The Annual Report is prepared in accordance with applicable Dutch law and the International Financial Reporting Standards (IFRS), which are endorsed by the European Union. It also complies with the Global Reporting Initiative’s Sustainability Standards and the guidelines of the International Integrated Reporting Council. The Annual Report aligns relevant information about our strategy, governance systems, performance and future prospects in a way that reflects the economic, environmental and social contexts in which we operate. Read more about Our approach to reporting on page 67 of the Annual Review. NN Group also publishes a Solvency and Financial Condition Report (SFCR), including public quantitative and qualitative disclosures on Solvency II. The SFCR is published on NN Group’s corporate website in the Investors/Annual Report section.
Who we are ................................................................................. 02 How we performed ............................................................... 03 How we create and share value ................................ 04 Our seven reporting segments ................................... 06 CEO viewpoint .......................................................................... 08 2 Our operating environment
Driving forces in our external environment .......... 11 Addressing material topics .............................................. 13 Accepting and managing risks appropriately ... 16 3 Our performance
Excellent customer experience .................................. 35 Empowered and engaged employees .................. 38 Attractive returns for investors ..................................... 42 Creating a positive impact on society .................. 44 Contributing to the SDGs ................................................ 50 5 Our culture and governance
Our values .................................................................................... 53 The way we are organised ............................................... 57
Our approach to reporting .............................................. 67 Consolidated balance sheet ......................................... 68 Consolidated profit and loss account ................... 69 Key financial and non-financial indicators ........ 70
You matter We believe people want to live life to the fullest, focusing on what matters most to them. We empower them to do just that – through all stages of their lives – by taking on the risks they cannot bear alone, and by helping them to secure their financial well-being.
Who we are NN Group is a financial services company, active in 18 countries with a strong presence in a number of European countries and Japan. Our purpose is to help people secure their financial futures. Through our retirement services, and insurance, investments and banking products, we aim to create value for our customers and other stakeholders.
How we performed The increase reflects improved results, expense reductions, and the inclusion of Delta Lloyd (from 2Q17), partly offset by a lower benefit from non-recurring items. Our annual earnings growth target: 5-7%.
How we performed The Solvency II ratio increased from 199% (year-end 2017) to 230% (year-end 2018), driven by operating capital generation and positive market variances, partly offset by capital flows to shareholders.
How we performed The value of new business (VNB) in 2018 amounted to EUR 391 million, up 13.4% compared with 2017, driven by an improved product mix at Insurance Europe and Japan Life.
Where we stand We aim to increase our AuM in sustainable and impact strategies every year. In 2018, these assets represented 6.7% of total AuM, while at the same time showing again an increase of 53% compared with 2017.
Where we stand We aim to increase our employee engagement every year. In 2018, engagement showed a slight increase compared with 2017.
* Intellectual capital refers to the institutional, innovation and digitalisation knowledge, research etc. developed within the organisation.
EUR 1bn • AuM in sustainable and impact investment strategies EUR 16.5bn
EUR 570m • Share price change -3.7% • Free cash flow to holding
EUR 21.5m • Women in senior management 33% • Employee engagement
Our seven reporting segments Our business activities are structured within seven reporting segments: Netherlands Life, Netherlands Non-life, Insurance Europe, Japan Life, Asset Management, Other, and Japan Closed Block VA.1
Growing the business by engaging customers through a variety of distribution channels
excluding segment Other (EUR -33m) for 2018. 4 The common equity tier I ratio is not final until filed with the regulators. 5 (Annualised) net operating result of Banking, divided by (average) adjusted allocated equity. 6 The legal mergers of NN Life and NN Non-life with Delta Lloyd Life and Delta Lloyd Non-life respectively became effective on 1 January 2019.
Total provision EUR 112bn for insurance & investment contracts – of which for risk EUR 21bn policyholder
Combined ratio2 99.4% – of which Claims2 70.6% – of which Expenses2 28.8%
This segment comprises NN Group’s closed-block 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.
NN Re is NN Group’s internal reinsurer. It provides reinsurance solutions to manage risks, optimise capital, support growth in business units, and safeguard stable and efficient hedging.
• Insurance Europe, Japan Life, Japan Closed Block VA and NN Re are part of International Insurance • NN Investment Partners is part of Asset Management 59 Netherlands Life %
But despite the changes, reorganisations and restructuring, we were able to maintain stable customer and intermediary satisfaction scores, and our employee engagement levels improved compared to 2017.
What about the performance in the international businesses? In general, 2018 was a dynamic year: markets were impacted by (geo)political uncertainty, and low interest rates persisted. In several of the countries where we operate, changes in regulation require us to carefully assess the impact of such developments on our business. Even though our operating environment has its challenges, we have been able to grow our international businesses, mainly by expanding the sales of protection products through diverse distribution channels. Commercial momentum continued, and value of new business from our operations in both Europe and Japan increased. In line with our objective to achieve long-term value creation and profitable growth, we acquired Aegon’s life insurance business in the Czech Republic and its life insurance and pension businesses in Slovakia.
When integrating these businesses into our company, we build on our experience in the Netherlands and Belgium, sharing best practices with the local teams – for example, regarding risk management, communication and onboarding of new colleagues.
How would you describe NN Group’s financial performance in 2018? Our performance was robust and our capital allocation disciplined. The full-year operating result of the ongoing businesses was EUR 1,626 million, up 3% compared with 2017, driven by improved performance at our Dutch Life and Non-life operations, and our European businesses. At the same time, Japan Life, NN IP and the reinsurance business faced some headwinds. We reported a lower net result at EUR 1,117 million versus EUR 2,110 million in 2017, mainly due to the impact of the goodwill impairment related to the merger of Delta Lloyd Life into NN Life, which was reported in the fourth quarter; however there was no economic or cash impact.
We are proud that our efforts are recognised: we are included in the Dow Jones Sustainability Indices, FTSE4Good index and Bloomberg Gender-Equality Index. Sustainalytics considers us a sector leader in sustainability. This inspires us, as we progress on this journey.
How are you strengthening the NN brand? We further invested in partnerships, deepening and diversifying our distribution capabilities and product offerings. We continued our efforts to improve customer experience across our businesses and now have seven SparkLabs, located in various markets, developing new propositions. We are introducing robotisation and artificial intelligence in some of our business processes, and our business units are embracing new (agile) ways of working to enhance their efficiency. All with the aim to make our products and services more relevant and intuitive for our customers.
We know that solid financial protection requires saving and careful planning throughout a person’s lifetime, and with people living longer, healthcare costs rising, and social security systems eroding, the parameters of financial planning are changing. With more providers, channels and technologies at our customers’ disposal, the need for trustworthy planning and advice will only increase. These changing market circumstances and demands require us to stay attuned to our environment.
In 2018, we changed the composition of our Management Board, equipping us with the skills and competencies to further shape our company’s journey. We focused on refining the long-term strategic direction, which centres around maintaining and optimising our current portfolios, as well as exploring potential drivers for future growth and transforming our business models. With the financial flexibility and the strong foundation we have today, we are well-positioned to identify and seize new opportunities as they arise.
I would like to extend our heartfelt thanks to our NN Group Supervisory Board Chair, Jan Holsboer, who will step down as of the close of our AGM on 29 May this year. For over 50 years, he has served a range of NN Group businesses, in various roles and responsibilities. In recent years, Jan played an important role in the many milestones of our company: the separation from ING Group and the IPO in July 2014, and the acquisition and integration of Delta Lloyd. On behalf of the Executive and Management Boards, I express my gratitude and deep appreciation for Jan’s mentorship, his commitment to NN Group and his unwavering support. It has been an honour and a pleasure to work with him. David Cole will succeed Jan, and I am looking forward to working with him in his new role.
Our operating environment NN operates in a dynamic environment. We therefore keep a close eye on what happens around us, with a focus on developments that may impact our overall strategic direction, our financial performance and the way we conduct business.
A variety of external factors impact the environment in which the financial services industry operates. They range from macroeconomic and financial market trends, and geopolitical, governmental and regulatory developments, to demographic changes, competitive challenges, as well as the way business models evolve.
Changing demographics People are becoming older, and this is a global phenomenon. The working-age population has declined over the past decade and is projected to further decline in the coming years. The ageing population, combined with increased life expectancy, suggests that the overall costs of pension provision will come under pressure. At the same time, living longer also means people are able to work longer, and ultimately must do so if they wish to save sufficient money before retiring. This development provides opportunities for the financial sector, as solid financial protection requires saving and careful planning throughout a person’s lifetime. However, it can also lead to longevity risk for insurance companies. Read more on page 17.
Legislation aims to ensure a similar level of transparency around products, services and business models within the industry. A stable regulatory framework is important, as it can help to build and retain customer trust and create a level playing field.
There are, for example, concerns within the industry around specific measures in some Central and Eastern European countries regarding the pension systems. Read more on developments in Romania on page 29. In the Netherlands, regulatory reform of the pension system remains a topic of discussion. It is one of the current Dutch government’s main goals, but it is proving hard for stakeholders involved to reach a final agreement.
New technologies continue to drive the digitalisation of society. The increased availability and sharing of data enables companies to improve the way they develop and personalise products and services. The expectation is that we are on the brink of a fundamental transformation of the financial services industry. Artificial Intelligence, blockchain, robotics, machine learning, smart data, and the Internet of Things are just some examples of technologies that enable companies to operate faster and more effectively, often at lower costs.
As technology advances, new risks also emerge. Expert estimates put the global economic damage from cybercrime at some EUR 490 billion per year (of which EUR 135 billion in Europe and Central Asia) — around 0.8% of global GDP. Read more on NN’s approach to cybersecurity on page 14.
Changing customer needs Topics such as finance and saving for retirement are rarely top of mind for our customers, and their expectations around financial services provision and ease of doing business are being shaped and rapidly changed by their experiences in other industries. Nowadays, many people, but especially millennials and Gen Z-ers, are used to 24/7, no-threshold access via any channel or device.
They want products and services that they understand and that meet their specific and ever-evolving needs. This creates challenges and opportunities. The need for the financial sector to provide trustworthy planning and advice increases, and – especially with more providers, channels and technologies at customers’ disposal – it can also be a way to differentiate. The changing ways of doing business require different expertise, technical skills and ways of working (agile). This calls for our continuous attention, also from a human resources perspective, and a continued focus on servicing customers where and when it matters most. Understanding and anticipating developing customer needs will be key to further strengthening our relationships with them.
Addressing material topics In addition to anticipating and dealing with trends and developments, we aim to address topics that our stakeholders find important.
The Sustainability Standards of the Global Reporting Initiative (GRI) define material aspects as ‘those topics that may reasonably be considered important in influencing the decisions of stakeholders, or reflecting the organisation’s economic, environmental and social impact’. Identifying material aspects and their potential impact on our company is an ongoing process, and one that is highly relevant to our businesses and annual reporting.
As in previous years, we have crosschecked our shortlist of trends and topics against an analysis of recent legislation and regulations, external research, reporting guidelines, benchmarks and peer reports. The list of topics is shorter than in 2017 as we combined some topics to increase clarity.
In addition, we work closely with partners such as universities, law enforcement agencies, other financial institutions, Team High Tech Cybercrime (THTC) and the Dutch National Cyber Security Centre (NCSC) to support our own cybersecurity initiatives, such as the Dutch Cyber Collective and other business innovations. Read more on page 25. For more on the Dutch Cyber Collective, visit www.nederlandscybercollectief.nl.
At the same time, we strongly feel an own responsibility. In order to preserve our integrity and reputation, we are committed to doing business in a responsible way. This means both complying with applicable laws, regulations and ethical standards in each of the markets in which we operate, and acting in line with our own considerations, which are guided by the NN values. This covers everything from anti-bribery and corruption initiatives to meeting our fiduciary responsibilities, and from steps to prevent money laundering to a proactive commitment to ESG-related topics.
1 Customer centricity People entrust us with their financial matters and this is a responsibility we take seriously. When it comes to helping our customers plan for their financial futures, NN wants to be an intuitive partner. Making optimal use of digitalisation, we aim to develop value-adding products and services that anticipate changing needs. We are finding new ways to distribute our products. And we use customer feedback and data analytics to optimise our activities and strengthen our relationship with customers. Read more in the business chapters on pages 22-32, and the chapter Excellent customer service on pages 35-37.
Protecting financial and customer data is a key component of our daily business operations. We make every effort to provide optimal security and ensure the confidentiality of our customers’ data and transactions. Cybersecurity is an integral part of our risk management strategy. We invest in information security and data privacy, and have dedicated security teams made up of over 100 professionals, and a Chief Information Security Officer, supported by the NN Security Operations Centre (SOC). These teams collaborate with business unit Security Officers to provide 24/7 protection for our customers and company against cyberthreats.
Education and awareness-raising are part of our security strategy at all levels of the organisation. We are constantly performing security scans and have data protection security guidelines in place that our businesses must meet.
The GDPR became applicable in the European Union on 25 May 2018. It aims to give citizens more control over their personal data and has further unified all data protection legislation across Europe.
In order to comply with the GDPR, NN Group initiated a centrally-steered GDPR Implementation Programme. Such central steering addressed (amongst others) the challenge of ensuring the consistency of the implementation across our European businesses, for example by performing the same GDPR maturity assessments which were the kick starters for local GDPR implementation programmes.
We maintain a continuous dialogue with our stakeholders in order to better understand their concerns around key ethical issues facing our business.
Only if all three criteria are met will we continue the project including the use of data. Assessing whether the criteria are met is a joint effort of our NN Group Data Protection Office (including the NN Group Data Protection Officer and Legal) and the Data Science team. An example of a data-driven project proposal that was agreed on based on these criteria is the process of automatically assigning customer questions that we receive via email to the right department. The proposed model analyses the subject and the content of the email in order to determine which department should handle the question. The implementation of the process optimisation started in the beginning of 2019. This means future customer queries can be handled quicker and at a lower cost.
By creating this internal procedure, we take responsibility and we trust that we do justice to our customers’ privacy.
NN Group has a prudent, well-considered risk appetite. This is reflected in our balance sheet and investment portfolio. We invest 85% of our general account Assets under Management in fixed income, of which a large proportion are highly rated government bonds.
Each business unit and all head office departments are expected to ensure that relevant risks are understood at all levels of the organisation and mitigated through controls. They are therefore required to have appropriate control processes in place and comply with our policies, standards and governance. Read more about our financial and non-financial indicators in the chapter Facts and figures and in our Financial Report.
The Risk control framework is defined as the total set of governance, policies, procedures and activities put in place to identify risks to achieving business objectives, to manage these risks within the relevant risk appetite and limits, and to provide reasonable comfort regarding the achievement of business objectives.
(3) Are appropriately informed about the level of risks and the effectiveness of the controls
Our approach to risk management is based on a comprehensive control framework that applies to all business processes within NN Group. It includes supporting technology at both head office and local business units, as this integrated approach increases efficiency. We use a single architecture, on which all three lines of defence (business unit management teams, oversight functions, corporate audit services) can build their activities.
The starting point for our Risk control framework cycle are our company objectives. We then determine how much risk is acceptable when trying to achieve these objectives: our risk appetite. And finally, we identify what the risks actually are, and what controls we need to put in place to ensure we do not exceed our risk appetite.
As part of an annual cycle, our control framework (read more on the previous page) starts each year by identifying the risk appetite of our company. Our risk appetite has three main components — strategic challenges, strong balance sheet, and sound business performance: Strategic challenges We manage our businesses on a risk-return basis, so we can meet strategic objectives while considering the interests of all stakeholders. Top risks identified are: Not timely adapting our longer-term business model to the rapidly-changing world. We aim to mitigate this risk through our business planning cycle, in which our longerterm strategy is regularly updated. Next to that, our Chief Transformation Officer leads our initiatives to evolve our business model, in order to serve customers better and stay on track with the developments in our operating environment.
Geopolitical, governmental and regulatory instability. Related is the risk of further disintegration of the Eurozone/EU driven by nationalism or otherwise protectionist behaviour by governments and supervisors. NN Group closely follows developments in the international markets and the development of future regulation and anticipates these in its internal discussions. We closely monitored Brexit discussions, assessed the potential impact on NN Group, and developed risk mitigation plans to prepare for, amongst others, a potential hard Brexit scenario. Overall sufficient flexibility is maintained through strong solvency and liquidity positions, and asset concentration limits.
Strong balance sheet A strong balance sheet facilitates sound financial business performance. We want to avoid having to raise equity capital after a moderate stress event, or being a forcedseller of assets when markets are distressed. Top risks identified are: Financial market exposure related to adverse market movements or volatility that could reduce available capital. A well-diversified portfolio, a natural hedge with our liabilities and specific hedging programmes aim to keep this risk within set limits.
Addressing longevity risks, our largest quantifiable risk. To reduce longevity exposure and create more flexibility in accepting new longevity risk, NN explores further longevity hedging options. To mitigate this risk, we price our longevity exposure on most recent assumptions and hold a risk margin and solvency capital requirement against longevity risk. We also see a gradual transition of our pensions business in the Netherlands from defined benefit to defined contribution.
Sound business performance To achieve sound operational performance, we conduct business with the NN values at heart and treat customers fairly. We aim to avoid human or process errors in our operations and to limit the impact of any such errors. Top risks identified are: Client and product suitability with the risk that products do not cover client’s interest over the full lifetime. NN Group has included all product riskrelated requirements in our Product Policy, which helps to ensure value for our customers.
Cyber & Cloud risk, given dependency on permanent availability of well-functioning IT. Cybersecurity threats are difficult to manage, and data-sets and services are accumulated in the Cloud. The Chief Information Officer (CIO) function ensures Business Continuity Management, Cyber risk management and Business Information Security via standardised, internationally accepted frameworks, norms and technical guidelines as the basis to manage IT, Cyber & Cloud risk within NN Group.
Ineffective operations that can lead to slow or incorrect decision-making, a cost base that is too high, and reputational damage. Each business unit and all head office departments are expected to ensure relevant risks are understood at all levels in their organisation, and that they are mitigated through effective controls. Several instruments have been established to support this ambition.
For each area, we look at the potential impact any incident could have. We take into account not only the financial impact, but also the impact on our customers and our reputation.
Control framework and ESG risks Our Risk control framework also requires all business units to address environmental, social and governance (ESG) risks, supported by a comprehensive policy framework. By including ESG aspects in, for example, our investment process, we aim to optimise the risk/return profile of our portfolios. Read more on page 140 of the Financial Report.
On 5 December, we announced that NN Group had received approval from the Dutch Central Bank (DNB), the Dutch supervisory authority, to expand our PIM under Solvency II to include the Delta Lloyd Life and Non-life entities in the Netherlands. This was an important step in the integration of Delta Lloyd into NN Group. It creates a uniform control framework for risk measurement and capital management across our largest insurance entities in the Netherlands. The expanded approved PIM has been used to calculate regulatory capital requirements effective 31 December 2018.
Emerging risks include disruptive technology risks, cyberattacks and IT security risks. These risks continue to grow, as do environmental and climate risks, where NN Group cooperates within the international insurance industry to develop responses to these challenges. For example, by participating in the CRO Forum’s Climate Change Working Group, which published the paper The heat is on – Insurability and resilience in a Changing Climate, in January 2019.
NN Group’s strategic priorities By prioritising long-term value creation over short-term gains, we continue to create value for our stakeholders: our customers, employees, shareholders, business partners, and society at large. We carefully consider their interests, and maintaining their confidence is important to us.
We aim to provide excellent customer care through products and services that use a multi-channel approach, by taking on the risks people cannot bear alone, and by empowering people to improve their financial well-being.
We maintain a strong balance sheet and take a disciplined approach to capital management, so we can offer attractive long-term returns for our investors.
Through disciplined capital management and a focus on generating capital, we ensure our cash capital position and Solvency II ratio remain strong. Capital generated in excess of NN Group’s capital ambition will be returned to shareholders, unless it can be used for other appropriate corporate purposes. For example, in 2018, through investments in value-creating opportunities, such as the bolt-on acquisition of Aegon’s life insurance business in the Czech Republic, and Aegon’s life insurance and pension businesses in Slovakia.
With our full-year 2018 results disclosure, we also announced a share buyback programme up to EUR 500 million over 12 months that began on 1 March 2019.
Innovating our business and industry 20 NN Group N.V. 2018 Annual Review
Because offering value-added products and services is central to our ambition to matter in the lives of stakeholders, we also develop solutions for very specific segments, for example, by tailoring a product to particular customer life stages or circumstances.
In Poland and Spain, we offer critical illness insurance products alongside cancer awareness and prevention campaigns. And in 2018, NN Bank launched mortgage products for senior citizens, expats and buy-to-let property owners.
The capital we generate will provide us with the financial flexibility to explore and seize new opportunities. For example, by tapping into the potential that new technologies bring. As our world becomes increasingly connected, we are looking at new ways to strengthen the way we build relationships and interact with our customers, and become more relevant in their lives. With ecosystems and platforms emerging, we will look at themes such as Vitality & Health, Carefree retirement, Mobility and Home to develop new value propositions and continue to matter in the lives of our stakeholders.
Value-added products and services 21 NN Group N.V. 2018 Annual Review
Our products and services are designed to meet our customer’s ever-evolving needs. This includes developing our distribution channels and teaming up with new business partners to ensure our customers can interact with us in the ways that suit them best.
Netherlands includes Netherlands Life, Netherlands Non-life, NN Bank and Customer & Commerce.
With approximately 6.7 million customers, we are a leading financial services provider in the Netherlands, providing products and services under the following brand names: Nationale-Nederlanden, OHRA, Movir, AZL and BeFrank, as well as via our joint venture, ABN AMRO Verzekeringen, and our partnership with ING Insurance. By optimising the effectiveness of our existing channels and teaming up with the right third parties, we are expanding our offering and creating new business opportunities.
Leveraging combined strengths While we integrate the activities of NN and Delta Lloyd, we are also leveraging our combined strengths so we can deliver on the strategy for the Netherlands segment: Digital, Personal, Relevant.
Carefree retirement Nationale-Nederlanden started a number of innovative projects around the concept of Carefree retirement, aimed, for example, at employability and living a healthy and happy life.
There are a growing number of ageing people whom we would like to service and support by delivering relevant products and services beyond insurance. Focusing on themes such as financial security and social well-being, we seek to understand the problems and challenges these customers face in these areas.
We continue to allocate capital rationally to ensure our businesses have the capital needed to realise their strategies. At the same time, we want to keep improving market and business positions, in terms of efficiency, growth and return on capital. In 2018, we achieved further synergies from the integration of the NN and Delta Lloyd businesses, ensuring a solid balance sheet and strong solvency position.
In 2018, NN Bank further diversified its funding mix and extended its funding redemption profile through two successful covered bond transactions under the NN Bank Covered Bond Programme, and the early repurchase of a securitisation transaction.
The legal merger of NN Bank and Delta Lloyd Bank became effective on 1 January 2018. On 1 January 2019, the legal mergers of NN Life and NN Non-life with Delta Lloyd Life and Delta Lloyd Non-life respectively became effective. The main milestones since the start of the integration have been the onboarding and migration of colleagues to NN workplaces and locations, several systems migrations, the integration of regulatory reporting, and the changes in and reduction of office space. By the end of 2018, the rebranding of Delta Lloyd products and services was virtually complete.
We made progress in servicing customers through online personal chats and the use of chatbots, and are optimising our omnichannel services too, so customers can choose how they engage with us.
In our efforts to become more personalised, we are tailoring our online experience. For example, by welcoming Delta Lloyd customers to the Nationale-Nederlanden brand in a personalised way when they access their mijn.nn environment. This way, they get better insight into their products and self-service options.
NN is a key partner in the Dutch Blockchain Coalition, a public-private consortium that aims to apply blockchain technology in ways that can benefit Dutch society. Within the coalition, NN Bank is leading a project to use Digital Identity technology to enable instant delivery of verified financial information from customer to bank. This could have a significant positive impact, as customers currently find delivering financial mortgage application documents time-consuming and complex. The project’s developing partners include ING, Rabobank, ABN AMRO, IBM and PwC.
NN Bank introduced a growth marketing team using data-driven techniques and experimentation to enhance online marketing skills and effectiveness. This new initiative led to a doubling of visitors to the mortgage pages on NN’s website.
NN Life started an agile transformation programme, introducing a single way of working (framework, roles, practices) and agile mindset throughout the organisation. At NN Bank, IT operations and functional management of the IT value chain were added to the existing agile teams to become DevOps teams.
After assessing two models of claim handling, the insourced approach of Delta Lloyd was adopted by NN Non-life, creating a more efficient operating model. For NN Bank, a milestone was the complete renewal of the mortgages back-office system to a Software as a Service (SaaS) application, enabling improvements in customer service such as 24/7 availability, better connectivity and shorter time to market.
A study on the pilot’s effectiveness showed that the engagement of employees who participated in the programme increased. They scored considerably higher on self-esteem and slightly higher on vitality, especially physical vitality.
Incorporating the insights from the first pilot, we developed a second pilot, Fit by Nationale-Nederlanden, which we are again initially offering to our own employees. Following this second pilot, Fit by Nationale-Nederlanden will become available to a limited number of customers in the first half of 2019.
For group pension, three innovative product features were introduced: (i) Customised Collective investments allows an employer to customise the life-cycle engine of our product to the needs of their employees
(ii) DC accumulation and DC decumulation aligns the option for continuous investment for participants, bridging the gap between pension accumulation and decumulation
OHRA introduced a new proposition for the self-employed consisting of four types of insurance coverage. In addition, the Property & Casualty SME segment launched the renewed ‘Zekerheidspakket’ insurance for SMEs and the self-employed.
As part of our policy to develop mortgages tailored to the needs of specific market segments, NN Bank launched three new mortgage products: the Senior Citizens’ Residence Mortgage, that allows people who are 57 or older to finance a new, smaller home; the Expat Mortgage, for expats wanting to settle in the Netherlands; and the Buy-to-Let Mortgage, aimed at retail customers buying a house to rent out.
During a personal interview, a company’s security vulnerabilities are mapped. Additional information is also collected from suppliers, such as the hosting party.
382m Value of new business 1,378m New sales life insurance (APE)
General progress in 2018 Our overall business performance in 2018 has been solid, underlining our ability to profitably capture existing market opportunities. Value of new business (VNB) generation increased to EUR 168 million compared with EUR 141 million in 2017 for Insurance Europe, and EUR 214 million compared with EUR 194 million in 2017 for Japan.
Integration in Belgium Significant progress was made in integrating Delta Lloyd Life into NN Insurance Belgium. Belgian employees were supportive of the strategic rationale and opportunity for combining the two mid-sized, complementary companies. The key milestones in 2018 were the approval of the legal merger, the rebranding of Delta Lloyd products, the regrouping of staff within a single location, and several key IT deliveries. Overall, the integration process progressed well in 2018. Due to the high complexity of the legacy IT landscape, the phased IT integration will remain challenging in 2019 and 2020. Our increased distribution capabilities will help us further diversify into the powerful broker network in the Belgian market. As the number four insurer in the Belgium Life market, the focus in 2019 will be on the broader transformation to realise the strategic ambition to become the country’s most personal insurer.
In 2018, we started to look into the opportunities that ecosystems and interconnected platforms can provide. We aim to expand our health propositions around the theme of Vitality. For example, in Turkey, where health insurance needs are underserved and the market is dominated by private medical insurance, we see a rapidly growing need for complementary health insurance. Together with Swiss Re, we also developed a customer proposition offering such services, successfully applied for a health insurance license and launched a pilot that will run in a number of large cities until year-end 2019.
In Japan, the average age of SME owners continues to rise. According to the Japanese Ministry of Economy, Trade & Industry, more than 300,000 SME owners in the country will reach the age of 70 within the next five years. This ageing population is creating increasing business succession challenges, resulting in growing opportunities to offer professional support on business planning and succession. Market competition has become fiercer since other insurers launched new products focusing on the corporate owned life insurance (COLI) segment in 2017. NN Life Japan is an expert in supporting SMEs in the Japanese market, and in November 2018 we introduced product upgrades and a new COLI product. NN Life Japan aims to leverage maximum value from its independent sales agent network, the distribution reach of its partner Sumitomo Life and through expansion via regional banks. A review of the tax deductibility of COLI products for SME owners by the Japanese tax authorities is ongoing. NN Life Japan is assessing the possible commercial implications.
In nearly all business units, we have agile teams in place that allow us to innovate faster and improve customer centricity, and this way of working in turn empowers our colleagues. The agile way of working helps us to respond to insights swiftly, which is important as customers and brokers are increasingly expecting a digital experience.
Customers activate the insurance package via the app, only for as long as they need it (on-demand), and pay only for the period of active cover (pay-as-you-go), allowing people to obtain insurance within a few minutes at a competitive price. In 2018, protect.me won the Hungarian Best Mobile App award and in early 2019 the prestigious iF DESIGN Award, making NN the first organisation ever to win this award with a service.
Until early 2018, NN Life Japan used two CRM applications to create a complete overview of customer contacts. By introducing a new CRM system, we can save time, effort and costs for customers and agents alike.
In Bulgaria, we are further upgrading our bancassurance IT application, providing customised support to bancassurance partners and increasing straight-through processing.
Strategic focus for the coming years In line with market developments, we are redesigning traditional value chains and working towards new operating models. In the short-to-medium term, we will extend our product range with a focus on protection products and generating new partnerships: bancassurance agreements, as well as partnerships with non-life companies for co-distribution.
In addition, we will invest in our data capabilities and continue to transform ourselves into a truly customer-focused, digital and data-driven organisation. At the same time, we are seeking new types of partnerships, for example, with retailers, telecom providers and energy providers. Investigating the potential of various ecosystems will help us determine where we can significantly increase direct and relevant interaction with customers.
The core of our business model is to take on the risks that people cannot bear alone, providing protection for what matters most to them.
Also in Spain, NN Bank launched an internet savings product for Nationale-Nederlanden on a cross-border basis. This brings an increase in internet traffic, as savings customers visit the website more frequently, potentially also increasing cross-sell opportunities.
In Belgium, we launched a lifelong income insurance, as well as a cancer care rider to HypoCare, our term life insurance linked to a mortgage. In the event of a cancer diagnosis, mortgage expenses are paid by NN Insurance Belgium. For HypoCare customers who also choose the cancer care rider, we offer a free medical check-up at home or work.
Robotic process automation In Greece, we simplified and streamlined our customer service operating model by optimising underwriting and claims-handling processes, for example through robotic process automation (RPA) activities and by exploring the use of advanced machine-learning techniques. In Japan, RPA helps us to read the paper application forms our independent agents often use with clients. The ambition is to achieve efficiencies, but also to improve customer experience.
NN Investment Partners (NN IP) manages assets of both retail and institutional clients, as well as NN Group’s own insurance companies and clients. While we have Dutch roots and the Netherlands is our main investment hub, we offer our products and services globally with a local presence in 15 countries.
Financial markets are complex, but our focus is simple: partnering with our clients to achieve their financial goals. Our international reach allows us to offer them a wide variety of investment products and solutions across asset classes, geographies and styles. Our business focuses around four distinct areas: Multi-Assets, Alternative Credit, Spread Fixed Income and Distinctive Equity.
We aim to contribute to a more sustainable society, and at the same time provide attractive returns.
In December, we reached an agreement to strengthen our long-term partnership with ING Bank Śląski in Poland. Under the agreement, ING Bank Śląski will acquire a 45% stake in NN IP in Poland and distribute NN IP investment funds to the Polish retail market through its branch network.
The partnership will further strengthen our position in the Polish market and support the growth strategy of attracting client assets. The transaction is expected to be completed in the first half of 2019.
In April, we initiated a partnership with China’s leading asset manager, China Asset Management Company (ChinaAMC), which will explore joint product development opportunities in order to leverage one another’s capabilities in the European and Chinese capital markets.
We have also developed new partnerships in the area of Responsible Investment. Together with Bank Nederlandse Gemeenten (BNG) and Bewust Investeren, we have developed a special financing proposition to make community real estate more sustainable. Read more on page 51.
The DLAM office in Amsterdam was vacated and cost reductions are progressing well. The 2016 cost base was reduced by EUR 29 million at yearend 2018, resulting in a cost/income ratio of 69.5%. Throughout the integration, we gave particular focus to the interests of our clients and our fiduciary role.
Compared with insurance and banking, asset management is a capital-light business. While this means NN IP has relatively few capital assets compared with its operations, we are sufficiently capitalised to cover and fund our activities. We are committed to disciplined capital management and allocate capital to longterm value-creating opportunities that support our corporate purpose and strategy, always assessing any opportunities against strict financial and non-financial criteria.
In July 2018, NN IP Japan and Rakuten Securities announced the launch of a new investment service, Target Year Wrap, which offers retail investors an individually customised target-year investment solution. NN IP provides the underlying investment products.
In 2018, we launched a number of new products and services, addressing the changing needs of our clients. For example, in these times of tightening monetary pressures and growing equity volatility, the new NN (L) Global Convertible Bond Fund addresses growing investor demand globally for the convertible class, offering diversified and scalable exposure to the asset class without compromising on credit quality.
Strategic focus for the coming years The integration of DLAM added scale to our business and additional skills in certain key areas, and allowed us to look more closely at our business efficiencies and strengths, particularly in relation to our scalable platform.
Our ambition is to further strengthen our business by continuing to make clear choices, streamline our organisation, focus on distinctive capabilities and embed ESG criteria throughout the investment process.
In 2019, we will continue to focus on delivering top performance, servicing our clients and helping secure their financial futures. We have growth ambitions to add more scale to our business, for example, by attracting client assets mandates, supplemented by new distribution partnerships and bolt-on acquisitions. But only if these support our strategic direction and meet our strict financial and non-financial criteria.
Retail and institutional investors look for sustainable, environmentally friendly investments that still provide attractive returns. We have seen strong global growth in our Green Bond portfolios in recent years, and the NN (L) Euro Green Bond Fund has grown into one of the world’s largest openended green bond funds. In partnership with the Dutch Development Bank (FMO), we launched the NN-FMO Emerging Markets Loan Fund. This so-called alternative credit fund invests in loans granted to financial institutions, renewable energy and agribusiness.
As part of our ongoing critical selfevaluation process, in 2018 we carried out a detailed outside-in assessment on our capabilities. This revealed that, rather than continue to manage our Global and US High Dividend strategies in-house, the most long-term value for clients would be created by partnering with America Century Investments (ACI). As a result, the US High Dividend strategy was subdelegated to ACI.
The Global High Dividend Strategy investment process continues to be managed by NN IP, but with advisory support from ACI.
We believe promoting diversity of thought creates a culture that can incorporate different opinions, backgrounds and characters, and we already benefit from diverse in-house human intelligence, with over 50 nationalities and 29% of senior positions held by women (+7% since 2017). It is our aim to find more and better ways to use this diversity to benefit investment results.
Which internal stakeholders do you involve? ‘We have set up a Controversy & Engagement Council within NN IP,’ explains Satish. ‘Our experts discuss whether certain companies are in violation of our Responsible Investment policy, and whether it’s likely engagement with them can bring about change in their conduct. The council then submits its analysis to the ESG Committee. Where restriction is felt to be more appropriate than continued engagement, the ESG Committee will then present this view to the Management Board of NN Group for a final decision.’
How do colleagues react to these issues? ‘A company can only flourish if its workforce is engaged and feels their voice is heard,’ explains Dailah, ‘and that means our colleagues are important stakeholders, too. On our internal website, SAM, we regularly provide updates on responsible investment initiatives. We are pleased that colleagues respond to the posts with feedback, questions and ideas.’
Creating and sharing value We aim to create long-term value for our stakeholders – customers, employees, investors and society at large.
A ‘You Matter’ mindset An integral part of our PARP process are our Customer Golden Rules. They form a key component in our approach towards becoming a customer-driven company. NN Group wants to be known as the ‘You matter’ company; a people-oriented financial services provider. To this end: • We offer fair value to customers • We explain the risks, returns and costs of our products and services • We regularly assess products, services and distribution practices • We only work with professional and licensed distributors
Customer empowerment We aim to create long-term value for our customers by empowering them to improve their financial decision-making. We do so through financial planning tools aimed at increasing the customer’s knowledge and understanding of financial matters. We also work with partner organisations specialised in this area.
In 2018, eight of our insurance businesses had a better NPS relationship (NPS-r) score compared with the market. We measure NPS-r in all our markets for all banking, life insurance and pensions business lines. NPS-r and customer satisfaction measurements for asset management are conducted amongst institutional clients once a year.
Our objectives and 2020 targets • Be recognised as a ‘You matter’
company: a people-oriented service provider in the long-term financial planning industry
• Increased awareness of customer need for value-added products and services 1 For our performance on increasing the number of products with social and environmental added value, we also refer to page 46.
The Pass it on campaign celebrates the uniqueness of people, and the unexpected things we share with our nearest and dearest. We asked people what they hope to pass on to the ones they love, before encouraging them also to pass on financial security.
Net promoter score NPS-r compared to 2017 NPS-r compared to market average 1. Belgium Improved Below 2. Bulgaria Decreased Above 3. Czech Republic Decreased Above 4. Greece Decreased Above 5. Hungary Decreased Below 6. Japan Maintained Below 7. Poland Improved Above 8. Romania Improved Above 9. Slovakia Decreased Above 10. Spain Decreased Below 11. The Netherlands Decreased Above 12. Turkey Improved Above scores closely. In addition, we measure the transactional NPS on a local level for specific events. In this case, the survey is especially designed to measure how a recent interaction impacts the customer’s satisfaction. This provides us with the opportunity to continuously improve the customer journey. Over time we expect this will impact the relationship NPS as well.
Additional support NN reaches out to people who may not have access to insurance and could benefit from additional support. Because we are aware that people can face financial and social challenges in life, we try to anticipate their specific needs and individual circumstances to provide a positive and inclusive experience for a wide range of different social and economic groups.
Products with social added value In Hungary, we launched a new proposition providing overall protection for children and financial security for a child’s future. This includes benefits tailored to a child’s needs, covering accidents, illnesses and surgeries typical to children. Also in Hungary, a new cooperation was launched with Medicina Health Fund. Some 50,000 members of the health fund and its beneficiaries received a group life insurance with 24/7 medical call centre services.
In Japan, we offer a life insurance product that provides critical illness coverage in cases of cancer, acute cardiac arrest or stroke. It was developed to support small business owners who are unable to manage their company due to critical illness.
In Romania, we provide a health insurance product that offers affordable access to private care. In 2018, we continued to enhance this proposition with new benefits relevant to clients in line with healthcare trends, such as the coverage of expenses related to surgery performed in ambulatory medical care (outside hospital).
The high engagement with the content showed that, while life insurance remains a sensitive and complex topic, the campaign’s approach not only put across the core message but also reached people on an emotional level. Pass it on ran in Romania, Hungary, Belgium and Japan, getting over 2.2 million views (≥ 10 seconds). In 2019, the campaign will launch in Greece and Spain.
The Why I matter campaign was a social experiment around the existential question: ‘Why do I matter?’ People were then told their loved ones had secretly written the answer in a letter they were asked to read aloud. The campaign aimed to inspire people to take care of the financial future of their loved ones.
In Spain, we launched a new modular insurance protection solution in 2018 that lets customers pick the personal mix of protection covers to suit their life stage and circumstances. NN offers financial support in the form of monetary benefits, but also advice and tangible health services which include the use of an app that allows customers to chat in real time with medical doctors from a wide range of specialities.
Financial inclusion Through our membership of the Dutch Insurers Association (Verbond van Verzekeraars), we have a partnership with microfinance organisation Qredits and are also involved with the Foundation for Sustainable (Micro) Pensions in Developing Countries (SDMO). In India, SDMO works with local partner the Development of Human Action (DHAN) Foundation, who have developed a defined contribution scheme where the administration and investment management are arranged by a local life insurance provider. In 2018, 43,352 people participated in the scheme.
Dutch unit-linked products In the Netherlands, unit-linked products have received negative public attention since the end of 2006. We have taken this criticism to heart, as our aim is to support our customers as best we can. The Dutch insurance subsidiaries of NN Group reached out to all individual customers who purchased unit linked products in the past (‘activeren’).
The formal process for reaching out to customers initiated by the AFM for the sector was completed by the Dutch insurance subsidiaries of NN Group on 31 December 2017.
The AFM has recently confirmed that the Dutch insurance subsidiaries of NN Group have fulfilled their obligations towards customers pertaining to customer reach out. The Dutch insurance subsidiaries of NN Group continue to periodically reach out to groups of selected customers to encourage them to carefully assess their unit-linked products in order to enable them to address their personal situation and offer customers the option to switch to another product or make changes to their policy free of charge. Customers are also entitled to free advice.
Tjeerd Bosklopper, Chief Transformation Officer 37 NN Group N.V. 2018 Annual Review
Delta Lloyd integration Supporting and implementing organisational changes as part of the integration of Delta Lloyd and NN was a key activity in 2018. We focused on creating diverse teams, combining the different competencies, experiences and cultures to further strengthen entrepreneurship, creativity and customer centricity.
Nevertheless, we recognise that an integration process of this scale is impactful and directly or indirectly affects our employees. In 2018, approximately 1,300 people in our Dutch and Belgian businesses left. This was partly the result of restructuring and redundancies, as well by their own choice. The number also includes regular natural turnover.
Driving strategy through leadership Across our businesses, we focus on empowering our leadership. NN’s strategic priorities require that management embrace new ways of working, become more aware of their impact as leaders and drive results without resorting to traditional top-down leadership.
Our objectives and 2020 targets • Strengthen our employee journey through our onboarding experience • Stimulate our talents and strengthen our talent pipeline • At least 30% women in senior management positions • Continue to strengthen employee engagement
How we performed in 2018 • EUR 21.5 million spent on training and development — up 2% per FTE • 33% women in senior management positions — up 1% point • Slight increase in employee engagement from 7.0 to 7.1¹
1 In 2018 we introduced a new metric for measuring engagement. The equivalent measurement used in 2017 was 66%.
The Strategic Leadership Agenda (SLA) was launched in the Netherlands in 2018. The SLA is a new approach that strongly engages people in defining our collective ambition in the Netherlands, setting goals and implementing our overarching strategy. It is aimed at empowering our people to take ownership and drive change across the organisation. Through dialogue and supported by events, colleagues are fully involved in building, living and sharing the strategy. This process will continue in 2019.
Through the adjusted performance management cycle, we are supporting the agile business transformation in International Insurance. Alongside the regular, informal feedbacks and feedforwards that are part of the methodology, teams also participate in the quarterly performance snapshots that align with the rhythm of the new way of working.
In 2018, we introduced an adaptive leadership training for all senior leaders. The aim of this programme is for leaders to develop and learn together, and become even better at managing their day-to-day leadership. It asks our leaders to develop their ability to build emotional commitment and create a safe environment for growth and innovation. In 2018, we organised 9 sessions, which were attended by over 70 leaders.
We will monitor how digitalisation impacts our workforce, and will continue to assess how we can help our colleagues develop relevant skills.
NN Poland started using predictive analytics for the recruitment of candidates to the Tied Agency Channel. To improve retention rates and productivity, the model constructed a candidate profile based on the five characteristics statistically most likely to influence retention. The first results will be available in 2019.
Equal opportunities and diversity At NN, we believe everyone, including colleagues, should feel respected and valued for who they are, regardless of gender, age or background. We also believe a diverse workforce creates diversity in thinking, skills and experience, which better equips us for the future. In 2018, 33% of our senior leaders were non-Dutch.
To enhance the attraction and retention of talents, NN Life Netherlands organised a diversity job market and dinner.
TEDxAmsterdamWomen NN Group is committed to promoting female leadership. We therefore support a number of initiatives outside our company. In 2018, NN partnered with TEDxAmsterdamWomen. Both NN and TEDxAmsterdamWomen support women in reaching their potential, and want to celebrate talent and invite people to share their ideas.
NN is included in the 2019 Bloomberg Gender-Equality Index, based on our performance data from 2018.
Employee rights and representation In many countries, employee consultation is arranged through works councils. In 2018, the European Works Council was consulted on the acquisition of Aegon activities in the Czech Republic and Slovakia, and on the intention to consolidate NN IP Luxembourg.
In the Netherlands, as part of the integration of Delta Lloyd, the members of the Delta Lloyd Central Works Council joined the NN Group Central Works Council, and the members of the Delta Lloyd–OHRA Works Council joined the relevant works council in the Netherlands business units. The ABN Amro Insurance (AAV) Works Council continues to exist, and the Delta Lloyd Central Works Council will continue to formally exist until all employee benefits and policies are integrated.
An overview of the Central Works Council members of NN Group and Delta Lloyd and European Works Council members of NN Group is on page 36 of the Financial Report.
Diversity in thinking, skills and experience enables us to be optimally equipped to meet changing customer needs, remain an attractive employer and adapt to new market circumstances.
Digital transformation is one of the strongest disruptions we have seen in recent decades. It has changed the way businesses are run; expanded the competitive landscape with new, non-traditional players; established new opportunities and business models; and influenced how customers want to and can interact with us. We therefore dedicate resources to understanding how our company can best adapt and transform to deal effectively with these developments. To take full advantage of the digital transformation and new technology, it is critical for companies to ensure they are capable of attracting the right professionals, with the relevant digital skills. This particular group of talented people is in high demand. Research indicates that by 2020, 30% of technology jobs will be unfilled, due to a shortage of digital talent. In a candidatedriven market, where talents are much sought after and can choose the digital jobs that most appeal to them, attracting and retaining trainees and candidates is a challenge.
Both the trade unions and the employer acknowledge the importance of creating a single package of employment conditions for NN employees in the Netherlands, and negotiations continue in 2019.
Becoming an employer of choice Being considered an attractive employer strengthens our position in a competitive labour market. We are confident we have the culture, practices and processes in place to provide the best opportunities for our employees. This view is endorsed by our being recognised as a top employer for 2019 in ten countries: Belgium, Bulgaria, Czech Republic, Greece, Hungary, Poland, Romania, Slovakia, Spain and Turkey, compared with just three in 2018.
Employee engagement Having engaged, committed employees is key to better serving our customers. In times of change, it is important we understand the areas where we are improving and where we are not.
In 2018, we introduced a new survey tool, Peakon, to better measure and track employee engagement. Peakon replaces the Yearly Engagement Survey (YES). NN IP and NN Bank in the Netherlands piloted the new tool in June, and the global engagement survey took place for the entire company in November. 85% of employees completed the global survey.
Global engagement levels increased to 7.1 in 2018 (2017: 7.0). The strongest drivers of how employees experience NN as a place to work are growth, autonomy and meaningful work. The statements ‘The work I do is meaningful to me’ and ‘I feel I am given enough freedom to decide how to do my work’ had the most positive results. Through the survey we identified employees’ understanding of strategy (globally and within the business units), efficient processes and encouraging healthier lifestyles as three areas where we can improve.
Health and well-being Health was identified as an improvement area in our global engagement survey, with employees expressing the need for more exercise opportunities at work. To encourage a healthier lifestyle and more balanced life among employees, we launched several initiatives.
Examples include breathing technique workshops in Turkey and a monthly health & safety committee in Japan. In Spain we launched an in-house medical service, and in the Netherlands, we launched a pilot programme, Fit by Nationale-Nederlanden. Read more about Vitality on page 24.
We aim to offer investors attractive long-term returns, and we want to be transparent by providing them with high-quality, clear, accurate and timely information.
Number of shares in issue and shares outstanding in the market Year-end
Our financial targets • EUR ~400 million cost reduction2 by 2020 • Annual earnings growth of 5-7%
How we performed in 2018 • Operating result growth of 3%5 • Administrative expense base of business units in scope reduced by EUR 156 million2
4 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.
5 Operating result before tax of the ongoing business 2018 versus 2017.
6 Representing a pay-out ratio of 50% of the net operating result of the ongoing business.
Dividends are paid either in cash, after deduction of withholding tax if applicable, or in ordinary shares from the share premium reserve at the election of the shareholder. We intend to neutralise the dilutive effect of the stock dividend through repurchase of ordinary shares. In addition, capital generated in excess of NN Group’s capital ambition is expected to be returned to shareholders unless it can be used for any other appropriate corporate purposes, including investments in value-creating opportunities. NN Group is committed to distributing excess capital in the form that is most appropriate and efficient for shareholders at that specific time, such as special dividends or share buybacks.
At the AGM on 29 May 2019, a final dividend for 2018 will be proposed of EUR 1.24 per ordinary share. Together with the 2018 interim dividend of EUR 0.66 per ordinary share paid in September 2018, NN Group’s total dividend for 2018 will be EUR 1.90 per ordinary share, which is equivalent to a dividend pay-out ratio of 50% of NN Group’s full-year 2018 net operating result of the ongoing business.
This represents an increase of 14.5% compared with the total 2017 dividend, reflecting the additional cash flows from the Delta Lloyd transaction.
NN Group shares issued and share buyback programme On 25 June 2018, NN Group issued 3,918,712 ordinary shares as stock dividend for payment of the 2017 final dividend, representing an aggregate value of EUR 142 million. For payment of the 2018 interim dividend, 2,566,901 ordinary shares were issued as stock dividend on 10 September 2018, reflecting an aggregate value of EUR 95 million.
To neutralise the dilutive effect of the stock dividend, in 2018 NN Group repurchased ordinary shares for EUR 237 million, related to the 2017 final and the 2018 interim dividend.
On 11 April 2018, 6,176,884 NN Group treasury shares that had been repurchased under the share buyback programme completed in December 2017 were cancelled.
Investment (RI) Framework policy • Continue to increase our Assets under Management (AuM) in sustainable and impact funds and mandates, and to expand our product offering
• 38,536 young people reached through NN Future Matters programme, now exceeding our 2020 target
• 8% decrease in direct CO2 emissions; CO2 emissions per FTE decreased by 6%
The resolution asked the company to adopt carbon reduction targets in line with the Paris Agreement. Though the resolution was supported by only 5.5% of votes cast, and thus rejected by the AGM, we nevertheless believe it gave a strong signal to the company to take a more active role in leading the transition to low carbon energy sources. As such, we received positively Shell’s announcement in December 2018 that it will adopt short-term climate targets and link executive pay to its carbon ambitions. The announcement was made in a joint statement developed with institutional investors on behalf of Climate Action 100+.
We believe in the importance of an ongoing dialogue with all companies and issuers that we invest in. Through engagement, we raise awareness of ESG issues, and encourage them to improve their ESG policies and practices. Because of the active investment strategies of NN IP, our analysts and portfolio managers are in frequent dialogue with investee companies. Whenever ESG issues are a topic of discussion during our company meetings, we log them in a database. The chart below shows that we had 521 ESG dialogues with issuers in 2018. The increase on last year reflects changes in the way we collect the information. In addition to engagements conducted by our equity analysts, portfolio managers and ESG specialists, we also started to track the dialogues that fixed income analysts and portfolio managers had with corporate and sovereign issuers.
For more examples of how we engage with companies and sectors, please see NN IP‘s Responsible Investing report 2018 on our website.
Engaging with the Oil & Gas sector on climate change The Oil & Gas sector is particularly exposed to the associated risks of climate change, given its vulnerability to a low-carbon world and the fact that its operations, services and products make it a leading contributor to global warming. We therefore feel companies in the sector should be transparent in explaining how they are adapting their business strategies and reporting the risks they face.
EUR 16.5bn AuM in sustainable and impact investing funds and mandates
For NN Group’s own assets, too, we look for investments that have a positive impact on society while still meeting our investment criteria. For instance, within our infrastructure debt portfolio, we finance projects in the area of renewable energy and resource efficiency, such as solar and windfarms, district heating projects, and water and wastewater treatment facilities. NN Group also invests in green bonds. In total, our investments in climate-related infrastructure projects and green bonds amounted to EUR 663 million at yearend 2018.
Palm oil is a popular commodity in consumer-related products. However, the list of controversies associated with palm oil is a long one: deforestation; air, soil and water pollution; climate change; and human rights challenges. These issues have raised awareness about some of the problems facing the sector and many NGOs are targeting stakeholders, including investors, to take action. While one NGO has urged us to exclude palm oil companies, others have encouraged us to continue our efforts to engage with such companies, in order to instigate change.
Our engagement approach Because of the complexity of the supply chain, we do not believe exclusion is the answer, and prefer instead to use our influence to improve standards in the sector. In 2017, we developed an engagement approach, whereby we focus on all parties throughout the supply chain, from palm oil producers to retailers. We engage with these companies both individually and collectively through the PRI working group on Sustainable Palm Oil in which NN IP leads several important engagements with growers.
Creating and sharing value – Society and communities continued of our policy is being transparent about the taxes collected and paid to governments in the different countries where NN operates. We provide an overview of corporate income tax on a country-by-country basis. Read more on pages 97-100 of the Financial Report (note 31).
As well as paying corporate income taxes, NN is also responsible for collecting operational taxes on behalf of NN Group, our customers and our employees. In 2018, NN Group paid EUR 1,278 million (2017: EUR 1,225 million) in wage taxes, of which NN contributed EUR 385 million in Dutch social premiums and employment taxes on behalf of our employees, and EUR 893 million on behalf of our clients. NN paid VAT of EUR 40 million (2017: EUR 33 million) and insurance premium tax of EUR 219 million (2017: EUR 217 million) to the Dutch Treasury. To give more insight into our tax contribution a detailed report, called 2018 Total Contribution on Taxation of NN Group will be published on our corporate website.
Financial tax disclosures The income tax charge of EUR 524 million in 2018 represents an effective tax rate of 31.6%. The effective tax rate was higher than in the previous year (15.5%) and higher than the weighted average statutory tax rate (24.4%). This higher effective tax rate includes the impact of the announced decrease in the corporate tax rate in the Netherlands in 2020 and 2021. This change led to an additional tax charge resulting from the recalculation of the deferred tax position to the new rates. The higher effective tax rate also includes the impact of the goodwill impairment charge, which is not deductible for tax purposes.
Community investment Since 2014, we have gradually targeted our overall charitable giving towards NN Future Matters. This is NN Group’s overarching community investment programme, which aims to help improve people’s financial well-being, specifically targeting 10-25-yearolds and underserved groups. In 2018, we supported 38,536 young people and 84% of our total charitable donations of EUR 2.7 million went to NN Future Matters related target areas.
During the 2018 Money Week in the Netherlands, NN colleagues gave 306 lectures in primary schools to more than 7,500 children on money and financial risk. In Bulgaria, with local partners we developed learning content on (personal) finance and aim to reach a total of over 600 students and lecturers across six universities by mid-2019. In Poland, we are involved in the DigiKids project that equips girls from orphanages with basic professional and financial skills to help them when entering the labour market.
Another way of creating economic opportunities is by encouraging entrepreneurship. In 2018, 15,913 students in 10 countries took part in the Social Innovation Relay, the flagship programme of the partnership between NN Group and Junior Achievement Europe. This is a global competition where secondary school students develop an innovative business concept to address a social need.
The Amsterdam University of Applied Sciences, which helps to research the programme’s impact, found that programme participants’ average debt decreased following participation from EUR 13,149 to EUR 7,282. Since 2016, 7,017 households have been helped, including 2,675 in 2018.
In addition to financial support, 210 NN employees volunteered 3,728 hours of their relevant expertise to projects related to the foundation.
Read more in Dutch: https:// www.vanschuldennaarkansen.nl 48 NN Group N.V. 2018 Annual Review
In Japan, many family-run SMEs risk closure because their owners cannot find successors. For this reason, as part of NN Life Japan’s Future Matters programme Mirai no Shacho (Future CEO), launched the Family Business Innovation Lab, which helps young family members see the value and opportunities in joining their family business.
NN Life Japan has run workshops to share success stories and let potential family business successors meet young people who have successfully innovated their family’s business.
Alleviating financial distress Even in prosperous societies, formal social services do not reach all the community’s disadvantaged and underserved. Through fundraising and partnerships with local charities, NN aims to support families with children in financially challenging circumstances.
To celebrate NN Future Matters’ fourth anniversary in 2018 and help NN countries strengthen their structural partnerships with relevant local charities, we made additional donations of EUR 115,000 to local charities in 12 NN markets.
Furthermore, we address SDG 1 (No poverty) and SDG 4 (Quality education) through our insurance products and services, and community investment activities. Our impact investment activities and different investment instruments address amongst others SDG 3 (Good health and well-being) and SDG 7 (Affordable and clean energy).
Impact investing and the SDGs NN Investment Partners (NN IP) developed impact strategies that are primarily designed for investors who want to make a clear impact on one or more of the SDGs. We identify those industries, companies and projects that, as a result of our investment philosophies and universes, combine attractive financial returns with a clear and measurable positive impact on people, planet or prosperity. Environmental, social and governmental (ESG) factors are also integrated throughout the investment process.
Our impact strategies include both equity and fixed income funds and currently hold EUR 1.161 billion Assets under Management. This includes amongst others the Green Bond Fund which holds EUR 578 million.
• EUR 2.7 million donations to charitable organisations • 2,675 households reached in 2018 by Foundation From Debt to Opportunities
Impact through employee training and development and Future Matters scholarship programme
• EUR 21.5 million spent on training and development of our employees • 31 scholarships provided to students from eight countries
• Carbon neutrality by offsetting our remaining carbon emissions through the purchase of 23 kt. voluntary carbon credits
• EUR 508 million investments of own assets in direct renewable infrastructure projects and green bonds used for renewable energy 50 NN Group N.V. 2018 Annual Review
Platform Living Wage Financials NN IP joined the Platform Living Wage Financials (PLWF), a Dutch investor coalition collectively representing over EUR 537bn AuM. Under the umbrella of the platform, financial institutions come together to support, assess, and monitor investee companies with regard to their commitment to paying a living wage to the workers in their supply chains. In 2018 the focus was on the garment and footwear sector.
Excluding tobacco from investments NN Group made the decision to exclude tobacco from all its investments, together with NN IP. The decision to extend the exclusion to all proprietary and client funds and mandates was made as part of NN Group’s Responsible Investment policy. The decision takes into account concerns regarding public health as well as the economic burden on society via the externalised economic and societal costs of tobacco. The decision applies to all equity and fixed income holdings of tobacco manufacturers, as well as all mutual funds managed by NN IP.
Our culture and governance Our values serve as a compass for decision-making and guide us in all our interactions. Our governance structure ensures we act with the interests of our group and our stakeholders in mind.
Living our Values programme Our values are reflected in many of our company-wide policies, standards and processes, and implemented across our businesses. Especially in times of change, an open and honest dialogue around our values can help us learn from each other and test our ideas, strategy and ambitions.
This year’s theme was ‘our values and change’. Belgium organised a session on values in scrum meetings and Poland on the challenges of digitalisation. Both Belgium and Spain played a values game, Bulgaria organised a values-related competition, Slovakia conducted a survey on values and change, and in Romania, employees could nominate a colleague who they felt was an example of living our values.
At NN, our values of care, clear, commit play an important role in guiding, uniting and inspiring us.
To encourage open dialogue, we published a video during the Values week of international senior leaders answering the question ‘What is your favourite value, and why?’
Employee behaviour is key We take steps to ensure all employees are aware of our values when they join us, and remain so throughout their NN careers.
Onboarding Our onboarding programme for new employees explains our values and their importance to NN. In 2018, we introduced the My Onboarding app for employees in the Netherlands, containing information about our company’s purpose, values, Code of Conduct, brand and work environment.
In the Netherlands, new employees must also take the Oath for Financial Institutions, which is fully integrated into the NN statement of Living our Values.
The importance of role models The NN Group Management Board, senior leadership and line managers play a crucial role in setting an example when it comes to living the values. The values are therefore also reflected in the NN leadership profile. For senior leaders, 50% of their annual performance evaluation is related to the extent to which they demonstrate behaviour in line with the NN leadership profile (key elements: demonstrating integrity, customer focus, and creating a culture of clear direction and open feedback).
There is also continuous formal and informal dialogue between the works councils and management representatives on conduct and culture within the company.
Care: In our team we genuinely care about our customers and treat them with respect
Monitoring performance The Management Board is responsible for incorporating and maintaining our values within the company. Each year, we use various monitoring instruments to assess the effectiveness of the Living our Values programme. This evaluation is also discussed on a yearly basis with the Supervisory Board.
During 2018, specific attention was paid to whether we need to implement any changes to the existing culture, given the developments our company is going through.
Areas of improvement We will continue to invest in the role-model function managers have in promoting a values-driven culture and in stimulating open dialogue, and carefully assess in which areas we can improve.
In 2019, the NN values will have been in existence for five years, so we will reassess their wording to ensure they have stood the test of time. We will look, for example, at how the current values align with further implementation of an agile way of working.
We also plan to organise another Values week in 2019, including initiatives that allow significant involvement from our Management Board and senior management.
The monitoring of values will be further integrated into the Conduct Driver methodology in 2019. Read more on page 56.
NN Code of Conduct The Living our Values statement requires employees to comply with applicable legislation, regulations, internal policies and standards. This includes the NN Code of Conduct, which outlines NN’s position on a number of important topics, such as conflicts of interest, fraud, corruption and financial economic crime, and lists clear rules of conduct as minimum standards to which all NN employees must adhere at all times. Where NN businesses have their own additional rules, these are laid down in a business-specific supplementary document. Every NN employee and anyone representing NN in any capacity is expected to be familiar with and live up to these rules.
While the values provide a compass for decision-making, the NN Code of Conduct gives colleagues more detailed guidelines for specific behaviour. It contains a general Code of Conduct for all employees and a Manager Annex describing specific management responsibilities for raising awareness and upholding standards.
Reporting concerns When misconduct may arise, NN carefully reviews and assesses if investigation needs to take place or other actions are required. Breaches of our Code of Conduct are not taken lightly and have consequences.
Whistleblower Policy The NN Group Whistleblower Policy enables any employee to report, if desired anonymously, a concern outside normal reporting channels. NN Group guarantees several rights, including protection from retaliation, for any employee who reports a concern in good faith, provides information, causes information to be provided, or otherwise assists in an investigation. The main outline of the Whistleblower Policy is explained in our Code of Conduct. Relevant training materials are developed and rolled out to the business units.
In 2018 NN recorded seven concerns filed through the Whistleblower Policy (in 2017: 11 concerns). In four reported concerns, Corporate Security & Investigations was involved for further investigation (in 2017, Corporate Security & Investigations
Embedding conduct and culture in our Risk control framework Our values are also embedded in the design of our Risk control framework, as explained in the chapter on risk management on page 16. Amongst other things, the framework enables NN to assess the continuing effectiveness of its controls.
Conduct Drivers was involved in 3 of the 11 concerns). The concerns reported in 2018 were related to, amongst other, potential breaches or misconduct in the field of sales practices, fraud and other unethical employee behaviour. The concerns are recorded and reported periodically (in numbers and on content, if desired) through the Chief Compliance Officer up to the level of the Management Board and, if applicable, up to the level of the Supervisory Board.
Other incidents and concerns In addition to the reports filed through the Whistleblowing procedure, several other concerns were reported via common channels, such as management. In 2018, Corporate Security & Investigations assessed 100 cases (in 2017: 71 cases). In 14 of these 100 cases in 2018 disciplinary measures were taken (e.g. a warning, reprimand, termination of employment or instant dismissal). Read more on page 73.
The interests of NN Group and our stakeholders In performing their duties, the Executive Board, Management Board and Supervisory Board must carefully consider and act in accordance with the interests of NN Group and the business connected with it, taking into consideration the interests of all stakeholders of NN Group. The organisation, duties and way of working of the Executive Board, Management Board and Supervisory Board can be found in the charters of the respective Boards. These are available on the NN Group website.
2. Delfin Rueda (1964) Chief Financial Officer Appointed: 2014 Reappointed: 2018 Nationality: Spanish Delfin Rueda was appointed to the Executive Board as Chief Financial Officer (CFO) on 1 March 2014 and member of the Management Board on 7 July 2014. As of 7 July 2014, he was also appointed to the position of Vice-chair of the Executive and Management Board. He was reappointed on 31 May 2018. Delfin is responsible for NN’s finance departments and investor relations.
Management Board 3. Satish Bapat (1966) Chief Executive Officer NN Investment Partners Appointed: 2017 Nationality: Dutch Satish Bapat was appointed CEO of NN Investment Partners and member of the Management Board of NN Group on 1 April 2017. In this role Satish is responsible for NN Group’s asset management business.
4. Tjeerd Bosklopper (1975) Chief Transformation Officer Appointed: 2018 Nationality: Dutch Tjeerd Bosklopper was appointed Chief Transformation Officer (CTO) and member of the Management Board of NN Group on 1 September 2018. As CTO, Tjeerd is responsible for three areas: IT, driving (technological) transformation, and innovation.
6. David Knibbe (1971) Chief Executive Officer Netherlands Appointed: 2014 Nationality: Dutch David Knibbe was appointed member of the Management Board of NN Group on 7 July 2014. On 1 September 2014, he was appointed CEO of Netherlands. He is responsible for all insurance and banking business in the Netherlands, and is leading the integration of Nationale-Nederlanden and Delta Lloyd.
Robin Spencer (1970) Chief Executive Officer International Insurance Stepped down: 1 June 2018 Nationality: British After four years with NN, Robin Spencer stepped down from his position as CEO International Insurance and member of the Management Board of NN Group. As of 1 June 2018, he pursues his career outside of the company.
Stakeholder engagement and international commitments NN Group engages at all levels of the organisation in ongoing discussions with stakeholders on a variety of topics ranging from products, services and business performance to our role in society and the communities in which we operate.
During 2018, we considered a number of different developments, issues and challenges that were brought to our attention by and/or discussed with different stakeholders. For a non-exhaustive overview of the key topics discussed with different stakeholders, see the next page.
(Inter)national commitments 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 of the markets in which we operate. We also adhere to relevant international standards and guidelines, including the UN Global Compact and the OECD Guidelines for Multinational Enterprises.
To underline our ambitions, NN Group and/ or our respective businesses have endorsed various international initiatives. We are also a member of various international organisations. For an overview, please visit our website. In 2018, we became a member of the International Integrated Reporting Council (IIRC).
The covenant’s goal is for signatories to pool their knowledge and experience, learn from each other, identify ESG risks, and initiate actions that can mitigate those risks. Insurers are expected to have due diligence processes in place in order to address ESG risks and, where needed, to develop, adjust and improve their policies. Policies and restricted lists should be publicly available, and insurers should report on both their voting activities and engagements with investee companies, and the sectors they are invested in.
In addition to addressing risks, each year signatories will launch a project on a selected theme. The first theme is ‘climate change and the energy transition’. By working together, ICSR covenant signatories hope to gain more knowledge of and insight into the topic in question, so they can better address the issues involved and contribute to the UN Sustainable Development Goals.
In line with the ICSR covenant, we have published our restricted list on our website. An overview of fixed-income bonds by type of issuer is on page 148 of the Financial Report (note 50).
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.
Stimulate good cooperation, increase satisfaction financial advisors, ultimately leading to customer satisfaction
Create value through consistent and transparent voting behaviour, improved disclosures, improved decision-making including ESG aspects
Restrictions on companies involved in oil sands and controversial pipelines, policy on coal companies in development 61 NN Group N.V. 2018 Annual Review
Our response to the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).
NN Group endorsed the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) in 2017. This section provides our updated response and is structured along the four TCFD pillars: governance, strategy, risk management, metrics and targets.
Governance The NN Group Executive Board ensures that the company has adequate internal risk-management and control systems in place so that it is aware of any material risks run by our company and that these risks can be managed properly. Each year, the Executive Board defines the company’s risk appetite and tolerance statements. This is ratified by the Supervisory Board. Read more on risk management in the Financial Report (note 50).
ESG-related governance within our investment activities Climate change is an ESG factor that we believe has the potential to materially impact the performance of investment portfolios. The consideration of ESG is part of all the investment processes, and governed by our Responsible Investment (RI) Framework policy, which is centrally managed within NN Group. The Management Board decides on adjustments to the RI Framework policy and related restricted list. In 2018, the topic was on the agenda of the Management Board four times.
NN Group Corporate Citizenship, as owner of the RI Framework policy, advises the Management Board on adjustments to the policy, in consultation with relevant stakeholders including the ESG Committee of NN Investment Partners (NN IP). All proposals regarding NN Group policies and the restricted list are discussed in the ESG Committee, which makes a recommendation to the Management Board of NN Group.
Strategy Climate change is complex and contains significant areas of uncertainty, particularly when considering long-term horizons. The ways in which businesses might be impacted are also diverse. To align with the TCFD framework, we mapped the potential risks (and opportunities) of climate change relevant to our business, divided in transition and physical risks.
Insurability and resilience in a changing climate According to a position paper ‘The heat is on: Insurance and Resilience in a Changing Climate’ of the CRO Forum, published in January 2019, insurers have a vested interest in supporting efforts aimed at limiting global warming and aiding climate change resilience, in order to ensure the long-term sustainability of the industry. To meet the targets of the Paris Agreement and avoid the worst physical risks associated with climate change, it is important that tough transition action is taken now. The paper aims to provide a clear and up-to-date overview of the climate change challenges and explores the potential implications for insurers under 2°C, 3°C and 5°C scenarios, both for insurance underwriting and investments.
• Increased awareness of risks may lead to greater demand for insurance
• Preventive and adaptive measures are important to keep overall risk at an affordable level
• The main impact will be in Property & Casualty lines such as property and motor, due to their direct physical exposure to weather. Yet there is potential for higher litigation risk, which would impact liability insurance, and impacts on life insurance from increased mortality or morbidity rates, particularly in a more extreme scenario of >5°C warming as the population struggles with temperature extremes, lack of access to clean water and famine.
Interconnected risks Whilst consequences of transition and physical risks can be regarded separately, they are interconnected. The introduction of ambitious policies to limit global warming increases transition risks in the shortto -medium term, but it is expected to also reduce the long-term physical risks. Although some of the physical risks will be unavoidable, this interconnection makes it evident that the right forward-looking measures should be taken now. This was also the conclusion of a paper of the Chief Risk Officer Forum (CRO Forum), which comprises risk officers of the major European insurers, and to which also NN contributed. For more details, see the box below.
Climate-related opportunities Climate change could also create opportunities, even as it threatens the world in a variety of ways. For example, within our asset management business, we continue to see growing interest for investment strategies that support businesses and infrastructure which facilitate the transition towards a low-carbon and resourceefficient economy. For example, NN IP’s Green Bond Fund has doubled in size, and a new sustainable infrastructure fund was launched. For the insurer’s own account, too, this means there are new investment opportunities. Read more on page 32.
Helping our insurance customers adapt to climate change, or supporting them in opportunities related to energy transition, could generate new sources of revenue. For example, we have developed weather damage prevention tools for SME customers, are a partner of a Dutch climate resilience platform (www.klimaatplein.nl), and have developed a fleet management system for sustainable driving. In 2019, we will continue to look for innovative ways to further help our customers adapt and respond to climate change.
Finally, proactively addressing climate change can improve our reputation, and therewith positively influence customer satisfaction. Of course, the opposite can also occur, for example, if we were to receive negative publicity around not meeting our societal objectives, if our customers were unaware of uninsured risks, or if we had to charge customers higher insurance premiums, making affordability an issue. NN Group acknowledges the importance of trust and customer satisfaction for the insurance industry, and of focusing on clearly informing our customers and being transparent about coverage, as well as helping to initiate adaption and resilience in a changing environment. We will therefore continue to focus on actions that raise awareness of climate change amongst all our stakeholders.
Besides undertaking this project, we tested an open-source tool, the Paris Agreement Capital Transition Assessment (PACTA) on our (general account) equity and corporate bond portfolios. PACTA gives insights into our exposure to climate transition risk over multiple forward-looking scenarios. Besides supporting our policy development, tools such as PACTA help to prioritise future deep-dives into our exposures and risks to climate-risk sensitive sectors. For more background on the assessment, see our separately published report Carbon footprint disclosure.
Risk management Processes within investments We believe consideration of ESG factors, alongside traditional financial data, helps us 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 so doing, they make use of information from ESG research providers, including Sustainalytics, MSCI, Bloomberg and ISS-Ethix Climate Solutions.
In addition to analysing individual investment-level risks, we perform analysis at a portfolio level to assess potential climate risks, and inform the creation and implementation of a broader climate change strategy. An example being the calculation of the carbon footprint of our proprietary investments, which provides insights into our highest carbon risk exposure and is useful for, amongst other things, engagement purposes.
We consider engagement a tool for managing climate risks. This means we enter into a dialogue with companies and communicate which goals we would like them to achieve. Besides managing risks, we also believe it is our responsibility as long-term investors to influence companies and strive for a reduction in companies’ carbon footprints.
Portfolio diversification and keeping track of concentration risks are other key risk-mitigating actions. Through its wide product range, NN offers a broad range of non-life insurance protection covers against damage and loss from a wide range of causes. Next to our P&C products, our portfolio is comprised of income products, such as disability and accident insurance, that are less sensitive to windstorm or climate change. Finally, we have a groupwide catastrophe reinsurance programme in place to protect against the severity and frequency of large natural catastrophes. Reinsurance covers are placed with a broad and diversified panel of strongly capitalised external reinsurers, and reduce the losses to NN Group from both large events and multiple smaller events. Both the applicability of the external vendor models, as well as the reinsurance structure and cover, are reviewed annually on renewal.
In 2018, NN IP concluded a three-year carbon risk engagement with 20 power utility companies and, as part of the global Climate Action 100+ initiative, entered into dialogue with two major companies in the chemicals sector. More broadly, we engaged with 521 companies on ESG issues, and supported 95% of shareholder resolutions focused on environmental issues and climate change. Read more on voting and engagement on pages 44-45 and 71.
We take an integrated approach to reporting. Our Annual Report consists of two components: this Annual Review and the Financial Report.
In the Annual Review, we aim to provide a concise, accurate and balanced account of NN Group’s performance over the past year. In-depth information, particularly regarding our financial performance, can be found in the Financial Report. NN Group N.V. is referred to in this document as ‘NN Group’ or ‘NN’.
We aim to strengthen our integrated reporting every year. Elements such as our value creation model and our materiality matrix are again included in the Annual Review. The same applies for our performance data regarding human capital, responsible investment, community investment and environmental footprint.
This review therefore aligns relevant information about our strategy, governance systems, performance and future prospects in a way that reflects the economic, environmental and social contexts in which we operate.
We believe that this reporting strategy enables us to tailor our reporting for different stakeholders, many of whom require different depths of information. The online versions of the Annual Review and the Financial Report contain a number of links. Links to sources on the NN Group website are also included.
Reporting profile This is NN Group’s fifth Annual Report since our separation from ING Group and becoming a publicly listed company on 2 July 2014. It is published on 14 March 2019. We report annually, on a calendar year basis (1 January – 31 December).
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 Relevant topics were selected for the 2018 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 senior leaders from our organisation to help steer our focus. For more information, see page 13.
We provide evidence to our external auditor to support the statements we make in this report. Please refer to pages 75-79 for KPMG’s Assurance report.
Boundary and scope of the data in the Annual Review The boundaries of the Annual Review are defined by the topics included in the materiality assessment and the results that are presented in the materiality matrix.
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. We sourced the Human Resources (HR) data directly from the HR data analytics department. The financial data reported in this review has been fully sourced and aligned with NN Group’s 2018 Financial Report.
The GRI Index table states the indicators NN Group is reporting on, including where to find the respective information, either in this Annual Review, Financial Report and/ or the NN Group website. The index table can be found on www.nn-group.com/ annualreport. In this document you can also find the Progress reports for the UN Principles for Sustainable Insurance and the UN Global Compact.
References relate to the notes starting with note 1 ‘Accounting policies’ of the Financial Report. These form an integral part of the Consolidated annual accounts.
Share of result from associates and joint ventures 6 500 399
Assets under Management (end of period, in EUR billion) 246 246 195
NN Group share price (last trading day of the year, in EUR) 34.80 36.12 32.20
– insurance business units scoring on/above level previous year 42% 91% 95%
– insurance business units scoring on/above market average 67% 100% n.a.
Assets under Management in sustainable and impact investing funds and mandates (end of period – in EUR million) 16,549 10,852 5,062
Young people reached through NN Future Matters programme 38,536 37,208 27,529
Donations to charitable organisations (x EUR 1,000)2 2,700 2,400 1,500 1 In 2018 we introduced a new metric for measuring engagement. The previous measurement for 2017 was 66%; with the new metric this is 7.0. 2 Includes cash donations to charitable causes, corporate foundations and partnerships.
Transparency Benchmark Netherlands (out of 200)3 – 183 176 3 Since 2017 published on a bi-annual basis.
Carbon footprinting can help us understand carbon-related risks within our investment portfolio, and can also be useful to inform corporate engagement. In the context of an investment portfolio, a carbon footprint measures the amount of greenhouse gas (GHG) emissions and intensity associated with the underlying portfolio holdings. The footprint is measured in carbon dioxide equivalents (CO2e).
Scope of our carbon footprint disclosure The carbon footprint of NN Group’s proprietary fixed income and listed equity holdings was measured as per 31 December 2018, and is based on the latest carbon dioxide emissions data for governments and companies available to us.
In 2018, the assessed AuM was EUR 108 billion. This represents 58% of NN Group’s total proprietary investment portfolio. The main asset categories that were not in scope of this carbon footprint analysis included mortgages, real estate, private equity, and cash. The fixed income holdings that we assessed included government bonds and corporate fixed income securities. The Corporate Fixed Income portfolio comprised mainly corporate bonds, but also asset-backed securities and loans (although the data availability on these two asset categories was limited).
The methodology for the footprint measurement of Government bonds was changed compared to last year(s) reflecting an alignment to the methodology recommended by the Platform Carbon Accounting Financials (PCAF). We now allocate emissions to a sovereign bond by taking into account the emissions that are directly caused by the government’s own activity, as well as the emissions from government financing in other sectors within a country.
Male/female ratio Senior Leaders Group 67/33 68/32 80/20 1 By further refining the segmentation of employees per business unit data may differ from the previous year (i.e. NN Bank is now separately presented where in 2016 and 2017 it was allocated to Other).
Total spending on training and development (in EUR million) 21.5 21.4 13.7
Of which investigated by Corporate Security & Investigations 4 3 n.r.
Ratio of CEO compensation to the average employee compensation7 33:1 29:1 n.r.
Delta Lloyd and Nationale-Nederlanden, given the specific nature of these complaints. 5 Human capital ROI is calculated as: (operating result ongoing business + employee expenses)/employee expenses. 6 The increase in mainly due to a change of definition: number of employees with a change in position/(number of employees with a change in position + hired employees). 7 For more information, refer to the Remuneration report on pages 32-35 of the Financial Report.
Total donations to charitable organisations (x EUR 1,000)1 2,700 2,400 1,500
– Recycled waste as % of total waste 63% 82% 46%
1 Decrease in 2016 mainly caused by a reduction of office space in the Netherlands.
Our conclusion We have reviewed the Non-Financial Information in the Annual Review 2018 (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.
Based on our procedures performed, nothing has come to our attention that causes us to believe that the information relating to material non-financial topics (for selection of topics, see page 13) is not prepared, in all material respects, in accordance with the reporting criteria as described in ‘Our approach to reporting’ (page 67).
The Non-Financial Information comprises a representation of the policy of NN Group with regard to corporate responsibility, and the thereto related business operations, events and achievements during the year.
Key review matter Key review matters are those matters that, in our professional judgement, were of most significance in our review of the Non-Financial Information. We have communicated the key review matter to the Supervisory Board.
The key review matter is not a comprehensive reflection of all matters discussed.
We have also assessed the Annual Review on the balance between the different material topics. For the Delta Lloyd integration and responsible investing, we reviewed the information in the report on whether this provides a balanced and a complete picture of the activities and occurrences for 2018 and future plans and activities of NN Group as applicable.
KPMG Accountants N.V., registered with the trade register in the Netherlands under number 33263683, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (‘KPMG International’), a Swiss entity.
Our observation We concluded that the Annual Review reflects a sufficiently balanced and complete view of the performance and activities of NN Group for the year 2018 on selected key reporting topics (e.g. the Delta Lloyd integration and responsible investing).
Responsibilities of the Executive Board and the Supervisory Board for the Non-Financial Information The Executive Board of NN Group is responsible for the preparation of the Non-Financial Information in accordance with the GRI Standards and the applied supplemental reporting criteria as disclosed in ‘Our approach to reporting’ on page 67, including the identification of stakeholders and the definition of material matters. The choices made by the Executive Board regarding the scope of the Non-Financial Information and the reporting policy are summarised in ‘Our approach to reporting’ of the Annual Review. The Executive Board is also responsible for such internal control as it determines is necessary to enable the preparation of the Non-Financial Information that is free from material misstatement, whether due to fraud or error.
The materiality affects the nature, timing and extent of our review procedures and the evaluation of the effect of identified misstatements on our conclusion.
We apply the ‘Nadere voorschriften kwaliteitssystemen’ (NVKS, Regulations on quality management systems) and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.
Our review engagement included, among others, the following procedures: — Performing an analysis of the external environment and obtaining an understanding of relevant societal themes and issues, and the characteristics of the company; — Evaluating the appropriateness of the reporting criteria used, their consistent application and related disclosures in the Non-Financial Information. This includes the evaluation of the results of the stakeholders’ dialogue and the reasonableness of estimates made by management; — Obtaining an understanding of the reporting processes for the Non-Financial Information, including obtaining a general understanding of internal control relevant to our review; — Identifying areas of the Non-Financial Information with a higher risk of misleading or unbalanced information or material misstatements, whether due to fraud or error. Designing and performing further assurance procedures aimed at determining the plausibility of the Non-Financial Information responsive to this risk analysis.
These procedures included among others: — Interviewing management and relevant staff at corporate level responsible for the nonfinancial strategy, policy and results; — Interviewing relevant staff responsible for providing the information for, carrying out internal control procedures on, and consolidating the data in the Non-Financial Information; — Obtaining assurance information that the Non-Financial Information reconciles with underlying records of the company; — Reviewing, on a limited test basis, relevant internal and external documentation; — Performing an analytical review of the data and trends in the information submitted for consolidation at corporate level.
— To consider whether the Non-Financial Information as a whole, including the disclosures, reflects the purpose of the reporting criteria used.
Corporate governance Corporate governance relates to effective and responsible management of a company and the supervision of that management, as well as to internal control and the relations with the stakeholders of the company, such as customers, shareholders, employees, business partners and society at large.
Data privacy Data privacy, also called data protection or information privacy, is the aspect of information technology that deals with the ability of NN Group to protect the personal data of its customers and other stakeholders.
Dutch Cyber Collective The Dutch Cyber Collective, an initiative of Nationale-Nederlanden, is an overarching Dutch association committed to effectively reducing cybercrime for Dutch SMEs.
Employee engagement Employee engagement is a property of the relationship between an organisation and its employees, measured by NN Group through the Peakon employee survey.
Regulation by which the European Parliament, the Council of the European Union and the European Commission that aims to unify data protection for all individuals within the European Union. The GDPR came into effect on 25 May 2018.
An international independent standards organisation that helps businesses, governments and other organisations understand and communicate their impacts on issues such as climate change, human rights and corruption.
A global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs. The coalition promotes communication about value creation as the next step in the evolution of corporate reporting.
Junior Achievement Europe Europe’s largest provider of education programmes for entrepreneurship, work readiness and financial literacy.
NN Future Matters Future Matters is the global community investment programme for NN Group. It aims to empower people in the markets where we operate to improve their financial well-being, and to support them in growing their economic opportunities.
Partial Internal Model (PIM) A method of calculating the Solvency Capital Requirement (SCR) that combines a standard formula and an approved, internally developed internal model.
Peakon The Peakon survey 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 EVP as an organisation. Peakon replaces the Yearly Engagement Survey (YES).
The NN Group N.V. 2018 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 and the Statements Dutch Financial Supervision Act and Dutch Corporate Governance Code.
Robotisation The automation of a system or process by use of robotic devices.
Settlement Date The date on which a trade must be settled and the buyer must make payment. On 2 July 2014, ING Group offered part of its shares in the share capital of NN Group to the public and the shares in the capital of NN Group were listed on Euronext Amsterdam. Settlement Date of the offering was 7 July 2014.
UN Global Compact The United Nations Global Compact is an initiative of the United Nations to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation. It is a principle-based framework for business, stating ten principles in the areas of human rights, labour, environment and anti-corruption.
For further information on NN Group, please visit our corporate website or contact us via external.communications@nn-group.com
Disclaimer NN Group’s 2018 Annual Report consists of two documents: the 2018 Annual Review and the 2018 Financial Report. More information – for example the GRI Index Table and SFCR – is available on the corporate website in the Investors/ Annual report section.
Any forward-looking statements made by or on behalf of NN Group in this Annual Report speak only as of the date they are made, and, NN Group assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason.