Quarterly Report • Nov 5, 2014
Quarterly Report
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"NN Group delivered a set of strong results demonstrating progress towards our medium term objectives. As part of the listing process resulting in the IPO of NN Group on 2 July, we presented our strategic financial objectives in June this year with a focus on capital generation and earnings improvement.
Our capital position remains strong, mainly supported by capital generation from operating entities, a pre-IPO capital injection and favourable markets. At the same time, we continue to reduce expenses. With the successful implementation of the transformation programme in the Netherlands we are on track to meet our EUR 200 million expense reduction target by 2016, with realised cost reductions of EUR 108 million this year so far.
The core of our strategy is to deliver an excellent customer experience. Our continued strong new sales growth in all regions underscores the dedication of our employees to keep our customers at the heart of everything we do. This is demonstrated by the increased sales in Japan Life, Insurance Europe, NN Bank and the pension business in the Netherlands.
Although we are still at the beginning of our journey as an independent company we are pleased with the strong performance and the progress we have made so far on delivering on our strategic objectives."
| In EUR million | 3Q14 | 3Q13 | Change | 9M14 | 9M13 | Change |
|---|---|---|---|---|---|---|
| Operating result ongoing business | 274 | 235 | 16.6% | 826 | 685 | 20.6% |
| Net result | 354 | −652 | 391 | 479 | −18.4% | |
| Net operating ROE | 8.3% | 8.3% | 8.9% | 9.4% | ||
| IGD Solvency I ratio | 283% | 208% | 283% | 208% | ||
| New sales life insurance (APE) | 307 | 272 | 12.9% | 1,051 | 935 | 12.4% |
| Investment Management AuM (End of period, in EUR billion) | 180 | 176 | 2.3% | 180 | 176 | 2.3% |
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 required, and by maintaining effective operations that deliver an excellent customer service. The strategic financial objectives are to generate capital and improve earnings. The year-to-date results demonstrate the initial progress made in delivering these. Improved operating results are supported by significantly reduced expenses. The strong commercial performance is demonstrated by sales growth across the group.
In the Netherlands Life segment, expenses are in part driven by the positive impact of the transformation programme in the Netherlands. The investment margin increased due to higher dividends on private equity, the shift to higher-yielding assets and higher invested volumes. New sales (APE) continued to grow driven by pension contract renewals. The capital position of NN Life remains strong with a Solvency I ratio of 252%. The strong position in the pension market has recently been recognized by Dutch business magazine Management Team. Their annual survey among managers ranks Nationale-Nederlanden first in pensions and second in insurance.
The successful reduction of expenses related to the transformation programme in the Netherlands also contributed to an increased operating result in the Netherlands Non-life segment. The operating result for Property & Casualty (P&C) suffered from a negative claims development, while in Disability & Accident (D&A) the results improved due to management actions to restore profitability and a favourable claims development.
Insurance Europe is moving its business mix towards protection products as well as repositioning its retirement services towards solutions that provide customers with downside protection in the low interest rate environment. The operations continue to increase retention and new business through an improved customer experience. The year-to-date sales increased 10.8% (excluding currency effects) supported by higher life sales in most countries. At the same time, the year-to-date expenses decreased.
Japan Life has increased its agency productivity and diversified its distribution channels by substantially expanding its bancassurance channel (recruiting 10 new bank distribution partners this year). Together with the more positive sentiment created by the steady economic recovery in Japan this resulted in substantially higher new sales with a year-to-date increase of 21.2%, excluding currency effects.
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. Assets under management increased to EUR 180 billion this quarter driven by favourable market performance. After a successful tender process, Investment Management has been appointed as one of the four parties to conduct the Asset-Backed Securities Purchase Programme of the European Central Bank. This mandate is a recognition of the expertise of Investment Management in Asset-Backed Securities trading.
NN Bank's mortgage portfolio increased to EUR 7.4 billion from EUR 6.2 billion at the beginning of this year in line with its strategy. This increase is the result of new production and the transfer of ING Bank mortgages, partly offset by the sale of mortgages to NN Life. NN Bank continues to build its product offering in the Netherlands with the introduction of a consumer lending product in February of this year and a credit card in October. As part of our corporate citizenship programme that focuses on improving people's financial well-being, NN Bank donates 10 eurocent for each credit card transaction to the Linda Foundation, a charity that helps (single-parent) families in financial distress. Consumer savings continued to grow by offering competitive rates and attractive products, leading to total customer deposits of EUR 6.6 billion at the end of the third quarter.
| In EUR million | 3Q2014 | 3Q20131) | Change | 9M14 | 9M131) | Change |
|---|---|---|---|---|---|---|
| Operating result | ||||||
| Netherlands Life | 152 | 175 | −13.1% | 458 | 517 | −11.4% |
| Netherlands Non-life | 32 | 28 | 14.3% | 93 | 67 | 38.8% |
| Insurance Europe | 45 | 57 | −21.1% | 135 | 152 | −11.2% |
| Japan Life | 37 | 34 | 8.8% | 128 | 147 | −12.9% |
| Investment Management | 41 | 31 | 32.3% | 117 | 103 | 13.6% |
| Other | −33 | −89 | −106 | −300 | ||
| Operating result ongoing business | 274 | 235 | 16.6% | 826 | 685 | 20.6% |
| Non-operating items ongoing business | 123 | −56 | 105 | −112 | ||
| of which gains/losses and impairments | 9 | 16 | −33 | 68 | ||
| of which revaluations | 38 | −1 | 122 | −12 | ||
| of which market & other impacts | 76 | −71 | 16 | −168 | ||
| Japan Closed Block VA | 89 | 106 | 132 | 171 | ||
| Insurance Other | 0 | −4 | 0 | −14 | ||
| Special items before tax | −32 | −56 | −629 | −98 | ||
| Result on divestments | 4 | 7 | 60 | 36 | ||
| Result before tax from continuing operations | 458 | 232 | 97.4% | 493 | 669 | −26.3% |
| Taxation | 86 | 82 | 4.9% | 71 | 192 | −63.0% |
| Net result from continuing operations | 371 | 150 | 147.3% | 422 | 477 | −11.5% |
| Net result from discontinued operations | −3 | −752 | −16 | 3 | ||
| Minority interests | 14 | 51 | 15 | 1 | ||
| Net result | 354 | −652 | 391 | 479 | −18.4% | |
| Net result per share in EUR | 1.01 |
| In EUR million | 3Q2014 | 3Q20131) | Change | 9M14 | 9M131) | Change |
|---|---|---|---|---|---|---|
| Ongoing business | ||||||
| Gross premium income | 2,047 | 1,959 | 4.5% | 7,513 | 7,608 | −1.2% |
| New sales life insurance (APE) | 307 | 272 | 12.9% | 1,051 | 935 | 12.4% |
| Total administrative expenses | 427 | 438 | −2.5% | 1,303 | 1,345 | −3.1% |
| Cost/income ratio (Administrative expenses/Operating income) | 35.6% | 36.5% | 35.7% | 36.7% | ||
| Combined ratio (Netherlands Non-life)2) | 99.6% | 97.4% | 99.4% | 100.8% | ||
| Investment Management Assets under Management3) | 180 | 176 | 2.3% | 180 | 176 | 2.3% |
| Life general account invested assets3) | 78 | 75 | 4.0% | 78 | 75 | 4.0% |
| Investment margin/Life general account invested assets (bps)3)4) | 90 | 93 | ||||
| Total provisions for insurance & investment contracts3) | 104 | 97 | 7.2% | 104 | 97 | 7.2% |
| of which for risk policyholder3) | 27 | 25 | 8.0% | 27 | 25 | 8.0% |
| NN Life Solvency I ratio5) | 252% | 183% | 252% | 183% | ||
| Net operating ROE6) | 8.3% | 8.3% | 8.9% | 9.4% | ||
| Japan Closed Block VA | ||||||
| Account value | 14,313 | 15,792 | −9.4% | 14,313 | 15,792 | −9.4% |
| Number of policies | 317,316 | 357,904 | −11.3% | 317,316 | 357,904 | −11.3% |
| Total NN Group | ||||||
| IGD Solvency I ratio5) | 283% | 208% | 283% | 208% | ||
| Total assets3) | 160 | 150 | 6.7% | 160 | 150 | 6.7% |
| Shareholders' equity | 18,344 | 14,719 | 24.6% | 18,344 | 14,719 | 24.6% |
| Employees (FTEs, end of period) | 11,854 | 12,519 | −5.3% | 11,854 | 12,519 | −5.3% |
1) The figures of this period have been restated to reflect the change in accounting policy, i.e., the move towards fair value accounting for Guaranteed Minimum Death Benefits reserves of the Japan Closed Block VA segment as of 1 January 2014
2) Excluding Mandema and Zicht broker businesses
3) End of period, in EUR billion
4) Four-quarter rolling average
5) The 30 September 2014 solvency ratios are not final until filed with the regulators
6) Net operating ROE is calculated as the (annualised) net operating result of the ongoing business, adjusted for the accrued coupon on undated notes classified in equity, divided by the average allocated equity of the ongoing business adjusted for revaluation reserves and excluding undated notes classified in equity
Note: Operating results are non-GAAP measures. These are derived from figures according to IFRS-EU by excluding impact from divestments, discontinued operations and special items, gains/losses and impairments, revaluations and market & other impacts
The operating result of the ongoing business was EUR 274 million, up 16.6% from the third quarter of 2013, mainly reflecting lower administrative expenses in the Netherlands and lower funding costs as well as improved results from Investment Management and NN Bank. Japan Life and Netherlands Non-life also contributed to the increase in operating result, partly offset by lower results in Netherlands Life and Insurance Europe.
Total administrative expenses of the ongoing business were EUR 427 million, down 2.1% excluding currency effects from the third quarter of 2013. Administrative expenses in the Netherlands decreased in line with the target to reduce administrative expenses in Netherlands Life, Netherlands Non-life and corporate/holding entities by EUR 200 million by 2016, compared with 2013. On a year-to-date basis, cost reductions of EUR 108 million were realised, of which EUR 14 million by Netherlands Life, EUR 32 million by Netherlands Non-life and EUR 62 million by corporate/holding entities.
This year, NN Group successfully issued two subordinated loans in a favourable fixed income market and thereby secured attractive funding costs. In combination with reduced debt levels, this translated into lower funding costs for the company.
Investment Management's operating result improved due to higher fee income as AuM grew, while increased mortgage production and higher customer savings led to a higher net interest margin at NN Bank. The operating result of Japan Life increased 15.6% excluding currency effects, largely driven by higher fees and premium-based revenues on strong sales and larger in-force volumes. The operating result for Netherlands Non-life increased on the back of improved Disability & Accident (D&A) results, partly offset by a lower operating result for Property & Casualty (P&C) mainly in the Motor portfolio.
The lower results in Netherlands Life were caused by a lower technical margin and lower fees and premium-based revenues, partly offset by a higher investment margin. Insurance Europe's operating result decreased as a result of a lower investment margin and higher DAC amortisation.
In the first nine months of 2014, the operating result of the ongoing business increased to EUR 826 million from EUR 685 million in the same period last year, reflecting lower administrative expenses and lower funding costs. Improved results at Netherlands Non-life, NN Bank, the reinsurance business and Investment Management also contributed to the increase. This was partly offset by lower operating income in Netherlands Life and Insurance Europe, as well as currency impacts at Japan Life.
The result before tax from continuing operations increased to EUR 458 million compared with EUR 232 million in the third quarter of 2013. This increase was driven by a EUR 179 million improvement in non-operating items and by the higher operating result ongoing business.
Gains/losses and impairments were EUR 9 million compared with EUR 16 million in the third quarter of 2013. The current quarter reflects gains on private and public equity partly offset by impairments on real estate investments.
Revaluations amounted to EUR 38 million, compared with EUR -1 million in the third quarter of 2013. The current quarter reflects positive revaluations on private equity and real estate investments.
Market and other impacts amounted to EUR 76 million compared with EUR -71 million a year ago. The result in the current quarter includes a EUR 52 million refund received from the guarantee fund in Poland, which was discontinued as per 1 July 2014 as a result of the pension reforms. It also reflects EUR 25 million of positive market movements on separate account pension contract related assets in Netherlands Life.
The result before tax of Japan Closed Block VA was EUR 89 million compared with EUR 106 million a year ago. The current quarter includes a one-off reserve decrease of EUR 63 million from higher lapse assumptions, reflecting the higher observed lapse experience on out-of-the-money policies. The result before tax in the third quarter of 2013 benefited from positive hedge results.
The Insurance Other segment ceased to exist as of 1 January 2014. The EUR 4 million loss in the third quarter of 2013 related to shareholder expenses of ING Group that were allocated to NN Group.
Special items before tax amounted to EUR -32 million compared with EUR -56 million in the third quarter of 2013. The special items in the current quarter relate to the transformation programme in the Netherlands and a writeoff of capitalised expenses at Insurance Europe.
In the first nine months of 2014, the result before tax from continuing operations decreased to EUR 493 million compared with EUR 669 million in the same period last year. This decrease reflects the EUR -541 million impact of the agreement to make ING's closed defined benefit pension plan in the Netherlands financially independent, recognised as a special item in the first quarter of 2014. This was partly compensated by a EUR 141 million higher operating result of the ongoing business and a EUR 217 million improvement in the non-operating items.
The net result from continuing operations improved to EUR 371 million from EUR 150 million in the third quarter of 2013. The effective tax rate in the third quarter of 2014 was 19%.
The net result from discontinued operations was EUR -3 million versus EUR -752 million in the third quarter last year which included the EUR 950 million loss on the sale of ING Life Korea, partly compensated by a EUR 198 million operating result of the discontinued operations in the US and Asia.
Total new sales (APE) at NN Group were EUR 307 million, up 17.2% from the third quarter of 2013 on a constant currency basis. Sales grew 20.3% in Japan Life, driven by the continued economic recovery, higher agency productivity and channel diversification. At Insurance Europe sales grew 6.6% as a result of higher life sales across the region. APE rose 35.3% in Netherlands Life, reflecting higher pension renewals as well as a pension buy-out. In the first nine months of 2014, total new sales amounted to EUR 1,051 million, up 19.9% from a year ago on a constant currency basis, driven by higher sales in Netherlands Life (36.8%), Insurance Europe (10.8%) and Japan Life (21.2%).
The net operating ROE for the ongoing business of NN Group remained stable at 8.3% compared with the third quarter of 2013. While the net operating result improved in the current quarter, the adjusted average allocated equity base also increased following the EUR 1 billion debt-to-equity conversion at the end of the fourth quarter of 2013 and a EUR 850 million capital injection from ING Group in the second quarter of 2014.
For the first nine months of 2014, the net operating ROE for the ongoing business of NN Group decreased to 8.9% from 9.4% in the same period of 2013 as the increase of the adjusted average allocated equity base from the aforementioned capital transactions was proportionally higher than the growth of the net operating result.
| In EUR million | 3Q14 | 3Q13 | Change | 9M14 | 9M13 | Change |
|---|---|---|---|---|---|---|
| Margin analysis | ||||||
| Investment margin | 154 | 133 | 15.8% | 455 | 412 | 10.4% |
| Fees and premium-based revenues | 92 | 111 | −17.1% | 309 | 367 | −15.8% |
| Technical margin | 17 | 56 | −69.6% | 87 | 154 | −43.5% |
| Operating income non-modelled business | 0 | 0 | 0 | 0 | ||
| Operating income | 263 | 301 | −12.6% | 851 | 933 | −8.8% |
| Administrative expenses | 98 | 110 | −10.9% | 343 | 358 | −4.2% |
| DAC amortisation and trail commissions | 14 | 16 | −12.5% | 50 | 58 | −13.8% |
| Expenses | 111 | 126 | −11.9% | 393 | 416 | −5.5% |
| Operating result | 152 | 175 | −13.1% | 458 | 517 | −11.4% |
| Non-operating items | 63 | −102 | 27 | −187 | ||
| of which gains/losses and impairments | 4 | −37 | −62 | −25 | ||
| of which revaluations | 34 | 6 | 116 | 6 | ||
| of which market & other impacts | 25 | −71 | −27 | −168 | ||
| Special items before tax | 4 | −16 | −343 | −36 | ||
| Result on divestments | 0 | 0 | 0 | 0 | ||
| Result before tax | 218 | 57 | 282.5% | 142 | 294 | −51.7% |
| Taxation | 36 | 15 | 140.0% | −10 | 56 | −117.9% |
| Minority interests | 4 | 1 | 2 | 2 | ||
| Net result | 179 | 41 | 336.6% | 151 | 236 | −36.0% |
| New business figures | ||||||
| Single premiums | 224 | 120 | 86.7% | 550 | 431 | 27.6% |
| Regular premiums | 23 | 22 | 4.5% | 168 | 120 | 40.0% |
| New sales life insurance (APE) | 46 | 34 | 35.3% | 223 | 163 | 36.8% |
| Key figures | ||||||
| Gross premium income | 574 | 527 | 8.9% | 2,593 | 2,666 | −2.7% |
| Total administrative expenses | 98 | 110 | −10.9% | 343 | 358 | −4.2% |
| Cost/income ratio (Administrative expenses/Operating income) | 37.3% | 36.5% | 40.3% | 38.4% | ||
| Life general account invested assets1) | 57 | 53 | 7.5% | 57 | 53 | 7.5% |
| Investment margin/Life general account invested assets (bps)1)2) | 108 | 109 | ||||
| Total provisions for insurance & investment contracts1) | 71 | 65 | 9.2% | 71 | 65 | 9.2% |
| of which for risk policyholder1) | 20 | 17 | 17.6% | 20 | 17 | 17.6% |
| Allocated equity (end of period) | 12,386 | 9,764 | 26.9% | 12,386 | 9,764 | 26.9% |
| Net operating ROE | 7.6% | 8.1% | 7.8% | 8.4% | ||
| NN Life Solvency I ratio3) | 252% | 183% | 252% | 183% | ||
| Employees (FTEs, end of period) | 2,314 | 2,602 | −11.1% | 2,314 | 2,602 | −11.1% |
1) End of period, in EUR billion
2) Four-quarter rolling average
3) The 30 September 2014 solvency ratio is not final until filed with the regulators
The operating result of Netherlands Life decreased to EUR 152 million from EUR 175 million in the third quarter of 2013. This was largely the result of lower fees and premium-based revenues and a lower technical margin, partly offset by a higher investment margin.
The investment margin increased to EUR 154 million from EUR 133 million a year ago, reflecting EUR 20 million higher dividends on private equity and fixed income funds. The positive effects of an increased allocation to higher-yielding assets and higher invested volumes also contributed to the increase. These effects were partly offset by EUR 14 million in interest expenses on two subordinated loans provided by NN Group to NN Life.
Fees and premium-based revenues decreased to EUR 92 million from EUR 111 million in the third quarter of 2013. The individual life closed book run-off, and the structural lower fee income on the unit-linked portfolio accounted for EUR 9 million of the year-on-year decline. In addition premium-based revenues on pension products in the third quarter of 2013 were supported by non-recurring effects.
The technical margin decreased to EUR 17 million from EUR 56 million in the third quarter of 2013. The current quarter reflects a EUR 13 million increase in unit-linked guarantee provisions due to a decrease in interest rates. The current quarter also includes a EUR 18 million one-off negative impact related to a legacy book of paid-up pension contracts, as well as an addition of EUR 5 million to a provision for transferring liabilities to industry wide pension funds, as a consequence of increased coverage ratios for the respective funds. The technical margin was supported by morbidity provision releases following assumption updates of EUR 20 million in the current quarter, and EUR 18 million in the third quarter of 2013.
Administrative expenses were EUR 98 million, down 10.9% compared with the third quarter of last year. The current quarter benefited from a EUR 11 million reallocation of expenses related to personnel provisions for retired personnel in the Netherlands to the segment 'Other'. Excluding the reallocation, the administrative expenses were down 0.9% compared with the third quarter of last year.
DAC amortisation and trail commissions decreased to EUR 14 million from EUR 16 million a year ago, reflecting the gradual run-off of the individual life closed book and regulatory changes.
The result before tax was EUR 218 million compared with EUR 57 million in the third quarter of 2013, benefitting from higher non-operating items. Gains/losses and impairments were EUR 4 million, reflecting gains on private equity, partly offset by impairments on real estate investments. Revaluations were EUR 34 million, driven by positive revaluations on private equity and real estate investments. Market and other impacts were EUR 25 million, supported by the positive impact of market movements on separate account pension contract related assets.
New sales (APE) increased to EUR 46 million from EUR 34 million in the third quarter of last year, driven by higher pension contracts renewals and a pension buy-out.
In the first nine months of 2014 Netherlands Life's operating result before tax decreased to EUR 458 million from EUR 517 million in the same period last year, impacted by a lower technical margin and lower fees and premiumbased revenues. The technical margin was adversely impacted by the movement in the unit-linked guarantee provisions; these provisions increased by EUR 23 million in the first nine months of 2014 following a decrease in interest rates, whereas the first nine months of 2013 benefited from a decrease of EUR 21 million in these unitlinked guarantee provisions due to an increase in interest rates. In addition, the technical margin in the first nine months of 2014 includes a EUR 18 million one-off negative impact on a legacy book of paid-up pension contracts. The lower fees and premium-based revenues reflect the individual life closed book run-off and structural lower fee income on the unit-linked portfolio. In addition, premium-based revenues on pension products in the first nine months of 2013 were supported by non-recurring effects. These items were partly compensated by a higher investment margin driven by the increased allocation to higher-yielding assets and higher invested volumes, as well as lower administrative expenses.
In the first nine months of 2014 the result before tax was EUR 142 million compared with EUR 294 million a year ago. The 2014 result included a EUR -322 million special item related to the agreement to make ING's closed defined benefit pension plan in the Netherlands financially independent. This was partially mitigated by a significant improvement in the non-operating items to EUR 27 million compared with EUR -187 million in the first nine months of 2013, driven by higher revaluations and a lower negative impact of the separate account pension business.
| In EUR million | 3Q14 | 3Q13 | Change | 9M14 | 9M13 | Change |
|---|---|---|---|---|---|---|
| Margin analysis | ||||||
| Earned premiums | 380 | 385 | −1.3% | 1,148 | 1,163 | −1.3% |
| Investment income | 27 | 26 | 3.8% | 83 | 86 | −3.5% |
| Other income | 2 | −12 | 0 | −14 | ||
| Operating income | 409 | 399 | 2.5% | 1,231 | 1,234 | −0.2% |
| Claims incurred, net of reinsurance | 264 | 255 | 3.5% | 790 | 798 | −1.0% |
| Acquisition costs | 61 | 60 | 1.7% | 187 | 184 | 1.6% |
| Administrative expenses | 54 | 60 | −10.0% | 165 | 189 | −12.7% |
| Acquisition costs and administrative expenses | 114 | 120 | −5.0% | 351 | 373 | −5.9% |
| Expenditure | 379 | 375 | 1.1% | 1,141 | 1,172 | −2.6% |
| Operating result insurance businesses | 30 | 24 | 25.0% | 89 | 62 | 43.5% |
| Operating result broker businesses | 1 | 3 | −66.7% | 4 | 5 | −20.0% |
| Total operating result | 32 | 28 | 14.3% | 93 | 67 | 38.8% |
| Non-operating items | 3 | −2 | 10 | −4 | ||
| of which gains/losses and impairments | 1 | −2 | −3 | −4 | ||
| of which revaluations | 2 | 0 | 14 | 0 | ||
| of which market & other impacts | 0 | 0 | 0 | 0 | ||
| Special items before tax | −3 | −5 | −91 | −22 | ||
| Result on divestments | 0 | 0 | 0 | 0 | ||
| Result before tax | 32 | 21 | 52.4% | 13 | 42 | −69.0% |
| Taxation | 6 | 5 | 20.0% | −3 | 9 | −133.3% |
| Minority interests | 0 | 0 | 0 | 0 | ||
| Net result | 26 | 16 | 62.5% | 15 | 33 | −54.5% |
| Key figures | ||||||
| Gross premium income | 280 | 285 | −1.8% | 1,327 | 1,341 | −1.0% |
| Total administrative expenses | 71 | 80 | −11.3% | 218 | 250 | −12.8% |
| Combined ratio1) | 99.6% | 97.4% | 99.4% | 100.8% | ||
| of which Claims ratio1) | 69.5% | 66.3% | 68.8% | 68.7% | ||
| of which Expense ratio1) | 30.1% | 31.1% | 30.6% | 32.1% | ||
| Total insurance provisions2) | 3 | 3 | 0.0% | 3 | 3 | 0.0% |
| Allocated equity (end of period) | 704 | 700 | 0.6% | 704 | 700 | 0.6% |
| Net operating ROE | 25.8% | 16.1% | 22.1% | 16.5% | ||
| Employees (FTEs, end of period) | 1,752 | 2,029 | −13.7% | 1,752 | 2,029 | −13.7% |
1) Excluding Mandema and Zicht broker businesses
2) End of period, in EUR billion
The operating result of Netherlands Non-life increased to EUR 32 million from EUR 28 million in the third quarter of last year, driven by a EUR 9 million reduction in total administrative expenses to EUR 71 million. Other income in the third quarter of 2013 included a one-off addition to bad debt provisions of EUR 10 million.
The combined ratio for Netherlands Non-life increased from 97.4% to 99.6% as a result of the higher claims experience in P&C and in particular in the Motor portfolio. The combined ratio in the third quarter of 2013 was positively impacted by a non-recurring release of provisions of EUR 15 million.
The operating results in Disability & Accident (D&A) improved further reflecting both a favourable claims development on prior accident years and the effects of management actions to restore profitability in the Disability portfolio, including premium rate increases and more stringent underwriting criteria. The third-quarter combined ratio of D&A improved to 95.7% from 98.7% a year ago.
The operating result for Property & Casualty (P&C) declined as the Motor portfolio suffered from a negative development in bodily injury claims leading to negative results on prior accident years. The current quarter also included weather-related claims in the Netherlands in Fire. The combined ratio of P&C increased to 102.6% from 96.3% in the third quarter a year ago. The combined ratio of last year was positively impacted by the afore mentioned non-recurring release of provisions.
The operating result of the broker businesses decreased to EUR 1 million from EUR 3 million in the third quarter of 2013 due to lower commission income, partly offset by lower expenses.
The result before tax improved to EUR 32 million from EUR 21 million in the third quarter of last year, driven by the improved operating result and positive revaluations on private equity and real estate investments.
Gross premium income decreased to EUR 280 million from EUR 285 million in the third quarter of 2013, caused by the effects of stricter underwriting and product rationalisation.
In the first nine months of 2014 the operating result of Netherlands Non-life increased to EUR 93 million from EUR 67 million in the same period last year following lower administrative expenses reflecting the transformation programme in the Netherlands. Results in D&A improved, driven by the effects of the recovery plan and favourable claims development. This was partly offset by an unfavourable claims experience in P&C as a result of several large claims in Fire, higher bodily-injury claims in Motor and weather-related claims in the Belgian portfolio in 2014. The combined ratio for the first nine months of 2014 improved to 99.4% from 100.8% in the same period of last year, reflecting lower administrative expenses.
| In EUR million | 3Q14 | 3Q13 | Change | 9M14 | 9M13 | Change |
|---|---|---|---|---|---|---|
| Margin analysis | ||||||
| Investment margin | 21 | 27 | −22.2% | 69 | 80 | −13.8% |
| Fees and premium-based revenues | 131 | 126 | 4.0% | 386 | 374 | 3.2% |
| Technical margin | 53 | 49 | 8.2% | 145 | 143 | 1.4% |
| Operating income non-modelled business | 1 | 5 | −80.0% | 3 | 15 | −80.0% |
| Operating income Life Insurance | 206 | 206 | 0.0% | 603 | 612 | −1.5% |
| Administrative expenses | 77 | 74 | 4.1% | 226 | 233 | −3.0% |
| DAC amortisation and trail commissions | 82 | 77 | 6.5% | 245 | 231 | 6.1% |
| Expenses Life Insurance | 159 | 150 | 6.0% | 471 | 464 | 1.5% |
| Operating result Life Insurance | 47 | 56 | −16.1% | 132 | 148 | −10.8% |
| Non-life operating result | −1 | 1 | 3 | 3 | ||
| Operating result | 45 | 57 | −21.1% | 135 | 152 | −11.2% |
| Non-operating items | 56 | 4 | 66 | 6 | ||
| of which gains/losses and impairments | 5 | 5 | 23 | 8 | ||
| of which revaluations | 0 | −1 | 0 | −2 | ||
| of which market & other impacts | 52 | 0 | 43 | 0 | ||
| Special items before tax | −17 | −2 | −20 | −6 | ||
| Result on divestments | 0 | 0 | 0 | 0 | ||
| Result before tax | 84 | 60 | 40.0% | 181 | 151 | 19.9% |
| Taxation | 16 | 21 | −23.8% | 45 | 43 | 4.7% |
| Minority interests | 10 | 2 | 13 | 6 | ||
| Net result | 58 | 37 | 56.8% | 123 | 102 | 20.6% |
| New business figures | ||||||
| Single premiums | 250 | 240 | 4.2% | 752 | 702 | 7.1% |
| Regular premiums | 88 | 84 | 4.8% | 313 | 300 | 4.3% |
| New sales life insurance (APE) | 113 | 108 | 4.6% | 388 | 370 | 4.9% |
| Key figures | ||||||
| Gross premium income | 577 | 564 | 2.3% | 1,710 | 1,698 | 0.7% |
| Total administrative expenses | 85 | 77 | 10.4% | 240 | 243 | −1.2% |
| Cost/income ratio (Administrative expenses/Operating income) | 37.9% | 34.5% | 36.5% | 36.7% | ||
| Life general account invested assets1) | 12 | 13 | −7.7% | 12 | 13 | −7.7% |
| Investment margin/Life general account invested assets (bps)1)2) | 77 | 86 | ||||
| Total provisions for insurance & investment contracts1) | 19 | 20 | −5.0% | 19 | 20 | −5.0% |
| of which for risk policyholder1) | 8 | 7 | 14.3% | 8 | 7 | 14.3% |
| Assets under management pensions1)3) | 15 | 22 | −31.8% | 15 | 22 | −31.8% |
| Allocated equity (end of period) | 2,091 | 2,024 | 3.3% | 2,091 | 2,024 | 3.3% |
| Net operating ROE | 8.9% | 8.7% | 8.5% | 8.5% | ||
| Employees (FTEs, end of period) | 4,069 | 4,043 | 0.6% | 4,069 | 4,043 | 0.6% |
1) End of period, in EUR billion
2) Four-quarter rolling average
3) The numbers shown under AuM are client balances which exclude IFRS shareholders' equity related to the respective pension businesses and include the assets under administration
The operating result of Insurance Europe was EUR 45 million, down EUR 12 million from the third quarter of 2013, reflecting a lower investment margin and higher DAC amortisation and trail commissions.
The investment margin was EUR 21 million, down from EUR 27 million in the third quarter of 2013 due to lower reinvestment rates and lower invested volumes.
Fees and premium-based revenues improved to EUR 131 million, from EUR 126 million in the third quarter of 2013, especially as a result of higher life sales in Belgium and Spain and higher pension inflows in Romania. The current quarter also reflects the positive impact of the reclassification from operating income non-modelled business to fees and premium-based revenues in Turkey as of the first quarter of 2014. These items were offset by the impact of the pension reforms in Poland which took effect in February 2014.
The technical margin was EUR 53 million, versus EUR 49 million in the third quarter of 2013. The current quarter includes the positive impact of the reclassification from operating income non-modelled business to the technical margin in Turkey, whilst the third quarter of 2013 reflected partial recognition of the crisis tax in Belgium. Excluding these items, the technical margin was flat compared with last year.
Administrative expenses increased to EUR 77 million compared with EUR 74 million in the third quarter of 2013. The increase reflects a EUR 6 million write-off of capitalised IT expenses in Belgium.
DAC amortisation and trail commissions increased to EUR 82 million compared with EUR 77 million in the third quarter of 2013, caused by a EUR 6 million non-recurring write-off of capitalised commissions in Poland.
The result before tax was EUR 84 million and included a EUR 52 million refund received from the guarantee fund in Poland which was discontinued as of 1 July 2014 due to the pension reforms. Special items before tax were EUR - 17 million reflecting write-offs of capitalised project expenses and disentanglement expenses in Belgium.
New sales (APE) were EUR 113 million compared with EUR 108 million in the third quarter of 2013, up 6.6% excluding currency effects, driven by higher life sales across the region. Pension assets under management declined to EUR 15 billion from EUR 22 billion in the third quarter of 2013 reflecting the impact of the pension reforms in Poland.
In the first nine months of 2014 the operating result of Insurance Europe was EUR 135 million compared with EUR 152 million in the same period last year. The lower investment margin and the impact of the pension reforms in Poland, were only partly compensated by higher fees and premium-based revenues. The year-to-date result before tax increased to EUR 181 million from EUR 151 million a year ago. The decrease in operating result was more than offset by the refund of the guarantee fund in Poland.
| In EUR million | 3Q14 | 3Q13 | Change | 9M14 | 9M13 | Change |
|---|---|---|---|---|---|---|
| Margin analysis1) | ||||||
| Investment margin | 0 | 0 | −2 | 6 | ||
| Fees and premium-based revenues | 112 | 107 | 4.7% | 348 | 355 | −2.0% |
| Technical margin | −4 | 1 | 0 | 4 | ||
| Operating income non-modelled business | 0 | 0 | 0 | 0 | ||
| Operating income | 108 | 108 | 0.0% | 346 | 366 | −5.5% |
| Administrative expenses | 23 | 27 | −14.8% | 71 | 78 | −9.0% |
| DAC amortisation and trail commissions | 48 | 47 | 2.1% | 147 | 141 | 4.3% |
| Expenses | 70 | 74 | −5.4% | 218 | 219 | −0.5% |
| Operating result | 37 | 34 | 8.8% | 128 | 147 | −12.9% |
| Non-operating items | 0 | 23 | −3 | 32 | ||
| of which gains/losses and impairments | −3 | 25 | −2 | 43 | ||
| of which revaluations | 2 | −2 | −1 | −10 | ||
| of which market & other impacts | 0 | 0 | 0 | 0 | ||
| Special items before tax | 0 | 0 | 0 | 0 | ||
| Result on divestments | 0 | 0 | 0 | 0 | ||
| Result before tax | 37 | 56 | −33.9% | 125 | 179 | −30.2% |
| Taxation | 13 | 21 | −38.1% | 43 | 64 | −32.8% |
| Minority interests | 0 | 0 | 0 | 0 | ||
| Net result | 25 | 36 | −30.6% | 82 | 115 | −28.7% |
| New business figures1) | ||||||
| Single premiums | 9 | 31 | −71.0% | 40 | 103 | −61.2% |
| Regular premiums New sales life insurance (APE) |
147 148 |
127 130 |
15.7% 13.8% |
436 440 |
392 403 |
11.2% 9.2% |
| Key figures1) | ||||||
| Gross premium income | 607 | 574 | 5.7% | 1,861 | 1,877 | −0.9% |
| Total administrative expenses | 23 | 27 | −14.8% | 71 | 78 | −9.0% |
| Cost/income ratio (Administrative expenses/Operating income) | 21.3% | 25.0% | 20.5% | 21.3% | ||
| Life general account invested assets2) | 9 | 9 | 0.0% | 9 | 9 | 0.0% |
| Total provisions for insurance & investment contracts2) | 8 | 8 | 0.0% | 8 | 8 | 0.0% |
| of which for risk policyholder2) | 0 | 0 | 0 | 0 | ||
| Allocated equity (end of period) | 1,496 | 1,315 | 13.8% | 1,496 | 1,315 | 13.8% |
| Net operating ROE | 8.4% | 7.7% | 9.8% | 10.2% | ||
| Employees (FTEs, end of period) | 628 | 657 | −4.4% | 628 | 657 | −4.4% |
1) JPY/EUR average quarterly fx rates: 137.82 (3Q2014), 130.24 (3Q2013) and JPY/EUR end of period fx rates: 138.12 (3Q2014), 131.83 (3Q2013)
2) End of period, in EUR billion
The operating result of Japan Life was EUR 37 million compared with EUR 34 million in the third quarter of 2013 (up 15.6% excluding currency effects), reflecting higher fees and premium-based revenues.
Fees and premium-based revenues were EUR 112 million, up 10.9% year-on-year excluding currency effects, driven by higher sales and larger in-force volumes.
The technical margin decreased to EUR -4 million from EUR 1 million in the third quarter of 2013 due to a lower result on surrenders, partially offset by improved mortality results.
Administrative expenses decreased to EUR 23 million, down 11.5% compared with the third quarter of 2013 excluding currency effects, owing to a EUR 6 million one-off benefit from a change in pension liability, partially offset by higher head office charges.
DAC amortisation and trail commissions were EUR 48 million, up 9.1% compared with the third quarter of 2013, excluding currency effects, due to higher premium income.
The result before tax decreased to EUR 37 million from EUR 56 million in the third quarter of 2013, as the third quarter in 2013 benefitted from EUR 25 million in capital gains from the sale of fixed income investments.
New sales (APE) increased to EUR 148 million, up 20.3% from last year, excluding currency effects, driven by the continued economic recovery in Japan, higher agency productivity and channel diversification.
In the first nine months of 2014 the operating result of Japan Life was EUR 128 million compared with EUR 147 million in 2013 (down 2.3% excluding currency effects), reflecting a decrease in both the investment margin and technical margin. Fees and premium-based revenues increased 9.0%, excluding currency effects, driven by higher sales and larger in-force volumes, partially offset by higher DAC amortisation and trail commissions.
| In EUR million | 3Q14 | 3Q13 | Change | 9M14 | 9M13 | Change |
|---|---|---|---|---|---|---|
| Margin analysis | ||||||
| Investment income | 0 | 0 | 0 | 1 | ||
| Fees | 123 | 107 | 15.0% | 357 | 333 | 7.2% |
| Operating income | 123 | 108 | 13.9% | 357 | 334 | 6.9% |
| Administrative expenses | 82 | 76 | 7.9% | 240 | 231 | 3.9% |
| Operating result | 41 | 31 | 32.3% | 117 | 103 | 13.6% |
| Non-operating items | 0 | 0 | 0 | 0 | ||
| of which gains/losses and impairments | 0 | 0 | 0 | 0 | ||
| of which revaluations | 0 | 0 | 0 | 0 | ||
| of which market & other impacts | 0 | 0 | 0 | 0 | ||
| Special items before tax | 0 | 0 | −122 | 0 | ||
| Result on divestments | −2 | 0 | −2 | 0 | ||
| Result before tax | 38 | 31 | 22.6% | −7 | 103 | −106.8% |
| Taxation | 9 | 8 | 12.5% | −4 | 26 | −115.4% |
| Minority interests | 0 | 0 | 0 | 0 | ||
| Net result1) | 29 | 23 | 26.1% | −3 | 77 | −103.9% |
| Key figures | ||||||
| Total administrative expenses | 82 | 76 | 7.9% | 240 | 231 | 3.9% |
| Cost/income ratio (Administrative expenses/Operating income) | 66.7% | 70.4% | 67.2% | 69.2% | ||
| Net inflow Assets under Management (in EUR billion) | −2 | 0 | −11 | −7 | ||
| Assets under Management2) | 180 | 176 | 2.3% | 180 | 176 | 2.3% |
| Fees/average Assets under Management (bps) | 27 | 24 | 27 | 25 | ||
| Allocated equity (end of period) | 386 | 358 | 7.8% | 386 | 358 | 7.8% |
| Net operating ROE | 32.9% | 26.3% | 32.9% | 28.0% | ||
| Employees (FTEs, end of period) | 1,135 | 1,144 | −0.8% | 1,135 | 1,144 | −0.8% |
1) Excluding the Net result from discontinued operations
2) End of period, in EUR billion
| In EUR billion | 3Q2014 | 9M2014 |
|---|---|---|
| AUM rollforward | ||
| Beginning of period | 177 | 174 |
| Net inflow | −2 | −11 |
| Acquisition / Divestments | 0 | 2 |
| Market performance (incl. FX Impact) and Other | 5 | 15 |
| End of period | 180 | 180 |
Total assets under management (AuM) for Investment Management were EUR 180 billion at the end of the third quarter of 2014, up from EUR 177 billion at the end of the second quarter. The increase in the current quarter reflects strong market performance, which more than offset net outflows from pension funds in the Netherlands. Total AuM at the end of the third quarter were up 3.4% from EUR 174 billion at the end of 2013, driven by positive market performance which was largely offset by the partial outflow of assets managed for the ING Pension Fund in the first quarter of 2014.
The operating result increased to EUR 41 million in the third quarter of 2014 from EUR 31 million in the third quarter of 2013 (up 32.3%) as a result of higher income, to some extent offset by higher expenses.
Fees were EUR 123 million, up 15.0% compared with the third quarter of 2013, as a result of higher AuM and a more favourable asset mix, as well as the introduction of a fixed service fee in the Netherlands as of January 2014.
Administrative expenses were EUR 82 million, up 7.9% from the third quarter of last year due to the introduction of a fixed service fee in 2014 (with an offsetting impact in fees), higher IT expenses and higher pension costs.
The result before tax was EUR 38 million, up 22.6% from the third quarter of 2013, following the higher operating result.
In the first nine months of 2014, the operating result of Investment Management was EUR 117 million, up 13.6% compared with EUR 103 million for the same period in 2013. Positive market performance led to higher AuM and higher income, which was partly offset by higher expenses. Administrative expenses in the first two quarters of 2014 benefited from EUR 10 million in personnel provision releases.
| In EUR million | 3Q14 | 3Q13 | Change | 9M14 | 9M13 | Change |
|---|---|---|---|---|---|---|
| Margin analysis | ||||||
| Interest on hybrids and debt | −28 | −46 | −96 | −134 | ||
| Investment income and fees | 16 | 2 | 35 | 8 | ||
| Holding expenses | −40 | −44 | −99 | −137 | ||
| Amortisation of intangible assets | −2 | −2 | −5 | −5 | ||
| Holding result | −53 | −90 | −165 | −267 | ||
| Operating result reinsurance business | 2 | 0 | 27 | −20 | ||
| Operating result NN Bank | 13 | 3 | 20 | −10 | ||
| Other results | 6 | −1 | 13 | −2 | ||
| Operating result | −33 | −89 | −106 | −300 | ||
| Non-operating items | 1 | 20 | 4 | 41 | ||
| of which gains/losses and impairments | 1 | 25 | 11 | 46 | ||
| of which revaluations | 0 | −5 | −7 | −5 | ||
| of which market & other impacts | 0 | 0 | 0 | 0 | ||
| Special items before tax | −17 | −33 | −53 | −34 | ||
| Result on divestments | 6 | 1 | 6 | −58 | ||
| Result before tax | −42 | −100 | −149 | −351 | ||
| Taxation | −10 | −15 | −21 | −50 | ||
| Minority interests | 0 | 0 | 0 | 0 | ||
| Net result | −32 | −85 | −128 | −300 | ||
| Key figures | ||||||
| Total administrative expenses | 70 | 67 | 4.5% | 190 | 185 | 2.7% |
| of which reinsurance business | 3 | 3 | 0.0% | 9 | 9 | 0.0% |
| of which NN Bank | 26 | 16 | 62.5% | 81 | 28 | |
| NN Bank common equity Tier 1 ratio phased in | 14.6% | 21.4% | 14.6% | 21.4% | ||
| Total assets NN Bank1) | 8 | 7 | 14.3% | 8 | 7 | 14.3% |
| Total provisions for insurance and investment contracts1) | 1 | 1 | 0.0% | 1 | 1 | 0.0% |
| Employees (FTEs, end of period) | 1,875 | 1,929 | −2.8% | 1,875 | 1,929 | −2.8% |
1) End of period, in EUR billion
The operating result of the segment 'Other' improved to EUR -33 million from EUR -89 million in the third quarter of 2013. The year-on-year improvement reflects lower funding costs, higher investment income and a higher operating result at NN Bank.
The holding result improved to EUR -53 million compared with EUR -90 million in the third quarter of 2013. Interest costs on hybrids and debt were EUR 18 million lower following the refinancing of loans and a EUR 1 billion debt-to-equity conversion in December of last year. The decrease in interest costs was also due to the redemption of hybrid debt using the proceeds of the undated subordinated notes issued in July this year, classified as equity under IFRS. The coupon payments on these notes of EUR 11 million per quarter are recognised through equity while the coupon payments of the hybrid debt redeemed with these notes were recognised in the profit and loss account. Investment income increased to EUR 16 million and includes interest income on the two subordinated loans provided by NN Group to NN Life in the first half of 2014. Holding expenses decreased by EUR 4 million, reflecting the transformation programme in the Netherlands partly offset by a EUR 11 million reallocation of expenses related to personnel provisions for retired personnel in the Netherlands from the segment Netherlands Life to the segment 'Other'.
The operating result of the reinsurance business increased to EUR 2 million from EUR 0 million a year ago reflecting better underwriting results.
The other results of EUR 6 million include a release in the technical provisions of a legacy entity.
The operating result of NN Bank increased to EUR 13 million from EUR 3 million in the third quarter of 2013. NN Bank has been successful in the past year in increasing its production of mortgages and attracting customer savings which has led to a higher net interest margin, partly offset by higher expenses.
Special items before tax amounted to EUR -17 million and mainly relate to the transformation programme in the Netherlands. This item also includes the transfer in the third quarter to the segment 'Other' of part of the impact of the pension agreement originally reported in Netherlands Life.
The result before tax improved to EUR -42 million compared with EUR -100 million in the third quarter of 2013, following the improved operating result.
Total administrative expenses were EUR 70 million, up EUR 3 million compared with the same period of last year. Higher NN Bank expenses and the reallocation of expenses related to personnel provisions for retired personnel in the Netherlands were largely offset by lower holding expenses as well as the expenses of a divested business.
In the first nine months of 2014, the operating result of the segment 'Other' improved substantially to EUR -106 million from EUR -300 million for the same period last year. The holding result was favourably impacted by the decrease of external debt and lower holding expenses. The operating result of the reinsurance business increased to EUR 27 million from EUR -20 million a year ago, reflecting better underwriting results as well as a EUR 31 million one-off loss on a specific reinsurance contract in 2013. NN Bank's operating result improved with the expansion of its mortgage and customer savings activities.
| In EUR million | 3Q14 | 3Q132) | Change | 9M14 | 9M132) | Change |
|---|---|---|---|---|---|---|
| Margin analysis1) | ||||||
| Investment margin | 0 | 0 | 0 | 0 | ||
| Fees and premium-based revenues | 30 | 34 | −11.8% | 87 | 103 | −15.5% |
| Technical margin | 0 | 0 | 0 | 0 | ||
| Operating income non-modelled business | 0 | 0 | 0 | 0 | ||
| Operating income | 30 | 34 | −11.8% | 87 | 103 | −15.5% |
| Administrative expenses | 4 | 3 | 33.3% | 13 | 15 | −13.3% |
| DAC amortisation and trail commissions | 3 | 11 | −72.7% | 9 | 35 | −74.3% |
| Expenses | 7 | 14 | −50.0% | 22 | 49 | −55.1% |
| Operating result | 22 | 20 | 10.0% | 65 | 54 | 20.4% |
| Non-operating items | 67 | 86 | 67 | 117 | ||
| of which gains/losses and impairments | 0 | 1 | 0 | 1 | ||
| of which revaluations | 0 | 0 | 0 | 0 | ||
| of which market & other impacts | 67 | 86 | 67 | 117 | ||
| Special items before tax | 0 | 0 | 0 | 0 | ||
| Result on divestments | 0 | 0 | 0 | 0 | ||
| Result before tax | 89 | 106 | −16.0% | 132 | 171 | −22.8% |
| Taxation | 16 | 28 | −42.9% | 21 | 47 | −55.3% |
| Minority interests | 0 | 0 | 0 | 0 | ||
| Net result | 73 | 78 | −6.4% | 111 | 124 | −10.5% |
| Key figures1)3) | ||||||
| Allocated equity | 1,135 | 1,466 | −22.6% | 1,135 | 1,466 | −22.6% |
| Account value | 14,313 | 15,792 | −9.4% | 14,313 | 15,792 | −9.4% |
| Net Amount at Risk | 393 | 1,448 | −72.9% | 393 | 1,448 | −72.9% |
| IFRS Reserves | 792 | 1,808 | −56.2% | 792 | 1,808 | −56.2% |
| Number of policies | 317,316 | 357,904 | −11.3% | 317,316 | 357,904 | −11.3% |
| Employees (FTEs) | 80 | 115 | −30.4% | 80 | 115 | −30.4% |
1) JPY/EUR average quarterly fx rates: 137.82 (3Q2014), 130.24 (3Q2013) and JPY/EUR end of period fx rates: 138.12 (3Q2014), 131.83 (3Q2013)
2) The figures of this period have been restated to reflect the change in accounting policy, i.e., the move towards fair value accounting for Guaranteed Minimum Death Benefits reserves of the Japan Closed Block VA segment as of 1 January 2014
3) End of period
The result before tax of Japan Closed Block VA decreased to EUR 89 million from EUR 106 million in the third quarter of last year. The current quarter includes a EUR 63 million one-off reserve decrease from higher lapse assumptions reflecting higher observed lapse experience on out-of-the-money policies. The result before tax in the third quarter of 2013 benefited from positive hedge results.
The operating result increased to EUR 22 million from EUR 20 million in the third quarter of 2013. Fees and premium-based revenues were EUR 30 million, down 6.3% from the third quarter of 2013, excluding currency impacts, in line with a lower account value mainly caused by a decreasing number of policies. On a constant currency basis, administrative expenses remained flat at EUR 4 million compared with the third quarter of 2013. DAC amortisation and trail commissions decreased to EUR 3 million from EUR 11 million in the third quarter of 2013. This line item now only reflects trail commissions as the DAC was fully written off as of 1 October 2013.
Market and other impacts were EUR 67 million compared with EUR 86 million in the third quarter of 2013. The result of the current quarter includes a one-off reserve decrease of EUR 63 million from higher lapse assumptions, reflecting higher observed lapse experience on out-of-the-money policies. The result also includes a marketrelated result net of hedging of EUR 7 million as the hedge assets largely offset a EUR 276 million movement in the reserves.
The Net Amount at Risk in the Japan Closed Block VA decreased to EUR 393 million from EUR 1,448 million in the third quarter last year primarily due to rising equity markets which also led to higher observed lapses on out-ofthe-money policies. The portfolio is expected to run-off by approximately 90% by the end of 2019.
In the first nine months of 2014 the result before tax of Japan Closed Block VA decreased to EUR 132 million from EUR 171 million in the same period last year, down 19.4% excluding currency impacts. The year-to-date 2014 numbers reflect an operating result of EUR 65 million and market and other impacts of EUR 67 million. The market and other impacts included a market related result net of hedging of EUR 61 million, various modeling refinements which resulted in a reserve increase of EUR 51 million in the first quarter of 2014, and a reserve decrease of EUR 63 million from higher lapse assumptions in the third quarter.
| in EUR million | 30 Sep 14 | 30 Jun 14 | 31 Dec 131) | 30 Sep 14 | 30 Jun 14 | 31 Dec 131) | |
|---|---|---|---|---|---|---|---|
| Assets | Equity | ||||||
| Cash and cash equivalents | 5,529 | 6,739 | 7,155 | Shareholders' equity | 18,344 | 16,939 | 14,062 |
| Financial assets at fair value through P&L | 47,862 | 44,516 | 43,933 | Minority interests | 70 | 60 | 68 |
| - trading assets | 607 | 645 | 736 | Undated subordinated notes | 986 | 0 | 0 |
| - non-trading derivatives | 5,450 | 4,436 | 3,126 | Total equity | 19,400 | 16,999 | 14,130 |
| - investments for risk of policyholders | 41,298 | 38,822 | 39,589 | Liabilities | |||
| - other | 506 | 612 | 482 | Subordinated debt | 2,299 | 3,287 | 2,892 |
| Available-for-sale investments | 69,249 | 67,025 | 61,014 | Senior debt | 400 | 400 | 1,000 |
| - debt securities | 63,295 | 60,861 | 55,394 | Other borrowed funds | 4,419 | 3,968 | 3,817 |
| - equity securities | 5,954 | 6,164 | 5,620 | Insurance and investment contracts | 119,118 | 116,031 | 111,769 |
| Loans | 28,965 | 27,111 | 25,319 | - life insurance provisions | 73,281 | 72,569 | 67,700 |
| Reinsurance contracts | 267 | 270 | 252 | - non-life insurance provisions | 3,670 | 3,787 | 3,584 |
| Investments in associates | 1,602 | 1,575 | 1,071 | - provision for risk of policyholders | 41,393 | 38,869 | 39,675 |
| Real estate investments | 1,022 | 786 | 721 | - other | 773 | 806 | 810 |
| Property and equipment | 145 | 149 | 164 | Customer deposits | 6,597 | 6,519 | 5,769 |
| Intangible assets | 360 | 383 | 392 | Financial liabilities at fair value through P&L | 2,529 | 1,859 | 1,843 |
| Deferred acquisition costs | 1,431 | 1,441 | 1,353 | - non-trading derivatives | 2,529 | 1,859 | 1,843 |
| Other assets | 3,626 | 3,945 | 3,754 | Other liabilities | 5,421 | 4,995 | 4,071 |
| Total assets excl. assets held for sale | 160,059 | 153,939 | 145,128 | Total liabilities excl. liabilities held for sale | 140,783 | 137,059 | 131,161 |
| Assets held for sale | 128 | 123 | 187 | Liabilities held for sale | 3 | 4 | 24 |
| Total liabilities | 140,786 | 137,063 | 131,185 | ||||
| Total assets | 160,186 | 154,062 | 145,315 | Total equity and liabilities | 160,186 | 154,062 | 145,315 |
1) The figures of 31 December 2013 have been restated to reflect the change in accounting policy, covering the move towards fair value accounting for Guaranteed Minimum Death Benefits for reserves of the Japan Closed Block VA as of 1 January 2014. The 31 December 2013 figures have also been restated to reflect the implementation of IFRS 11 which replaced proportional consolidation for joint ventures by equity accounting.
Cash and cash equivalents decreased by EUR 1.2 billion to EUR 5.5 billion reflecting a EUR 0.9 billion shift to cash deposits with a maturity longer than 3 months, which are presented as part of loans.
Non-trading derivatives increased by EUR 1.0 billion to EUR 5.5 billion reflecting positive revaluations on interest rate swaps as interest rates declined in the third quarter.
Investments for risk policyholders increased by EUR 2.5 billion to EUR 41.3 billion supported by positive revaluations. These changes are mirrored in the Provision for risk of policyholders on the liability side of the balance sheet.
Debt securities available-for-sale increased by EUR 2.4 billion to EUR 63.3 billion driven by higher market values as long term interest rates declined in the quarter.
Loans increased by EUR 1.8 billion mainly reflecting EUR 0.9 billion cash deposits with a maturity longer than three months and a EUR 0.7 billion increase in the mortgages portfolio.
Real estate investments increased by EUR 0.2 billion to EUR 1.0 billion, reflecting additional investments in Europe.
Subordinated debt decreased by EUR 1.0 billion to EUR 2.3 billion as a result of a EUR 1.0 billion repayment to ING Group following the issue in July 2014 of undated subordinated notes which are classified as equity.
Insurance and Investment contracts increased by EUR 3.1 billion to EUR 119.1 billion. This reflects an increase in the Provision for risk of policyholders as well as higher deferred profit sharing for policyholders following the increase of the debt securities revaluation reserve.
Shareholders' equity increased by EUR 1.4 billion to EUR 18.3 billion reflecting a EUR 1.4 billion net increase in the debt and equity revaluation reserves. This was partially offset by EUR 0.7 billion higher deferred profit sharing to policyholders. The EUR 0.4 billion net result for the period and EUR 0.3 billion other revaluations also contributed to the increased Shareholders' equity in the third quarter.
In July NN Group issued EUR 1 billion undated subordinated notes that are classified on the balance sheet as equity. Coupon payments will be distributed out of equity if and when paid or contractually due. Total equity increased by EUR 2.4 billion to EUR 19.4 billion in the third quarter 2014.
| 3Q 2014 | 9M14 | 12M13 |
|---|---|---|
| 16,939 | 14,062 | 25,949 |
| 354 | 391 | 323 |
| 1,364 | 4,195 | −11,419 |
| −10 | 10 | 90 |
| 344 | 1,065 | −832 |
| −684 | −1,963 | 2,154 |
| −12 | −98 | −42 |
| 49 | 147 | −651 |
| 0 | −315 | −882 |
| 0 | 850 | 1,330 |
| 0 | 0 | −1,958 |
| 1,405 | 4,282 | −11,887 |
| 18,344 | 18,344 | 14,062 |
| in EUR million | 30 Sep14 | 30 Jun 14 | 31 Dec 13 |
|---|---|---|---|
| Share premium/capital | 12,140 | 12,140 | 11,605 |
| Revaluation reserve available-for-sale investments and other | 7,961 | 6,602 | 3,802 |
| Revaluation reserve cashflow hedge | 3,791 | 3,447 | 2,726 |
| Revaluation reserve crediting to life policyholders | −4,542 | −3,858 | −2,579 |
| Remeasurement of the net defined benefit asset/liability | −95 | −83 | −1,042 |
| Currency translation reserve | −123 | −162 | −252 |
| Retained earnings and other reserves | −788 | −1,147 | −198 |
| Shareholders' equity | 18,344 | 16,939 | 14,062 |
| Minority interests | 70 | 60 | 68 |
| Undated subordinated notes | 986 | ||
| Total equity | 19,400 | 16,999 | 14,130 |
| Shareholders' equity per share in EUR1) | 52 | 48 | 40 |
1) Shareholders' equity per share at 30 June 2014 and 31 December 2013 is calculated based on the NN Group shares outstanding as of 7 July 2014
| in EUR million | 30 Sep. 141) | 30 Jun. 14 | 31 Dec. 13 |
|---|---|---|---|
| Shareholders' equity | 18,344 | 16,939 | 14,062 |
| Qualifying undated subordinated debt2) | 1,823 | 1,809 | 2,394 |
| Qualifying dated subordinated debt2) | 1,000 | 1,000 | 0 |
| Required regulatory adjustments3) | −7,934 | −7,288 | −5,501 |
| Total capital base (a) | 13,233 | 12,460 | 10,955 |
| EU required capital (b) | 4,683 | 4,578 | 4,385 |
| NN Group IGD Solvency I ratio (a/b) | 283% | 272% | 250% |
| NN Life Solvency I ratio4) | 252% | 250% | 223% |
1) The 30 September 2014 solvency ratios are not final until filed with the regulators
2) Subordinated debt included at notional value in the IGD calculation
3) The 31 December 2013 IGD ratio has been restated from 257% to 250% to reflect the move towards fair value accounting for the Guaranteed Minimum Death
Benefits reserves of the Japan Closed Block VA segment and that the eligible and dated hybrids are capped at 50% and 25% respectively of the EU required capital
4) The 31 December 2013 Solvency I ratio of NN Life has been updated to 223% from 222% shown in the NN Group Annual Report 2013
NN Group's capital position further improved as illustrated by the increase in the IGD Solvency I ratio to 283% at the end of the third quarter from 272% at the end of the second quarter, which is mainly due to a net result of EUR 354 million and positive revaluations resulting from market movements. The IGD Solvency I ratio increased from 250% at the end of 2013, largely due to a EUR 850 million capital injection by ING Group into NN Group in May 2014 and a positive year-to-date net result of EUR 391 million.
The Solvency I ratio of NN Life was broadly stable at 252% versus 250% at the end of the previous quarter. Positive fixed income revaluations following the tightening of credit spreads were partly offset by negative equity revaluations and an increase of required capital as a result of a decrease in interest rates.
| in EUR million | 3Q14 | 9M14 |
|---|---|---|
| Beginning of period | 1,156 | 1,363 |
| Cash divestment proceeds | 3 | 184 |
| Capital flow from / (to) shareholders | 0 | 674 |
| Increase / (decrease) in debt and loans | 0 | −200 |
| Dividends from subsidiaries1) | 58 | 504 |
| Capital injections into subsidiaries2) | −32 | −1,242 |
| Other3) | −1 | −99 |
| End of period | 1,184 | 1,184 |
Note: cash capital is defined as net current assets available at the holding company
1) Includes interest on subordinated loans paid by subsidiaries to the holding company
2) Includes the change of subordinated loans issued by subsidiaries to the holding company
3) Includes interest payments on subordinated loans and debt, holding company expenses and other cash flows
The cash capital position at the holding company increased from EUR 1,156 million at the end of the second quarter to EUR 1,184 million at the end of the third quarter. This increase was mainly attributable to dividends received from subsidiaries, partially offset by capital strengthening of NN Bank of EUR 25 million. The cash capital position at the holding company was EUR 1,363 million at the end of 2013 and was temporarily high, pending a capital injection of EUR 600 million into NN Life which was executed in February 2014 by way of subordinated debt. The holding company received dividends from subsidiaries of EUR 504 million in the first nine months of 2014.
| in EUR million | 30 Sep. 14 | 30 Jun. 14 | 31 Dec. 13 |
|---|---|---|---|
| Shareholders' equity | 18,344 | 16,939 | 14,062 |
| Revaluation reserve debt securities | −7,006 | −5,489 | −2,804 |
| Revaluation reserve crediting to life policyholders | 4,543 | 3,858 | 2,579 |
| Revaluation reserve cash flow hedge | −3,790 | −3,447 | −2,726 |
| Goodwill | −266 | −265 | −264 |
| Minority interests | 70 | 60 | 68 |
| Capital base for financial leverage | 11,896 | 11,656 | 10,915 |
| Undated subordinated notes1) | 986 | 0 | 0 |
| Subordinated debt | 2,299 | 3,287 | 2,892 |
| Total subordinated debt | 3,285 | 3,287 | 2,892 |
| Financial debt | 400 | 400 | 1,000 |
| Financial leverage | 3,685 | 3,687 | 3,892 |
| Financial leverage ratio | 23.7% | 24.0% | 26.3% |
| Fixed-cost coverage ratio1)2) | 8.4x | 6.5x | 4.9x |
1) The undated subordinated notes classified as equity are considered financial leverage in the calculation of the financial leverage ratio. The related coupon
payments are included on an accrual basis in the calculation of the fixed-cost coverage ratio
2) Measures the ability of earnings before interest and tax (EBIT) of ongoing business and Insurance Other to cover funding costs; calculated on a last 12-months basis
The financial leverage ratio of NN Group improved to 23.7% at the end of the third quarter. This was due to an increase of EUR 240 million in the capital base, largely driven by the third-quarter net result of EUR 354 million and partly offset by negative equity revaluations.
The fixed-cost coverage ratio further improved to 8.4x at the end of the third quarter (on a last 12-months basis) versus 6.5x at the end of the second quarter of 2014. The improvement was mainly due to increased profitability, lower funding costs and reduced debt levels.
This year, NN Group successfully issued two subordinated loans in a favourable fixed income market and thereby secured attractive long term funding costs. In combination with reduced debt levels, this translated into lower funding costs in the long term for the company.
Standard & Poor's latest rating on NN Group is BBB+ with a developing outlook (2 June 2014) and Moody's is Baa2 with a negative outlook (26 March 2014).
For commercial reasons, Fitch decided to withdraw the ratings on NN Group on 23 September 2014. Fitch's last rating action on NN Group was on 30 April 2014, when the rating on NN Group was affirmed at A- and the outlook revised to Stable.
| Credit ratings of NN Group N.V. at 05 November 2014 | Rating | Outlook |
|---|---|---|
| Standard & Poor's | BBB+ | Developing |
| Moody's | Baa2 | Negative |
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).
Lard Friese and Delfin Rueda will host a media conference call to discuss the 3Q14 results at 9.30 a.m. CET on Wednesday 5 November 2014. Journalists can join the conference call at + 31 20 531 5863.
Lard Friese and Delfin Rueda will host an analyst and investor conference call to discuss the 3Q14 results at 10:30 a.m. CET on Wednesday 5 November 2014. 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) and via live audio webcast at www.nngroup.com.
Ingeborg Klunder +31 20 541 6526 [email protected]
Investor Relations +31 20 541 5464 [email protected]
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. 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 forwardlooking 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.
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