NN Group adopts a combined reporting strategy, which enables us to tailor our reporting for different stakeholder groups
About this report 2015 Annual Review This is our top level communication aimed at all NN Group stakeholders. It is a concise, integrated review that provides information about our dynamic operating environment and key material trends, our strategy, how we create value, the financial and non-financial performance of our business and the statement of our CEO.
2015 Sustainability Supplement This supplement provides additional information with regard to our strategy, objectives and achievements related to the social, ethical and environmental aspects of our businesses. It is especially aimed at shareholders, rating agencies and NGOs.
The 2015 Annual Report provides an integrated review of the performance of our company. It is in accordance with applicable Dutch law and the International Financial Reporting Standards (IFRS), which were endorsed by the European Union, as well as with the Global Reporting Initiative’s G4 guidelines (GRI). It 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.
− NN Group 03 − Netherlands Life 05 − Netherlands Non-life 06 − Insurance Europe 06 − Japan Life 07 − Asset Management 08 − Other 08 − Japan Closed Block VA 09
Report of the Executive Board on internal control over financial reporting 35
Parent company annual accounts 149 − Parent company balance sheet 149 − Parent company profit and loss account 150
Other information 159 − Independent auditor’s report 159 − Proposed appropriation of result 164 − Subsequent events 165
About NN Group 07 − Our brand 07 − Our values 09 − CEO statement 11
Strategy and value creation 13 − What matters to us 13 − Our operating environment 14 − Our strategy 18 − How we create value 21 − Active Risk management 23
Improving financial well-being 07 − Customer empowerment 07 − Financial inclusion 07 − Community investment 08
Our journey as a standalone company has just begun. We aim to build a company that truly matters to our stakeholders
Our company in numbers (at 31 December 2015) Employees (in FTE)
• We delivered on the targets we set at the time of our Initial Public Offering (IPO) in July 2014 to generate capital and improve earnings, while delivering excellent service and products to our customers.
• We relocated our head office in the Netherlands from Amsterdam to The Hague. • We successfully prepared for the transition to the new Solvency II capital regime, receiving approval from the Dutch Central Bank to use our own Partial Internal Model.
At NN Group, we aim to be a positive force in the lives of all our stakeholders.
Customers • Small and medium-sized enterprises (SMEs) • Large corporate clients and their employees • Retail customers
Disability & accident • Individual disability insurance (Movir) • Group income insurance • Accident insurance
NN Group operating result ongoing business before tax excluding segment Other (% of total – FY2015)
• The segments Insurance Europe, Japan Life, Japan Closed Block VA and NN Re belong to International Insurance
Products and services • Corporate-owned life insurance (COLI) • Traditional life insurance
Slovakia, Poland, Romania, Turkey) • Health insurance (Greece; Hungary and Romania (as of 2016))
Customers • Institutional investors • Wholesale investors • Retail investors 3. Insurance Europe 4. Japan Life 5. Asset Management
Japan Closed Block VA comprises NN Group’s closed-block single premium variable annuity (SPVA) individual life insurance portfolio in Japan. These products were predominantly sold from 2001 to 2009. We expect 90% of the book to run off by the end of 2019. The total portfolio is reinsured by NN Re in the Netherlands. The portfolio is actively managed and hedged on a market consistent basis and is expected to release capital as the block runs off. The exact timing and amount cannot be predicted as it is influenced by the results of the hedge programme.
To further enhance awareness of the newly launched brand, we have chosen running as our main sports sponsoring domain. Running fits well with our values and our aim to contribute to people’s general health and financial well-being. Also, running attracts a diverse field of participants and spectators in terms of gender, age and nationality, which matches the diverse character of our customer base. We want to offer our support to the sport, its athletes and all the people who practise running.
portals rebranded 2.5m+ views on Facebook and YouTube of name change campaign with Ewan McGregor (in six countries)
February 2015 Start of international rebranding programme – Turkey was the first country in which our new brand was visible
March – April 2015 Rebranding of most of our businesses in Europe and Japan
Nationale-Nederlanden Our insurance and bank businesses in the Netherlands kept the name NationaleNederlanden, while the logo was updated in line with the new overall NN brand. Our businesses in Spain and Poland also rebranded to Nationale-Nederlanden.
500+ colleagues worked on the international rebranding programme 7,500 letters updated in terms of design, fonts and branding
Having achieved 66% aided brand awareness, NN Life in Romania is well on its way to building the new brand; in the last quarter of 2014 brand awareness was a mere 1%. NN is the preferred brand in Romania when people are considering a new life insurance product.
With 77% of customers seeing NN Life Romania as the ‘You matter’ company, it is evident that they truly make customers feel they matter.
NN Life Romania truly makes customers feel they matter aided brand awareness of NN Life in Romania customer seeing NN Life Romania as the ‘You matter’ company
The Global Brand Health Monitor measures the brand awareness per business line per country, and whether customers feel we are living our values. It also measures the so-called Relationship Net Promoter Score (NPS), which we believe is an important measure for brand preference and performance.
NN Hellas pushed brand awareness under difficult circumstances aided brand awareness of NN Hellas at the end of 2015
NPS in 12 of our insurance countries (where we measure NPS)
1 Belgium yes yes n.a. 2 Bulgaria yes n.a. yes 3 Czech Republic no n.a. yes 4 Greece yes n.a. n.a.
Awareness as a starting point To encourage behavioural change, we continuously create awareness around the ‘Living our Values’ programme. Dilemma sharing is stimulated as a means to discuss how we are living our values in our daily jobs. Beginning 2015, we released a number of special videos featuring interviews with the Management Board members on what our values mean to them and how they apply these in their daily work.
Throughout the year, our business units organised their own local communication campaigns around the values. In a number of countries, our values were integrated into the look and feel of the rebranded offices in such a way that employees are constantly reminded of them.
Bringing our values to life Our employees are encouraged to take an active role in living our values. We introduced a short quiz to help employees discover which of the values matters most to them. Also, by endorsing colleagues on our internal social intranet SAM (‘share all that matters’), employees let each other know how they exemplify caring, clear or committed behaviour.
We also developed a ‘serious game’ called the ‘Values challenge’ to make learning about our values fun while at the same time sparking some friendly competition. This game allows our employees to experiment with our values in different situations, and how to apply them with respect to various stakeholder groups. The game was part of the annual NN Values week in October, which offered an opportunity to pay extra attention to, and reflect on, our values.
Our human resources processes comprised another important area in which our values were incorporated. Not only were the values explained in introduction programmes to new employees, they were also used as a starting point to develop a new employee value proposition, performance management system and leadership profile in 2015. More information can be found in the chapter ‘Creating value as an employer’ on pages 32–33 of this Annual Review.
Clear We communicate proactively and honestly. We are accessible and open.
Looking forward An analysis of the first year of the implementation of the ‘Living our Values’ programme and the results of monitoring its effectiveness have led to a number of recommendations on how to further strengthen the programme. Overall employee awareness of the values is very high, and much has been achieved to ensure the ‘Living our Values’ programme remains top of mind. We will continue to invest especially in the ‘role model behaviour’ of managers, as this is a key component of success in the long term. This will be addressed in 2016 as part of the management development curriculum. There are a number of other actions planned for 2016 to further stimulate an open dialogue on the consistency of our behaviour with regards to the NN values. We will also repeat our NN Values week in 2016.
To further align with our values, our Code of conduct was refreshed in 2015.
The refreshed Code of conduct does not contain new standards, it aims to present and explain existing standards in a comprehensible and accessible fashion to foster further awareness. It will be applicable to the whole of NN Group.
Our operating entities have generated a significant amount of cash, with most subsidiaries upstreaming regular dividends. We issued EUR 1.6 billion of debt to the markets after our IPO to externalise our debt and to increase our financial flexibility.
Innovating our customer experience With this strong foundation, it is time to look ahead. The changes in our operating environment continue to be unpredictable and fast-paced. NN has a flexible and practical approach towards these developments. We want to capture the many opportunities of changing consumer behaviour, retrenching governments and the use of new technology. We aim to innovate in order to keep improving our service to customers and to retain our leading positions.
Our values ‘we care, we are clear, we commit’ are the guiding principles by which we seek to fulfil our purpose to help people secure their financial futures. Throughout the year, we rebranded all our businesses from ING to NN, Nationale-Nederlanden or NN Investment Partners. This process, and our brand promise ‘You matter’ provided us with a clear and recognisable identity in all of the markets where we operate.
Our balance sheet and capital position remain solid and our NN Group Solvency II ratio was a strong 239% at the end of 2015, based on our Partial Internal Model. In December, we received approval from the Dutch regulator (DNB) to use our Partial Internal Model under Solvency II for NN Group and the insurance entities in the Netherlands. The Solvency II capital ratios are still subject to final interpretations of Solvency II regulations including the treatment of tax in the SCR.
At the same time, we will continue to empower our customers with the knowledge and tools to make sound financial decisions. With our focus on innovation, we target an increase in customer satisfaction, flawless and intuitive interaction as well as efficiency.
In 2015, we saw many examples of innovation in our businesses. In Spain, we implemented the paperless sales process. This allowed us to provide a better customer experience as well as collect high-quality customer data, and in turn process that information efficiently. This has improved the Net Promoter Score and reduced new business processing costs by over 80%.
Other good examples can be found in Poland and Hungary, markets that were historically dominated by unit-linked savings products. Recently, they added standalone protection products to their business mix. The ‘Your life matters’ campaign in Poland – a health campaign focused on preventative measures – reinforced our protection positioning and cemented our place as the number one choice of Polish customers. In Hungary, Élétut, which is a modular protection product, helped us regain our number one market position. And in the Netherlands, data technology enables us to make digital contact with customers more personal and relevant.
Finally, the challenging market environment has also prompted us to sharpen the strategic focus of our asset management business in 2016.
Dedication and teamwork As a Management Board we are very proud of our 11,500 colleagues who contribute to our company’s achievements and bring our brand promise ‘You matter’ to life for our customers every day. We want to foster this positive energy and high employee engagement levels, which increased to 73% in 2015.
To keep up with the dynamic market environment and to maximise our results, we also attach great importance to investing in our leaders. Therefore, we offer several new leadership programmes, aimed at further enhancing our focus on values based leadership, customer centricity and external orientation.
Committed to society We believe that our role as a company goes beyond delivering monetary returns for our shareholders and a great experience for our customers. We aim to use our resources, expertise and reach to help society achieve long-term sustainable prosperity. Our corporate citizenship strategy is built upon our company’s purpose and values, and focuses on two main areas: improving people’s financial well-being and responsibly managing our assets. Through our community investment programme ‘Future Matters’, we connect with our employees, customers and business partners, and aim to together address societal needs.
Also, to continue to earn trust and support, we maintain an open dialogue with our various stakeholders about our products and services, our business performance and our role in society. In this second Annual Report published as NN Group, we included more information on how our business model creates value for our different stakeholder groups. We were very proud to win last year’s FD Henri Sijthoff Award for best Annual Report, and it inspired us to look for further improvements in how we report in a more integrated way.
I want to express our gratitude to our customers for their continuing loyalty, and to our colleagues for their commitment and care. Going forward, we will steadily continue our journey as an independent company that truly matters in the lives of our stakeholders.
NN Group used internal and external research reports to create an overview of trends and developments that potentially impact our company. In doing so, we built upon the outcomes of the 2014 materiality assessment. To validate these developments, an online survey was conducted amongst external stakeholders, including investors, customers, peers, NGOs, academics and experts in the area of sustainability. The survey was also completed by our internal experts in the area of investor relations, strategy, capital management, marketing and compliance. The results from both surveys were combined to create a materiality matrix, which presents the developments and topics that are important to our business, and the relevance of these to our external stakeholders. This process was supported and executed by an external agency to ensure independence.
The materiality matrix was discussed during a permanent education session of NN Group’s Management Board and Supervisory Board, and the management teams of our Dutch business units. This group increased the importance of some topics, however this did not impact the division per quartile. The final version of the materiality matrix was approved by the Management Board. The outcome of this process is reflected in the figure below.
Changing demographics and customer behaviour 1 Increasing middle class 2 Ageing population 3 Individualisation
Technological development 4 Increasing digitisation 5 Client data protection 6 Use of social media
Regulation and reform 10 Pension reform 11 Demand for increased transparency 12 Increasing financial regulation
But we also believe some things will remain the same. The fundamental need of people to protect themselves against life’s uncertainties will not disappear. Whether it is against the risk of living a long life without sufficient means of support, or against the risk of dying at an early age, people are looking for protection. In many businesses, we also help protect against the risk of possessions being damaged or stolen, or the risk of losing a source of income. Around the world, wealth will continue to increase, and so will life expectancy.
What is more, in many cases, the traditional provider of that protection, the government, will continue to retrench over time.
NN Group is well positioned to capitalise on these developments. We have a trusted brand and a strong customer-focused culture. Our employees understand how important excellent customer service is, and are expected to drive customer satisfaction for all our customers. We have a large and effective multi-distribution platform in all markets where we operate. And almost all our businesses fund their own growth, while also remitting cash to the Group on top of this.
We categorised and explored some of them, and touch upon them in this chapter. How we act upon these trends to create value is described in the chapter ‘Creating value as an insurer and asset manager’ on pages 24–27 of this Annual Review.
Continued low interest rate environment and volatility of the financial markets In recent years, weak macroeconomic conditions and volatile markets have led to slow economic growth and low interest rates. This fragile economic growth – as well as the increased and structural unemployment or the instability of the financial system – have affected societies and industries in different ways. In some countries these factors led to pension reforms. Low GDP growth remains a challenge as it keeps interest rates low, affecting investment yields and the return for customers. This is not beneficial for consumer trust in general and remains a challenge for the financial services industry.
Read more information about our risk management approach on page 23 of this Annual Review, as well as a more extensive description on pages 119–141 of the Financial Report.
Changing demographics and customer behaviour People live longer and birth rates are decreasing in most of the markets in which we operate. This will change the structure of society, also impacting the economy, social security, health care systems and labour markets. This in turn affects the nature and funding methods of pension schemes.
An ageing population and increasing longevity increases the overall costs of pensions, and has an impact on governments, employers and employees. That said, living longer also means that people are able to work longer, and ultimately must do so, to save sufficient money before retiring.
As people bear more individual responsibility for their financial futures, this creates a specific demand for a more personal approach to customers. Most customers rightfully set high standards when it comes to their finances. They are increasingly looking for transparency and clear information so they are able to make the right choices. They rely less on face-to-face advice than in the past, often use online communication – which they can tailor to their individual needs – and also rely more on peer recommendations.
New technologies enable further individualisation and drive further innovation in the sector. Apart from the opportunities these developments bring, there is a growing public concern about the potential risks related to data privacy.
Non-traditional competition Technology has not only changed the rules of the industry, it has also changed the rules of competition and the barriers to entry. Innovation from existing players and non-traditional players is making competition fiercer. In particular, small specialised FinTech companies, who are entering the market at a rapid pace, can disrupt the market (especially for traditional players).
Creating a new world of customer experience Our approach to innovation is a holistic one. For us, it is about simultaneously meeting the objectives of customer satisfaction, intuitive interaction and efficiency. We create new products and services by developing a culture that supports our employees to take ownership, to come up with new ideas and to contribute to innovation. We direct funding to promising projects that create value for both our customers and our company. By embracing new technologies and digitalisation, we ultimately aim to secure people’s financial futures, also in a digital world. We have already introduced new portals and apps for tablets and smartphones in some of the markets we operate in, making it possible for customers to access their products and accounts, and securely make transactions anytime, anywhere. We take the issue of data privacy very seriously and put in place security measures to protect customer information and data. We believe that technology will encourage further engagement with customers about their financial planning, and empower them to make informed decisions. Read more information and examples regarding our customer experience on pages 24–27 of this Annual Review.
Many players in our industry are confronted with legacy IT systems and portfolios. We are no exception, and we work hard to replace and improve systems. We simplified our IT landscape and are continuing to further progress on this. We are becoming more flexible by benefiting from modern IT systems, and the expertise of our suppliers and business partners. We keep investing in modernising our IT infrastructure and direct channels. Our IT capabilities have enabled the introduction of new, useful tools that aid in developing new solutions that add value for our customers.
Regulatory demands The financial services industry has been significantly impacted by regulatory changes. The increased level of regulation, mainly prompted by the financial crisis, has created a new operating reality in the financial industry. Insurance companies, however, are generally well positioned to adequately respond to this regulatory pressure.
A prime example is Solvency II, which took effect in 2016, and which requires insurance companies in the European Union to take specific measures to reduce the risk of insolvency.
In December 2015, we received approval from the Dutch Central Bank to use our Partial Internal Model to calculate our Solvency II capital ratio for NN Group and the Dutch Insurance entities. We have a strong capital position with a Solvency II ratio of 239% on 31 December 2015. The Solvency II ratios are still subject to final interpretations of Solvency II regulations including the treatment of tax in the Solvency Capital Requirements (SCR). See the Risk and Capital management section on pages 119–148 of the Financial Report for further details.Market trend and risk
Transparency As with regulatory changes, we feel that we are operating in a ‘new normal’ in terms of the measures that have been taken to promote product transparency, particularly in the Netherlands. That said, we are expecting an additional transparency push for countries in Central and Eastern Europe, as European legislation requiring further transparency with regard to distribution and sales of insurance (and insurance based investment) products is currently being finalised. Once implemented in national law in the European member states, this will create a new, minimum level of product and sales transparency across Europe. Going forward, the European Insurance supervisory authority (EIOPA) will focus on ensuring transparency, simplicity, accessibility and fairness across the European internal market for consumers.
Continue to set an example In line with our values – we care, we are clear, we commit – we have closely examined our products and services to ensure they are well suited for our customers, and comply with all applicable regulatory product requirements. In Europe, NN will continue to closely monitor regulatory developments to ensure compliance with all new European legislation.
In the Netherlands, unit-linked products have received negative public attention since the end of 2006. We have taken this criticism to heart, as our aim is to support our customers as best we can. In recent years, NN has made significant progress in reaching out to (‘activeren’) individual customers who purchased unit-linked products in the past, addressing vulnerable customer groups with priority. In 2012 and in the first quarter of 2013 customers were informed about their compensation under the agreement with several consumer interest groups (‘Tegemoetkomingsregeling’).
Reaching out to customers means helping them to gain insight into the difference between the projected value of their policy and their target capital and giving them an overview of possible improvements, to encourage and enable such customers to take steps to improve their individual financial situation. NN helps customers to assess whether the product stills meets their objectives and whether the product is aligned with the customer’s risk absorption capacity and appetite. If customers so choose, they have the option to switch to another product free of charge.
To date, we reached out to 100% of customers with nonaccumulating policies and mortgage related policies. Before the end of 2016, all customers with annuity-related policies will be contacted. NN will reach out to the remaining group before 1 January 2018. From a total of almost one million individual unit-linked policies sold up to 2006, approximately 322,000 policies were still active on 31 December 2015. In a limited number of cases (less than 400 by the end of 2015), NN has settled disputes with individual customers. These are tailor-made solutions. A limited number of individual customers have put forward their cases at the Dutch Complaints Committee Kifid or at the civil courts.
Even though the landscape of insurance and asset management is constantly changing, the role we play in supporting people to build and protect their assets and cover their risks has not changed. As such, our aim is – and will remain – to help people secure their financial futures.
Multi-access distribution NN Group strives to be available to customers wherever they require. We operate via agents, brokers, banks and direct servicing, which allows customers to choose how and when they interact with us.
Effective and efficient operations NN Group aims to make processes as efficient and effective as possible in order to deliver value for money for our customers. As well as implementing an operating model with more standardised processes, we are simplifying and improving our IT infrastructure. We are also developing our customer intelligence skills, so that we can take a more holistic view of our customers and, ultimately, provide them with even better services.
Excellent balance sheet management Effective capital and risk management ensure that we meet the interests of all our stakeholders and deliver value. Maintaining a strong balance sheet is key to absorbing market volatility and ensuring NN Group and our operating entities are sufficiently capitalised at all times.
For an overview of how we delivered on our strategy while creating value for our stakeholders, refer to pages 24–35 of this Annual Review.
3. Enhancing efficiency and agility in all businesses To ensure that NN Group is a ‘future-proof’ organisation, we are focusing on innovating our processes. This means making them more efficient and less expensive; practices that will solidify our position as a leading player across the industry and within economic fluctuations.
Business strategy going forward These overarching focus areas are translated by the different businesses, responding to their own specific market characteristics.
But at the same time our insurance business units in the Netherlands – Life, Non-life and Bank – will invest in further strengthening our customer experience and meeting the changing customer needs. Key words for 2016 and 2017 are digital, personal and relevant: we have a personal approach to our customers, are relevant in our product and services offering and we do this in a digital way where possible. As such, customers can secure their financial futures in a fast and easy way, now and in the future.
International Insurance Strategic focus on profitable growth In order to drive profitable growth while delivering an excellent customer experience, a first priority for the international insurance businesses is to focus on disciplined capital allocation at portfolio and proposition level. This enables the business to improve return on equity of the overall portfolio and also improve the value of new business written as we focus on higher margin protection sales. Our second priority is to further leverage high-quality distribution by arming tied agencies with digital technology, which will bring improved productivity as well as an enhanced customer experience. Opportunities also exist to significantly grow in bancassurance partnerships.
A third priority in the international businesses is to drive growth through innovative product development in the areas of protection and long term savings. Our final priority is to differentiate through excellent customer experience by continuously digitalising the customer touchpoints and leveraging customer intelligence and analytics.
NN Investment Partners Focus, simplify and optimise The challenging market environment prompts us to sharpen the strategic focus of our asset management business. While investing in new and promising products, market segments and client initiatives, NN Investment Partners is executing an optimisation programme so it can keep delivering on client promises and growth ambitions. In the fourth quarter of 2015, we have taken a restructuring provision of EUR 13 million to realise this.
NN Investment Partners will sharpen its client focus tailored by type and country, and heighten distribution focus through initiatives such as key account management. Furthermore, it will simplify and rationalise operational processes, while at the same time making its organisation more agile and aligning the investment engine with areas where we see growth. The setup of skill based boutiques supports this, where responsible investment is an overarching element in all boutiques.
Operational objectives • Create a customer-driven organisation, offering products and services through efficient processes and systems
• Capture profitable opportunities to grow our business by leveraging our well established presence in growth oriented segments in Europe and Japan
• Capture selective growth opportunities in the Netherlands: growing in the Defined Contribution and PPI market for our Life business, the Disability & Accident market for our Non-life business and focusing on building scale and improving profitability for NN Bank
Non-financial objectives** • Deliver insurance products that are suitable, transparent and contribute to the financial well-being of our customers
• Empower our employees by fostering an open, inclusive and stimulating working environment
• Create positive change in the communities where we operate by supporting people in their efforts to improve their financial well-being and help them overcome adversity
of operating result before tax of the ongoing business, in the medium term
• Reduce administrative expenses by approximately 15% to realise a cost base of EUR 700 million by 2018 for Netherlands Life, Netherlands Non-life and Corporate/Holding. The reduction of administrative expenses in Netherlands Life, Netherlands Non-life and holding entities by EUR 200 million, compared to 2013, was completed in 2015
• Over time generate free cash available to shareholders in a range around the net operating result of the ongoing business, assuming normal markets, the current regulatory framework and no material special items
In assessing our success, we measure our performance in a disciplined way with clear objectives. We measure the success of our company both in terms of financial and non-financial performance. Therefore, we set financial, operational, and non-financial objectives.
* NN Group also sets specific financial objectives per business segment. ** For more information on non-financial objectives, refer to the Sustainability Supplement, page 4.
NN Group aims to be a company that truly matters in the lives of our stakeholders: customers, shareholders, employees, business partners and society at large
This is a simplified visualisation of our business model. In developing this model we used the framework of the International Integrated Reporting Council (IRRC) that is based on financial, intellectual, human, and social and relational capital.
Our value creation model illustrates what resources we use to create value. A set of financial and non-financial indicators helps explain the impact of our business on our different stakeholder groups.
Creating value as an insurer and asset manager The capital from our shareholders is allocated to our business units, focusing on those areas offering the best prospects for growth and returns. Our businesses have strong capital generation capabilities, as we see reflected in our solid capital position and the dividends from our subsidiaries.
Our customers entrust their money to us when purchasing our products and services. Our role is to support people in building and protecting their assets and covering their risks. We offer easy to understand and transparent products and we aim to empower our customers with the knowledge and tools they need to make sound financial decisions. Through our multi-access distribution approach we are there where our customers want us to be, supported by efficient and effective operations.
How we create value as an insurer and asset manager is described on pages 24–27 of this Annual Review.
Creating value as a listed company We raise the financial capital that we need to manage our business from our shareholders and investors, as the owners of our company. They invest their money in NN Group and expect to be compensated in a responsible way. Our dividend policy states that we return excess capital to our shareholders, unless we can find other value creating ways to deploy that capital, organically or inorganically. We believe that having a strong, diversified and professional shareholder base is also critical for all other stakeholders.
Creating value as an employer We want to be known for our customer care. Our human capital, consisting of about 11,500 employees, brings our brand promise ‘You matter’ to life for our customers every day. We employ a diverse group of talented and skilled people, and ensure we provide them with the training and equipment they need. We offer our employees competitive salaries and benefits. We work hard to create a culture based on our values, as they enable us to be the best we can be, and to continue to build and maintain trust with our stakeholders.
Managing risks is integral to the business model for insurers and asset managers like NN Group. With Risk management being at the core of our value creation process, it must be addressed appropriately. Through our risk management practices, we seek to meet our obligations to customers and creditors, manage our capital efficiently and comply with applicable laws and regulations.
Regulatory and political circumstances continue to change at a rapid pace, including those for financial services companies. Closely following developments, actively managing relationships with regulators and supervisors alike, and raising any concerns in relevant forums are examples of actions to mitigate associated risk.
Like many large organisations with legacy IT systems, we have a risk of ineffective operations and related inefficiencies, which can lead to slow or incorrect decision making, a cost base that is too high, and reputational damage. An effective control framework and a focus on improving efficiency aim to mitigate these risks to acceptable levels.
Client and product suitability refers to the risk that products do not appropriately meet clients’ interests over their full lifetime. A product approval and review process is in place to ensure new products are appropriate for all stakeholders. A continuous focus on customer needs and a periodic review of existing products are priorities.
We want to offer customers fair value for money and an experience that is straightforward, personal and caring.
Our customers entrust their money to us when purchasing our products and services. Our role is to support people in building and protecting their assets and covering their risks. As we want to help our customers secure their financial futures, we manage our business in a responsible way. We create transparent, easy to understand products and we aim to empower our customers with the knowledge and tools they need to make sound financial decisions. Through our multi-access distribution approach we are there where our customers want us to be, supported by efficient and effective operations.
Customer centricity is also clearly expressed in our Customer Golden Rules. We strive to meet customers’ needs throughout all different stages in their lives: • 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
To protect customer information in our digital environment, we have several controls and measures in place. Examples are data encryption, strict authentication and access control, and incident management processing. Measures, developments and performance are reported to the Dutch Central Bank on a regular basis.
‘ With our usage-based car insurance initiatives, the privacy of our customers is protected’
‘ I am able to provide personalised, quality advice with speed, clarity and transparency.’
Number 1 We were voted ‘best pension service provider’ in the Netherlands
Netherlands Insurance Besides offering transparent products and services, our Dutch Insurance businesses aim to be personal and relevant, supported by new technology.
• NN Life launched a new defined contribution pension product, as well as a pension information service providing people with insight into their pension arrangements with all their previous employers.
• In line with our product strategy, NN Investment Partners set up a new Dutch Residential Mortgage Fund with NN Bank.
By rationalising and improving our IT landscape we improve efficiency and reduce costs. We completed our EUR 200 million cost reduction programme in the Netherlands one year ahead of schedule.
Our large, high-quality distribution platform is one of our strengths. We are present in all distribution channels – agents, brokers, banks and direct servicing – which allows customers to choose how they want to interact with us. We will continue to focus on upgrading our distributive efficiency by investing in digitalisation.
Netherlands Insurance • For Dutch SME clients in the property and casualty market we set up a ‘deal team’ for larger deals, resulting in more direct and faster communication with intermediaries.
International Insurance Internationally, we service our customers through one of the biggest tied agent distribution entities as well as through brokers, direct channels and our bancassurance partners.
• In Greece, multi-channel distribution capabilities are developed by diversifying and balancing the different channels As such, we are not too dependent on one single channel.
• In Japan, we provide excellent sales support to our distribution partners. Tablet tools have been launched for sales support staff to access relevant customer data on-the-go, thereby improving the quality and speed of service to our agents.
Asset Management NN Investment Partners services institutional, wholesale and retail clients through a global distribution network.
• NN Bank realised an 80% reduction in the mortgage application processing time, while at the same time improving customer service.
• AZL and NN Investment Partners announced the introduction of De Nationale Algemeen Pensioenfonds (APF). This initiative allows pension funds and large employers the possibility to bring together different pension provisions under one umbrella. In doing so, clients benefit from scale advantages and significantly lower costs.
As a long-term and active investor, NN Group is committed to investing responsibly
To provide capital and generate returns for our shareholders and customers in a responsible way, we integrate environmental, social and governance (ESG) factors into our investment and active ownership processes.
NN Group worked on the integration of ESG factors into its own real estate portfolio, which comprises both direct and indirect investments. Responsible investment guidelines were developed, which set out the expectations of our (external) real estate managers.
By engaging in a dialogue with our investee companies about their policies and activities, we aim to achieve ESG-related improvements. As an asset manager with active investment strategies, we spoke with company representatives including senior managers of nearly 1,645 companies in 2015. ESGrelated risks and opportunities were often part of these discussions. We also have an in-house team that focuses specifically on ESG issues, such as climate change and human rights, that may have an impact on our customers’ holdings. For more information on the topics we engaged in, refer to the Sustainability Supplement, pages 9–11.
Specialised SRI funds and responsible investments solutions By offering specialised sustainable investment products and solutions, NN IP meets our customers’ growing demand for products that not only generate good financial returns, but also have a positive impact on society and the environment. assets under management in our sustainable equity and fixed income products have grown to EUR 4.5 billion by year end 2015, an increase of 11.3% compared to the prior year.
Our dividend policy When proposing a dividend to shareholders, NN Group takes various factors into account, including our capital position, leverage and liquidity position, and strategic considerations as well as the expected developments thereof. We intend to pay an ordinary dividend in line with our mediumterm performance and envisage an ordinary dividend pay-out ratio of 40–50% of the net operating result of the ongoing business.
Barring unforeseen circumstances, we intend to declare an interim dividend with the disclosure of our second quarter results. Interim dividends are calculated at approximately 40% of the prior year’s full-year dividend.
Capital generated in excess of NN Group’s capital ambition (which may change over time) is expected to be returned to shareholders, unless it can be used for other appropriate corporate purposes, including investments in value-creating opportunities. Excess capital will be distributed in the most appropriate and efficient form for shareholders, such as special dividends or share buy backs.
At the Annual General Meeting on 2 June 2016, a final dividend for 2015 will be proposed of EUR 1.05 per ordinary share. Together with the 2015 interim dividend of EUR 0.46 per ordinary share paid in September 2015, NN Group’s total dividend for 2015 will be EUR 1.51 per ordinary share which is equivalent to a dividend pay- out ratio of around 41% of NN Group’s full-year 2015 net operating result of the ongoing business.
Investor relations policy Our investor relations policy is designed to provide current and potential shareholders and bondholders, rating agencies and research analysts with accurate and timely information concerning developments within NN Group.
AStandard & Poor’s: A-, stable outlook (updated on 30 September 2015)
Activating our values We are driven by our purpose of helping people secure their financial futures. Throughout 2015, we further embedded our values and brand promise that were launched in 2014. We did this through global employee training, team effectiveness tools and by integrating leadership development frameworks and the Employee Value Proposition (EVP). We launched the NN Values challenge across our Group, an online ‘serious game’ that allowed employees in each market to pit themselves against colleagues in other markets in their own language. For more information on the Values challenge, we refer to the ‘Our values’ section on pages 9–10 of this Annual Review.
Management teams across business units took part in leadership workshops that allowed them to work on their leadership skills in accordance with the new NN leadership model, fully aligned with our purpose and values. We also developed several new leadership programmes aimed at enhancing our focus on values-based leadership and external orientation. These include programmes for high-performing managers in their mid-career phase and a special leadership expedition for a selection of our top leaders. Each of these programmes will continue in 2016. In 2015, we spent EUR 13 million on training and development of our employees.
We continue to focus on excellent execution, supported by a strong performance management process including both financial and non-financial targets, and competence and behavioural related targets. This is done on all levels in the company and effectively linked to reward (either in development or other benefits). 87% of our employee base completed the 2014 annual appraisal cycle ending in 2015.
Recognising performance NN Group wants to be an attractive employer with a remuneration model that is tailored to fit market circumstances. The primary objective of NN Group’s remuneration policy is to retain and recruit qualified and expert leaders, senior staff and other skilled professionals. Our policy maintains a sustainable balance between short-term and long-term value creation, building on our long-term responsibility towards our customers, society and other stakeholder groups.
Awards In 2015, various businesses received employer awards. In Spain, NationaleNederlanden was awarded the ‘IN Award 2015’ for employer branding by LinkedIn. In the Greek market, NN Hellas was in the top three of ‘Best Workplaces 2015’.
Equal opportunity and diversity We believe that ensuring our workforce reflects the diversity of the markets in which we operate is key to the future success of our company. We value diverse talents, personalities and expertise, and are committed to helping all employees take their career to the next level. We believe this is the optimal way to improve performance and engage employees, ultimately leading to better decision-making and innovation, and ensuring the sustainable development of our company.
In 2015, 18% of our senior leaders were female and 29% had an international background. The NN Supervisory Board is made up of seven members, two of whom are female.
Vitality and well-being At NN Group, we aspire to offer our staff a vital and healthy place to work. We pay close attention to the energy levels, mental health and physical well-being of our employees throughout their career. We believe that healthy people are not only happier, but also make better decisions, become better leaders and, in the long run, achieve greater value for our customers and our company. To this end, we offer a programme called ‘Your Health Matters’ in the Netherlands. In 2015 the programme focused on teaching people to manage their energy better. Awareness was created on how to balance and recharge the physical, mental and emotional batteries in order to become an energised, sustainable, high performer. Multiple masterclasses, running clinics and workshops were organised.
Employee rights and representation How we consult with our employees depends on local legislation and culture. In some countries, employee consultation is a legal requirement and in many European countries, it is arranged through works councils.
We contribute to society at large by purchasing products and services from suppliers, and by paying taxes to the governments of the markets where we operate.
Furthermore, we invest in our local communities through donations and volunteering.
In 2015, procurement employees were trained in implementing sustainability initiatives in the supply chain and integrating them into procurement category plans. Besides these initiatives, Procurement also contributed to the new Code of conduct.
Despite the energy efficiency measures and adjustments in our business travel policy, we realised a 13% increase in CO2 emissions. We continued to offset the remainder of our emissions through the purchase of voluntary carbon units. As a result, we achieved carbon neutrality over 2015. For more information, refer to the Sustainability Supplement, page 12.
As an employer of about 11,500 people, we create career and job opportunities.
Disclosure on tax The income tax charge of EUR 166 million in 2015 represents an effective income tax rate of 9.4% (2014: 17.7%). The lower effective tax rate in 2015 reflects higher tax exempt dividends and capital gains mainly in the Netherlands, and the recognition of deferred tax assets for previously incurred unused tax losses. More information about the effective tax rate can be found in the Financial Report, Note 34.
NN Future Matters’ goal is to improve the financial well-being of people in the markets where we operate by helping them grow their economic opportunities, so they are better able to realise their dreams and overcome possible adversity. Our Future Matters programme specifically targets 10–25 year-olds and underserved groups. The programme achieves its objectives by focusing on themes that are in line with NN’s purpose, our employees’ skills and where we believe we can make the biggest difference. In 2015, 58% of total charitable contributions went to charitable causes in the three target areas of our Future Matters programme.
Promoting financial empowerment Improving knowledge about personal finance enables people of all ages to manage their financial lives with confidence. In 2015, we started projects that create awareness, foster knowledge and insight, and build financial skills. Responsible financial behaviour is developed at an early age, so many of our initiatives are focussed on youngsters. We help them learn about money – how to save, how to wisely spend – and teach them about the relevance of insurance. A good example is ‘Money Week’, an initiative backed by the Dutch Ministry of Finance during which NN employees gave 81 guest lectures in primary schools.
In partnership with Junior Achievement (JA) Europe, our volunteers mentor young people to develop entrepreneurial skills. In 2015, the Social Innovation Relay took place as a flagship programme of the NN Group and JA partnership.
For more information on community investment, refer to the Sustainability Supplement, pages 7–8.
EUR 1.5m donated to charitable organisations 7,433 hours volunteered by our employees in community projects
Compliance with relevant codes Dutch Corporate Governance Code As a Dutch listed company NN Group must adhere to the Dutch Corporate Governance Code. NN Group endorses the Code and strongly supports its principles for sound and responsible corporate governance. NN Group considers the principles and best practices of the Code a useful and efficient guide that contributes to NN Group’s effort to carefully take into account the interests of its stakeholders. The Code also supports transparency in decision-making and helps strengthen the principles of good governance. NN Group annually publishes a booklet on its application of the Dutch Corporate Governance Code. The booklet is available for download on our corporate website.
NN Group Compliance Charter & Framework NN Group is committed to the preservation of its reputation and integrity through compliance with applicable laws, regulations and ethical standards in each of the markets in which it operates. All employees are expected to adhere to these laws, regulations and ethical standards, and management is responsible for ensuring such compliance. Compliance is therefore an essential ingredient of good corporate governance. The purpose of the NN Group Compliance Charter & Framework, which was renewed in June 2015, is to help businesses to effectively manage their compliance risks. The document is available for download on our corporate website.
Executive Board The Executive Board is entrusted with the management, the strategy and the operations of NN Group. It is comprised of Lard Friese, chair and chief executive officer, and Delfin Rueda, vice-chair and chief financial officer.
Supervisory Board refer to the Report of the Supervisory Board, Financial Report, for more information
The Supervisory Board is responsible for advising and supervising the Executive Board, the general course of affairs of NN Group and the businesses connected with it.
For more information about Corporate Governance, refer to the Corporate Governance chapter in the Financial Report.
The Management Board is entrusted with the day-to-day management and the overall strategic direction of NN Group. Its members on average have about 24 years of experience and had significant and varied roles in the financial services industry.
Lard Friese was appointed as member and vice-chair of the Executive Board on 1 March 2014 and as Chief Executive Officer (CEO) and chair of the Management Board and Executive Board on 7 July 2014. Lard is responsible for the strategy, performance and day-to-day operations of NN. He has been employed by ING/NN since 2008 and brings 26 years’ experience in the financial services industry, most recently with NN Insurance Eurasia and NationaleNederlanden.
David Knibbe was appointed to the Management Board on 7 July 2014. From 1 September 2014, he was appointed Chief Executive Officer of Netherlands Insurance. In this role, David is responsible for NN’s insurance and banking business in the Netherlands. He is also responsible for IT globally. He brings 18 years’ experience in the financial services industry and is chair of the Dutch Association of Insurers.
Robin Spencer was appointed to the Management Board on 1 August 2014 and as Chief Executive Officer International Insurance on 1 September 2014. He is responsible for NN’s Insurance Europe, Japan Life, Japan Closed Block VA and NN Re businesses. Robin was previously Chief Executive Officer of Aviva UK & Ireland General Insurance. He has over 19 years’ experience in the insurance industry across life, non-life and asset management in the UK and internationally.
Financial assets at fair value through profit or loss: − trading assets 628
Net result from continuing and discontinued operations (before attribution to minority interests) 1,595 611
Sustainable Assets under Management (end of period) 4,509 4,052 11.3% 3,442 as part of total Assets under Management 2.4% 2.2% 2.0%
For more non-financial indicators, refer to the performance data table in the Sustainability Supplement, pages 13–15.
Brand awareness (AR: p. 8–10) The extent to which consumers are familiar with the distinctive qualities or image of NN; the recognisability of the NN Brand in the general public.
The total amount of greenhouse gases produced to directly and indirectly support ongoing activities, usually expressed in equivalent tons of carbon dioxide (CO2).
Corporate governance (AR: p. 36; SS: p. 9, 10) The way in which a company is governed and how it deals with the various interests of its customers, shareholders, employees, business partners and society at large.
Credit rating (AR: p. 4, 11, 31) Credit ratings, as assigned by rating agencies (such as Standard & Poor’s and Moody’s), are indicators of the likelihood of timely and complete repayment of interest and instalments of fixed income securities.
Customer policy (AR: p. 3) Contract-document issued to customers of individual insurance products or participants of group products.
Data privacy (AR: p. 16, 24) 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.
Defence policy (AR: p. 29; SS: p. 4, 6) NN Group’s Defence policy outlines the criteria for controversial aspects related to the weapons or defence industry and how NN Group applies restrictions within its organisation globally.
Emerging (market) economies (AR: p. 29) An emerging market economy describes a nation’s economy that is progressing toward becoming more advanced, usually by means of rapid growth and industrialisation. These countries experience an expanding role both in the world economy and on the political frontier.
Employee engagement is a property of the relationship between an organisation and its employees, measured by NN Group through such means as the Pulse and YES employee surveys.
Employee Value Proposition (AR: p. 9, 32, 33) The Employee Value Proposition (EVP) represents what our employees experience and benefit of during their employment period within NN and what we expect from them. It is the rational and emotional articulation of the tangible benefits employees receive as a result of working for the NN Group. The EVP highlights the attractive factors in NN for the labour market.
The effect that NN Group has on the environment, for example the amount of natural resources used and the amount of waste produced in normal operations.
European Works Council (AR: p. 33) The European Works Council (EWC) is a standing works council body as required by the 2009 European Works Council Directive 2009/38 of the European Commission. The EWC is formed by chosen employee representatives of all eleven European countries where NN Group is active. EWC-members are informed about ‘transnational’ matters twice a year.
Financial sector oath or promise (AR: p. 3, 9) Ethics statement introduced in early 2013 for employees in the Dutch financial sector, along with the introduction of a social charter and update of the Banking Code. The oath or promise applies not only to employees of banks but also to employees of other financial enterprises, including insurance companies, investment firms and financial service providers. By taking the oath or promise, employees proclaim that they are bound by the Code of conduct attached to the oath or promise for the ethical and careful practice of their profession.
FinTech (AR: p. 16) A line of business based on using software to provide financial services. Financial technology companies are generally providers of new solutions which demonstrate an incremental or radical innovation development of applications, processes, products or business models in the financial services industry.
Global Real Estate Sustainability Benchmark (GRESB) (AR: p. 28; SS: p. 5, 10) GRESB is an industry-driven organisation committed to assessing the sustainability performance of real assets globally, including real estate portfolios. On behalf of more than 50 institutional investors, GRESB Real Estate has assessed almost 1,000 property companies and funds globally.
Global Reporting Initiative (GRI) (AR: p. 13; SS: p. 16, 17) The Global Reporting Initiative is 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.
Green alternatives (AR: p. 20, 34; SS: p. 4, 12) Choices that NN Group makes with regards to energy, resource use and waste management that serve to protect the environment more so than traditional options.
International Integrated Reporting Council (IRRC) (AR: p. 21; SS: p. 3, 10) A global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs. The coalition is promoting communication about value creation as the next step in the evolution of corporate reporting.
Interstate conflicts (AR: p. 14) A conflict situation which occurs between two or more states is considered to be an interstate conflict. It is these instances of conflict for which the contemporary international system, as represented in the operations of the United Nations, was originally designed to address.
Junior Achievement Europe (AR: p. 35; SS: p. 8) Junior Achievement Europe is Europe’s largest provider of education programmes for entrepreneurship, work readiness and financial literacy, reaching 3.5 million students in 39 countries in 2015.
NN Future Matters (AR: p. 12, 35; SS: p. 4, 6, 8, 14, 18) 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, so they can realise their dreams and overcome adversity.
OECD Guidelines for Multinational Enterprises (AR: p. 34) The OECD Guidelines for Multinational Enterprises are a government-backed international corporate accountability mechanism aimed at encouraging responsible business behaviour around the world.
Policy House (AR: p. 9) Set up to provide NN Group with an easily accessible and coherent policy framework that sets clear criteria for issuing consistent policy documents. It consists of governance documents and supporting materials and business units have the possibility to voluntarily upload their local policies, guidelines and templates.
Product Approval and Redesign Process (PARP) (AR: p. 26) The Product Approval and Redesign Process (PARP) refers to the assessment of a product in relation to its customer suitability, financial and non-financial risks and profitability. The PARP is conducted when NN Group introduces a new product, changes the characteristics of an existing product or reviews a product. This is to ensure that our products are acceptable for our company, our customers and our society in general.
Pulse Survey (AR: p. 10, 41) A short version of the yearly YES survey, NN Group’s yearly employee engagement survey. It was last conducted internally by NN Group in May 2014 with the goal of evaluating how our strategy, values and brand were impacting people throughout the organisation.
Remuneration (AR: p. 32; FR: p. 31–36) Reward to NN Group’s employees in the form of salary or compensation, either fixed or variable, including benefits.
United Nations Global Compact (AR: p. 29; SS: p. 5, 19, 20) 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’s strategy, policies and performance, visit www.nn-group.com
Certain of the statements in this 2015 Annual Report are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation: (1) changes in general economic conditions, in particular economic conditions in NN Group’s core markets, (2) changes in performance of financial markets, including developing markets, (3) consequences of a potential (partial) break-up of the euro, (4) the implementation of the EC Restructuring Plan, (5) changes in the availability of, and costs associated with, sources of liquidity as well as conditions in the credit markets generally, (6) the frequency and severity of insured loss events, (7) changes affecting mortality and morbidity levels and trends, (8) changes affecting persistency levels, (9) changes affecting interest rate levels, (10) changes affecting currency exchange rates, (11) changes in investor, customer and policyholder behaviour, (12) changes in general competitive factors, (13) changes in laws and regulations, (14) changes in the policies of governments and/or regulatory authorities, (15) conclusions with regard to accounting assumptions and methodologies, (16) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, (17) changes in credit and financial strength ratings, (18) NN Group’s ability to achieve projected operational synergies and (19) the other risks and uncertainties detailed in the Risk Factors section contained in recent public disclosures made by NN Group and/or related to NN Group.
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. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities.
NN Group’s 2015 Sustainability Supplement provides additional information with regards to our strategy, objectives and achievements related to the social, ethical and environmental aspects of our businesses. It is especially aimed at shareholders, rating agencies and NGOs. Nothing in this document is intended to extend or amend NN Group’s existing obligations to our clients, shareholders or other stakeholders. All NN Group policies, procedures, guidelines, statements or anything similar that have been mentioned in the Sustainability Supplement are intended for internal guidance purposes only and are not intended to be relied upon by any third party.