Statement of Lard Friese, CEO
“In 2014 NN Group became a standalone company, separate from ING Group. The successful initial public offering last July marked a new beginning. Although we are still at the start of our journey, we are pleased with the strong performance we are reporting today. The full-year results, with a net result of EUR 588 million, demonstrate the progress we have made so far in achieving our objectives to generate capital and improve earnings, while delivering excellent service and products to our customers.
Our focus on our customers remains our driving force, which is demonstrated by strong new sales growth in 2014. At the same time we continue to strive for more effective and efficient operations which have resulted in a reduction of EUR 142 million in expenses in the Netherlands, showing good progress towards our target of EUR 200 million by 2016. Thanks to our multi-access distribution network, customers can reach us wherever and whenever they want and we will continue to develop this further throughout all regions.
With the strong capital generation of our businesses and our solid solvency ratios we are well prepared for Solvency II. In line with our focus on returning capital to our shareholders we will propose a dividend at our Annual General Meeting in May of approximately 50% of the net operating result of the ongoing business for the second half of 2014.
While we are further shaping our company, we will rebrand our businesses in 2015 and 2016 to the NN brand. A clear and recognisable identity that further unites our businesses and almost 12,000 employees. Over the years, Nationale-Nederlanden, ING Investment Management and ING Insurance, have built leading positions with a strong presence in more than 18 countries. The new branding represents another important milestone, and will further define the profile of NN Group as an international insurance and investment management company.”
Strategy and business highlights
NN Group’s strategy is to deliver an excellent customer experience, based on great service and long-term relationships. We aim to achieve this by offering transparent products and services that serve customers’ lifetime needs. We do this by making our multi-access distribution network available to customers wherever and whenever they want, and by maintaining effective operations that deliver an excellent customer service.
In the Netherlands Life segment, the focus is on expense reductions and a gradual shift to higher-yielding assets, such as mortgages and loans. Furthermore, NN Life aims to benefit from its strong position in the pension market and to selectively capture growth opportunities. The operating result of Netherlands Life decreased in 2014 as fees and premium-based revenues and technical margin were adversely impacted by the run-off of the individual life closed book and a decrease in interest rates. These impacts were partly offset by a reduction in administrative expenses and a higher investment margin. Administrative expenses were down for the full year, reflecting the positive impact of the transformation programme in the Netherlands. The investment margin in the fourth quarter increased, driven by higher dividends from private equity, the positive effects of increased allocation to higher-yielding assets and higher invested volumes. In 2014, new sales (APE) increased, mostly due to pension contract renewals. In the Dutch pension market, pension fund buy-outs are an opportunity for growth. In January 2015 the ENCI company pension fund, with EUR 420 million of assets and around 2,200 participants, transferred its accumulated pension benefits to NN Life. In addition, ENCI chose NN Life’s defined contribution PPI solution with additional risk protection insurance for future pension accumulation. The capital position of NN Life improved further, with a Solvency I ratio of 260%, after deduction of a dividend of EUR 350 million paid by NN Life to NN Group in February 2015. Excluding the deduction of this dividend, the Solvency I ratio of NN Life as at 31 December 2014 would be 272%.
Netherlands Non-life aims to improve underwriting performance and to expand in specific market segments where there are clear opportunities for profitable growth. The operating result increased, reflecting favourable claims experience, lower administrative expenses and management actions taken to improve profitability. The combined ratio for 2014 improved to 99.4% from 101.5% over 2013. In 2014, Nationale-Nederlanden received recognition for its innovative car insurance ‘Fairzekeren’ with smart technology that helps drivers to improve their driving behaviour and as a result reduce the risk of damages for which they can earn a discount on their premium.
Insurance Europe is moving its business mix towards protection products and repositioning its savings and retirement products for the low interest-rate environment. In 2014, the operating result decreased due to a lower investment margin and the impact of the pension reforms in Poland, partly offset by higher fees and premium-based revenues. New sales (APE) were up 7.7%, compared with 2013 at constant currencies driven by higher life sales in most countries, with new sales of protection products up 16.9%. An example of a successful new service is “Improve your life style”. In the Czech Republic and Slovakia this interactive campaign was launched with a special website where visitors can fill in a health test, developed by well-known nutrition specialists, and receive a personalised health evaluation and some tips, via email, on how to improve their lifestyle. On the same website they can set up an appointment with a financial advisor to discuss health protection.
In 2014 Japan Life increased its agency productivity and diversified its distribution channels by substantially expanding its bancassurance channel. It recruited 16 new bank distribution partners over the year and, in order to further improve the service to its distribution partners, the commercial network agents have been equipped with tablets to ensure flexible and more effective support. In line with this, and supported by improved business sentiment, new sales (APE) increased 20.1% from 2013, excluding currency effects.
Assets under Management increased to EUR 186 billion driven by strong market performance. Investment Management aims to grow its third-party business by following a tailored approach for each client segment. In its retail business and in its home markets, Investment Management plans to protect and further expand its leading positions and continues to develop a more distinct range of equity products. Investment Management continues to invest in building and broadening the capabilities of the business, such as the hiring of investment professionals in the convertible bond team in the fourth quarter of 2014. In line with the ambition to grow its third-party business, Investment Management was appointed fiduciary manager of health insurer DSW with 530,000 customers in January 2015, a mandate that underscores its expertise in the insurance industry.
NN Bank continued to grow with the expansion of its mortgage and customer savings activities, and contributed positively to NN Group’s results in 2014. In line with its strategy, NN Bank’s mortgage portfolio increased to EUR 7.9 billion from EUR 6.2 billion at the beginning of 2014. Customers and financial advisors granted NN Bank an award for mortgage suppliers ‘Gouden Spreekbuis Hypotheekverstrekkers 2014’ in December, because it ‘reinvented itself as a mortgage provider’. NN Bank also expanded its product offering in 2014, with the introduction of a consumer lending product in February and a credit card in October. Consumer savings continued to grow by offering attractive products under the strong Nationale-Nederlanden brand, leading to total customer deposits of EUR 7.0 billion at the end of 2014.
Rebranding from ING to the NN brand
Over the years, the Nationale-Nederlanden, ING Insurance and ING Investment Management businesses have built leading positions in Europe and Japan. In 2014 these businesses came together under the holding company name NN Group. After the successful IPO of NN Group in July 2014, which represented the final step in becoming a standalone company separate from ING Group, the businesses will be rebranded in line with the NN brand identity. The operational and legal entity rebranding will take place in 2015 and will be supported by marketing campaigns in the various markets in 2015 and 2016. Over these two years, NN Group expects to incur rebranding expenses of approximately EUR 135 million in total, which will be reported as special items, with the majority of rebranding activities expected to be completed in 2015.
NN Group continues to prepare for Solvency II. The NN Group Solvency II capital ratio (based on our current interpretation of the Standard Formula) is estimated to be in a range around 200% at 31 December 2014. NN Group is considering to apply for the usage of a Partial Internal Model. The Solvency II capital ratio remains subject to significant uncertainties, including the final specifications of the Solvency II regulations and the regulatory approval process.
An important financial objective is to generate capital and pay dividends to our shareholders. In line with that, at the Annual General Meeting (AGM) on 28 May 2015, a dividend will be proposed of EUR 0.57 per ordinary share, or approximately EUR 200 million in total based on the current number of outstanding shares. This is equivalent to a dividend pay-out ratio of around 50% of NN Group’s net operating result of the ongoing business related to the second half of 2014. The final dividend will be paid in cash or ordinary shares at the election of the shareholder. NN Group will neutralise the dilutive effect of the stock dividend on earnings per ordinary share through repurchase of ordinary shares, which may include a repurchase of part of ING Group’s shareholding in NN Group. Going forward, and barring unforeseen circumstances, NN Group intends to pay ordinary dividends on a semi-annual basis. In line with NN Group's stated dividend policy, capital generated in excess of NN Group’s capital ambition is expected to be returned to shareholders unless it can be used for any other appropriate corporate purposes, including investments in value creating corporate opportunities. NN Group is committed to distributing excess capital in a form which is most appropriate and efficient for shareholders at that specific point in time, such as special dividends or share buy backs which may include a repurchase of part of ING Group's shareholding in NN Group.
NN Group Profile
NN Group is an insurance and investment management company with a strong, predominantly European presence in more than 18 countries. With around 12,000 employees the group offers retirement services, insurance, investments and banking to more than 15 million customers. NN Group includes Nationale-Nederlanden, ING Insurance Europe, ING Investment Management and ING Life Japan, and is listed on Euronext Amsterdam (ticker: NN)
Investor conference call and webcast
Lard Friese and Delfin Rueda will host an analyst and investor conference call to discuss the 4Q14 results at 10:30am CET on Wednesday 11 February 2015. Members of the investment community can join the conference call at +31 20 531 5865 (NL), +44 203 365 3210 (UK) or +1 866 349 6093 (US) or webcast on www.nn-group.com.
Press conference and webcast
Lard Friese and Delfin Rueda will host a press conference to discuss the 4Q14 results and elaborate on the rebranding of the businesses in 2015. The conference will be held at 12.30pm CET on Wednesday 11 February 2015 at NN Group’s head office, Amstelveenseweg 500, Amsterdam. The press conference will also be webcasted live. You can join in listen-only mode on + 31 20 531 5863 or watch the webcast on www.nn-group.com.
Publication 1Q15 results: Thursday, 7 May 2015 (provisional)
Annual General Meeting: Thursday, 28 May 2015
Publication 2Q15 results: Wednesday 5 August 2015 (provisional)
Publication 3Q15 results: Wednesday 4 November 2015 (provisional)
Important legal information
NN Group’s Annual Accounts are prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS-EU”). In preparing the financial information in this document, the same accounting principles are applied as in the NN Group N.V. condensed consolidated interim financial information for the period ended 30 June 2014. The Annual Accounts for 2014 are in progress and may be subject to adjustments from subsequent events. All figures in this document are unaudited. Small differences are possible in the tables due to rounding. Certain of the statements contained herein are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation: (1) changes in general economic conditions, in particular economic conditions in NN Group’s core markets, (2) changes in performance of financial markets, including developing markets, (3) consequences of a potential (partial) break-up of the euro, (4) the implementation of the EC Restructuring Plan, (5) changes in the availability of, and costs associated with, sources of liquidity as well as conditions in the credit markets generally, (6) the frequency and severity of insured loss events, (7) changes affecting mortality and morbidity levels and trends, (8) changes affecting persistency levels, (9) changes affecting interest rate levels, (10) changes affecting currency exchange rates, (11) changes in investor, customer and policyholder behaviour, (12) changes in general competitive factors, (13) changes in laws and regulations, (14) changes in the policies of governments and/or regulatory authorities, (15) conclusions with regard to accounting assumptions and methodologies, (16) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, (17) changes in credit and financial strength ratings, (18) NN Group’s ability to achieve projected operational synergies and (19) the other risks and uncertainties detailed in the Risk Factors section contained in recent public disclosures made by NN Group and/or related to NN Group (such as the most recent annual report of ING Groep N.V.). Any forward-looking statements made by or on behalf of NN Group speak only as of the date they are made, and, NN Group assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities.