The 2019 Annual Report consists of the 2019 Annual Review and the 2019 Financial Report. It provides an integrated review of the performance of NN Group.
The Annual Report aligns relevant information about our governance, strategy, performance and future prospects in a way that reflects the economic, environmental and social contexts in which we operate. It is prepared in accordance with Dutch law and relevant reporting standards.
Together with this report, NN Group publishes a Solvency and Financial Condition Report, a Total Tax Contribution Report, and a Carbon Footprint Report. Next to that, NN Investment Partners launches a Responsible Investing Report. All these reports are published on NN Group’s corporate website in the Investors/Annual Report section.
Who we are ..................................................................................... 2 How we performed ................................................................... 3 How we create and share value .................................... 4 CEO viewpoint ............................................................................. 6 2 Our operating environment
International Insurance .................................................. 21 Asset Management ......................................................... 24 4 Creating and sharing value
Adding value for customers ........................................... 28 Supporting our people in times of change ........ 32 Creating value for investors ........................................... 35 Creating a positive impact on society ................... 37 Contributing to the Sustainable Development Goals .............................................................. 42 5 Our culture and governance
Our approach to reporting .............................................. 57 Consolidated balance sheet ......................................... 58 Consolidated profit and loss account ................... 59 Key financial and non-financial indicators ........ 60 Assurance report of the independent auditor ............................................................ 65
You matter We believe that 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 futures.
Who we are Founded in 1845, NN Group is a financial services company, active in several European countries and Japan. Over the past 175 years, we have been dedicated to meeting and exceeding our customers’ expectations. Our purpose is to help people secure their financial futures. Through our products and services, we want to create value for our customers and other stakeholders.
The 10% increase in full-year operating result mainly reflects improved underwriting results at Netherlands Non-life and higher results at Japan Life.
Since the start of our programme in 2014, we have reached 138,358 young people, exceeding our 2020 target to positively impact the futures of 100,000 young people. We aim to continue to grow this number.
Our target is to reduce the CO2 emissions of our direct operations by 3% per FTE per year. In 2019, our CO2 emissions (scope 1 and 2) per FTE showed a decrease of 14%.
Our value creation model is based on the framework developed by the International Integrated Reporting Council (IIRC). It is built around ‘capitals’ – stocks of value that may be either increased or decreased through a company’s business activities or outputs.
Customers To our customers we pay out pensions, interest on savings, insurance claims and/or investment returns. Through our products and services, we provide protection and help them secure their financial futures throughout different stages of life. We aim to have empowered and satisfied customers. Read more on pages 28-31.
Society at large We use our resources, expertise and reach to help society achieve long-term prosperity. We invest in a responsible way, ensure fair tax practices, minimise our direct environmental footprint and support local communities. Read more on pages 37-41.
• Paid to suppliers EUR 1bn Read more on pages 42-43.
NN performed strongly in 2019. CEO David Knibbe talks about the main achievements of the Group, and our progress on transformation.
In today’s world, we are facing persistently low interest rates, economic and political uncertainty, pressure on margins, and the implications of climate change. Regulatory developments, such as the changes in tax rules in Japan, require us to adapt to find suitable solutions for our customers. On top of this, since the beginning of 2020, the coronavirus (COVID-19) has been unfortunately affecting people around the world, and it also seems to have an impact on financial markets, global trade, manufacturing and travel.
On the other hand, all sorts of revolutionary technologies are being developed, such as artificial intelligence (AI), connected homes and the platform economy. All these developments affect financial services companies. They require us to increase our speed, to adjust our business models, and to deal with new and different kinds of competition. They also offer us the possibility to improve customer experience and optimise processes. Our actuarial expertise, combined with the information now available to us, will help us create opportunities for data-driven decision-making.
In April 2020, NN celebrates its 175th anniversary. What is the recipe for a thriving, sustainable business for so many years? Alongside knowing when to make necessary changes and being prepared to do so, it is essential to maintain strong relationships with all your stakeholders at all times. Ever since we were founded, we have always been focused on serving our customers, as our primary and most important stakeholders, and on continuously adapting to their changing needs. For instance, with our protection and pension products we aim to make a positive contribution to their lives. By doing so, with many talented and engaged colleagues, we have become the strong international financial services company we are today. Other important stakeholders groups are our employees, regulators, our shareholders and society at large. Part of refining our strategy involves making clear what it is they can expect from us going forward.
You became CEO of NN Group in October 2019. What are your observations in this new role? The enormous dedication of our employees to make the company a little better every day impresses me a lot. I want to thank all NN colleagues for their contribution to the strong performance of our company, and for making NN a great place to work. Also, I am grateful for all the heart-warming messages of support that I received after my appointment; people seem to regard it as a confirmation of opportunities that NN provides. I am honoured to have taken over from Lard Friese as from October 2019. On behalf of the Management Board, I would like to express my gratitude to Lard for his strong commitment and dedication to the company for more than ten years. I am looking forward to, together with my colleagues, bringing NN Group to the next level of our transformation.
The world around us The world around us influences the financial services sector, our business and our stakeholders in various ways. Whether it is economic and political developments, changing regulations, or the increased use of digital technologies, all have an effect on how we interact and do business. These factors tend to change at a very fast pace, producing challenges for our business model and affecting the way we create long-term value for our stakeholders.
Customer experience, new technologies and innovation Technology is evolving rapidly and having a huge impact on society and the way companies do business. Consumers demand access to products and services anywhere, anytime. Transparency about products is key, as anyone can find products, compare different providers and purchase all with just a few clicks of the mouse.
These developments also require different types of skills from employees, such as IT and data analytics, and new ways of working. We are doing our utmost to find the right people in these times of tight labour markets.
Like the government, business has a role to play in the transition to a sustainable economy. Integrating environmental, social and governance (ESG) considerations into the way companies do business is becoming increasingly mainstream, and the financial industry is playing its part here. By integrating ESG factors into the investment and underwriting processes; by using its influence to support the transition to a sustainable economy by engaging with the companies in which it invests; and by offering clients sustainable finance solutions. In this context, there are a number of initiatives that NN has endorsed, such as the International Corporate Social Responsibility covenant for the Dutch insurance sector and the Commitment of the Financial sector to the Dutch Climate Agreement, both of which aim to encourage collaborative action to achieve more progress together.
Nevertheless, we believe that all 13 shortlisted topics are material to us, because they have an impact either on NN Group and/or our stakeholders. This impact can relate to risks and/or creating opportunities. Therefore, we continuously assess our operating environment and strive to address our material topics in our strategy and business activities.
This is mainly due to the shift in our approach from ‘importance’ to ‘impact’ of the topics on us and/or our stakeholders.
The results presented in the matrix below show that our most material topics (upper right part of the matrix) are persistently low interest rates, customer experience, cost reduction and efficiency, development of new products and services, and the need for new skills and talent attraction.
On an annual basis, we use a variety of inputs (including external trends and material topics) to identify the risks to our strategy. For each set of risks, we define how much risk we are willing to take, as described in Risk Appetite Statements covering three main areas: Strategic challenges, Strong balance sheet and Sound business performance.
Strategic challenges: We manage our businesses on a risk-return basis, so that we can meet strategic objectives while taking into account the interests of our stakeholders. Key risks identified: Risk description Risk mitigation
We anticipate the economic, technological, ecological and demographic developments that affect the strategic context in which we operate by managing in-force business while growing profitable new business. This also means anticipating on emerging risks, such as the impact of climate change.
For new business, we focus on creating a much closer relationship with customers, by making use of new technologies and partnerships led by our Chief Transformation Officer. The product portfolio has also been significantly expanded through fee-based and protection products in the Insurance Europe units, and further development of NN Bank.
Read more in section Our performance, pages 15-26, and in chapters Adding value for customers, pages 28-31, and Our response to the Task Force on Climate-related Financial Disclosures, pages 52-55.
Sound business performance Client and product suitability Operational and IT effectiveness Cyber and cloud risk
We manage these risks by closely following developments in international markets, and by managing our asset exposures using a system of concentration limits on sovereign and country exposures, which are subject to regular review and monitoring.
Regulatory environment: risk of regulatory changes that negatively impact our business, products, regulatory solvency position and/or performance.
To attract and retain talent, NN proactively invests in personal and professional development throughout our people’s careers. To offer them learning opportunities, help them build valuable networks and allow them to explore career paths, we offer long- and shortterm internal assignments, and job rotation schemes. We have also introduced agile working methods to give individuals and teams more responsibility. We monitor employee engagement through an annual survey and we perform benchmarks to ensure we offer suitable compensation packages.
Good corporate citizenship: risk that NN Group does not adequately balance stakeholder interests, or deviates from society’s evolving norms and values, in areas such as responsible investments, environmental protection, equality, inclusion, taxes and remuneration.
Strong balance sheet: This facilitates sound financial business performance — we want to avoid having to raise equity capital after a moderate stress event or being a forced-seller of assets when markets are distressed. Key risks identified: Risk description Risk mitigation
NN Group’s pension and guarantee products are exposed to longevity risk, especially in the Netherlands. We expect that exposure to continue increasing for a relatively short period, then steadily decrease over time. We can achieve longer-term relief by a further move from defined benefit (DB) to defined contribution (DC) products, and repricing and renewing old DB products into new DC products. In the short term reduction can be achieved through risk transfer. To accelerate the reduction of longevity exposure, and create more flexibility in accepting new longevity risk, NN continues to work on putting reinsurance in place. Read more in the Financial Report, pages 128-159 (Note 49).
Sound business performance: To achieve sound operational performance, we conduct business applying the NN values and treating customers fairly; we aim to avoid human or process errors in our operations, and limit the impact of any such errors when they do occur. Key risks identified: Risk description Risk mitigation
Cyber and cloud risk: risk of cybersecurity attacks, leading to misuse of information, discontinuity of operations, and/or financial or reputation loss.
NN Group’s strategic priorities NN wants to contribute to a stable, inclusive and sustainable economy and society. We do business with the future in mind, supported by our values: care, clear, commit.
Medium-term strategic priorities Four medium-term strategic priorities underpin our strategy and drive our business plans. The first concerns disciplined capital allocation. Through disciplined capital management and a focus on generating capital, we ensure our cash capital position and Solvency II ratio remain strong. NN Group aims to further reduce capital volatility to increase predictability of cash flows and dividends, by investing the assets in order to match liability cash flows, and using hedging and reinsurance to the extent that it can be managed at a reasonable cost. NN has a track record of returning excess capital to shareholders. As announced on 13 February 2020, NN intends to pay a progressive ordinary dividend per share and execute a recurring annual share buyback of at least EUR 250 million. Additional excess capital is to be returned to shareholders unless it can be used for value-creating opportunities.
Fourth, we aim to offer value-added products and services. We also develop solutions for very specific segments. For example, by tailoring a product to particular customer life stages or circumstances. Our asset manager offers a range of sustainable and impact investing strategies to its clients. Furthermore, we incorporate environmental, social and governance (ESG) factors in the investment process. We believe that this optimises the risk/return profile of the investment portfolios, helps to reflect NN’s values and aligns our business with the broader objectives and expectations of society.
Annual earnings growth of 5-7% on average in the medium term2
2 Annual growth rate of operating result before tax on average in the medium term; based on 2017 operating result. 3 Net operating result, 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.
• Solid Solvency II ratio • Operating units well capitalised at or above commercial levels
NN Group aims to have a strong balance sheet. This is essential in order to be able to meet our responsibilities towards customers and policyholders. A strong solvency ratio reflects, together with sound risk management, the ability to fulfil financial obligations vis-à-vis our stakeholders.
NN Group’s financial performance NN Group’s financial performance was strong in 2019, with a full-year operating result of EUR 1,794 million, up 10.3% from 2018, with most segments contributing. The measures we are taking to improve the profitability of the Dutch Non-life business are bearing fruit, demonstrated by the full-year combined ratio of 95.4% compared with 99.4% in 2018. We have made additional efficiency gains by further reducing the cost base of the units in the scope of the integration of Delta Lloyd into NN. Total cost savings achieved up and including 2019 amount to EUR 360 million, compared with the full-year 2016 administrative expense base of EUR 1,970 million.
The third priority is to accelerate the transformation of our business model. This should result in optimising customer experiences and using technology to make the company more agile and efficient.
Consolidation, integration, transformation In our Dutch business, we delivered on our financial targets while also preparing for the future. Having achieved the necessary scale, we need to leverage its value.
Tjeerd, what made you most proud in 2019? If you consider the amount of change currently underway in technology, society and the political landscape, I doubt there’s ever been a time when so much has been coming at the industry as today. Speed of execution and pace of change have increased massively. Companies with new business models, like Alibaba and Ping An, have built completely new conglomerates within five years. As a traditional insurer, we need to be continuously transforming and preparing for the future.
Financially, 2019 was a good year with solid results. We structurally improved our performance, achieving a combined ratio for the Non-life business of below our target of 97%. We’ve also delivered on our costsavings targets: both the Life and Non-life companies achieved 20% cost reductions compared with the 2016 baseline.
How would you describe the operational environment and challenges in 2019? The circumstances for all Dutch segments remained challenging. For the Life business, this has mainly been due to the continuing low interest rates, which can lead to reinvestments of maturing assets at lower rates. The non-life market is characterised by fierce competition. While in the banking segment, margins are under pressure due to competition in the mortgage market.
In June, employer, employee and government representatives reached a Pension Agreement that will impact the entire pension industry. Within NN, we formed a task force to analyse and determine the agreement’s implications for the coming years. We expect most impact from the industry-wide changes to be on the premium system and from the possibility of a pension date lump sum. The government envisages the new legal framework will be in place by 2022, but initial measures could already have an impact in 2020.
We kept our focus on moving from product solutions to service solutions. With the acquisition of Human Capital Services (HCS) we strengthened our position regarding the socially relevant topic of sustainable employability. HCS will continue to provide its services on case management and burn-out prevention. This acquisition is invigorated by the strategic partnership with the data analytics expertise of Otherside at Work.
And what were the main developments at Bank? Bank had a strong year, originating a record EUR 7.9 billion in mortgages. To improve our competitive position and meet our customers’ needs, we have enhanced our digital and product features and strengthened our cooperation with intermediaries. In July, we introduced a new risk-based pricing system for mortgages that automatically lowers the rates charged to customers during the fixed-rate period if the loan is eligible for a lower-risk premium as a result of repayments. If real estate increases in value, customers can request a lower interest rate, if applicable to their situation. In addition, NN Bank’s savings and bank annuity portfolios increased despite strong margin focus.
Products and services • Life: group and individual life/pension products, pension administration & support for pension funds
Optimising the business Innovating the business • Smart Move brings together an ecosystem of partners to make moving hassle-free. A personalised digital checklist detailing all the actions needed before, during and after the move. The customer has the option to outsource multiple tasks and book them directly.
• Friend: this social platform connects people aged 50+ through social activities, helping them lead an active social life during (pre-)retirement
• Hello Mobility: a service that helps car fleet owners develop a safer, cleaner and more efficient fleet through data-driven personalised advice and coaching
• We optimised our digital customer service in various ways, including adding new features to our app and improving security through multi-factor authentication. Using data and analytics, we can now offer personalised content on nn.nl, and did so for 1 million of the 14 million visits in 2019. In July, we launched our renewed NN app, which provides a better user experience as it is faster and more stable.
• We made progress towards our goal to achieve further synergies and organisational efficiencies by decommissioning over 500 redundant legacy IT systems. Several migrations were successfully finalised, including the Voogd & Voogd Open Book Migration at Non-life; migrations within Savings & Investments, Mortgages and Consumer Lending at Bank; and the BeFrank migration to the cloud at Life.
Meeting customers’ protection needs In our international insurance businesses, we focus on bridging the protection gap to help our customers.
How have you managed to improve distribution partnerships? Through our partnerships, we aim to optimise our business and accelerate our capital generation. We have a strong distribution network with 28 partner banks in ten European countries, and 60 bancassurance relations in Japan.
We have an ongoing cooperation with ING Bank in five European countries, through which we support them in their fee income growth by leveraging our portfolio of leading products, such as our award-winning lifelong income product in Belgium. We are also looking to develop new digital products with ING Bank, for example micro-insurance, products that cover specific customer needs by offering features such as on demand insurance covers.
We have also taken steps to partner up with new banks, for instance EFG Postbank in Bulgaria to distribute our pension products.
In all our markets we are using agile ways of working. In Hungary and Spain, in particular, we introduced ‘scaled agile’ as a disruptive operating model with some results already visible. In Hungary, we automised the risk assessment process, shortening it, in some cases, from 13 days to a few minutes. In Spain, the employee benefits team, which processes group life insurance contracts, saw a 30% reduction in pending tasks compared to before the introduction of agile.
Our NN Data Science Hub delivered various commercial use cases. For example, we are working on ‘next best offer’ models to identify which product best suits a customer. The engine orchestrates multiple propensities for cross-sell and retention propositions for each customer. It has been developed in Romania and Turkey, with Hungary and Spain to follow. In addition, we are piloting the use of chatbot for tied agents – aimed at answering their frequent questions and freeing up their time so they can focus on customers.
Can you describe the operating environment and challenges in 2019? Even though our international businesses are highly varied, this year they have all faced low interest rates, political and economic uncertainty and, in some markets, regulatory changes.
Top 3 Player in Central and Eastern Europe, focused on life and voluntary pensions 13m Customers in ten countries in Europe
NPS +4 Increase of combined NPS for International Insurance (excluding Japan) to +34 points
• Following the acquisition of Aegon’s life insurance and pension businesses in Slovakia, we launched a new risk life insurance product combining the best from the NN and Aegon offering
• Our Slovak and Czech business units were disentangled. We now have a local organisation in Bratislava, allowing for better focus on the customer.
• In Belgium, we made further progress in our integration with Delta Lloyd Life – most retail life protection contracts were migrated into our Solife back-office platform
• In Greece, Czech Republic, Romania, Hungary, Spain and Japan we train our agents to better serve our customers through gamification: agents answer questions, issue applications and compete with each other, resulting in increased value of new business (VNB) and productivity
We continue to invest in our distinctive capabilities, while bringing value to clients and growing our business in new ways. Satish Bapat CEO NN Investment Partners (NN IP)
Satish, looking back on 2019, what are your highlights? I am proud of the progress we made in 2019. We sharpened our product offering so we can continue to bring clients the products and solutions with the most value, we improved customer experience, and we became more efficient.
We integrate environmental, social and governmental (ESG) factors into the investment process of roughly two-thirds of our assets under management. We believe responsible investing is about actively engaging with companies to stimulate their sustainable transition, and that ESG integration leads to better risk-adjusted performance.
Finally, we believe investors are not completely rational, but subject to cognitive biases. Through behavioural analysis, we aim to identify the biases affecting both the market and our own decision-making, using the insights to sharpen our investment processes and make better decisions.
What progress has been made on client experience? We continuously talk to our clients about their current and future needs. We have used their feedback to improve our digital channels. For example, our website and client portal are now more intuitive and, within our client portal, institutional clients can now create customised views with real-time portfolio information.
We also tap into the strengths of partners to create value for clients. For example, NN IP designs client propositions and solutions that package various components or building blocks. Some we create ourselves, others we source from expert partners. An example is the sustainable enhanced equity range we recently launched with Irish Life Investment Management (ILIM).
Our recently acquired majority stake in Venn Hypotheken in the Netherlands gives us increased access to Dutch mortgage origination, meeting clients’ need for increased yield potential in a low interest rate environment.
We have further simplified our organisation and made our expense base more variable (i.e. expenses move with volume or AuM). We integrated our Luxembourg management company into our Dutch licensed entity, as European ‘passporting’ of the Luxembourg fund range allows us to run its operations from the Netherlands.
However, the biggest challenge is the persistent low interest rate environment. This creates pressure on active managers’ performance to continuously deliver value (net of fees), thus increasing fee pressure, and demand for passives, absolute-return strategies and higher-yielding alternatives.
What is NN IP’s strategic focus for the mid to long term? We will continue to invest in our core investment capabilities. In addition, we are committed to integrating ESG criteria where relevant throughout the investment process. To us, ESG and responsible investing are not just buzzwords. They are at the heart of our investment strategy and beliefs.
Besides strengthening our investment capabilities, we will also explore new ways to bring our products to both existing and new clients.
Optimising the business Innovating the business • Simplifying the organisation, aligning roles and responsibilities across locations, and harmonising processes and procedures. For example, by consolidating the Luxembourg management company with the Dutch licensed entity.
• Strengthening our distribution capabilities through local presence and by both leveraging existing partnerships and building new ones. Supporting our third-party asset growth strategy, in 2019 we opened an office in Montevideo, Uruguay, announced our partnership with ILIM and formalised our partnership with ING Bank Slaski S.A. in Poland.
Adding value for customers We keep a close eye on what is happening around us, and utilise the challenges and opportunities any developments offer to continually improve the customer experience.
− NPS-r maintained or improved in nine of 11 insurance markets¹
BeFrank works together with Land Life Company, a Dutch company specialised in reforestation of degraded land. Reforestation not only combats climate change, it also ensures the retention of groundwater and rainwater, restores biodiversity, and improves air quality and soil conditions.
This is why the demand for transparent, simple products from the financial services industry continues to grow. Customers want value for money beyond that offered by traditional products and services. This means a single-channel customer experience is no longer sufficient to foster loyalty or long-term customer relationships. To ensure new or modified products and services are transparent and serve customers’ interests, they must therefore first undergo a careful product approval and review process (PARP).
Integral to PARP are our Customer Golden Rules: • Offer fair value to customers • Explain the risks, returns and costs of our products and services • Regularly assess products, services and distribution practices • Only work with professional and licensed distributors
Educating and empowering customers We empower customers to improve financial decision-making, and educate them on the importance of starting early with financial planning. For example, by raising their awareness of the changing pension landscape, and that living longer will probably require changes to their working lives and savings behaviour. Such as through the introduction by NN Life of the Human Capital Planner (HCP), an online data-driven service that has been widely adopted by employers and advisors to help them develop sustainable pension policies for employees based on our pension data insights.
We also promote the importance of a healthy lifestyle for both physical and mental well-being. In Hungary, for example, we targeted runners. Through an effective combination of running events like NN Ultrabalaton, our Runaddict app and online campaigns, we were able to advise new customers never previously in contact with NN. In Belgium, we introduced a happiness platform that provides smart tools and tips & tricks to help people increase their sense of happiness.
As the boundaries of the insurance ecosystem continue to expand to include non-traditional partners such as retailers, car manufacturers and smart home devices, insurers will more than ever need to define their role in the value chain.
Leveraging new technologies Wherever possible, we use new technologies to improve our products and services, and thereby the customer experience.
NN Life and NN Bank are participating in several blockchain initiatives to make the pension and mortgage processes more customer-friendly and efficient. For NN Life and other pension providers it means 60% more efficient processes regarding pensions. The pilots are joint initiatives of several banks, insurers and NGOs in the Netherlands.
NN Investment Partners (NN IP) uses technology, such as cloud and robotic process automation, to further improve efficiency and personalised service to customers.
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. In 2019 the AFM 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.
As at 31 December 2019, the portfolios of Dutch insurance subsidiaries of NN Group comprised approximately 410,000 active policies. In a limited number of cases (less than 1,250), Dutch insurance subsidiaries of NN Group have settled disputes with individual customers. These are tailormade solutions. A limited number of individual customers and several consumer protection organisations have initiated legal proceedings against Dutch insurance subsidiaries of NN Group. Read more on pages 118-120 of the Financial Report (Note 42).
Furthermore, our NN statement of Living our Values, which is completely consistent with the GDPR, states that we use our knowledge responsibly, keep confidential what is entrusted to us, and communicate proactively and honestly.
The use of (big) data for analysing client propositions offers opportunities to strengthen interactions with customers and create more intuitive partnerships, as well as to create better, tailor-made product solutions. For example, we use data to assess whether customers with a mortgage product are likely to fail to comply with future payment obligations; this enables us to offer support in avoiding (serious or deteriorating) debt situations for such customers. Support that we can offer includes, for example, providing a budget coach, a job coach or offering a period without interest payments.
In everything that we do with data, we always comply with relevant legislation and handling data with care is a top priority for us. We are developing our own ethics framework for the application of data science and artificial intelligence, setting even stricter requirements in line with our NN values. We are very aware that we need to strike a proper balance between individual choices, privacy and solidarity.
Supporting specific groups in society We are very aware that people can face financial and social challenges in life, which is why we try to anticipate needs and circumstances.
Financial inclusion Through our membership of the Dutch Association of Insurers, NN is involved with the Foundation for Sustainable Micro-pensions in Developing Countries (SDMO). SDMO has helped to develop a defined contribution scheme in India, with administration and investment management arranged by a local life insurance provider. Since its foundation in 2011, SDMO has contributed to the pension arrangements of over 40,000 people in India.
With Smart Medal, we have innovated the traditional medal received after completing a race. Runners scan their medal with the Smart Medal app to gain access to their personal Running Story: a flashback to the event with pictures and statistics that is shareable on social media.
How customers view our products and services Customer feedback tells us about their preferences and views, helping us modify our services to meet their needs. We believe the best insights are achieved not through the quantity but quality of our research, and we therefore focus on what we see as key metrics.
• In-depth interviews: one-on-one openquestion interviews with a select number of customers
• Anonymised customer data: analysed by specialist data analysts to identify behavioural customer trends
• Neuroscience marketing research: testing, for example, marketing campaigns by observing the facial expressions of a small target group of customers
Net Promoter Score To measure how customers value our products and services, we use the internationally recognised Net Promoter Score (NPS) system. In 2019, the weighted aggregated NPS for NN was +4 compared to -1 in 2018, this implies a small improvement of five points1 across the entire Group.
1 Weight of the three pillars that make up the NN Group Net Promoter Score are: a International Insurance (11 markets): 26% b NN Investment Partners: 13% c NN Netherlands (Nationale-Nederlanden): 61%
2 Japan changed research methodology from online interviewing into pen and paper approach and is not included in this table.
Global Brand Health Monitor Brand awareness can influence consumers’ perceived risk assessment and their confidence in the purchase decision, due to familiarity with the brand and its characteristics. To track how our brand is perceived externally, and get insights into brand performance and development, we use the NN Global Brand Health Monitor (GBHM). At least twice a year, we measure key brand indicators, such as brand awareness and brand preference. Our brand awareness increased significantly (>4%) in the Netherlands, Poland, Slovakia and Spain, and either increased or remained stable in all other countries.
Our commitment to playing a positive role in society is key to attracting young talents. They value companies that place an emphasis on sustainability and have a social mission, as they care about the societal impact of their work and of their employer’s products and services.
To retain talent, NN Group proactively invests in the personal and professional development of our people throughout their careers, including through providing competitive compensation.
Our digital transformation The digitalisation of society impacts how we do business and interact with customers, and our digital transformation provides opportunities for employees in the fields of artificial intelligence and big data. Although the financial sector is behind the technology sector in using data, our long history and extensive data holdings make us an interesting employer in the field of data analytics.
Throughout NN we are implementing working in a more agile way, giving more responsibility to teams and individual employees. Within the field of innovation, we work with small groups that encourage innovation, offer more freedom, and work on impactful projects. In 2019, we introduced the NN Innovation Method, through which we can empower employees across our businesses to work in a more innovative way.
In 2019, NN hosted four NN Experience Events. These are designed to allow freelancers working in IT, marketing and risk to experience NN as an employer, build good relationships and accelerate the hiring of these key professionals. The fourth session, held in June for risk professionals, was the first broadcast online to attract an international audience.
Reskilling opportunities In 2019, NN Group invested EUR 19 million in training and development (2018: EUR 21.5 million), through which we aim to support the sustainable employability and mobility of our employees. This figure decreased due to a number of factors, such as a higher spend in 2018 due to redundancies following the Delta Lloyd integration and a adjusted policy for (executive) education in 2019.
Where possible, NN participates in initiatives to broaden the opportunities available to employees. For example, we held information sessions for employees on two projects: • The Dutch government’s initiative to offer Dutch-speaking employees the opportunity to retrain as teachers
Competitive compensation To ensure suitable and competitive compensation packages, we conduct an annual pay review on senior leadership positions, comparing remuneration with internal and external benchmarks. For a number of (senior) functions that could have a material impact on the risk profile of NN Group, we ensure their objectives are aligned with NN’s risk profile. Specifically, the objectives must not incentivise or stimulate unacceptable (risk-taking) behaviour. For other staff, specific labour arrangements are in place, dependent on country practices.
As part of the CLA, we introduced frequent performance dialogues to encourage open and frank conversations between employees and managers. These performance dialogues focus less on the past and more on future priorities and development. Annual performance reviews are measured against employee objectives, and also take into account behavioural components. We plan to implement the new performance review approach in all business units over the next two years.
Although we have a higher number of women in senior positions than ever before, we are not yet where we want to be. Our targets of at least 50% female candidates when recruiting for management roles and 30% women in senior leadership positions will help us achieve leadership teams that reflect the gender diversity of the group being managed. In 2019, 36% of senior management were women, up three percentage points on 2018 and exceeding our overall target.
Equal pay continues to be a recurring topic on the agenda of the Management Board and Supervisory Board, with developments in this area regularly monitored. The global pay review process for senior leaders also includes checks to monitor if equal pay principles are adhered to.
Transformation HR function We want our HR processes to be more centralised around the employee perspective. We have therefore begun an HR transformation programme. Multidisciplinary teams are working to shape a new employee journey that is focused on the moments that matter in an employee’s career at NN, supporting them in their personal and professional growth.
Top Employer Being considered an attractive employer strengthens our position in a competitive labour market. To do this, we need to have the culture, practices and processes in place to provide the best opportunities for our employees. We are encouraged by being named as a Top Employer in all our markets outside the Netherlands in 2019 by the Top Employer Institute. NN Life Japan was recognised for the first time for its working conditions and corporate culture, while some countries were named as Top Employer for the third consecutive year. The Top Employers Institute recognises leading employers around the world as those that provide excellent employee conditions, nurture and develop talent at all levels of the organisation, and strive to continuously optimise employment practices.
In the Netherlands, for example, we offer workshops on vitality and provide fitness facilities in The Hague and Arnhem; NN Bank and NN Life piloted a programme on team energy and team collaboration. The Fit by Nationale-Nederlanden pilot ended in 2019. Close to 650 employees participated in over 30 types of challenges, and the concept received a high score.
In 2020, the programme will be replaced with a new vitality platform at our main office locations in the Netherlands.
In Spain, the wellness programme includes a Running and Nordic Walking club, an in-office physiotherapist and a yearly health check. In 2019, additional actions included nutrition sessions, in-office dental checks, a campaign for flu vaccinations and corporate travel safety. NationaleNederlanden Spain also created a socalled psychosocial risk committee that monitors actions that were initiated after a survey and interviews with employees in 2018.
− NN Group has proposed a total dividend for 2019 of EUR 2.16 per ordinary share, which is equivalent to a dividend pay-out ratio of 50% of NN Group’s 2019 full-year net operating result
Dividends are paid either in cash after deduction of withholding tax if applicable, or in ordinary shares from the share premium reserve, as elected by the shareholder. We intend to neutralise the dilutive effect of the stock dividend through repurchase of ordinary shares. 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.
Share buyback and share capital On 14 February 2019, NN Group announced an open market share buyback programme for an amount of up to EUR 500 million over 12 months, commencing 1 March 2019. This share buyback programme was completed on 28 February 2020.
On 29 March 2019, 5,850,000 NN Group treasury shares that had been repurchased under the share buy-back programme completed in December 2018 were cancelled.
To neutralise the dilutive effect of the stock dividend, NN Group repurchased ordinary shares for EUR 275 million in 2019, related to the 2018 final and 2019 interim dividends.
Shareholder by country/region IHS Markit shareholder analysis at 31 December 2019 (%)
In 2019, NN Group further developed its RI Framework policy by adopting a Statement on Coal, including a phase-out strategy for our proprietary assets. This means that NN will reduce its investments in thermal coal mining and coal power to close to zero (defined as between 0 and 5%) by 2030. For the assets that we manage on behalf of our clients, NN IP developed an engagement programme focused on utilities that derive an important part of their installed power generation capacity from coal, as well as globally diversified mining companies that have a large absolute thermal coal production volume. Through dialogue, we seek to encourage companies to develop transition plans consistent with the goals of the Paris Agreement, including timelines and commitments to the reduction of thermal coal mining and/or coal use for power. Furthermore, investment restrictions are applied to companies that derive more than 30% of their revenues from thermal coal mining (extraction).
We apply an engagement-led divestment approach. This means restriction is proposed only when we feel engagement cannot change a company’s conduct or involvement in specific activities. Responsibility for assessing whether an issuer fails to meet our norms-based criteria lies with the ESG Committee of NN IP, who are advised by the NN IP Controversy & Engagement Council. In 2019, this council met seven times and discussed 120 individual cases.
− Increase (+37%) in our AuM in sustainable and impact strategies to EUR 22.7 billion
− 25,421 young people reached through NN Future Matters in 2019 and 138,358 to date. We have exceeded our 2020 target and strive for a growing number of impacted youth going forward
Additional policies that NN IP revised or published in 2019 were an Engagement policy, a Client Voting policy and a Viewpoint policy on (potentially) less sustainable areas. The latter is important to demonstrate our adherence to the Belgian quality standard for sustainable and impact funds.
We monitor these outsourced activities and always make voting decisions internally on a case-by-case basis for our own assets, companies on our engagement list and NN IP sustainable funds.
During 2019, NN IP voted at 2,752 AGMs on 31,775 agenda items. Voting activities were focused on three main issues: board elections, sustainability shareholder resolutions and the alignment of executive remuneration with company strategy.
Engagement on coal policy & practices In developing our Statement on Coal, we engaged amongst others with Greenpeace. The outcome was well received by our stakeholders. In particular the scope, the timelines and the fact that we made a public statement was appreciated. At the same time, NN is still being criticised for the fact that we cannot enforce the policy on the assets that are managed via client mandates or by NN OFE (our open pension fund in Poland) which is a separate legal entity and has to abide by Polish regulations. In the meantime, we continue our efforts to support the transition towards a lowcarbon economy and monitor societal developments to ensure our statement reflects expectations. NN IP engages with both local investee companies and local NGOs, and collaborated with the Warsaw Stock Exchange amongst others in promoting the incorporation of responsible investment parameters in a newly launched Polish index fund.
In addition, NN IP supported a large number of shareholder resolutions linked to environmental (96%) and social (80%) topics. In general, we support resolutions if they address material social and environmental issues that can have a material impact on the company and/or its stakeholders. We voted on issues such as climate change, supply chain management and human rights. An example being our support for all resolutions at the AGM of ExxonMobile to send a clear signal to the company that climate change is important to investors.
The chart on the previous page shows that in total we had 662 ESG dialogues with issuers in 2019. For more examples of how we engage with companies and sectors, please refer to NN IP’s Responsible Investing Report 2019 on our website.
Making a positive impact through our investments NN IP offers a wide range of sustainable and impact investing strategies to meet customers’ growing demand for products that both have a positive impact on society and the environment, and generate solid financial returns. Total AuM in our sustainable and impact investing products grew by 37% to EUR 22.7 billion at year-end 2019.
During 2019, NN IP expanded its sustainable and impact offering with an enhanced index sustainable equity fund focused on emerging markets. We also launched an ESG index fund investing in Polish blue-chip stocks that is listed on the Warsaw Stock Exchange WIG-ESG index.
NN IP expanded its green bond funds range with the launch of a new short-duration green bond fund, which contributes to the UN Sustainable Development Goals. The total green bond strategy (funds and mandates) has seen rapid growth and reached EUR 1.8 billion at year-end 2019. NN IP measures and reports on the contributions to society, such as avoided CO2 emissions.
NN IP is an active member of the Platform Living Wage Financials (PLWF), an alliance of 13 financial institutions that encourages and monitors investee companies to address the non-payment of a living wage in global supply chains. As an investor coalition with over EUR 2.6 trillion of AuM and advice, we use our influence and leverage to engage with our investee companies in the garment and footwear, agricultural and food, and the food retail sector. In October 2019, the initiative won the PRI Active Ownership Project of the Year Award. The scale and ambition of the objectives of the project, and what the project delivers for investors and for the environment and society as a whole, were taken into consideration. Among other considerations were the degree of innovation and the success of the collaboration. For more information, refer to the NN IP Responsible Investing Report 2019.
Besides taxes that NN Group pays as a taxpayer, which represent a cost for our company, we are also responsible for collecting taxes on behalf of our clients, employees, and service providers, and passing them on to tax authorities. To give more insight into our tax contribution, we published our first Total Tax Contribution (TTC) Report over the year 2018 in May 2019.
NN Group’s Total Tax Contribution in 2019 amounted to EUR 2,040 million, and consisted of the corporate income taxes paid by NN Group and the total of the other taxes collected and paid by NN Group as outcome of its operations (including Value Added Tax, Insurance Premium Tax, payroll taxes, and withholding tax on dividends paid by NN Group). Of this total tax contribution, we paid 85.4% to the tax authorities in the Netherlands, and 14.6% to local tax authorities on behalf of our international businesses.
As a financial service provider, our direct environmental footprint consists mainly of emissions from office activities and business travel. In 2019, we formulated our #YourSustainableWorkspace ambition to contribute to a sustainable and healthy environment within our office activities. The ambition focuses on six workstreams: emissions, waste, plastic, food, circularity and being an inclusive employer. As part of the workstream ‘plastic’, we created the NN Plastic Pledge, an NN-wide commitment to a more sustainable and circular working environment. NN Group also became a partner of the social enterprise Plastic Whale, working with them on decreasing our plastic footprint and creating awareness around plastic soup.
In the area of mobility, too, we aim to decrease our environmental footprint. We introduced a lower threshold for emissions for our lease fleet in the Netherlands, and organised a mobility workshop to give further shape to our ambitions around mobility and sustainability.
From Debt to Opportunities The From Debt to Opportunities Foundation has been part of NN Group’s Future Matters programme since 2018. Alongside 30 local not-forprofit partners, the foundation supports the 20% of Dutch households who face structural debt problems, helping them acquire the financial skills to escape poverty and debt, and achieve sustainable financial security.
NN Future Matters targets three interrelated areas: financial empowerment, economic opportunities and financial distress. All three areas align with both our purpose as a company and the knowledge and expertise we have in-house. More importantly, this focus has had a demonstrable, positive impact on communities. We involve both international and local partners so that the programme is globally consistent while remaining relevant to local needs and issues.
Promoting financial empowerment Sound financial knowledge helps people achieve a more secure financial future. Our initiatives focus on the young, as responsible financial behaviour is often best developed at an early age. During the 2019 Money Week in the Netherlands, NN colleagues gave 274 lectures in primary schools to more than 6,696 children on money and financial risk.
In Poland, we supported the first edition of University of Success, a programme supporting 18-year-old girls leaving orphanages and wanting to have a career in the IT and digital media sectors.
The NN Future Matters scholarship programme, a collaboration between NN and EP-Nuffic, gives first-generation higher education students the opportunity to complete a master’s degree in the Netherlands. Students are matched with an NN mentor, who supports them during the year. In 2019, we welcomed 40 students from 10 countries.
We also strive to create economic opportunities by encouraging entrepreneurship. In 2019, 13,253 students in 11 countries took part in the Social Innovation Relay. This flagship of the partnership between NN Group and Junior Achievement Europe is a global competition for secondary school students to develop an innovative business concept that addresses a real societal need.
Alleviating financial distress Even in the world’s more prosperous societies, formal social services do not reach all the community’s disadvantaged and underserved. NN therefore tries to support families with children in financially challenging circumstances through fundraising and partnerships with local charities.
NN Group’s SDG journey Three years ago, we identified our impact areas through dialogue with both internal and external stakeholders. Our primary focus is on SDG 8 (Decent work and economic growth) and SDG 12 (Responsible consumption and production). Our business can contribute to these goals through both our direct operations and our value chain. In addition, our impact investment activities and various investment instruments address, for example, SDG 3 (Good health and well-being) and SDG 7 (Affordable and clean energy). While through our community investment activities, we strive to contribute to SDG 1 (No poverty).
In 2019, we took steps to further link the SDGs to the areas of our strategic agenda: healthy and safe living, a sustainable planet and an inclusive economy. We made a positive contribution to SDG 8, as employer to 15,194 employees worldwide, and to SDG 12 through our investment activities.
Impact investing and the SDGs Immediately following the introduction of the SDGs, NN Investment Partners (NN IP) introduced several impact strategies primarily designed for investors who want to make a clear, positive impact on one or more of the SDGs, while still achieving an attractive financial return. Our strategies invest in industries, companies and projects that offer a societal solution, and have a clear and measurable positive impact on people, planet and/or prosperity.
NN Network Neurodiversity In 2019, the NN Network Neurodiversity was founded, with the aim to contribute to a working environment in which neurodiversity, for example autism, can be discussed and accepted. This is done by offering a listening ear and by sharing knowledge. The network also makes a connection to the Participation Act, by offering people that are currently unemployed a job within NN.
• Employee engagement 7.4 (up 0.3 from 7.1 in 2018) • 25,421 young people reached through NN Future Matters • 40 scholarships provided to students from 10 countries
Impact and opportunities through reduction of our direct carbon footprint and integration of ESG factors into investments
• EUR 22.7bn Assets under Management in sustainable and impact investment strategies
• EUR 3.2m donations to charitable organisations • 2,983 households reached by Foundation From Debt to Opportunities
Impact through our insurance products • Seven countries providing products and services with social added value that promote good health and wellbeing for customers
• EUR 628m investments of own assets in direct renewable infrastructure projects and green bonds used for renewable energy
Green bond fund NN Investment Partners (NN IP) has launched a short-duration green bond fund. The fund adds to the existing green bonds range but has a shorter duration of two years. Green bonds are instruments where the proceeds are applied to financing new or existing projects that have a measurable positive impact on the environment. NN IP is the largest market participant in terms of open-ended green bond funds. The total green bond strategy has reached EUR 1.8 billion at year-end.
Health insurance in Romania In Romania, NN offers protection and health products that address the population protection gap. We launched a series of products that have add-on coverages that can be selected by customers depending on their needs. They offer protection for critical illness, and work incapacity due to permanent disability or accident recovery. These were specifically designed for the healthcare needs of Romanians, enabling them to secure their financial futures in case of unexpected medical situations.
Global Equity Impact Opportunities Fund, Green Bond Fund and FMO Emerging Markets Loan Fund. In December 2019, NN IP also introduced three thematic listed equity impact funds: Health and Well-Being, Climate and Environment, and Smart Connectivity.
We empower people to be their best, and respect each other and the world we live in
Our values are the foundation of our culture and provide the basis for our company-wide policy framework.
Raise awareness The NN statement of Living our Values explains what NN stands for, for internal and external stakeholders. We take steps to ensure all employees are aware of our values throughout their NN careers. During the new employee onboarding programme we introduce our values, NN Code of Conduct, brand and work environment. In the Netherlands, new employees must also take the Oath for Financial Institutions, which is included in the NN statement of Living our Values.
Values week in the Netherlands In a survey, 71% of participants felt the Netherlands’ Values week provided a good opportunity to reflect on our values (2018: 81%), 60% felt it stimulated discussion (2018: 70%) and 95% would encourage colleagues to join the next edition (2018: 98%). As participation and ratings were down compared with 2018, we will use the survey outcomes, including suggestions for improvements, to evaluate how to ensure Values week remains relevant.
Stimulate open dialogue In 2019, Management Board members and senior management continued to play an active role in the Living our Values programme and gave their support for candid dialogue, with many countries’ CEOs participating directly in Values week. Following his official appointment as CEO of NN Group, David Knibbe joined a Let’s talk session with colleagues to openly share his personal story and what matters to him, including his successes and failures, reflecting his own commitment to live by our values.
Embed Our values are reflected in the companywide policies, standards and processes that guide us in our interaction with each other, customers and other stakeholders. The values support an open, honest dialogue and provide a strong basis for a healthy company culture. They are also used as a starting point for hiring new employees. For example, in our NN traineeship programme we use a special tool to look for characteristics in candidates that correspond with our values.
Monitor We monitor the effectiveness of the Living our Values programme to gain insights into areas of attention and make recommendations for improvement. We ask employees questions on our values in our employee engagement survey. The Management Board and the values project team use these outcomes to evaluate the Living our Values programme. Results remained high and stable (up 0.1) compared with 2018.
Clear ‘On our team we are ready to approach and communicate proactively and honestly’
Commit ‘In our team we take responsibility for our actions and deliver on our promises’
Also, the business units conducted a self- assessment on risk awareness within the business unit. Part of the assessment was a dialogue on how the values are perceived locally. Read more on the Risk Culture Check-in on page 47.
We focused on alignment with: • Internal developments and feedback • External regulations and expectations • Trends and developments in society
This two-way assessment is the basis for a constructive dialogue with senior management of NN on how we manage risk culture within the company, the conduct we encounter in doing so, and in which areas we can improve. This assessment model and related dialogue has created a 360-degree loop in order to deliver content and statements to underpin the risk appetite statement ‘Employee Conduct & Business Culture’ in the Control framework. The process is led by Group Risk, in close cooperation with Group Legal & Compliance within the business units.
Reporting concerns When misconduct occurs, NN carefully reviews and assesses whether an investigation or other action is needed. Breaches of the NN Code of Conduct are not taken lightly and have consequences.
Whistleblower Policy The NN Group Whistleblower Policy enables every employee to report, if desired anonymously, a concern outside normal reporting channels. NN Group guarantees various 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 NN Code of Conduct. Relevant training materials are developed and rolled out to the business units.
In 2019, NN recorded four concerns filed through the Whistleblower Policy (2018: seven concerns). In three reported concerns, Corporate Security & Investigations was involved for further investigation. The concerns reported in 2019 were related to, amongst others, power harassment, misconduct by manager, and other unethical employee behaviour. The concerns are recorded and reported periodically (in numbers) through the Chief Compliance Officer up to the level of the Management Board.
Dutch Corporate Governance Code NN Group is subject to the Dutch Corporate Governance Code (the Code). The application of the Code by NN Group during the financial year 2019 is described in the publication Application of the Dutch Corporate Governance Code by NN Group, dated 11 March 2020, which is available on the website of NN Group. This publication is to be read in conjunction with the Corporate governance chapter on pages 21-31 of the Financial Report.
Fabian Rupprecht Chief Executive Officer International Insurance Janet Stuijt General Counsel Delfin Rueda Chief Financial Officer, Chief Risk Officer ad interim (per 1 January 2020) and vice-chair of the Executive Board and Management Board Not photographed: Jan-Hendrik Erasmus Chief Risk Officer, who stepped down on 31 December 2019
Stakeholder engagement and international commitments NN Group engages in ongoing dialogue with stakeholders on a variety of topics, ranging from products, services and business performance to our role in society. By endorsing national and international initiatives, we underline our ambitions and join forces with other organisations to achieve more.
Stakeholder engagement We see stakeholder engagement as a vital part of our efforts to earn their trust and support, and of our duty as a responsible and engaged company. NN Group identifies stakeholders based on their potential to influence or be influenced by our business. Important stakeholder groups include customers, employees, investors, business partners and society, including regulators and societal organisations. We seek feedback from these groups on key topics that matter to them. This helps us align our business interests with the needs and expectations of relevant stakeholder groups, and is a source of information for strategy development and decisionmaking processes.
Our dialogue with stakeholders takes many forms: day-to-day interaction and regular feedback sessions with customers on our products and services; works council meetings and continued dialogue with our employees; briefing sessions and roadshows for analysts and investors; regular bilateral contact with regulatory bodies, government agencies and other organisations (including non-governmental organisations, trade unions and industry associations); and roundtables with policymakers, academics and peers.
National and international commitments As a company based in the Netherlands, we adhere to Dutch law and the Dutch Corporate Governance Code. 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.
Since 2017, NN has disclosed the carbon footprint associated with a large portion of our proprietary assets. You will find an update on pages 63. In addition, we encourage the energy transition, for example through our voting and engagement work, and make sustainable and impact investments.
We continuously enhance our approach to address climate change into our strategy, policies and activities. Read more in the sections on Responsible Investment on pages 37-39, Our response to the Task Force on Climate-related Financial Disclosures on pages 52-55, and our separate analysis of the carbon footprint of proprietary assets. Furthermore, we are working on initiatives to further develop goals and targets.
International Corporate Social Responsibility (ICSR) covenant The ICSR covenant for the Dutch insurance sector celebrated its first anniversary in July 2019. The covenant aims to ensure that insurers identify and mitigate any potential negative environmental, social and governance (ESG) impacts they face through their investments.
The covenant’s signatories (all Dutch insurers, the government, one trade union and six NGOs) pool their knowledge and experience, identify ESG risks, and initiate steps to mitigate those risks. Insurers are expected to have due diligence processes in place to address ESG risks and, where necessary, to develop, adjust and improve their policies. Publication of policies and restricted lists are required, as are disclosures on voting and engagement activities with investee companies. Read more in the annual report of the covenant’s independent Monitoring Committee, including its recommendations, on www.imvoconvenanten.nl/nl/ verzekeringssector/nieuws/jaar-2018-2019verzekering
Stakeholders, engagement, topics and outcomes Stakeholder group Engagement Topics discussed Outcome
Employees Townhall meetings, works councils, unions, international leadership and other conferences, surveys
Financial and operational developments, corporate governance, climate change, human rights, (non-) financial disclosures
Economic and financial market developments, risk assessments, regulation, ICSR sector covenant, sustainable finance
Our response to the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD)
At NN Group, we have covered climate change as part of our Annual Report since the financial year 2017. Our climate change related disclosure reflects NN’s response to the recommendations of the Financial Stability Board’s Task Force on Climaterelated Financial Disclosures (TCFD), published in June 2017. This response is structured along the four TCFD pillars: governance, strategy, risk management, and metrics and targets.
The Chief Organisation & Corporate Relations has Corporate Citizenship, which includes sustainability, in her portfolio. In addition to this, each of our Board members integrate sustainability into their respective businesses or functions where relevant. To steer and advise the Management Board on the implementation of the overall sustainability direction, we have a dedicated Corporate Citizenship team. This team works closely together with the different businesses and functions to steer and advise on the implementation of the overall strategy.
Climate change dialogue To support TCFD implementation NN has established a so-called Climate Change Dialogue: a multi-disciplinary working group, advising the Management Board on climate risks and opportunities. In 2019, the Dialogue convened to discuss climate-related initiatives within the organisation such as the climaterelated scenario analysis work, and explore the emerging area of climate change-related litigation. Climate change cases against organisations are becoming increasingly prevalent and as such we wanted to increase our efforts to understand risks associated with climate change related legal action. The Dialogue’s insights were presented to the Management Board in March 2020.
As well as impacting on our liabilities, physical risks could also impact our investment portfolio. For example, a severe windstorm or flooding might damage buildings within our European real estate portfolio which could result in asset impairments or indirectly affect our clients’ ability to pay their mortgages.
Finally, prolonged and multiple periods of heatwaves or other consequences of rising temperatures may result in increased mortality and morbidity, thereby impacting our life and income insurance liabilities. Long-term threats are difficult to predict, but at this time, we expect this to have less impact on our life and income insurance liabilities than other risks, such as changes in demographics or pandemics. It should be noted though that whilst pandemic outbreaks can be attributed to a number of interrelated factors, climate change is likely to increase the risks by spreading of disease vectors into areas that formerly did not experience these.
• NN’s Non-life department has conducted research to capture the carbon footprint linked to our non-life activities. The project also sought possibilities for creating and expanding our role in the circular economy. We will take further steps in this area in 2020.
• Nationale-Nederlanden in the Netherlands launched a web-based platform, Powerly, to help users make their houses more sustainable. It provides customers with tailored advice on energy-efficient measures, then helps them take these measures by connecting them up with partners.
Finally, proactively addressing climate change can improve our reputation, and therewith positively influence customer satisfaction. Of course, the opposite can also occur if we fail to adequately address stakeholder expectations (see also key risk: Good Corporate Citizenship on page 12). For instance, our P&C customers might be displeased if they were charged higher insurance premiums, making affordability an issue, or if they discovered they had been unaware of uninsured risks. We therefore focus on informing our customers clearly and being transparent about coverage, as well as helping initiate adaption and resilience in a changing environment.
We performed an analysis on potential transition risk for government bond holdings issued by six countries that together represent over 70% of the portfolio. Government bonds are typically assessed on the ability and willingness of a government to honour debt obligations. Climate and energy policies are one of several factors that could influence the ability of a government to repay debt. We took the view that countries that have a well-developed long-term strategy for achieving greenhouse gas (GHG) emission reductions consistent with the Paris Agreement are more likely to face lower transition risks. Therefore, we examined the difference between a country’s energyrelated GHG emissions between a businessas -usual (BAU) and a low-carbon transition scenario (2°C) for the time periods 2022 and 2030. The difference is indicative of the potential magnitude of the transformation required for a country transition to a lowcarbon economy. We complemented this quantitative assessment with evaluation of climate policies, targets, and related economic impact assessments to develop an initial risk rating.
For NN’s residential mortgage portfolio, we analysed physical risks. Physical risks for mortgages in the Netherlands are mainly related to damage caused to properties by flooding events (including surface water flooding caused by heavy rainfall, river flooding, and coastal flooding). These events could either lead to a value decrease of collateral and/or impact on the ability of a houseowner to pay their mortgage.
We also analysed potential transition risks associated with NN’s Dutch mortgage portfolio. The realisation of the Dutch government’s ambition to decarbonise the housing market will require strong incentives and policy regulation. Such policies are drivers of transition risk, as they could require borrowers to make upfront investments in new heating systems or energy efficiency improvements. We took the energy label as a simple indication of the likelihood that a homeowner will be required by regulation to make energy efficiency improvements. In some circumstances, this additional cost could compromise the ability of some borrowers to repay their mortgage. We therefore combined the energy label categories of our mortgage book with indicators of credit risk to evaluate transition risk levels in 2030 and 2040. This analysis provides us with a starting point for further refinements, and furthers our discussion on how we can help support our customers in making their house more energy-efficient over the coming decades.
For non-financial corporate exposures (mainly bonds and listed equity), NN developed a screening tool to identify, based on high-level scenario-based analysis, segments of the portfolio where there is likely to be greater potential climate-related risks and opportunities that could impact investment performance. The drivers of climate-related risks and opportunities relate to the transition to a lower carbon economy and changes to physical climatic conditions. The results were translated into heat maps. The exercise will inform our prioritisation of further analytical work and other steps.
NN Group, and each of its regulated (re)insurance subsidiaries, prepares an ORSA at least once a year. The ORSA includes the outcomes of stress tests and/or scenario analyses that are aligned with identified key risks. NN Group considers climate change to be an emerging risk that may impact our business model over the long term. As such, the ORSA took into account the scenario-based analysis performed on our own general account investment portfolio to better understand the impact on our business. Specific consideration was given to government bonds and mortgage analyses. The initial outcome of these analyses, based on current understanding and the scenarios shown, imply that in the short-term climate change will not materially affect our business. In the longer run (20302050 ), it is an area for further consideration, given the considerable investments that will be required by both governments and individual houseowners to deal with the transition and physical risks, as well as the macro and micro economic consequences. NN will continue to assess and monitor these potential impacts on our business model and balance sheet.
Risk management NN Group’s risk policy framework ensures that all risks are managed consistently and that NN Group operates within set risk tolerances.
Processes within investments NN Group has a policy framework in place to ensure that our assets are invested responsibly. Amongst other things, the policy includes a requirement to systematically incorporate ESG factors into the investment process. The consideration of ESG factors, alongside traditional financial data, helps us to make more informed decisions and optimise the risk-return profile of investment portfolios. At NN IP, assessing the materiality of ESG factors, such as climate change, is an integral part of the investment process, where the analysts identify material risks and opportunities within the investment case. In doing so, they make use of information from various ESG research agencies, including Sustainalytics, MSCI, Bloomberg and ISS-Ethix Climate Solutions.
In addition to analysing individual investment-level risks, we carry out analysis at a portfolio level to assess potential climate risks and opportunities, and to inform the content and implementation of a broader climate change strategy. For example, we measure the carbon intensity of our proprietary investments, which gives us insights into our highest carbon risk exposure and is useful for, amongst other things, engagement purposes.
We consider engagement to be an important tool for managing climate risks. This means we enter into a dialogue with companies and explain which goals we would like them to achieve. Although we prefer to change behaviour through engagement, we may decide to exclude a company when it is not willing to engage in a dialogue, or where we believe not enough progress is being made. In 2019, we expanded our environmentally-focused exclusion criteria to include, in addition to oil sands, thermal coal. This involves groupwide exclusionary criteria for companies that derive more than 30% of their revenues from thermal coal extraction.
For NN Group’s proprietary investment portfolio, we additionally announced an objective to reduce our investments in thermal coal mining and/or coal power to close to zero (defined as between 0 and 5%) by 2030. This decision affects a portfolio of bonds in the mining and utility sectors of approximate EUR 2 billion. Whilst most of these bond holdings will mature before 2030, we have some longer-dated exposures. These will be closely monitored, and if by 2030 the companies have not reduced their coal-related business to 5% or lower they will be sold. Through this policy, NN aims to give a strong signal to companies of the need to phase out coal in order to achieve climate targets in line with the Paris Agreement.
methodologies that investors can use to align their portfolios to the Paris Agreement, and test these approached for different asset classes.
We let insights from catastrophe models guide our risk management process in terms of pricing/underwriting. For this, we use external vendor models which use meteorological modelling that reflects observed storms and patterns in order to estimate the impact and damage that would be caused by large natural catastrophes, such as windstorms. NN uses a multi-year forward-looking approach. Catastrophe models are also part of the risk management process in terms of solvency/ capital management.
Finally, external reinsurance will, under certain conditions, partially mitigate potential impacts. We have a group-wide 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 ones. Both the applicability of the external vendor models, as well as the reinsurance structure and cover, are reviewed annually on renewal.
Regarding climate-related transition risks, our processes to identify, manage and mitigate these risks for insurance underwriting portfolios are less developed compared to physical risks. However, we took a number of steps during the year: • We raised awareness of the benefits of including ESG issues in the insurance underwriting processes by including a heatmap in the quarterly Financial Risk Dashboard of NN Non-life. This heatmap gives an indication of the levels of potential ESG risks across lines of business. We based it on a published working paper of the UN PSI Initiative, titled ‘Underwriting environmental, social and governance risks in non-life insurance business’.
• Several NN Non-life teams participated in awareness raising sessions organised by the group’s Corporate Citizenship team. Amongst others, the area of climate change litigation was discussed with legal & compliance staff. In recent years, there has been an increase in climaterelated litigation against governments, but also complaints against companies have risen. This can have consequences for NN in the event that we insure them. Given the relative size of NN’s general liability insurance portfolio to corporate clients, we currently foresee risks in this area to be low. However, we will monitor developments.
Metrics and targets Carbon footprint – own operations At NN Group, we are committed to reducing the environmental impact of our own operations. We have set quantitative targets to reduce our GHG emissions and consumption of scarce resources. Read more on page 40.
Other metrics and targets (investments): • NN IP’s AuM in sustainable and impact strategies: EUR 22.7 billion by yearend 2019
NN Group also publishes a Solvency and Financial Condition Report, a Total Tax Contribution Report, and a Carbon Footprint Report. NN Investment Partners publishes a Responsible Investing Report. These reports provide additional information on specific topics and are published on the same date on NN Group’s website in the Investors/ Annual Report section.
We believe that this reporting strategy enables us to tailor our reporting for different stakeholders, who require different levels of detail. The online versions of the Annual Review and the Financial Report contain a number of links, including links to sources on the NN Group website.
Reporting profile This is NN Group’s sixth Annual Report since our separation from ING Group and becoming a publicly-listed company on 2 July 2014. It is published on 12 March 2020. We report annually, on a calendar year basis (1 January – 31 December).
For non-financial information and data on community investment and direct environmental footprint, NN Group used an online system, Credit360. Our internal validation process, including the application of Credit360’s validation rules ensures to limit any inaccuracies in the reported data. The Human Resources (HR) data is directly sourced from our HR data analytics department.
The information and data in the Annual Review is prepared in accordance with the Standards (Core) from the Global Reporting Initiative (GRI).The GRI Index table shows against which indicators NN Group reports, and where to find the respective information in this Annual Review, the Financial Report and/or the NN Group website. The index Table is published on NN Group’s corporate website in the Investors/Annual Report section, where you can also find the Progress reports for the UN Principles for Sustainable Insurance and the UN Global Compact.
The scope of KPMG’s assurance engagement is described on pages 65-69 of the Annual Review, including the key financial and non-financial indicators. We provided evidence to our external auditor in support of the statements we make in this report. Please read more on pages 65-69 in KPMG’s Assurance report.
Consolidated balance sheet (in EUR million) As at 31 December notes 2019 2018
Share of result from associates and joint ventures 6 619 500
Net result (in EUR million) For the year ended 31 December 2019 2018
– insurance business units scoring on/above market average 36% 67% 100%
Donations to charitable organisations (x EUR 1,000)3 3,200 2,700 2,400 1 Reliability interval of 5 points on NPS 2 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. 3 Includes cash donations to charitable causes, corporate foundations and partnerships.
Transparency Benchmark Netherlands5 50% – 183 4 Sustainalytics changed its research method (2017 and 2018 scores: position NN Group out of number of insurance companies) and now provides ESG Risk Ratings scoring companies on their ESG risks from negligible (0-10), low (10-20), medium (20-30), high (30-40) to severe risk (40-100). NN Group’s ESG Risk Rating per December 2019 is 16.0/100 (low risk), our Exposure is 39.7/100 (medium) and our Management is rated 62.7/100 (Strong).
5 The Transparency Benchmark takes place on a bi-annual basis. Due to a new methodology, the 2019 result can not be compared to the result in 2017. The relative score of 50% represents a 78th position out of 240 companies.
Assets under Management in sustainable and impact investing funds and mandates (end of period) 22,740 16,549 10,852
– NN (L) Euro Sustainable Credit (excluding Financials) 485 491 679
Male/female ratio Senior Leaders Group 64/36 67/33 68/32 1 Different number in FTE reflects changes due to the CLA in the Netherlands; Delta Lloyd used to count for 38 hours per week as FTE (instead of 36 hours per week as FTE). This also has an impact on the (lower) number of part-time employees.
Total spending on training and development (in EUR million) 18.9 21.5 21.4
Delta Lloyd and Nationale-Nederlanden, given the specific nature of these complaints. 6 Human capital ROI is calculated as: (operating result ongoing business + employee expenses)/employee expenses. 7 The increase in 2018 is 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). 8 For more information, refer to the Remuneration report on pages 32-37 of the Financial Report.
Total donations to charitable organisations (x EUR 1,000)1 3,200 2,700 2,400
Of which received by charitable organisations through our corporate foundations (country/name)
Total hours of volunteering work (in Future Matters focus areas) 12,481 13,236 14,099
Total number of households reached through the From Debt to Opportunities programme4 2,983 2,468 2,386 1 Includes cash donations to charitable causes, corporate foundations and partnerships. 2 No donations made in 2019 as Foundation has ended. 3 Numbers reached include partnership with JA and EP-Nuffic, the Future Matters anniversary donations and main Dutch programmes (excluding the From Debt to Opportunities programme). 4 The figures for 2017 and 2018 have been restated according to corrected data relating to households supported.
CO2 emissions from energy consumed on NN sites 7 10 11
– Recycled waste as % of total waste 58% 63% 82%
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. 1625557/20X00168999AVN
Our review engagement included, among other things, the following procedures: — performing an analysis of the external environment and obtaining an understanding of relevant societal themes and issues, and the characteristics of NN Group; — 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 other things: — 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 NN Group; — 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; — evaluating the consistency of the Non-Financial Information with the information in the report which is not included in the scope of our review; — evaluating the presentation, structure and content of the Non-Financial Information; — considering whether the Non-Financial Information as a whole, including the disclosures, reflects the purpose of the reporting criteria used.
A global disclosure system for companies, cities, states and regions to manage their environmental impacts, and for investors and purchasers to access environmental information for use in financial decisions.
Involvement in money laundering, the funding of terrorism or other criminal activities that could harm stakeholder confidence in a financial services provider such as NN.
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. The Dutch Central Bank (DNB) approved NN Group’s PIM in 2015, and in 2018 approved NN expanding the PIM to include the Delta Lloyd entities.
Also known as the Global Goals, these are 17 global goals set in 2015 by the UN General Assembly to be achieved by 2030. They form a universal call-to-action to end poverty, protect the planet, and ensure all people can enjoy peace and prosperity.
For further information on NN Group’s sustainability strategy, policies and performance, please visit www.nn-group.com/in-society.htm or contact us via sustainability@nn-group.com
This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities.
NN Group N.V. Schenkkade 65 2595 AS The Hague P.O. Box 90504, 2509 LM The Hague The Netherlands www.nn-group.com