the palm oil sector.
Continued focus on climate risks Climate change presents a material risk to many companies and we are aware of the risks this may present to our investments. As such, we are committed to play our part in addressing the issue.
NN IP also engages with several companies in the power utility sector that resist changes that would challenge the current business model. In these situations, the focus is on clarifying that transparency is expected, and they need to demonstrate responsible carbon-related risk management. We decided to extend our engagement for a third and final year, so that we can bring the recommendations of the Taskforce Climate-related Financial Disclosures (TCFD) to the attention of the companies that we are engaging with.
EUR 10.9bn AuM in SRI funds and mandates number of ESG dialogues
In 2017, we expanded our engagement on climate risk to the chemicals sector by joining the Climate Action 100+. This is a new, five-year investor initiative to engage with the world’s largest corporate greenhouse gas emitters to curb emissions, strengthen climate-related financial disclosures and improve governance on climate change. As part of the initiative, NN IP will enter into dialogue and work with three major companies in the chemicals sector in which it invests, and support other investors in their engagement efforts in the oil and gas and mining sector. A clear engagement agenda is set for all companies in the initiative. Each year, a progress report will be made public.
To encourage policymakers to take action on climate change, NN IP endorsed a ‘Letter from global investors to governments of the G7 and G20 nations’. This letter, signed by 400 global investors managing more than USD 22 trillion in assets, reiterates the investors’ call for governments to stand by their commitments to the Paris Agreement, and put in place policy measures to achieve their nationally determined contributions with the utmost urgency.
To learn more about climate-related risks, we performed a carbon footprint analysis on a large portion of NN Group’s Proprietary Assets. For more details, refer to pages 61 and 67 of this Annual Review. This analysis creates a starting point for monitoring and evaluating the investment risks associated with carbon emissions. It also helps us to prioritise our engagement efforts with the most carbon-intense sectors in our portfolio. To build our understanding of other metrics and forward-looking tools that are introduced to help assess climate-related risks (and opportunities), we joined a new working group of the IIGCC. The initial focus will be on scenario analysis.
Making a positive impact through our investments NN IP offers a wide range of specialised SRI funds and responsible investment solutions. These products meet our customers’ growing demand for products that have a positive impact on society and the environment, in addition to generating solid financial returns. The total Assets under Management in our sustainable equity and fixed income products grew by 114% to EUR 10,852 million at year-end 2017. The increase reflects market performance and net inflows, as well as the addition of the Delta Lloyd Equity Sustainable Global Fund, which is an enhanced passive equity fund with strict ESG criteria.
The NN Euro Green Bond fund was awarded the new LuxFLAG Climate Finance Label, which indicates that a fund’s investments help to finance climate change initiatives. Furthermore, NN (L) Global Equity Impact Opportunities helped NN IP win the Cashcow Award for Best Provider of Impact Investments at the Dutch Investment Fair in November 2017. Cashcow is a multimedia platform for private investors in the Netherlands.
(%) Measuring societal impact Impact investing, an investment strategy that intends to generate a measurable, beneficial social or environmental impact alongside a financial return, is a growing form of investing. It has, however, many challenges, such as the availability of data and a common language. NN IP published various viewpoints on how to overcome these challenges, and also called on green bond issuers to report on quantitative impacts. The measurement of the impact of companies is an important aspect of both the NN Global Sustainable Opportunities and the NN Euro Green Bond fund.
NN took part in a joint effort as part of the Sustainable Finance Platform chaired by the Dutch Central Bank (DNB), and contributed to the creation of a guidance document on SDG impact measurement. The guidance document suggests a limited number of impact indicators per SDG which can be used by investors and investee companies.
• In response to the growing interest in RI propositions by Belgian investors and distributors, NN IP Belgium launched an ESG campaign during September 2017. This campaign explained the ‘what, how and why’ of responsible investing at NN IP.
• NN IP organised a number of events, such as the fourth annual event for Dutch insurance companies, which focused on various topical issues including the growing focus on responsible and impact investing. We also hosted several responsible investor conferences in Europe for our European institutional client base.
Environmental 13 Social 8 Governance 17 ESG overlapping 63 1 This represents the number of company dialogue and engagements conducted by NN IP’s equity analysts and ESG specialists.
However, we believe that excluding the sector due to its potential health impact is not the most effective approach, as many companies also play a role in advancing the sector towards more nutritious foods and beverages. Engaging with companies about product reforms, labelling and marketing may help reposition the sector over time, so it more closely aligns with our values and the expectations of our stakeholders.
Creating value as an employer Our operating model aims to stimulate a culture of entrepreneurship and accountability, and is based on clear responsibilities, streamlined decision-making and simplified governance.
Agility and adaptive leadership Managing an agile organisation requires a way of thinking and leading people that facilitates change. Therefore we are developing a ‘train the trainer’ programme for all senior leaders, focused on nurturing an adaptive style of leadership. Its emphasis is not only on solving present issues, but also on discovering future potential. It asks our leaders to develop the ability to be vulnerable and authentic, build emotional commitment, and create a safe environment for growth and innovation.
During the annual NN Group International Leadership Conference (ILC), which targets approximately 250 of our senior leaders, workshops were conducted by Management Board members to gather input for this training programme. The programme, which is developed taking NN Group’s current leadership profile into account, will be launched in 2018.
In 2017, we launched a global HR information system called Workday to further simplify our HR processes. This is an important step in creating a more technology-based work environment, and ensuring a clear service delivery model across countries. Workday made it possible to standardise our global HR processes, and it enables us to model our workforce according to business needs.
1 Human Capital ROI = (operating result ongoing business + employee expenses)/employee expenses.
• Empower our employees to bring our brand promise to life for our customers
• EUR 21.4 million spent on training and development; an increase of 28% per FTE
Our employee value proposition is mainly focused on inspirational leadership, a meaningful and performance-oriented environment, ample learning opportunities and a healthy work-life balance. Throughout their entire career, we want our people to experience a ‘You matter’ culture, which we believe is a precondition to obtaining positive employee referrals.
This new programme will simplify our hiring approach, and position NN as one company to the graduate market. The programme will be launched in early 2018. Additionally, by facilitating internships for students, we stay connected to a young workforce.
To offer our people unique learning opportunities and to help them build valuable networks, we offer long- and short-term assignments internally, within other departments or businesses. Job rotation schemes provide additional opportunities to explore new career paths.
When appointing people in senior leadership positions, NN is a supporter of promoting from within. This policy demonstrates that there are growth paths available, and safeguards institutional knowledge by retaining our best people.
In 2017, 24 changes took place in the senior leadership group, of which 88% were internal appointments. Of all leadership appointments, 33% were women.
Leading people requires many different skills. These often improve with experience, but training and feedback helps managers to move more smoothly through the learning curve. In 2017, we continued delivering the NN leadership curriculum for first line managers, mid-careers and senior leaders. In our programmes, we encourage current and future leaders to live our values, demonstrate personal excellence, develop a deep understanding of the markets in which we operate, and enable others to perform at their potential. First steps have been taken to integrate leadership programmes across NN Group and Delta Lloyd.
Recognising performance The performance reward of our people is based on a combination of financial, non-financial and behavioural objectives. NN continued the path of transforming traditional annual performance reviews to a more interactive process of continued performance management. A pilot of this new method for senior leaders was received positively, and in 2017, additional pilots were launched in the Netherlands and Poland.
Employee rights and representation The way we consult with our people depends on local legislation and culture. In some countries, employee consultation is a legal requirement and in many European countries, it is arranged through works councils.
Vitality and wellbeing We strive to create a healthy work environment and support a good work-life balance. In 2017, all NN businesses launched a variety of health and vitality programmes.
In the Netherlands, we launched ‘It’s my Life’, a programme consisting of workshops, challenges and a dedicated app. It aims to help people create a better personal lifestyle, combined with an improved work-life balance.
Encouraging employees to develop a long-term healthy lifestyle is a spearhead of the NN Human Resources Strategy. Most of the programmes launched in 2017 will continue in 2018.
In 2017, overall engagement decreased from 71% to 66%, which for a large part is a result of the on-going reorganisations and the integration process in the Netherlands and Belgium. The engagement score in the Insurance International business was 73%.
The results reflect that colleagues feel we live our values. The survey results also show our continued focus on our customers, and the need and demand to continue to invest in efficiency, collaboration and innovation. Issues such as workflow and processes have room for improvement. In the Netherlands, the company culture can be further improved. The same is true for the international businesses on collaboration and teamwork. Recognising the importance of employee engagement, NN Group will adopt a new tool and new way of measuring and tracking employee engagement in 2018.
EUR 21.4m spent on training and development of our senior leaders were female and 35% had a non-Dutch nationality of our employees (NN and DL) completed the Yearly Engagement Survey (YES)
In this chapter, we describe how our strategy enables us to create long-term value as a corporate citizen.
Creating value as a corporate citizen We contribute to the society and communities in which we live and work in various ways. We generate economic activity by purchasing products and services from local, regional and global suppliers. We pay taxes to the governments in the markets in which we operate, and therefore provide revenue to fund public services. To ensure this mindset is embedded in the organisation, we have a set of tax principles to provide guidance and clarity. We also invest in our local communities through our charitable partners and volunteering efforts.
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 real estate, professional services, IT, business services, marketing and communications, and facility management. Our relationship with suppliers is based on our values, and we aim to work together in a mutually beneficial way. We have a supplier qualification process and governance in place for managing sustainability, related to social, environmental and financial aspects, which is improving every year.
We have been carbon neutral since 2007, as we compensate our CO2 emissions by purchasing voluntary carbon credits.
It is our ambition to purchase at least 70% of our electricity from renewable resources. In addition to environmental targets related to carbon emissions, we are committed to reducing our paper consumption and waste.
• 37,208 young people reached through NN Future Matters programme, now at 74% of our 2020 target
• 14,099 employee volunteering hours in NN Future Matters focus areas
To encourage our people to drive cleaner, NN increased the number of electric cars in the NN car pool. We installed additional charging stations at our offices in the Netherlands and facilitate the installation of a charging station at an employee’s home when they choose an electric car. In the Netherlands, NN participated in the ‘Low Car Diet’ competition, which aims to make employees more conscious of their travel choices. NN now participates in a car-sharing project to promote carpooling amongst our people.
NN Group shares our tax strategy with our stakeholders, including the tax authorities. We seek to develop good, open working relationships with tax authorities. In the Netherlands, this is based on the ‘horizontal monitoring’ principle. More information on how NN Group entails this principle, as well as a description of the function, roles and responsibilities of the NN Group Tax department, is included in the NN Group Tax Charter, which will be available on our corporate website.
We provide an overview of corporate income tax on a country-by-country basis. Besides corporate income tax, NN Group also paid taxes resulting from operations such as value added tax (VAT), insurance premium tax and wage tax in 2017. These taxes are collected on behalf of NN Group or on behalf of customers and employees. The majority of the operational taxes are paid to the Dutch Treasury. In 2017, NN Group paid EUR 1,255 million in wage taxes, of which NN contributed EUR 403 million in Dutch social premiums and employment taxes on behalf of our employees and EUR 852 million on behalf of our clients. NN Group paid VAT of EUR 33 million and insurance premium tax of EUR 217 million in 2017 to the Dutch Treasury.
The income tax paid is reflected in the consolidated statement of cash flows in the Financial Report and amounted to EUR 124 million in 2017 (2016: EUR 197 million). The lower income tax paid in relation to the income tax charge reflects differences between accounting and tax rules, as well as tax losses and tax credit carry-forwards. We further provide details of both the tax charge and the tax paid per reporting segment and per country.
Community investment NN Future Matters is NN Group’s overarching community investment programme. It aims to empower people and support them in growing their economic opportunities. The programme specifically targets 10- to 25-year-olds and underserved groups. In 2017, we reached out to 37,208 youngsters.
After participating in SIR, students demonstrated improved skills and competences, such as entrepreneurial intention, communication and creativity skills, entrepreneurial behaviour and social awareness.
Promoting financial empowerment By supporting people to develop financial knowledge, we help them foster a secure and stable financial future. Responsible financial behaviour is often best developed at an early age, so many of our initiatives are focused on young people. During the 2017 Money Week in the Netherlands, NN colleagues gave a total of 299 guest lectures in primary schools, teaching 7,500 children about money and financial risk scenarios.
Creating economic opportunities By helping young people develop useful skills, we believe we help them increase their opportunities in the labour market. In cooperation with JINC, a Dutch not-forprofit organisation, our colleagues provide job training to young people who may lack specific role models or a supportive network.
The NN Future Matters scholarship programme is a collaboration between NN and EP-Nuffic. With a particular focus on students who are the first in their families to go on to higher education, this programme gives students from 11 selected countries the opportunity to complete a Master’s programme in the Netherlands. The students are matched with an NN mentor, who supports them during the year.
Alleviating financial distress Even in prosperous societies, formal social support services are sometimes unable to reach out to the disadvantaged and underserved of society. Through fundraising and partnerships with local charities, we aim to support families with children that are in financially challenging circumstances.
In Romania, the ‘Hai la gradinita!’ project aims to bring children in the poorest communities to preschool. With OvidiuRo’s assistance, we provide children with access to kindergarten and age-appropriate education materials.
To celebrate the third anniversary of NN Future Matters in 2017, and to provide NN countries with the opportunity to further strengthen their structural partnerships with local charities in line with NN Future Matters, we made additional donations that totalled EUR 160,000 to local charities in 11 of the markets in which we operate.
From Debt to Opportunities The Delta Lloyd Foundation works with various local partners to advance financial literacy and ultimately improve people’s financial security. With the From Debt to Opportunities programme, the foundation aims to achieve a 15% reduction in poverty caused by long-term debt. The goal is to reach 11,625 households by 2020. The foundation collaborates with the Amsterdam University of Applied Sciences to research the impact and effect of all initiatives within the programme. In 2017, the foundation supported 28 local projects. Besides financial support, 305 employees volunteered 4,556 hours.
This working group, an initiative of the Sustainable Finance Platform chaired by the Dutch Central Bank (DNB), developed the publication ‘SDG impact indicators: A guide for investors and companies’ that was launched in October 2017.
As a financial services company with a purpose to help people secure their financial futures, we learned that SDG 8 (Decent work and economic growth) and SDG 12 (Responsible consumption and production) resonate most with our stakeholders when they look at our core activities.
Regarding our investment activities, we discussed that different investment instruments, such as ESG integration, dialogue and engagement, and impact investing, can be linked to additional SDGs, more specifically SDG 3 (Good health and well-being) and SDG 7 (Affordable and clean energy). Refer to the illustration on the next page for more information on our impact.
Impact investing at NN Investment Partners NN Investment Partners (NN IP) developed a pragmatic method to judge the contribution of investee companies. The impactdriven strategy is focused on companies that directly address social challenges alongside making a financial return. It is benchmark-unaware, meaning the portfolio is constructed without reference to any index or other benchmark.
This method allows NN IP to measure the exposure of investee companies to the SDGs and therefore the investment opportunities in the SDGs. Our two specific impact equity funds currently hold EUR 631 million Assets under Management (AuM).
Furthermore, NN IP offers a green bond fund that holds EUR 173 million AuM. The NN Euro Green Bond fund was awarded the new LuxFLAG Climate Finance Label, which indicates that a fund’s investments help to finance climate change initiatives.
Outreach and cooperation In the spirit of SDG 17 (Partnerships for the goals), we engage with various stakeholders on raising awareness of and making progress in reaching the global goals. For example, NN participates in the SDG Young Professional Network of the Confederation of Netherlands Industry and Employers (VNO-NCW). Furthermore, we sponsor a series of three SDG masterclasses initiated and organised by the Dutch Association of Investors for Sustainable Development (VBDO). NN hosted the second masterclass in January 2018, on ‘Integrating SDGs in day-to-day investment management’. Representatives from NN IP, IUCN and Amundi presented during this well-attended meeting.
As an insurance and asset management company with a purpose to help people secure their financial futures, SDG 8 (Decent work and economic growth) and SDG 12 (Responsible consumption and production) resonate most with our core activities.
• Reducing our CO2 emissions per FTE by 10.5% and purchasing 69% electricity from renewable sources in 2017
• Providing car insurances Fairzekering and VOOROP in the Netherlands which reward drivers who drive safely and promote safe driving behaviour, which can also lead to lower carbon emissions
• Providing access to financial services, a.o. through SDMO micro-pension project from Association of Insurers
Regarding our investment activities, different investment instruments, such as ESG integration, dialogue and engagement, and impact investing, can be linked to additional SDGs, more specifically SDG 3 (Good health and well-being) and SDG 7 (Affordable and clean energy).
• Contributing to the financial well-being of our customers and consumers, including awareness raising on pensions of 261,739 people in The Netherlands
Additional SDGs we address through our business and community investment activities
NN Group N.V. is a public limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands. It operates under a two‑tier board system consisting of an Executive Board and a Supervisory Board. The company also has a Management Board.
Dutch Corporate Governance Code In 2017, the revised Dutch Corporate Governance Code was embedded in Dutch law. As a result, NN Group is obliged to report on our compliance with the principles and best practice provisions as laid down therein with respect to the financial year 2017. NN Group fully complies with the revised Code. A booklet on NN Group’s application of the Code is available for download on the NN Group corporate website. More information is available in ‘Promoting a culture of long-term value creation’ in the ‘Our culture’ chapter on pages 13-16.
NN Group Compliance Charter & Framework NN Group is committed to upholding our reputation and integrity through compliance with applicable laws, regulations and ethical standards in each of the markets in which it 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 Charter and Framework’, which was renewed in June 2015, is to help businesses effectively manage their compliance risks. This document is available for download on the NN Group corporate website. Note that a new version of the document is expected over the course of 2018, following the implementation of NN’s Effective Control Framework.
The Management Board is entrusted with the day‑to‑day management and overall strategic direction of NN Group
Lard Friese was appointed member and vice-chair of the Executive Board of NN Group on 1 March 2014, and Chief Executive Officer (CEO) and chair of the Management Board and Executive Board on 7 July 2014. He was reappointed on 1 June 2017. Previously he was appointed to the Management Board of ING Insurance as from 3 November 2011. Lard is responsible for the strategy, performance and day-to-day operations of NN. He has been with the company since 2008 and has experience in the financial services industry dating from 1988, most recently with NN Insurance Eurasia and Nationale-Nederlanden.
Satish Bapat was appointed CEO of NN Investment Partners and member of the Management Board of NN Group as of 1 April 2017. From 2013 to 2017, he held the position of CEO of NN Life Japan. He has experience in the financial services industry dating from 2006, both within and outside the Netherlands. Satish has held leadership positions at, amongst others, ING Investment Management, Robeco and ABN AMRO.
David Knibbe was appointed to the Management Board on 7 July 2014. On 1 September 2014, he was appointed CEO of Netherlands. In this role, David is responsible for NN’s insurance and banking business in the Netherlands and is leading the integration of NN and Delta Lloyd. He has experience in the financial services industry dating from 1997, most recently with NN Group. He has held management positions at ING Bank, ING Piraeus in Greece, NN Investment Partners and Nationale-Nederlanden. David Knibbe is chair of the Dutch Association of Insurers.
Jan-Hendrik Erasmus was appointed to the Management Board on 1 September 2016 and as Chief Risk Officer of NN Group on 1 October 2016. He is also responsible for IT globally. Previously, he was a Partner in Oliver Wyman’s Financial Services business, and held leadership positions in Oliver Wyman, Lucida plc and Prudential plc. Jan-Hendrik has experience in the financial services industry dating from 2003, across insurance, risk and investment management in the UK and internationally.
International commitments and endorsements As a company based in the Netherlands, we adhere to Dutch law and the Dutch Corporate Governance Code (read more on page 19 of the Financial Report). We observe the laws and regulations in the markets where we operate.
We adhere to international standards and guidelines, including the UN Global Compact and the OECD Guidelines for Multinational Enterprises.
For an overview of all endorsements and memberships go to our website: www.nn-group.com/in-society.
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 interactions with stakeholders. The principles make a clear reference to internationally accepted standards, such as the UN ‘Universal Declaration of Human Rights’.
In early 2017, we published an overarching corporate human rights statement, the ‘NN Group Human Rights Statement’. This statement, endorsed by the Management Board, underlines our commitment to human rights. NN Group seeks to meet our responsibility to respect human rights in our role towards employees, suppliers, clients, investments and the communities in which we operate.
The ‘NN Group Human Rights Statement’ serves as an umbrella document and relates to various policies and related due diligence. Examples of such internal policies are our Human Capital policy, Procurement policy and our Responsible Investment Policy Framework. To provide our stakeholders, including investors and NGOs, with more insight and to guide our analysts in their assessment, we published the ‘Investor Guidance paper on Human Rights’. We aim to publish an additional Investor Guidance paper on labour rights in 2018.
NN Group identifies stakeholders based on their relevance to NN Group. Parties are regarded as stakeholders when they have the potential to influence or be influenced by our business. We consider employees, customers, shareholders, business partners and society at large (including regulators and societal organisations) our important stakeholder groups. We seek feedback from them on different topics in order to learn which issues they consider important. This input is used in defining our strategy and in our decision-making processes, and tells us how we can best align the interests of our business with the needs and expectations of our various stakeholder groups.
The instruments to conduct this dialogue include regular interactions and feedback sessions for customers on our products and services, roundtable sessions with policymakers, academics and peers, works council meetings and continued dialogue with our employees, frequent bilateral contact with regulatory and government authorities and societal organisations (including non-governmental organisations, labour unions and industry organisations), and briefing sessions and roadshows for journalists, analysts and investors.
To earn trust and support, NN Group maintains an open and continuous dialogue with our stakeholders about various topics and issues
These topics include our products and services, our business performance, and our role in society. We do this across all levels of the organisation, and from NN Group to business unit levels.
Product and process improvements. To be a solid, professional and sustainable pension provider/investor. Provide information on responsible investing.
Align, inform and engage shareholders, analysts and investors during the year.
Regularly Climate change, human rights, landgrabbing, palm oil, data privacy, disclosures
The Executive Board’s responsibilities also include the formulation of the company’s strategy in line with its view on longterm value creation. Any non-financial aspects relevant to the company (or the chain within which it operates), 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.
Within the Management Board, the Chief Change and Organisation (CCO) has corporate citizenship, including sustainability, in her portfolio. Additionally, all members of the Management Board play a role in integrating sustainability in their respective businesses or functions where relevant. To steer and advise the Management Board on the implementation of the overall corporate citizenship strategy, we have a dedicated Corporate Citizenship team within the Corporate Relations department of NN Group. This team works closely with the different NN businesses and functions.
At NN Investment Partners (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 and comprises the Responsible Investment team and senior representatives from NN IP’s various business segments and NN Group. Besides advising NN IP’s executive team on its positioning on responsible investing, the ESG Committee has a mandatory advisory role on NN Group RI-related policies and the restricted list towards the Management Board of NN Group.
To support all 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 RI team consisting of three specialists. This team reports directly to the Chief Investment Officer of NN IP.
The global transition to a lower-carbon economy might impact the asset side of our balance sheet through our investments. This is the case when the pricing of financial assets does not fully reflect the risk of different transition pathways. Besides public policy, a potential re-pricing of financial assets could be influenced by factors such as technological developments and changing consumer preferences. Whilst these risks may be more mid to long term, our investments might also be exposed to short-term risks such as a sudden change in market sentiment around climate risks, for example, for specific industries in which we invest.
To gain insight into transition risks, NN Group performed a comprehensive carbon footprint analysis of a large part of our balance sheet assets. Due to the high allocations to Eurozone government bonds and diversification within the corporate fixed income and equity portfolios, the exposure to the highest emitting sectors in our portfolio is relatively limited. Although approach and methodologies differ, this was also shown by a study published by the Dutch regulator, the Dutch Central Bank (DNB), in October 2017, in which NN participated. Dutch insurers have around 4.5% of their total balance sheet assets invested in carbon-intensive sectors. Nonetheless, it remains difficult to predict how the transition to a lower-carbon economy could impact the investments as there could be cross-over effects to other sectors.
Transition risks might also impact some of our revenues when we fail to adjust product propositions to sustainability requirements. Furthermore, negative feedback from government, media and society, for example, on meeting our societal objectives to contribute to the transition to a lower-carbon economy, could impact our reputation.
Physical risks Physical risks relate to the physical consequences of climate change. They could be event-driven, such as increased severity and frequency of severe weather events (e.g. hurricanes and floods), or they could relate to longer-term shifts in climate patterns (e.g. sustained higher temperatures) that might cause a rise in sea level or chronic heat waves.
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 non-life insurance business is predominantly located in the Netherlands.
Physical risks might also impact our investment portfolio. For example, a severe windstorm or flood in Europe that damages the buildings underlying our real estate portfolio could result in asset impairments. Extreme natural catastrophes can cause economic damage, potentially indirectly impacting financial markets through the real economy. These risks are mostly relevant for our life insurance investment portfolio given the long-term horizon of the liabilities.
Although it is challenging to predict long-term threats, we currently foresee that it should have less impact on our life and income insurance liabilities than other threats, such as changes in demographics or pandemics.
As a financial services provider NN Group relies heavily on reliable data and efficient IT infrastructure for an uninterrupted and effective service to customers. In the case of severe climate conditions leading to flooding in our data centres, services to customers might be severely impacted. Non-financial criteria are therefore important considerations when choosing new locations for our data centres.
Finally, proactively addressing climate change could positively influence our reputation, resulting in improved quality and sustainability of earnings. At NN Group, we want to help our customers secure their financial futures. We can support our customers’ resilience to climate change through insurance products and prevention measures. Furthermore, we can support the green economy with both insurance and investment products and services.
NN Group, and each of our regulated (re)insurance subsidiaries, prepares an ORSA at least once a year. In 2017, NationaleNederlanden Non-life (NN Non-life) modelled the financial impact of an extreme windstorm in Europe combined with the collapse of some major reinsurers and an economic crash. This scenario was amongst the stress test scenarios initiated by the Dutch regulator, the Dutch Central Bank (DNB), in 2017. We used this scenario to test how our reinsurance agreements will protect us from significant effects on our balance sheet.
Other policies that make reference to climate factors include the RI Framework policy. This policy is supported by more detailed guidance, position papers, awareness raising, and training for areas identified as high risk. This includes, for example, our ‘Investment Guidance paper on the Environment’, which illustrates due diligence processes we apply, and highlights relevant standards and principles to promote best practices and avoid negative impact of companies in which we invest.
Processes to manage climate risks within investments We believe that the consideration of ESG factors, next to traditional financial data, helps to make more informed decisions and optimise the risk-return profile of investment portfolios. At NN IP, assessing the materiality of ESG factors, such as climate change, is an integral part of the investment process where the analysts identify material risks and opportunities within the investment case. In doing so, they make use of information from ESG data/research providers, amongst which Sustainalytics, MSCI, Bloomberg and ISS-Ethix Climate Solutions.
Short-term contracts and portfolio diversification are other key risk-mitigating actions. NN offers a broad range of non-life insurance products that provide protection against damage and loss from a wide range of causes. The portfolio can be categorised as (i) income/accident, comprising disability and accident (D&A) and travel insurance, and (ii) property and casualty (P&C) products, comprising fire (also known as property insurance), motor and transport insurance, and other insurances. Our non-life products are primarily in the Netherlands. The business segment Netherlands Non-life accounted for 2% of NN Group’s operating result before tax of the ongoing business, and 21% of gross premium income in 2017.
Through our reinsurance programme, we reinsurance ourselves against natural catastrophes. Finally, the management of climate risks is informed by regulatory capital requirements, which require the adequacy of capital for the risks we are exposed to.
Metrics and targets Own direct operations NN Group is committed to reducing the environmental impact of our own operations. We have set quantitative targets to reduce our GHG emissions and consumption of scarce resources. Please see pages 48-49.
We continue to invest in measures that increase the energy-efficiency of our real estate investments. To assess the environmental and broader sustainability performance of our portfolio, we use GRESB, a leading global standard for assessing real estate’s ESG performance. In the 2017 Real Estate Assessment, NN’s portfolio performed well, improving its score for the third consecutive year and outperforming the majority of the 850 GRESB participants. We also participated in the GRESB Debt Assessment for the first time. Our commercial real estate loan portfolio, managed by NN IP, received a score above benchmark average. For our GRESB scores, please refer to page 66.
The PML is the estimated maximum amount likely to be claimed under (re)insurance policies as a result of a catastrophic event. For example, the event could be a windstorm, flood or other disaster that has a given probability of occurrence over a defined time period. The PML is identified using postal codes and assumes the normal functioning of protective features of the buildings.
NN Group estimates the PML for catastrophic events using its Partial Internal Model. The NN Group Partial Internal Model applies external vendor models to assess the impact of relevant natural disasters on the actual NN portfolio. Windstorms are considered to be the main natural peril for the NN portfolio. The 1-in-200-year probability of occurrence is the starting point for the decision-making process on purchasing reinsurance covers. Reinsurance covers are placed with strongly capitalised external reinsurers. These covers reduce both the losses to NN Group from large events as well as multiple smaller events. Both the applicability of the external vendor models as well as the reinsurance structure and cover are reviewed annually at renewal.
Next steps This is the first year that NN Group has incorporated the TCFD recommendations in the Annual Report. Whilst we tried to provide a complete response, there are still next steps needed to fully report in line with the recommendations. This mostly concerns the impact on the strategy and financial planning in the short, medium and long term, where a climate-related scenario analysis could help to provide additional insights. NN is currently exploring the possibilities to perform such an analysis for our investments. Furthermore, we will investigate other climate change-related risk and opportunities metrics and embed them in the relevant businesses.
We take a holistic approach to reporting. Our Annual Report consists of two components: this Annual Review and the Financial Report.
Reporting process Information in the annual report is based on extensive reporting from our countries, businesses and functions. All information is reviewed by NN Group’s Disclosure Committee and is subject to approval of our Executive Board and Supervisory Board before publication.
Relevant topics were selected for the 2017 Annual Report, more specifically the Annual Review, through a materiality assessment using internal and external research and other sources. In addition, a dialogue session was held with internal and external stakeholders to help steer our focus. For more information, see page 19.
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. We provide evidence to our external auditor to support the statements we make in this report. The non-financial information in scope of the assurance engagement of KPMG is defined as related to the material topics: customer centricity, innovation, digital transformation and data privacy, transparency and business ethics, risk management, responsible tax practices, diversity and inclusion, employee engagement, human capital development, financial and economic empowerment, sustainable products and services, responsible investment, human rights and climate change. The non-financial information is included on the following pages of the Annual Review: About NN (pages 2-16), Our operating environment (pages 19-23), Our strategy (pages 24-34), Creating and sharing value (pages 35-52), Governance (pages 56-61), Facts and figures (pages 65-69). Please refer to pages 70-73 of this report for KPMG’s Assurance report.
The scope for community investment and environmental data is all businesses with more than 100 FTE. NN Group used an online system, Credit360, to gather the information and data for community investment and environmental footprint. We have tried to limit any uncertainties in the reported data through our internal validation process, including application of validation rules in Credit360.
The acquisition of Delta Lloyd (see pages 10-12) had an impact on our scope. All 2016 numbers are for NN Group standalone. The 2017 numbers include Delta Lloyd since 1 April 2017. The acquisition did not change our corporate citizenship ambition, strategy, definitions and reported data.
Consolidated balance sheet As at 31 December Amounts in millions of euros, unless stated otherwise notes 2017 2016
Amounts for 2016 have been restated for the change in NN Group’s accounting policy for the Reserve Adequacy Test. Reference is made to Note 1 ‘Accounting policies’ for more details.
Consolidated profit and loss account For the year ended 31 December
Share of result from associates and joint ventures 6 399 377
NN Group share price (COB 31 December 2017, in EUR) 36.12 32.20 32.55
– insurance business units scoring on/above market average 100% n.a. 95%
Assets under Management in SRI funds or mandates (end of period – in EUR million) 10,852 5,062 4,509
– NN (L) Euro Sustainable Credit (including Financials) 117 96 85
Shareholder resolutions on which we voted by topic 348 347 532
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.
In 2017, the assessed AuM increased to EUR 103 billion due to the addition of Delta Lloyd’s assets. This represents 56% of NN Group’s total proprietary assets. The main asset categories that were not in scope of this carbon footprint analysis included mortgages, real estate, private equity, derivatives and cash.
The methodology for the footprint measurement remained the same as last year. More detail on how we calculated the metrics can be found in NN’s Carbon Footprint Disclosure report of August 2017, published on the NN Group website.
Formal meetings held with employee representative bodies (#) 127 n.r. n.r.
Total spending on training and development (in EUR million) 21.4 13.7 13.0
Total employee wages and benefits (in EUR million) 1,496 1,160 1,159
Ratio of CEO compensation to the average employee compensation5 29:1 n.r. n.r.
1 Netherlands only; this counts for more than 60% of the total organisation.
3 Human capital ROI is calculated as: (operating result ongoing business + employee expenses)/employee expenses.
Total hours of volunteering work (in Future Matters focus areas) 14,099 5,685 5,593
Total number of young people reached through NN Future Matters programme2 37,208 27,529 9,069 1 Includes cash donations to charitable causes, corporate foundations and partnerships.
2 Numbers reached include partnership with JA and EP-Nuffic, the Future Matters anniversary donations and main Dutch programmes (excluding the From Debt to opportunites programme).
– Sustainable paper as % of total paper 87% 84% 84%
– Recycled waste as % of total waste 82% 46% 26%
1 The increase in total CO2 emissions is a result of the integration of NN and Delta Lloyd.
To: the Stakeholders and the Supervisory Board of NN Group N.V.
We have reviewed the Non-Financial Information in the Annual Review 2017 (hereafter: the Non-Financial Information) of NN Group N.V. (hereafter: NN Group) based in Amsterdam and headquartered in The Hague. A review is aimed at obtaining a limited level of assurance.
The scope of our review of the Non-Financial Information is defined on page 62 of the Annual Review.
Description In 2017, NN Group acquired Delta Lloyd. As NN Group incorporated Delta Lloyd’s information fully into the 2017 Annual Review, this resulted in potential challenges in the reporting. These related amongst others to judgement required to balance the narrative information in the Annual Review on the combination and to the consolidation of the nonfinancial indicators, including possible differences in definitions, scope and methodologies. The integration of information from NN Group and Delta Lloyd was therefore a significant area for our procedures. Our response To evaluate whether the narrative information on the combination was sufficiently included in the 2017 Annual Review, our assurance procedures included, amongst others, obtaining an understanding of the principles that NN Group applied to collect and document information regarding the subsequent integration process as the basis for preparing the Annual Review. We assessed proper inclusion of the insights of interviewed staff regarding the integration process. Finally, we performed an overall assessment of the section in the Annual Review regarding the Delta Lloyd transaction and integration based on the evidence obtained to determine whether this section of the Annual Review presents a balanced overall picture of NN Group’s (non-financial) performance over the year.
Regarding the possible differences in definitions, scope and methodologies, our procedures per indicator started with an evaluation of the possible risks related to possible differences in definitions, scope and methodologies between standalone NN Group and Delta Lloyd figures. We noted that most of the indicators were either measured at consolidated group level at year-end or reported on separately, lowering the risk of material misstatement due to differences in definition, scope and methodology. We have also evaluated whether sufficient disclosures are added to the Annual Review to explain the deviations in consolidated figures other than by referring to the integration with Delta Lloyd as a single cause for deviations. Our observation Based on our procedures performed it appears that the section in the Annual Review regarding the Delta Lloyd acquisition and integration sufficiently reflects both positive and negative aspects of the integration process. Additionally, based on our procedures performed, it appears that the reported consolidated figures per indicator are calculated using the same definitions, scope and methodologies, and that sufficient explanation is included in the Annual Review regarding outcomes per indicator.
Consistency of the non-financial information included in other parts of the Annual Review
In addition to the Non-Financial Information and our assurance report thereon, the Annual Review contains other information.
The Supervisory Board is responsible for overseeing NN Group’s reporting process.
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.
Our review engagement included, among others, the following procedures: • Performing an analysis of the external environment and obtaining an understanding of relevant social themes and issues, and the characteristics of the organisation.
• Identifying areas of the non-financial where material misstatements, whether due to fraud or error, are likely to arise, designing and performing assurance procedures responsive to those areas, and obtaining assurance evidence that is sufficient and appropriate to provide a basis for our conclusion; • Developing an understanding of internal controls relevant to the assurance engagement in order to design assurance procedures that are appropriate in the circumstances, but not for the purpose of expressing a conclusion on the effectiveness of the company’s internal control; • Evaluating the appropriateness of the reporting criteria used and their consistent application, including the evaluation of the results of the stakeholders’ dialogue and the reasonableness of estimates made by management and related disclosures in the NonFinancial Information; • Interviewing relevant staff at corporate level responsible for the non-financial strategy and policy; • Interviewing relevant staff responsible for providing the Non-Financial Information, carrying out internal control procedures on the data and consolidating the data in the Annual Review related to the indicators; • An analytical review of data and trends; • Reviewing relevant internal and external documentation, on a limited test basis, in order to determine the reliability of the Non-Financial Information. • Evaluating the overall presentation, structure and content of the Non-Financial
Information, including the disclosures, and evaluating whether the Non-Financial Information represents the underlying transactions and events free from material misstatement.
Agile The agile way of working is a methodology whereby 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. NN is investing in becoming more agile to secure long-term growth.
CDP Carbon Disclosure Project. A global disclosure system for companies, cities, states and regions to manage their environmental impacts and for investors or purchasers to access environmental information for use in financial decisions.
DHAN Development of Human Action Foundation. The Foundation works to make significant changes in the livelihoods of the poor through innovative themes and institutions.
Diversity and inclusion NN Group’s approach to diversity includes hiring people of various race, ethnicity, gender, age, sexual orientation, physical abilities and personal philosophies, as well as creating an inclusive culture and diversity of thought – one that welcomes, acknowledges, respects, challenges and benefits from our differences.
Digitalisation The process of adopting and integrating digital technologies and solutions by an industry or organisation. Digitalisation brings opportunities for NN to broaden and deepen product offerings and increase partnerships with insurtech startups.
Employee engagement Employee engagement is a property of the relationship between an organisation and its employees, measured by NN Group through the YES employee survey.
Employee Value Proposition The Employee Value Proposition (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 the NN Group. The EVP highlights the attractive factors in NN for the labour market.
European Works Council The European Works Council (EWC) is 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 eleven European countries where NN Group is active. EWC-members are informed about transnational matters twice a year.
GRESB is an industry-driven organisation committed to assessing the sustainability performance of real assets globally, including real estate portfolios. On behalf of close to 60 institutional investors, GRESB Real Estate has assessed almost 1,000 property companies and funds globally.
Green alternatives Choices that NN Group makes with regards to energy, resource use and waste management that serve to protect the environment more so than traditional options.
ICE Impact Centre Erasmus – A centre for scientific knowledge and skills aimed at gaining traction with a diverse group of organisations on the realisation of their social ambitions. (Paraphrased from Dutch from their website.)
Integrated reporting A process founded on integrated thinking that results in a periodic integrated report by NN Group about value creation over time and related communications regarding aspects of value creation.
Internet of Things 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.
KiFiD The Dutch institute for consumer complaints about the financial services industry (Klachteninstituut Financiële Dienstverlening).
Materiality matrix The materiality matrix presents the developments and topics which are important to our business and the relevance of these to our external stakeholders.
Net Promoter Score (NPS) A management tool that can be used to gauge the loyalty of a firm’s customer relationships. It serves as an alternative to traditional customer satisfaction research.
A policy set in place by NN Group to help businesses to effectively manage their compliance risks.
The Product Approval and Redesign Process (PARP) refers to the assessment of a product in relation to its customer suitability, financial and non-financial risks and profitability. The PARP is conducted when NN Group introduces a new product, changes the characteristics of an existing product or reviews a product. This is to ensure that our products are acceptable for our company, our customers and our society in general.
Qredits Qredits – A microfinancing organisation assisting entrepreneurs with loans, mentoring and e-learning.
The NN Group N.V. 2017 Report of the management board (Bestuursverslag), as referred to in section 2:391 of the Dutch Civil Code. Specific chapters to be mentioned in this matter are the Annual Review and the following chapters in the Financial Report: the Financial Developments, the Report of the Supervisory Board, Corporate Governance, the Remuneration Report, the Report of the Executive Board on internal control over financial reporting and the Statements Dutch Financial Supervision Act and Dutch Corporate Governance Code.
The Responsible Investment (RI) Framework policy sets out NN Group’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.
SME Small- and medium-sized enterprise. AR p. 4, 29, 30, 31, 37
Social Innovation Relay The Social Innovation Relay is an initiative of Junior Achievement supported by NN Group. It works to inspire secondary school students to develop innovative business concepts that address social challenges.
The Sustainable Development Goals (SDGs), otherwise known as the Global Goals, are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity.
Value creation model An operating model which focuses on how NN Group can create revenue which exceeds expenses which results in a profit, or value, to the stakeholders.
YES The Yearly Engagement Survey (YES) is a questionnaire measuring how NN Group’s brand and values are experienced by our employees, how our leaders live up to the high standards we set and how we fulfil our employee value proposition as an organisation. The results reflect employee engagement expressed as a percentage score.
Further information can be found online by visiting our website www.nn-group.com/annual-report
We welcome input from our stakeholders. If you would like to provide us with feedback, please feel free to contact us.
Disclaimer NN Group’s 2017 Annual Report consists of two documents: the 2017 Annual Review and the 2017 Financial Report. More information – for example the GRI Index Table and SFCR – are available on the corporate website in the Investors/Annual report section.
Certain of the statements in this 2017 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 us 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 the other risks and uncertainties detailed in the Risk Factors section contained in recent public disclosures made by NN Group and/or related to NN Group.