Annual Report • Mar 24, 2016
Annual Report
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Accelerating change
About NN Group Governance Strategy and value creation
Delivering on
Additional information
The 2015 Annual Report provides an integrated review of the performance of our company. It is in accordance with applicable Dutch law and the International Financial Reporting Standards (IFRS), which were endorsed by the European Union, as well as with the Global Reporting Initiative's G4 guidelines (GRI). It aligns relevant information about our strategy, governance systems, performance and future prospects in a way that reflects the economic, environmental and social contexts in which we operate.
at all NN Group stakeholders. It is a concise, integrated review that provides information about our dynamic operating environment and key material trends, our strategy, how we create value, the financial and non-financial performance of our business and the statement of our CEO.
developments and annual accounts, the report of our Supervisory Board and our approach to risk management, capital management and corporate governance. Target audiences are shareholders, rating agencies and other stakeholders interested in the financials and governance of NN Group.
This supplement provides additional information with regard to our strategy, objectives and achievements related to the social, ethical and environmental aspects of our businesses. It is especially aimed at shareholders, rating agencies and NGOs.
Strategy and value creation Delivering on
| Annual Review | |
|---|---|
| At a glance | 03 |
| − 2015 highlights | 03 |
| − How we are structured | 05 |
| About NN Group | 07 |
| − Our brand | 07 |
| − Our values | 09 |
| − CEO statement | 11 |
| Strategy and value creation | 13 |
| − What matters to us | 13 |
| − Our operating environment | 14 |
| − Our strategy | 18 |
| − How we create value | 21 |
| − Active Risk management | 23 |
| Delivering on our strategy | 24 |
| − Creating value as an insurer | |
| and asset manager | 24 |
| − Creating value as an investor | 28 |
| − Creating value as a listed company | 30 |
| − Creating value as an employer | 32 |
| − Creating value as a corporate citizen 34 | |
| Governance | 36 |
| − Governance and compliance | 36 |
| − Our Management Board | 37 |
| Additional information | 38 |
| − Facts and figures | 38 |
| − Glossary | 41 |
| Contact and legal information | 44 |
| Financial Report | |
|---|---|
| Financial developments − NN Group − Netherlands Life − Netherlands Non-life − Insurance Europe − Japan Life − Asset Management − Other |
03 03 05 06 06 07 08 08 |
| − Japan Closed Block VA | 09 |
| Report of the Supervisory Board | 10 |
| Corporate governance | 18 |
| Remuneration Report | 29 |
| Works councils | 34 |
| Report of the Executive Board on internal control over financial reporting |
35 |
| Conformity statement | 36 |
| Consolidated annual accounts − Consolidated balance sheet − Consolidated profit and loss account 39 − Consolidated statement of comprehensive income − Consolidated statement of cash flows 42 − Consolidated statement of changes in equity − Notes to the Consolidated annual accounts − Risk management (Note 50) − Capital and liquidity management (Note 51) − Authorisation of Consolidated annual accounts |
37 38 41 44 46 119 141 148 |
| Parent company annual accounts − Parent company balance sheet − Parent company profit and loss account − Parent company statement of changes in equity − Notes to the Parent company annual accounts − Authorisation of Parent company annual accounts |
149 149 150 151 153 158 |
| Other information − Independent auditor's report − Proposed appropriation of result − Subsequent events |
159 159 164 165 |
| Contact and legal information | 166 |
sustainability-supplement www.nn-group.com/financial-report
| sustainability at NN Group − Our approach − Our objectives − Governance − Stakeholder engagement Improving financial well-being − Customer empowerment − Financial inclusion − Community investment Responsibly managing our assets − Engagement topics in 2015 − Sustainability of our real estate portfolio − Specialised SRI funds and responsible investment solutions − External assessments and benchmarks − Governance, advice and implementation |
03 03 04 05 06 07 07 07 08 09 09 10 11 |
|---|---|
| 11 | |
| 11 | |
| Managing our | |
| environmental footprint | 12 |
| − Energy and business travel efficiency | 12 |
| − Carbon neutrality in 2015 | 12 |
| Performance data | 13 |
| Reporting approach | 16 |
| − About this Sustainability | |
| Supplement | 16 |
| − Assurance report | |
| of the independent auditor | 17 |
| − Progress report Principles for | |
| Sustainable Insurance | 18 |
| − Progress report UN Global Compact | 19 |
| Contact and legal information | 21 |
About NN Group Governance Strategy and value creation
Delivering on
NN Group is an insurance and asset management company with a leading position in the Netherlands and a strong presence in a number of European countries and Japan.
NN Group includes NN, Nationale-Nederlanden and NN Investment Partners. Our roots lie in the Netherlands, with a rich history that stretches back more than 170 years. We are committed to helping people secure their financial futures, offering retirement services, insurance, investments and banking products. On 2 July 2015, we celebrated our first anniversary as a standalone, listed company.
Our company in numbers (at 31 December 2015)
Employees (in FTE) 11,500
Customer policies 15 million
Countries in which we operate
18+
Full-year 2015 dividend per ordinary share EUR 1.51
Delivering on
In 2015, we delivered on the targets we set at the time of our IPO in July 2014 to generate capital and improve earnings, while delivering excellent service and products to our customers.
We have a robust Solvency II position based on our Partial Internal Model, and our credit rating was updated by Standard & Poor's (to A-) and affirmed by Moody's (at Baa2), both with a stable outlook. Our operating entities have generated a significant amount of cash, with most subsidiaries upstreaming regular dividends. We issued EUR 1.6 billion of debt to the markets after our Initial Public Offering (IPO) to externalise our debt and to increase our financial flexibility. We have delivered on our equity story by returning almost EUR 850 million to shareholders from the date of our listing until 31 December 2015. In that same period, the Total Shareholder Return was 69.1%.
Financial highlights 2015
Operating result ongoing business EUR 1,435m (2014: EUR 1,086m)
Net result EUR 1,565m (2014: EUR 588m)
New sales life insurance EUR 1,295m (2014: EUR 1,315m)
NN IP Assets under Management EUR 187bn (2014: EUR 195bn)
Value of new business EUR 202m (2014: EUR 178m)
Solvency II ratio 239% (based on Partial Internal Model)
We believe it is important to contribute to the well-being of society and to support the communities in which we operate. By understanding the global trends society faces and the impact these developments may have on our customers and on our businesses, we can contribute to a healthy economy as well as a stable society. In doing so, we create value for our stakeholders, and will contribute to improving the lives of people today and for generations to come.
Net Promoter Score
*Based on measurements in our Insurance Europe's Life businesses, and Life and Pensions in the Netherlands
Employee engagement
73% (2014: 66%)
Donations to charitable organisations EUR 1.5m (2014: EUR 1.1m)
NN Group was CO2 neutral throughout 2015 Neutral About NN Group Governance Strategy and value creation
Delivering on
With about 11,500 employees, we aim to deliver high-quality retirement services, insurance, investments and banking products to retail, SME, large corporate and institutional customers.
NN Group's financial reporting is structured in seven segments. In this Annual Review, these segments are grouped into the following three components:
NN Group operating result ongoing business before tax excluding segment Other (% of total – FY2015)
Well positioned to grow in the Dutch pension market.
Focus on improving underwriting performance and customer satisfaction.
Delivering on
Focus on profitable growth through digital transformation of the businesses.
Focus on profitable growth through product and distribution diversification.
• Owners and employees of SMEs, where the company is both the policyholder and the beneficiary of the policy
Focus on being an active asset manager with distinct products.
This segment comprises NN Bank in the Netherlands, the reinsurance business (representing NN Re, excluding the reinsurance of the Japan Closed Block VA portfolio and results from certain reinsurance arrangements regarding the life insurance business of NN Czech Republic and NN Hungary), the holding result and other results. The segment 'other' is part of the ongoing business.
Growth potential of NN Bank NN Bank plays a key role within our company in the Netherlands. The Bank generates mortgages with a good return, and with its savings products contributes to our strategy of asset accumulation. Due to the nature of its business, NN Bank colleagues have frequent contact with customers, providing us with relevant customer data and the opportunity for customer acquisition. NN Bank is performing well, with a market share of around 6.4% in mortgages and a net savings inflow of more than EUR 1 billion in 2015.
Japan Closed Block VA comprises NN Group's closed-block single premium variable annuity (SPVA) individual life insurance portfolio in Japan. These products were predominantly sold from 2001 to 2009. We expect 90% of the book to run off by the end of 2019. The total portfolio is reinsured by NN Re in the Netherlands. The portfolio is actively managed and hedged on a market consistent basis and is expected to release capital as the block runs off. The exact timing and amount cannot be predicted as it is influenced by the results of the hedge programme.
About NN Group Governance Strategy and value creation
Delivering on
The NN brand was developed with the aim of balancing our 170-year heritage and Dutch roots with the components of a modern, international insurance and asset management company.
The new brand and logo were first introduced in October 2013. Subsequently, the rebranding of all our businesses from ING to NN, Nationale-Nederlanden or NN Investment Partners in 2015, made us one company with a recognisable identity.
Our brand supports our purpose, values and strategy, and our colleagues bring our brand promise 'You matter' to life for our customers every day. With our brand promise 'You matter', we define a clear goal. We want our customers and other stakeholders to have an experience with our company that lives up to the promises we make. As such, we carefully monitor how our brand is perceived, both internally and externally.
To further enhance awareness of the newly launched brand, we have chosen running as our main sports sponsoring domain. Running fits well with our values and our aim to contribute to people's general health and financial well-being. Also, running attracts a diverse field of participants and spectators in terms of gender, age and nationality, which matches the diverse character of our customer base. We want to offer our support to the sport, its athletes and all the people who practise running.
In 2015, we sponsored running events in nine of our countries, amongst which the internationally renowned Rotterdam Marathon and Naha Marathon in Japan. In the years to come, our objective is to support more running activities in some of our other key markets.
February 2015 Start of international rebranding programme – Turkey was the first country in which our new brand was visible
March – April 2015 Rebranding of most of our businesses in Europe and Japan
Rebranding of NN Investment Partners
NN Investment Partners became the new name for our asset management business in all markets. NN Investment Partners is positioned as a clear member of NN Group, with an emphasis on its distinct business proposition.
NN is the overarching brand for all our businesses. To stay close to our customers in different markets, local descriptors were added, usually directly referring to the nature of our activities.
colleagues worked on the international rebranding programme
letters updated in terms of design, fonts and branding
July 2015 Our business in Poland finalised the rebranding process
Our insurance and bank businesses in the Netherlands kept the name Nationale-Nederlanden, while the logo was updated in line with the new overall NN brand. Our businesses in Spain and Poland also rebranded to Nationale-Nederlanden.
views on Facebook and YouTube of name change campaign with Ewan McGregor (in six countries)
Delivering on
In 2015, we developed the NN Global Brand Health Monitor to monitor how our brand is perceived externally, amongst our customers and society at large. It is a core evaluation of the health of the NN brand. Twice a year, we measure our main brand indicators and provide insight in the development of the brand performance.
The Global Brand Health Monitor measures the brand awareness per business line per country, and whether customers feel we are living our values. It also measures the so-called Relationship Net Promoter Score (NPS), which we believe is an important measure for brand preference and performance.
Measurement for the insurance businesses is conducted for all business lines covering banking, life insurance and pensions. Our insurance business in Japan is included in a separate study. Luxembourg is excluded from the research as their clients mostly live outside Luxembourg.
Measurement for the asset management businesses is conducted amongst both institutional and retail investors.
Two countries that warrant mentioning are Romania and Greece.
Having achieved 66% aided brand awareness, NN Life in Romania is well on its way to building the new brand; in the last quarter of 2014 brand awareness was a mere 1%. NN is the preferred brand in Romania when people are considering a new life insurance product.
With 77% of customers seeing NN Life Romania as the 'You matter' company, it is evident that they truly make customers feel they matter.
66% aided brand awareness of NN Life in Romania
77% customer seeing NN Life Romania as the 'You matter' company
The rebranding campaign in Greece pushed the aided brand awareness of NN Hellas to 38% at the end of 2015. Even under difficult economic circumstances, the NN Hellas team managed to create value for its customers, who see them as a company that lives our values of care, clear, commit.
38% aided brand awareness of NN Hellas at the end of 2015
| Country | Life (on/above market average) |
Non-life (on/above market average) |
Pensions (on/above market average) |
|
|---|---|---|---|---|
| 1 | Belgium | yes | yes | n.a. |
| 2 | Bulgaria | yes | n.a. | yes |
| 3 | Czech Republic | no | n.a. | yes |
| 4 | Greece | yes | n.a. | n.a. |
| 5 | Hungary | yes | n.a. | n.a. |
| 6 | Japan | yes | n.a. | n.a. |
| 7 | Poland | yes | n.a. | yes |
| 8 | Romania | yes | n.a. | yes |
| 9 | Slovak Republic | yes | n.a. | yes |
| 10 Spain | yes | n.a. | yes | |
| 11 The Netherlands* | n.a. | yes | yes | |
| 12 Turkey | yes | n.a. | yes |
* Due to product portfolio and organisational set-up, the Dutch Life products are embedded in the Non-life and Pension results.
About NN Group Governance Strategy and value creation
Delivering on
Additional information
Our values 'we care, we are clear, we commit' are the guiding principles by which we seek to fulfil our purpose to help people secure their financial futures.
We take our values very seriously, as they enable us to build and maintain trust with our stakeholders and bring our brand promise 'You matter' to life. In October 2014, we introduced the 'NN statement of Living our Values', which explains what NN stands for, both for internal and external stakeholders. This statement helps guide our employees in their day-to-day interactions with stakeholders, and serves as a compass for decision-making. To facilitate the international roll-out, we launched the 'Living our Values' programme, focused on making the values a fully integrated part of our culture.
To encourage behavioural change, we continuously create awareness around the 'Living our Values' programme. Dilemma sharing is stimulated as a means to discuss how we are living our values in our daily jobs. Beginning 2015, we released a number of special videos featuring interviews with the Management Board members on what our values mean to them and how they apply these in their daily work.
Throughout the year, our business units organised their own local communication campaigns around the values. In a number of countries, our values were integrated into the look and feel of the rebranded offices in such a way that employees are constantly reminded of them.
In the Netherlands, NN employees (both internal and external) are required to take the Financial Sector oath or promise, which was fully integrated in the Statement of Living our Values. The accompanying ceremonies include presentations on both the oath and the Statement of Living our Values, a dialogue between manager and employees about the values, and the signatory moment of the values statement or Banking Code. By the end of 2015, at least 85% of our employees in the Netherlands had taken this oath, with still four months to go to have all employees sign off.
Our employees are encouraged to take an active role in living our values. We introduced a short quiz to help employees discover which of the values matters most to them. Also, by endorsing colleagues on our internal social intranet SAM ('share all that matters'), employees let each other know how they exemplify caring, clear or committed behaviour.
We also developed a 'serious game' called the 'Values challenge' to make learning about our values fun while at the same time sparking some friendly competition. This game allows our employees to experiment with our values in different situations, and how to apply them with respect to various stakeholder groups. The game was part of the annual NN Values week in October, which offered an opportunity to pay extra attention to, and reflect on, our values.
Our values are not voluntary suggestions; they apply to each and every employee. In addition to communicating and providing training for our employees, the values were embedded in our organisation and company systems. The NN policy house, the internal policy framework containing all our policy documents, was also aligned with the values. They were incorporated into the product approval processes and became part of the branding guidelines and other tools that guide our businesses in their interactions with customers.
Our human resources processes comprised another important area in which our values were incorporated. Not only were the values explained in introduction programmes to new employees, they were also used as a starting point to develop a new employee value proposition, performance management system and leadership profile in 2015. More information can be found in the chapter 'Creating value as an employer' on pages 32–33 of this Annual Review.
Strategy and value creation Delivering on
Additional information
To ensure the effectiveness of the 'Living our Values' programme is monitored, the values have been integrated into some of our key monitoring instruments, namely the Pulse and YES surveys, which measure employee engagement; and the Global Brand Health Monitor, which measures the brand awareness per business line per country, and whether customers feel we are living our values. These surveys include a number of questions on how NN is living its values and how these values are demonstrated in all of our markets. If there is a decrease or stagnation in performance, this is reported to the business units so they can take action. More information on these monitoring instruments can be found in the section 'Our brand' on page 8, and the chapter 'Creating value as an employer' on pages 32–33 of this Annual Review.
An analysis of the first year of the implementation of the 'Living our Values' programme and the results of monitoring its effectiveness have led to a number of recommendations on how to further strengthen the programme. Overall employee awareness of the values is very high, and much has been achieved to ensure the 'Living our Values' programme remains top of mind. We will continue to invest especially in the 'role model behaviour' of managers, as this is a key component of success in the long term. This will be addressed in 2016 as part of the management development curriculum. There are a number of other actions planned for 2016 to further stimulate an open dialogue on the consistency of our behaviour with regards to the NN values. We will also repeat our NN Values week in 2016.
To further align with our values, our Code of conduct was refreshed in 2015.
Where our values are our compass for decision-making, our Code of conduct outlines our conduct related red lines with regard to for example conflicts of interest, fraud, corruption and Financial Economic Crime. In 2015, the existing Code of conduct was 'refreshed' with the objective to further align with our values. In the process, we reviewed the comprehensibility and completeness of the Code of conduct and made adjustments where necessary.
The refreshed Code of conduct does not contain new standards, it aims to present and explain existing standards in a comprehensible and accessible fashion to foster further awareness. It will be applicable to the whole of NN Group.
To reflect different expectations we have of various populations within NN, we also developed a Manager annex. This annex aims to raise awareness on standards we have in place that are relevant for all managers to know and act upon, as well as the role they have in ensuring everyone 'lives' our values, and continuously lives up to our standards.
Draft versions of the Code of conduct and Manager annex were discussed in a series of workshops in which all managers from the NN Group Head Office, NN Life and NN Non-life participated. The workshops aimed to raise awareness, gather feedback on the draft texts and to discuss dilemmas they were facing in applying the Code of conduct and Manager annex in daily business. Based on the feedback gathered in the workshops, both documents were adjusted and finalised.
In 2016, the Code of conduct and Manager annex will be rolled out throughout NN Group. The main focus in the roll-out process will remain on raising awareness, on the applicability of standards, and on dilemmas and how to unravel them. The Code of conduct and Manager annex is scheduled to become applicable as of 1 September 2016.
Delivering on
Additional information
2015 was a good year for NN Group. A year in which we delivered on the targets we set at the time of our Initial Public Offering (IPO) in July 2014: to improve earnings and generate capital as well as deliver an excellent customer experience.
In 2015, we grew into an established standalone company delivering on our targets. Going forward, we need to remain responsive, be more agile and accelerate change.
Our values 'we care, we are clear, we commit' are the guiding principles by which we seek to fulfil our purpose to help people secure their financial futures. Throughout the year, we rebranded all our businesses from ING to NN, Nationale-Nederlanden or NN Investment Partners. This process, and our brand promise 'You matter' provided us with a clear and recognisable identity in all of the markets where we operate.
Our continued focus on delivering excellent service to our customers, innovating our products and improving our business mix is reflected in a 13.1% increase of the value of new business to EUR 202 million in 2015. Our operating result of the ongoing businesses improved by 32.2% to EUR 1,435 million and our net result improved by 166.1% to EUR 1,565 million. The Assets under Management at NN Investment Partners decreased by 4.2% to EUR 187 billion.
Our balance sheet and capital position remain solid and our NN Group Solvency II ratio was a strong 239% at the end of 2015, based on our Partial Internal Model. In December, we received approval from the Dutch regulator (DNB) to use our Partial Internal Model under Solvency II for NN Group and the insurance entities in the Netherlands. The Solvency II capital ratios are still subject to final interpretations of Solvency II regulations including the treatment of tax in the SCR.
Also, our credit rating was updated by Standard & Poor's (to A-) and affirmed by Moody's (at Baa2), both with a stable outlook.
Our operating entities have generated a significant amount of cash, with most subsidiaries upstreaming regular dividends. We issued EUR 1.6 billion of debt to the markets after our IPO to externalise our debt and to increase our financial flexibility.
Furthermore, we have delivered on our equity story by paying out almost EUR 850 million to shareholders from the moment of our listing until 31 December 2015. In that same period, we generated a total shareholder return of 69.1%.
Finally, in the Netherlands we realised our EUR 200 million cost reduction programme one year ahead of schedule.
With this strong foundation, it is time to look ahead. The changes in our operating environment continue to be unpredictable and fast-paced. NN has a flexible and practical approach towards these developments. We want to capture the many opportunities of changing consumer behaviour, retrenching governments and the use of new technology. We aim to innovate in order to keep improving our service to customers and to retain our leading positions.
Delivering on
Additional information
We understand that innovation is not only about digitalisation, apps and online platforms. Developing products to anticipate new demands of our customers and finding other ways to distribute our products are at the core of our strategy.
At the same time, we will continue to empower our customers with the knowledge and tools to make sound financial decisions. With our focus on innovation, we target an increase in customer satisfaction, flawless and intuitive interaction as well as efficiency.
In 2015, we saw many examples of innovation in our businesses. In Spain, we implemented the paperless sales process. This allowed us to provide a better customer experience as well as collect high-quality customer data, and in turn process that information efficiently. This has improved the Net Promoter Score and reduced new business processing costs by over 80%.
Other good examples can be found in Poland and Hungary, markets that were historically dominated by unit-linked savings products. Recently, they added standalone protection products to their business mix. The 'Your life matters' campaign in Poland – a health campaign focused on preventative measures – reinforced our protection positioning and cemented our place as the number one choice of Polish customers. In Hungary, Élétut, which is a modular protection product, helped us regain our number one market position. And in the Netherlands, data technology enables us to make digital contact with customers more personal and relevant.
We have also invested in more efficient and effective operations, and aim to further reduce the expense base in the Netherlands by approximately 15% to EUR 700 million by the end of 2018. We are taking measures to improve the results of our Non-life business through better underwriting performance and a further reduction of expenses. We have already made progress by improving the claims handling processes and fine-tuning premium rates.
Finally, the challenging market environment has also prompted us to sharpen the strategic focus of our asset management business in 2016.
As a Management Board we are very proud of our 11,500 colleagues who contribute to our company's achievements and bring our brand promise 'You matter' to life for our customers every day. We want to foster this positive energy and high employee engagement levels, which increased to 73% in 2015.
To keep up with the dynamic market environment and to maximise our results, we also attach great importance to investing in our leaders. Therefore, we offer several new leadership programmes, aimed at further enhancing our focus on values based leadership, customer centricity and external orientation.
We believe that our role as a company goes beyond delivering monetary returns for our shareholders and a great experience for our customers. We aim to use our resources, expertise and reach to help society achieve long-term sustainable prosperity. Our corporate citizenship strategy is built upon our company's purpose and values, and focuses on two main areas: improving people's financial well-being and responsibly managing our assets. Through our community investment programme 'Future Matters', we connect with our employees, customers and business partners, and aim to together address societal needs.
Also, to continue to earn trust and support, we maintain an open dialogue with our various stakeholders about our products and services, our business performance and our role in society. In this second Annual Report published as NN Group, we included more information on how our business model creates value for our different stakeholder groups. We were very proud to win last year's FD Henri Sijthoff Award for best Annual Report, and it inspired us to look for further improvements in how we report in a more integrated way.
NN Group is well positioned in the international insurance and asset management industry, with strong characteristics on which we can build: a robust balance sheet, a well trusted brand and a strong customer-focused culture. Furthermore, we have large and effective multi-distribution platforms, and diversified sources of cash generation.
Our 2015 results were strong, but our work is not complete. As we continue to operate in volatile and fast-paced markets, where change is a constant, we need to remain responsive, become more agile and accelerate change.
I want to express our gratitude to our customers for their continuing loyalty, and to our colleagues for their commitment and care. Going forward, we will steadily continue our journey as an independent company that truly matters in the lives of our stakeholders.
Lard Friese Chief Executive Officer NN Group
Delivering on
Additional information
To further develop NN Group's business strategy and to set our priorities, it is important to understand what the most relevant developments and issues are in our sector in general, and specifically with regards to our company. This is an ongoing process and also relevant in our annual reporting.
The guidelines from the Global Reporting Initiative (GRI) define material aspects that reflect the organisation's significant economic, environmental and social impacts, or that substantially influence the assessments and decisions of our stakeholders.
NN Group used internal and external research reports to create an overview of trends and developments that potentially impact our company. In doing so, we built upon the outcomes of the 2014 materiality assessment. To validate these developments, an online survey was conducted amongst external stakeholders, including investors, customers, peers, NGOs, academics and experts in the area of sustainability. The survey was also completed by our internal experts in the area of investor relations, strategy, capital management, marketing and compliance. The results from both surveys were combined to create a materiality matrix, which presents the developments and topics that are important to our business, and the relevance of these to our external stakeholders. This process was supported and executed by an external agency to ensure independence.
The materiality matrix was discussed during a permanent education session of NN Group's Management Board and Supervisory Board, and the management teams of our Dutch business units. This group increased the importance of some topics, however this did not impact the division per quartile. The final version of the materiality matrix was approved by the Management Board. The outcome of this process is reflected in the figure below.
The most material items, indicated in the upper right quarter, and NN Group's response to them, are further described in the 'Creating value' chapters, pages 24–35 of this Annual Review.
Delivering on
Additional information
As a company, we need to remain both flexible and practical, in order to optimally respond to the trends in our sector. Clearly refining our strategy for the future will help ensure that we continue to deliver on our objectives going forward.
But we also believe some things will remain the same. The fundamental need of people to protect themselves against life's uncertainties will not disappear. Whether it is against the risk of living a long life without sufficient means of support, or against the risk of dying at an early age, people are looking for protection. In many businesses, we also help protect against the risk of possessions being damaged or stolen, or the risk of losing a source of income. Around the world, wealth will continue to increase, and so will life expectancy.
What is more, in many cases, the traditional provider of that protection, the government, will continue to retrench over time.
NN Group is well positioned to capitalise on these developments. We have a trusted brand and a strong customer-focused culture. Our employees understand how important excellent customer service is, and are expected to drive customer satisfaction for all our customers. We have a large and effective multi-distribution platform in all markets where we operate. And almost all our businesses fund their own growth, while also remitting cash to the Group on top of this.
In our view, we see a number of key trends in the insurance and asset management industry on which to focus in particular. In this paragraph, we mention the trends that are positioned in the upper right quarter of our materiality matrix on page 13.
We categorised and explored some of them, and touch upon them in this chapter. How we act upon these trends to create value is described in the chapter 'Creating value as an insurer and asset manager' on pages 24–27 of this Annual Review.
We do not aim to be exhaustive. Globalisation and specific geopolitical developments, for example, are expectedly on every multinational's agenda. Examples are immigration, terrorism, interstate conflicts or the potential erosion of international relationships that have been a cornerstone of global stability for decades. However, this report does not elaborate explicitly on these topics. Increasingly important global issues such as climate change and human rights, positioned in the upper left quarter, are addressed in the 'Creating value as an investor' chapter on pages 28–29 of this Annual Review, and in the Sustainability Supplement on pages 9–11.
Delivering on
Resulting from the materiality assessment and our own analysis, we see a number of key trends in the insurance and asset management industry.
Changing demographics and customer behaviour
People live longer and birth rates are decreasing in most of the markets in which we operate. This will change the structure of society, also impacting the economy, social security, health care systems and labour markets. This in turn affects the nature and funding methods of pension schemes.
An ageing population and increasing longevity increases the overall costs of pensions, and has an impact on governments, employers and employees. That said, living longer also means that people are able to work longer, and ultimately must do so, to save sufficient money before retiring.
As people bear more individual responsibility for their financial futures, this creates a specific demand for a more personal approach to customers. Most customers rightfully set high standards when it comes to their finances. They are increasingly looking for transparency and clear information so they are able to make the right choices. They rely less on face-to-face advice than in the past, often use online communication – which they can tailor to their individual needs – and also rely more on peer recommendations.
Changing customer behaviour points to much quicker decisionmaking, and requires our processes and communication to be continuously adaptable.
In recent years, weak macroeconomic conditions and volatile markets have led to slow economic growth and low interest rates. This fragile economic growth – as well as the increased and structural unemployment or the instability of the financial system – have affected societies and industries in different ways. In some countries these factors led to pension reforms. Low GDP growth remains a challenge as it keeps interest rates low, affecting investment yields and the return for customers. This is not beneficial for consumer trust in general and remains a challenge for the financial services industry.
We seek an active and ongoing engagement with our customers, which is focused on empowering them, creating financial awareness and supporting them in making the financial decisions that help them improve their well-being. We aim to help our customers by, for example, maintaining a clear overview of their pensions accrued with different employers over time, and giving them guidance on making the right choices. We assembled a simple and more focused range of products and, to make things easier for customers, we further simplified communications. For example, in Turkey customers can now access their pension and life insurance accounts via an app available for tablets and smart phones. The app consists of an environment where customers can securely make most transactions whenever and wherever they want. There is also an option for customers to plan their future by testing different contribution amounts in different future scenarios.
In the Netherlands, growth opportunities are selectively captured, driven by the shift from defined benefit (DB) to defined contribution (DC) pension schemes. We selectively pursue buy-out opportunities as well.
With our core activities in retirement services and asset management, we are well positioned to fill the gap in risk protection that is a result of retracting governments. We have the required expertise and, by combining our asset management, life insurance and retirement service capabilities, we have a solid basis on which to build. It is important, however, that we keep focused on accelerating change within our organisation, with the continuous aim of improving our agility and responsiveness.
We limit our risk exposure to interest rates by matching the cash flows of our assets and liabilities. We take on higher yielding assets in a prudent manner. We can afford to do so given our conservative balance sheet and our strong capital position, which continue under the new Solvency II regime. We changed our product mix to include more protection and capital light products.
Read more information about our risk management approach on page 23 of this Annual Review, as well as a more extensive description on pages 119–141 of the Financial Report.
Delivering on
Digitalisation is a game changer, also for the insurance and asset management industry. Being able to compare products online, for example via social media, has increased competition in the market.
We have also seen a shift from purely transaction-driven customer contact to one that is more relationship-driven. Historically, online communication often meant impersonal interaction, but state-of-the-art technologies now enable us to communicate in personal and relevant ways with our customers.
New technologies enable further individualisation and drive further innovation in the sector. Apart from the opportunities these developments bring, there is a growing public concern about the potential risks related to data privacy.
Technology has not only changed the rules of the industry, it has also changed the rules of competition and the barriers to entry. Innovation from existing players and non-traditional players is making competition fiercer. In particular, small specialised FinTech companies, who are entering the market at a rapid pace, can disrupt the market (especially for traditional players).
Our approach to innovation is a holistic one. For us, it is about simultaneously meeting the objectives of customer satisfaction, intuitive interaction and efficiency. We create new products and services by developing a culture that supports our employees to take ownership, to come up with new ideas and to contribute to innovation. We direct funding to promising projects that create value for both our customers and our company. By embracing new technologies and digitalisation, we ultimately aim to secure people's financial futures, also in a digital world. We have already introduced new portals and apps for tablets and smartphones in some of the markets we operate in, making it possible for customers to access their products and accounts, and securely make transactions anytime, anywhere. We take the issue of data privacy very seriously and put in place security measures to protect customer information and data. We believe that technology will encourage further engagement with customers about their financial planning, and empower them to make informed decisions. Read more information and examples regarding our customer experience on pages 24–27 of this Annual Review.
Many players in our industry are confronted with legacy IT systems and portfolios. We are no exception, and we work hard to replace and improve systems. We simplified our IT landscape and are continuing to further progress on this. We are becoming more flexible by benefiting from modern IT systems, and the expertise of our suppliers and business partners. We keep investing in modernising our IT infrastructure and direct channels. Our IT capabilities have enabled the introduction of new, useful tools that aid in developing new solutions that add value for our customers.
In a rapidly changing world, alignment with new non-traditional companies is essential. We are constantly looking for new opportunities in the market by building relationships and partnerships with new players to add value to both business models. By combining forces and sharing knowledge on new technology and digitalisation, existing products can be improved and new products can be developed that correspond even better to the needs of customers. By actively searching for and initiating relationships with non-traditional companies, we are recognising and leveraging the strengths of both traditional and new models, creating opportunities for both.
For example, NN Investment Partners initiated partnerships with the Dutch independent institute for financial advice and planning (Nibud) and the Dutch Association of Stockholders (VEB) to create investment awareness among retail clients.
To capitalise on these opportunities – as well as the very dynamic environment in which they are created – we are defining industry 'game changers' as we move forward. These in turn shape our innovation agenda, which we consider to be a responsive, long-term journey.
Delivering on
The financial services industry has been significantly impacted by regulatory changes. The increased level of regulation, mainly prompted by the financial crisis, has created a new operating reality in the financial industry. Insurance companies, however, are generally well positioned to adequately respond to this regulatory pressure.
A prime example is Solvency II, which took effect in 2016, and which requires insurance companies in the European Union to take specific measures to reduce the risk of insolvency.
As with regulatory changes, we feel that we are operating in a 'new normal' in terms of the measures that have been taken to promote product transparency, particularly in the Netherlands. That said, we are expecting an additional transparency push for countries in Central and Eastern Europe, as European legislation requiring further transparency with regard to distribution and sales of insurance (and insurance based investment) products is currently being finalised. Once implemented in national law in the European member states, this will create a new, minimum level of product and sales transparency across Europe. Going forward, the European Insurance supervisory authority (EIOPA) will focus on ensuring transparency, simplicity, accessibility and fairness across the European internal market for consumers.
Meanwhile, in the Netherlands, the uncertainty concerning the outcome of the legal procedures regarding unit-linked insurance products continues.
NN Group believes in clear and sound regulation, as this helps to build and maintain trust in our sector and company. It is important however to achieve the right balance, and prevent regulation from severely disrupting our operations, which in turn increases costs for customers and decreases customer engagement. NN Group strongly supports the close collaboration of policymakers and the industry to mitigate these risks.
In December 2015, we received approval from the Dutch Central Bank to use our Partial Internal Model to calculate our Solvency II capital ratio for NN Group and the Dutch Insurance entities. We have a strong capital position with a Solvency II ratio of 239% on 31 December 2015. The Solvency II ratios are still subject to final interpretations of Solvency II regulations including the treatment of tax in the Solvency Capital Requirements (SCR). See the Risk and Capital management section on pages 119–148
In line with our values – we care, we are clear, we commit – we have closely examined our products and services to ensure they are well suited for our customers, and comply with all applicable regulatory product requirements. In Europe, NN will continue to closely monitor regulatory developments to ensure compliance with all new European legislation.
In the Netherlands, unit-linked products have received negative public attention since the end of 2006. We have taken this criticism to heart, as our aim is to support our customers as best we can. In recent years, NN has made significant progress in reaching out to ('activeren') individual customers who purchased unit-linked products in the past, addressing vulnerable customer groups with priority. In 2012 and in the first quarter of 2013 customers were informed about their compensation under the agreement with several consumer interest groups ('Tegemoetkomingsregeling').
Reaching out to customers means helping them to gain insight into the difference between the projected value of their policy and their target capital and giving them an overview of possible improvements, to encourage and enable such customers to take steps to improve their individual financial situation. NN helps customers to assess whether the product stills meets their objectives and whether the product is aligned with the customer's risk absorption capacity and appetite. If customers so choose, they have the option to switch to another product free of charge.
To date, we reached out to 100% of customers with nonaccumulating policies and mortgage related policies. Before the end of 2016, all customers with annuity-related policies will be contacted. NN will reach out to the remaining group before 1 January 2018. From a total of almost one million individual unit-linked policies sold up to 2006, approximately 322,000 policies were still active on 31 December 2015. In a limited number of cases (less than 400 by the end of 2015), NN has settled disputes with individual customers. These are tailor-made solutions. A limited number of individual customers have put forward their cases at the Dutch Complaints Committee Kifid or at the civil courts.
About NN Group Governance Strategy and value creation
Delivering on
Additional information
Even though the landscape of insurance and asset management is constantly changing, the role we play in supporting people to build and protect their assets and cover their risks has not changed. As such, our aim is – and will remain – to help people secure their financial futures.
What has changed, however, is how we do this. Creating awareness among customers of their financial futures is not just a matter of providing people with information and products. It is about engaging them in an ongoing dialogue about their needs, ambitions and dreams, and how we can help them financially plan to fulfil their goals. We consider engaging with our customers to be a privilege and an opportunity, which is reflected in our brand promise: 'You matter'. We deliver on this promise on the basis of our values: we care, we are clear, we commit.
Our strategy to deliver an excellent customer experience is built on the following pillars:
Transparent products and services NN Group is committed to delivering products and services that are easy to understand and meet customers' lifetime needs. Products and services are built in a standardised, modular way, with flexible features tailored to the needs of individual customers. We review our product range regularly to ensure that all products and services meet our customer, compliance, risk, capital and profitability requirements.
NN Group strives to be available to customers wherever they require. We operate via agents, brokers, banks and direct servicing, which allows customers to choose how and when they interact with us.
NN Group aims to make processes as efficient and effective as possible in order to deliver value for money for our customers. As well as implementing an operating model with more standardised processes, we are simplifying and improving our IT infrastructure. We are also developing our customer intelligence skills, so that we can take a more holistic view of our customers and, ultimately, provide them with even better services.
Excellent balance sheet management Effective capital and risk management ensure that we meet the interests of all our stakeholders and deliver value. Maintaining a strong balance sheet is key to absorbing market volatility and ensuring NN Group and our operating entities are sufficiently capitalised at all times.
Delivering on
For an overview of how we delivered on our strategy while creating value for our stakeholders, refer to pages 24–35 of this Annual Review.
In the current market environment, NN Group sees opportunities for its businesses. We view the private pension market as a growth driver and will continue to use technology to enhance customer experience and increase efficiency. To leverage these opportunities and to keep progressing, we are building a company that truly matters to our stakeholders. Our role in society and our approach to sustainability is something we take very seriously. We will continue to focus on improving people's financial well-being and manage the assets entrusted to us by our customers, as well as our own assets, in a responsible way.
At the same time, we aim to deliver an excellent customer experience and drive shareholder value. To realise this, our focus areas going forward can be defined as follows:
The fundamental need of people to protect themselves against life's uncertainties will continue to drive growth in the insurance industry over the long term. With the combination of our asset management, life insurance and retirement service capabilities, we believe we differentiate ourselves in the market.
For NN Group, innovation is not just about digitalisation; our approach to innovation is of a holistic character. It is about customer satisfaction, intuitive interaction and efficiency at the same time. It is about new products, new ways of distribution, and flawless processes; all anticipating current and future customer needs.
To ensure that NN Group is a 'future-proof' organisation, we are focusing on innovating our processes. This means making them more efficient and less expensive; practices that will solidify our position as a leading player across the industry and within economic fluctuations.
At the same time, we need to improve returns in all our businesses. This also entails a gradual shift of our operating model towards more responsibility for the business units over time.
These overarching focus areas are translated by the different businesses, responding to their own specific market characteristics.
In the recent past, efficiency and cost reductions were two of the main priorities in the Netherlands. They will continue to be important in the future as well. In November 2015 we announced a new target cost base of EUR 700 million by 2018, to be realised mainly through simplification and rationalisation of operational processes, conversion to lower-cost platforms and straight-through processing, the sourcing of non-core IT roles and moving our key workplace services to cloud services.
But at the same time our insurance business units in the Netherlands – Life, Non-life and Bank – will invest in further strengthening our customer experience and meeting the changing customer needs. Key words for 2016 and 2017 are digital, personal and relevant: we have a personal approach to our customers, are relevant in our product and services offering and we do this in a digital way where possible. As such, customers can secure their financial futures in a fast and easy way, now and in the future.
Strategic focus on profitable growth In order to drive profitable growth while delivering an excellent customer experience, a first priority for the international insurance businesses is to focus on disciplined capital allocation at portfolio and proposition level. This enables the business to improve return on equity of the overall portfolio and also improve the value of new business written as we focus on higher margin protection sales. Our second priority is to further leverage high-quality distribution by arming tied agencies with digital technology, which will bring improved productivity as well as an enhanced customer experience. Opportunities also exist to significantly grow in bancassurance partnerships.
A third priority in the international businesses is to drive growth through innovative product development in the areas of protection and long term savings. Our final priority is to differentiate through excellent customer experience by continuously digitalising the customer touchpoints and leveraging customer intelligence and analytics.
Successfully implementing a digital strategy is critical to firstly meet and progressively beat our customer expectations.
Focus, simplify and optimise The challenging market environment prompts us to sharpen the strategic focus of our asset management business. While investing in new and promising products, market segments and client initiatives, NN Investment Partners is executing an optimisation programme so it can keep delivering on client promises and growth ambitions. In the fourth quarter of 2015, we have taken a restructuring provision of EUR 13 million to realise this.
NN Investment Partners will sharpen its client focus tailored by type and country, and heighten distribution focus through initiatives such as key account management. Furthermore, it will simplify and rationalise operational processes, while at the same time making its organisation more agile and aligning the investment engine with areas where we see growth. The setup of skill based boutiques supports this, where responsible investment is an overarching element in all boutiques.
Delivering on
Additional information
In assessing our success, we measure our performance in a disciplined way with clear objectives.
We measure the success of our company both in terms of financial and non-financial performance. Therefore, we set financial, operational, and non-financial objectives.
Financial objectives*
Operational objectives
Non-financial objectives**
* NN Group also sets specific financial objectives per business segment.
** For more information on non-financial objectives, refer to the Sustainability Supplement, page 4.
Delivering on
How we create value
This is a simplified visualisation of our business model. In developing this model we used the framework of the International Integrated Reporting Council (IRRC) that is based on financial, intellectual, human, and social and relational capital.
Delivering on
When acting upon the trends in our operating environment and executing our strategy, we focus on the core of our business model: to help carry risks for people they can't bear alone, providing protection to what matters most to them.
As such, we offer life insurance products to protect people against the risk of living a long life without sufficient means of support or dying at an early age, non-life products (in some markets) to protect the assets that matter to them, and savings and investment products to ensure their long-term income.
We invest and actively manage the capital from our shareholders and the premiums we receive from our customers, or the assets under management entrusted to us.
Our value creation model illustrates what resources we use to create value. A set of financial and non-financial indicators helps explain the impact of our business on our different stakeholder groups.
To truly matter in the lives of our stakeholders, we fulfil several roles in the world around us. We are an insurer and asset manager, an investor, a listed company, an employer and a corporate citizen. As such, we aim to create value in an integrated way for all our stakeholders: customers, shareholders, employees, business partners and society at large.
The capital from our shareholders is allocated to our business units, focusing on those areas offering the best prospects for growth and returns. Our businesses have strong capital generation capabilities, as we see reflected in our solid capital position and the dividends from our subsidiaries.
Our customers entrust their money to us when purchasing our products and services. Our role is to support people in building and protecting their assets and covering their risks. We offer easy to understand and transparent products and we aim to empower our customers with the knowledge and tools they need to make sound financial decisions. Through our multi-access distribution approach we are there where our customers want us to be, supported by efficient and effective operations.
How we create value as an insurer and asset manager is described on pages 24–27 of this Annual Review.
To pay out claims and benefits to our customers, we invest in different asset classes. When investing our assets, our priority is to provide the best risk adjusted return, consistent with matching our assets and liabilities. We always do this by integrating environmental, social and governance (ESG) factors into our investment and active ownership processes.
How we create value as an investor is described on pages 28–29 of this Annual Review.
We raise the financial capital that we need to manage our business from our shareholders and investors, as the owners of our company. They invest their money in NN Group and expect to be compensated in a responsible way. Our dividend policy states that we return excess capital to our shareholders, unless we can find other value creating ways to deploy that capital, organically or inorganically. We believe that having a strong, diversified and professional shareholder base is also critical for all other stakeholders.
The listing of NN Group on Euronext Amsterdam in 2014 increased the visibility of the company. We regularly inform the market of strategic, financial and commercial developments at NN Group. In doing so, we constantly strive to enhance NN Group's reputation as a solid, transparent and reliable company for all our stakeholders.
How we create value as a listed company is described on pages 30–31 of this Annual Review.
We want to be known for our customer care. Our human capital, consisting of about 11,500 employees, brings our brand promise 'You matter' to life for our customers every day. We employ a diverse group of talented and skilled people, and ensure we provide them with the training and equipment they need. We offer our employees competitive salaries and benefits. We work hard to create a culture based on our values, as they enable us to be the best we can be, and to continue to build and maintain trust with our stakeholders.
How we create value as an employer is described on pages 32–33 of this Annual Review.
At NN Group, we aim to be a good corporate citizen by using our resources, expertise and reach to help societies achieve long-term sustainable prosperity. We contribute to society at large by purchasing products and services from suppliers, and by paying taxes to the governments of the markets where we operate. Furthermore, we invest in our local communities through donations and volunteering.
How we create value as a corporate citizen is described on pages 34–35 of this Annual Review.
Delivering on
Additional information
Managing risks is integral to the business model for insurers and asset managers like NN Group.
With Risk management being at the core of our value creation process, it must be addressed appropriately. Through our risk management practices, we seek to meet our obligations to customers and creditors, manage our capital efficiently and comply with applicable laws and regulations.
Our Risk management system is built around four components: risk strategy, risk assessment, risk control and risk monitoring. It operates in the context of our risk philosophy which we call 'Active Risk management'.
We assess the effectiveness of this philosophy twice a year through Risk Culture Dashboard assessments.
Under this philosophy, every employee has a role in identifying risks in their domain; the role of management is to decide how to manage these risks. It is paramount to know which risks we take and why; have our eyes wide open for both the biggest risks and everyday risks; and ensure an adequate return for the risks we do take.
With risk management, we do not try to predict the future, but rather manage potential risk. This encompasses all risks to all key business objectives.
When assessing and managing risks, we work systematically, aim for completeness and document what we do.
Each risk analysis performed is communicated in a focused and relevant way. As such, we are clear and transparent throughout the organisation for the benefit of management and stakeholders alike.
The Risk and Capital management section in the Financial Report provides details regarding the types of risk in our risk taxonomy. In addition, we perform a yearly risk assessment to identify and assess the top risks for NN Group. The 2015 process resulted in the Management Board identifying the following top risks for NN Group (in no particular order).
Financial market exposure relates to adverse market movements and volatility. A well-diversified portfolio, strong asset-liability matching, specific hedging programmes and strong risk governance aims to keep this risk within set limits.
Adapting our longer-term business model to the changing world around us, including low interest rates and technological advances, is managed through NN Group's strategy process and related Medium Term Planning (MTP) cycle. A Chief Innovation Officer was appointed in the fourth quarter of 2015 to channel and support innovation initiatives.
Regulatory and political circumstances
continue to change at a rapid pace, including those for financial services companies. Closely following developments, actively managing relationships with regulators and supervisors alike, and raising any concerns in relevant forums are examples of actions to mitigate associated risk.
Longevity risk related to the Dutch pension business, is currently a large risk concentration with exposure to positive changes in life expectancy. We consider, from time to time, options to transfer part of this risk as well as also adjust the business model over time by rebalancing our pension portfolio towards more DC products.
Like many large organisations with legacy IT systems, we have a risk of ineffective operations and related inefficiencies, which can lead to slow or incorrect decision making, a cost base that is too high, and reputational damage. An effective control framework and a focus on improving efficiency aim to mitigate these risks to acceptable levels.
refers to the risk that products do not appropriately meet clients' interests over their full lifetime. A product approval and review process is in place to ensure new products are appropriate for all stakeholders. A continuous focus on customer needs and a periodic review of existing products are priorities.
We need the right people to effectively manage our business for sustainable success. Effective talent management is crucial in attracting, retaining and compensating talent. Read more about our talent management approach in the chapter 'Creating value as an employer' on pages 32–33 of this Annual Review.
NN Group has a strong capital position, also under the new Solvency II regime. This enables NN Group to pursue its strategy and business objectives without jeopardising its capital position, even under adverse events. For more on Solvency II, refer to the Financial Report.
Delivering on
Additional information
We want to offer customers fair value for money and an experience that is straightforward, personal and caring.
Our customers entrust their money to us when purchasing our products and services. Our role is to support people in building and protecting their assets and covering their risks. As we want to help our customers secure their financial futures, we manage our business in a responsible way. We create transparent, easy to understand products and we aim to empower our customers with the knowledge and tools they need to make sound financial decisions. Through our multi-access distribution approach we are there where our customers want us to be, supported by efficient and effective operations.
We measure how our customers value our products and services using – amongst others – the Net Promoter Score (NPS) methodology. With NPS we collect, evaluate and act on a constant stream of customer feedback. This information drives improvements in our product portfolio and customer service, thereby helping us become a more customer-centric company. We won awards in several countries for our approach of putting the customer at the heart of everything we do. In 2015, the majority of our insurance businesses have maintained or improved their Relationship NPS scores since the rebranding from ING to NN.
For more information on NPS and how we measure it using the Global Brand Health Monitor, please refer to page 8 of this Annual Review.
Customer centricity is also clearly expressed in our Customer Golden Rules. We strive to meet customers' needs throughout all different stages in their lives:
We also believe that we need to reach out to people that may not have direct access to insurance and could benefit from additional support. We aim to provide an inclusive and positive experience for many different groups of people. By developing products that offer added social value and anticipating the needs of specific customer groups, we optimise the customer experience while strengthening the sustainability of our businesses. For more information on financial inclusion, refer to the Sustainability Supplement, page 7.
Sander Kernkamp, CEO Netherlands Non-life Delivering an excellent customer experience is also a matter of empowering people to improve their own financial decision-making. Therefore, we invest in educating people about finance and raising their financial awareness through campaigns and (online) tools.
New technologies and digitalisation enable us to become more relevant in the lives of our customers, with personalised offerings, based on individual customer profiles. In many countries, we aim to involve and consult our customers in our product development processes.
Our new hospital coverage for children in Slovakia is one such example. Another is the Dutch Nationale-Nederlanden app, developed in direct response to customer requests.
To protect customer information in our digital environment, we have several controls and measures in place. Examples are data encryption, strict authentication and access control, and incident management processing. Measures, developments and performance are reported to the Dutch Central Bank on a regular basis.
With our strategy to deliver an excellent customer experience, our customers are at the heart of everything we do. In 2015, all our businesses delivered on this strategy.
Delivering on
In 2015, we introduced or adapted a wide range of products and services, all after careful product approval and review processes (PARP). PARP ensures, in all our markets, that transparency and customer interest remain a top priority.
Besides offering transparent products and services, our Dutch Insurance businesses aim to be personal and relevant, supported by new technology.
Given that NN Group operates in several markets, and therefore deals with different market dynamics, we do not follow a singlemarket approach. Our local businesses have marketspecific products, services and campaigns.
Our international insurance business is providing tailored propositions for local markets. In Europe, we moved our business mix towards protection products, and repositioned our savings and retirement products in response to the low-interest rate environment.
NN Investment Partners aims to deliver distinctive, actively managed investment products developed in a customer-centric way. We focus on illiquid fixed income, high distinct active equity and multi-asset products, developed with environmental, social and governance (ESG) factors top of mind.
Delivering on
Our large, high-quality distribution platform is one of our strengths. We are present in all distribution channels – agents, brokers, banks and direct servicing – which allows customers to choose how they want to interact with us. We will continue to focus on upgrading our distributive efficiency by investing in digitalisation.
Internationally, we service our customers through one of the biggest tied agent distribution entities as well as through brokers, direct channels and our bancassurance partners.
This significant distribution ability is one of our distinct strong points and a driver for growth.
NN Investment Partners services institutional, wholesale and retail clients through a global distribution network.
By rationalising and improving our IT landscape we improve efficiency and reduce costs. We completed our EUR 200 million cost reduction programme in the Netherlands one year ahead of schedule.
We are actively working towards cloud solutions and offshoring application platforms. This enables us to focus on our core competences.
• In Spain, a 'paperless sales process', allows agents to perform need-based analyses, prepare a quote, capture the client's ID with a camera, fill in a complete application form and finalise the insurance contract using digital and biometric signatures. This sales process has reduced new business processing costs by over 80% and will be replicated in other markets.
• In Japan, we offer an innovative video-streaming service, NN Tube, which provides training and high-quality information to our independent agents. In 2015, we launched over 100 new videos on NN Tube and invested in further usability upgrades.
• We upgraded our administrative support with a scalable backoffice platform. It enables us to take on additional assets under management without making additional investments. It will also provide the backbone for developing more efficient processes based on an agile way of working.
Delivering on
Additional information
To provide capital and generate returns for our shareholders and customers in a responsible way, we integrate environmental, social and governance (ESG) factors into our investment and active ownership processes.
As an insurance company, we collect premiums from policyholders and aim to invest the money wisely, so we can pay future claims and benefits. We invest most of these assets, as well as our own capital (together called proprietary assets), through our asset management business, NN Investment Partners (NN IP), which also manages third-party assets. Third-party assets are those we manage for institutional and retail customers through mandates and mutual funds. To pay out claims and benefits to our customers in the best possible way, we invest in different asset classes. We also believe that value can be best achieved when environmental, social and governance (ESG) considerations are integrated into our investment processes.
The integration of ESG factors in the investment process is at the core of our approach to responsible investing. This is supported by the belief that it helps us to make more informed decisions and optimise the risk/return profile of the investment portfolio. NN IP's equity and fixed income analysts carry out ESG analysis as an integral part of the research process. They make use of ESG data from several data and research providers, including Sustainalytics, GMI and Bloomberg, taking into account company characteristics, developments within the sector and materiality of the issues.
To gain new insights into the relationship between ESG factors and investment returns, NN IP is working with the University of Maastricht's European Centre for Corporate Engagement (ECCE). In 2015, a first study was conducted focusing on the relationships on the equity side. Using the findings, NN IP is enhancing its investment processes.
NN Group worked on the integration of ESG factors into its own real estate portfolio, which comprises both direct and indirect investments. Responsible investment guidelines were developed, which set out the expectations of our (external) real estate managers.
Amongst others, we ask our managers to participate in the annual Global Real Estate Sustainability Benchmark (GRESB) Survey. We use the results to evaluate the sustainability of our portfolio and set long-term targets.
We vote at shareholder meetings because we believe that it is one of the most important rights that come with being a long-term shareholder. By exercising these rights we can support or enhance our investment rationale for a company and promote our responsible investment beliefs and principles. Voting rights are exercised on behalf of: (i) the proprietary portfolio and (ii) the Dutch, Belgian and Luxembourg funds with at least EUR 100 million assets under management. As part of the information barriers (historically known as 'Chinese Walls'), there are separate voting committees for proprietary and client assets in place.
In 2015, we exercised voting rights at 2,013 shareholder meetings worldwide. We voted on a total of 26,580 agenda items and resolutions, including 532 resolutions put forward by shareholders on environmental, social and governance issues (see chart on page 29). We supported shareholder resolutions that related to environmental and social matters in a large number of cases. We voted 'against' (or abstained from voting) when these resolutions sought additional data or policies without providing proportionate benefits to shareholders.
By engaging in a dialogue with our investee companies about their policies and activities, we aim to achieve ESG-related improvements. As an asset manager with active investment strategies, we spoke with company representatives including senior managers of nearly 1,645 companies in 2015. ESGrelated risks and opportunities were often part of these discussions. We also have an in-house team that focuses specifically on ESG issues, such as climate change and human rights, that may have an impact on our customers' holdings. For more information on the topics we engaged in, refer to the Sustainability Supplement, pages 9–11.
Delivering on
NN Group's Responsible Investment (RI) Policy Framework forms the basis for our responsible investment approach. This framework is based on our values and widely recognised standards, principles and best practices, among which the United Nations Global Compact. These principles are supplemented by criteria for controversial aspects of the weapons or defence industry.
In 2015, NN Group revised and published its Defence policy. NN does not invest in companies that demonstrably have activities in the trade of arms to countries that are sanctioned by a UN, EU or US arms embargo. Companies that develop, produce, maintain or trade 'controversial weapons' are also part of our exclusion list. Weapons that we define as controversial include anti-personnel landmines, cluster munitions, depleted uranium ammunition, biological, chemical and nuclear weapons.
In our adjusted policy criteria, we sought a closer alignment to universally accepted standards and treaties, which resulted in
By offering specialised sustainable investment products and solutions, NN IP meets our customers' growing demand for products that not only generate good financial returns, but also have a positive impact on society and the environment. assets under management in our sustainable equity and fixed income products have grown to EUR 4.5 billion by year end 2015, an increase of 11.3% compared to the prior year.
In 2015, NN IP and Dutch development bank FMO joined forces to develop a sustainable emerging markets loan fund. The fund will enable institutional investors to invest in responsible loans in emerging economies. Reporting on social and environmental outcome, notably job creation and the reduction of greenhouse gas emissions, will be an integral part of this 'impact investing' proposition.
We work with peers and global organisations such as the International Corporate Governance Network (ICGN) or Eumedion. We also contribute to the integration of ESG aspects in training for investors and students. For example, NN IP helped to develop learning materials that are part of the CFA ESG course, and initiated a masterclass at Nyenrode Business University in the Netherlands for MBA students addressing the benefits of ESG integration. We also promoted responsible investments at client events as well as conferences organised by external parties. For more information on responsible investment, refer to the Sustainability Supplement, pages 9–11.
Delivering on
Additional information
NN Group became a standalone company on 2 July 2014, following an Initial Public Offering (IPO). Our shares are listed and traded on Euronext Amsterdam under the listing name NN Group – symbol NN.
Our shares are included in four stock indices: MSCI Global Standard index (since 26 November 2014), STOXX Europe 600 index and FTSEurofirst 300 index (both since 22 December 2014), and Euronext AEX index (since 23 March 2015).
The listing of NN Group on Euronext Amsterdam in 2014 increased the visibility of the company. We regularly inform the market of strategic, financial and commercial developments at NN Group. In doing so, we constantly strive to enhance NN Group's reputation as a solid, transparent and reliable company for all our stakeholders, including customers.
ING Group previously announced that it intends to divest its remaining stake in NN Group over time, in line with its strategy to divest all of its insurance and investment management businesses as part of the EC restructuring agreement, ultimately by the end of 2016.
In this context, ING Group sold shares of NN Group through the Initial Public Offering in July 2014 and follow-on offerings in February 2015, May 2015, September 2015 and January 2016. NN Group participated in these follow-on offerings via share buybacks from ING Group for a total amount of EUR 750 million. There was also the exchange of in total three tranches of mandatory exchangeable subordinated notes issued by ING Group to the anchor investors. Since the IPO, ING Group's stake in NN Group has been reduced to 14.1% (as of 2 February 2016).
When proposing a dividend to shareholders, NN Group takes various factors into account, including our capital position, leverage and liquidity position, and strategic considerations as well as the expected developments thereof. We intend to pay an ordinary dividend in line with our mediumterm performance and envisage an ordinary dividend pay-out ratio of 40–50% of the net operating result of the ongoing business.
NN Group N.V. 2015 Annual Review 30
Delivering on
Additional information
Barring unforeseen circumstances, we intend to declare an interim dividend with the disclosure of our second quarter results. Interim dividends are calculated at approximately 40% of the prior year's full-year dividend.
NN Group intends to pay dividends either in cash or ordinary shares from the share premium reserve. We intend to neutralise the dilutive effect of the stock dividend on earnings per ordinary share through the repurchase of ordinary shares, which may include a repurchase of part of ING Group's shareholding in NN Group.
Capital generated in excess of NN Group's capital ambition (which may change over time) is expected to be returned to shareholders, unless it can be used for other appropriate corporate purposes, including investments in value-creating opportunities. Excess capital will be distributed in the most appropriate and efficient form for shareholders, such as special dividends or share buy backs.
At the Annual General Meeting on 2 June 2016, a final dividend for 2015 will be proposed of EUR 1.05 per ordinary share. Together with the 2015 interim dividend of EUR 0.46 per ordinary share paid in September 2015, NN Group's total dividend for 2015 will be EUR 1.51 per ordinary share which is equivalent to a dividend payout ratio of around 41% of NN Group's full-year 2015 net operating result of the ongoing business.
Shareholdings in Dutch listed companies of more than 3% must be notified to the Netherlands Authority for the Financial Markets (AFM). According to the AFM register, the following shareholders have an interest of more than 3% in NN Group on the notification date: ING Group (14.09% on 28 January 2016), RRJ Capital II Ltd. (5.91% on 7 July 2014), Temasek Holdings (Private) Limited (4.27% on 2 February 2016), Franklin Mutual Series Fund Inc. (3.87% on 27 May 2015), JP Morgan Asset Management Holdings Inc. (3.08% on 21 September 2015), and BlackRock Inc. (3.05% on 6 January 2016). The stated percentages are the interests reported by the relevant shareholder to the AFM on the indicated dates. It is possible that the stated interests differ from the current interests of the relevant shareholder.
Our investor relations policy is designed to provide current and potential shareholders and bondholders, rating agencies and research analysts with accurate and timely information concerning developments within NN Group.
We engage in an active dialogue with all our financial stakeholders, for example by publishing press releases and the annual report and by organising meetings and one-to-one discussions with existing and potential investors.
NN Group has published its policy on investor relations and contacts with (potential) shareholders on www.nn-group.com/investors
On 19 November 2015, we held our inaugural Capital Markets Day in The Hague. The theme of this event, which was attended by about 40 analysts and investors and viewed by over 450 people online, was 'Driving Performance Forward'. The NN Group Management Board gave an update on the strategic outlook of the company, on Solvency II, and a deep-dive into the Netherlands and International businesses.
as at 2 February 2016
Having a strong, diversified and professional shareholder base is critical for all stakeholders
Credit ratings are indicators of the probability of timely and full repayment of interest and the principal amount of fixed-income securities. Credit rating agencies Standard and Poor's (S&P) and Moody's periodically review NN Group's creditworthiness. The current credit ratings are:
A-Standard & Poor's: A-, stable outlook (updated on 30 September 2015)
Delivering on
Additional information
At NN Group, we want to be known for our customer care. Our employees bring our brand promise 'You matter' to life every day.
We employ a diverse group of about 11,500 talented and skilled people, and ensure we provide them with the training and development they need. We recognise performance by offering our employees competitive salaries and benefits. Above all, we work hard to create a culture based on our values, as these enable us to be the best we can be, and to continue to build and maintain trust with our stakeholders.
We are driven by our purpose of helping people secure their financial futures. Throughout 2015, we further embedded our values and brand promise that were launched in 2014. We did this through global employee training, team effectiveness tools and by integrating leadership development frameworks and the Employee Value Proposition (EVP). We launched the NN Values challenge across our Group, an online 'serious game' that allowed employees in each market to pit themselves against colleagues in other markets in their own language. For more information on the Values challenge, we refer to the 'Our values' section on pages 9–10 of this Annual Review.
NN offers a solid professional development curriculum for specific groups, leaders and employees through various academies, at both business and Group levels. We support this with a rich e-learning suite, taking a blended learning approach where applicable. To keep up with our dynamic environment, we constantly align and update our curriculum, taking current and future needs into account.
Management teams across business units took part in leadership workshops that allowed them to work on their leadership skills in accordance with the new NN leadership model, fully aligned with our purpose and values. We also developed several new leadership programmes aimed at enhancing our focus on values-based leadership and external orientation. These include programmes for high-performing managers in their mid-career phase and a special leadership expedition for a selection of our top leaders. Each of these programmes will continue in 2016. In 2015, we spent EUR 13 million on training and development of our employees.
We continue to focus on excellent execution, supported by a strong performance management process including both financial and non-financial targets, and competence and behavioural related targets. This is done on all levels in the company and effectively linked to reward (either in development or other benefits). 87% of our employee base completed the 2014 annual appraisal cycle ending in 2015.
NN Group wants to be an attractive employer with a remuneration model that is tailored to fit market circumstances. The primary objective of NN Group's remuneration policy is to retain and recruit qualified and expert leaders, senior staff and other skilled professionals. Our policy maintains a sustainable balance between short-term and long-term value creation, building on our long-term responsibility towards our customers, society and other stakeholder groups.
18% 7% 35% 6% 10% 24% We offer the security of attractive overall compensation with both fixed and variable components. The latter recognises performance, regarding both the customers' interests and the company's performance. In 2015, we paid EUR 1,159 million in salaries and other benefits. For more information on remuneration, we refer to the Financial Report, pages 29–33.
Delivering on
We believe that ensuring our workforce reflects the diversity of the markets in which we operate is key to the future success of our company. We value diverse talents, personalities and expertise, and are committed to helping all employees take their career to the next level. We believe this is the optimal way to improve performance and engage employees, ultimately leading to better decision-making and innovation, and ensuring the sustainable development of our company.
NN Group is committed to creating equal opportunities for employees and ensuring compliance with applicable laws. For job vacancies, we consider all qualified applicants and we strive to keep our workplace free of any discrimination, hostility, and physical and verbal harassment regarding age, race, gender, religion, disability, and sexual orientation. Our main diversity focus is on gender, internationalisation and generation 2020.
63 Different nationalities working for NN worldwide
In 2015, 18% of our senior leaders were female and 29% had an international background. The NN Supervisory Board is made up of seven members, two of whom are female.
At NN Group, we aspire to offer our staff a vital and healthy place to work. We pay close attention to the energy levels, mental health and physical well-being of our employees throughout their career. We believe that healthy people are not only happier, but also make better decisions, become better leaders and, in the long run, achieve greater value for our customers and our company. To this end, we offer a programme called 'Your Health Matters' in the Netherlands. In 2015 the programme focused on teaching people to manage their energy better. Awareness was created on how to balance and recharge the physical, mental and emotional batteries in order to become an energised, sustainable, high performer. Multiple masterclasses, running clinics and workshops were organised.
How we consult with our employees depends on local legislation and culture. In some countries, employee consultation is a legal requirement and in many European countries, it is arranged through works councils.
At NN Group level, we have a Central Works Council and a European Works Council. Our European Works Council started a new term of office in February 2016. Representatives of the participating countries will be elected by local employee councils. For an overview of our Central and European Works Council members, refer to page 34 of the Financial Report.
We proactively encourage local employee participation. In the Netherlands, works councils are often actively involved at an early stage in different processes, for example with regards to restructuring plans throughout the various businesses. Social policy topics are frequently discussed in meetings with the works councils and management. Our dialogue with the works councils accommodates collective interests and facilitates the sharing of information and indirect participation by all employees.
In addition, the majority of NN Group's employees are covered by a collective labour agreement (CLA) or locally agreed policies (in compliance with NN policies). In the Netherlands, this figure is 99%. We are currently in the process of co-creating a new CLA, together with our employees, works council and trade unions. The key themes in this new CLA are employability and mobility.
The original target to reduce administrative expenses in the Netherlands by EUR 200 million, was realised one year ahead of schedule. NN Group will continue its focus on efficiency in all segments, especially in the Netherlands. To guide our people through these often challenging processes, we provide employees with training, coaching and consulting.
The results of the yearly engagement survey (YES) showed a seven-point rise (from 66% to 73%) in engagement compared to the 2014 survey. Perceptions of how we are living our values and brand are encouraging, with 85% of respondents providing positive feedback. Employees rate their own teams and jobs particularly high. NN redesigned its engagement survey so that it provides us with information on how our brand and values are experienced internally, how our leaders live up to the high standards we set and how we fulfil our employee value proposition as an organisation. Of our employees, 84% took part in the survey, providing us with robust and reliable data to analyse and on which to act.
Engagement level in 2015, an increase of 7 points compared to 2014
In 2015, various businesses received employer awards. In Spain, Nationale-Nederlanden was awarded the 'IN Award 2015' for employer branding by LinkedIn. In the Greek market, NN Hellas was in the top three of 'Best Workplaces 2015'.
Delivering on
Additional information
At NN Group, we aim to be a good corporate citizen by using our resources, expertise and reach to help societies achieve long-term sustainable prosperity.
We contribute to society at large by purchasing products and services from suppliers, and by paying taxes to the governments of the markets where we operate.
Furthermore, we invest in our local communities through donations and volunteering.
With an annual spend in 2015 of EUR 964 million, our procurement activities support our business strategy while working with around 8,000 suppliers. A substantial part of this investment goes towards IT, Facility Management, Real Estate and Professional Services. For many of our partners, we are a relevant client and an important source of income. By encouraging suppliers to share our standards and work towards continuous improvement, we believe we can drive different sustainability aspects through our supply chain.
In our dealings with suppliers throughout 2015, our procurement department focused even more on sustainable and professional relationships in the supply chain via contract and vendor management. Our relationship with suppliers is based on cooperation and trust, and we aim to work together in a mutually beneficial way. Proper governance with the supplier, based on a segmentation of suppliers, supports this.
The procurement policy was further implemented and communicated to all relevant stakeholders in the countries where we operate. In addition to including a separate chapter on sustainability, the policy pays more attention to supplier qualification, awareness of conflicts of interest, security measures and risk mitigation. All vendors, including around 400 suppliers with a spend of more than EUR 10,000 a year each, were assessed via the supplier qualification process. In 2015, our risk assessment was further improved to better determine sustainability risks for NN within our segmentation analysis.
In 2015, procurement employees were trained in implementing sustainability initiatives in the supply chain and integrating them into procurement category plans. Besides these initiatives, Procurement also contributed to the new Code of conduct.
As reflected in our values, we take our responsibility for the environment seriously. 'We care' means that we respect each other and the world we live in. That is why NN Group avoids or responsibly manages any negative impact our business activities may have on people or the environment, and seeks positive change in society.
In 2015, we continued to effectively manage our direct environmental footprint by efficient use of natural resources, identifying and implementing green alternatives and ultimately compensating for the remainder of our carbon footprint. Our sustainability initiatives continue to focus on energy and business travel efficiency, and paper use reduction. We also encourage the recycling of materials inside our office buildings.
Despite the energy efficiency measures and adjustments in our business travel policy, we realised a 13% increase in CO2 emissions. We continued to offset the remainder of our emissions through the purchase of voluntary carbon units. As a result, we achieved carbon neutrality over 2015. For more information, refer to the Sustainability Supplement, page 12.
Tax has become a key focus area for governments, regulators and civil society. Companies are expected to clarify their views on responsible tax behaviour. At NN Group, we believe that a responsible tax approach is an essential part of good corporate citizenship. The planning of our tax position is consistent with our business operations, reflects our corporate strategy and takes into account relevant international guidelines, such as the OECD Guidelines for Multinational Enterprises.
As an employer of about 11,500 people, we create career and job opportunities.
Delivering on
Additional information
In this role, and besides the corporate income tax we pay, NN Group contributes to many other taxes, such as employee wage tax, social security premiums on employee wages, insurance premium tax and value added taxes (VAT). All these taxes provide revenue for governments to fund public services in the markets where we operate.
Being a responsible taxpayer means that our tax planning takes long-term considerations into account and carefully weighs all stakeholder interests. As such, we believe it is essential to have a set of guiding principles. In 2015, we published the essence of our tax principles on our corporate website.
Transparency is a key element in our tax principles. We aim to disclose all relevant facts and circumstances to our local authorities. In the Netherlands, for example, this is embedded in a 'horizontal monitoring' approach. By engaging in a proactive manner with tax authorities, we aim to achieve clarity and upfront certainty around tax matters.
NN Group also provides information about the income tax charge by country in the company's financial statements. Although the requirements for country-by-country reporting for our industry are still under development, we provide additional information by country in the Financial Report, Note 33.
The income tax charge of EUR 166 million in 2015 represents an effective income tax rate of 9.4% (2014: 17.7%). The lower effective tax rate in 2015 reflects higher tax exempt dividends and capital gains mainly in the Netherlands, and the recognition of deferred tax assets for previously incurred unused tax losses. More information about the effective tax rate can be found in the Financial Report, Note 34.
Income tax paid in 2015 amounted to EUR 39 million (2014: EUR 89 million). These amounts are reflected in the Consolidated statement of cash flows in the Financial Report.
At NN Group, we aim to be a positive force in the lives of our customers. We believe this also includes contributing to the well-being of society at large and supporting the communities in which we operate. This ambition is reflected in our community investment programme 'Future Matters', launched in 2014 and now fully implemented in the majority of our business units. Through our community investment activities, we connect with our employees, customers and business partners. With our expertise, time, and broad outreach, we aim to address societal needs and positively impact the communities where we live and work.
NN Future Matters' goal is to improve the financial well-being of people in the markets where we operate by helping them grow their economic opportunities, so they are better able to realise their dreams and overcome possible adversity. Our Future Matters programme specifically targets 10–25 year-olds and underserved groups. The programme achieves its objectives by focusing on themes that are in line with NN's purpose, our employees' skills and where we believe we can make the biggest difference. In 2015, 58% of total charitable contributions went to charitable causes in the three target areas of our Future Matters programme.
Promoting financial empowerment Improving knowledge about personal finance enables people of all ages to manage their financial lives with confidence. In 2015, we started projects that create awareness, foster knowledge and insight, and build financial skills. Responsible financial behaviour is developed at an early age, so many of our initiatives are focussed on youngsters. We help them learn about money – how to save, how to wisely spend – and teach them about the relevance of insurance. A good example is 'Money Week', an initiative backed by the Dutch Ministry of Finance during which NN employees gave 81 guest lectures in primary schools.
Creating economic opportunities Alongside building their financial capabilities, we want to help people shape their futures, reach their full potential and grow their opportunities to generate income. In Europe, too many young people drop out of formal education or lack specific skill sets needed in the current economy.
NN aims to help prepare these young people for the job market by donating a variety of our resources – time, human and financial. We aim to teach them valuable skills so that they may increase their employment opportunities in the future.
In partnership with Junior Achievement (JA) Europe, our volunteers mentor young people to develop entrepreneurial skills. In 2015, the Social Innovation Relay took place as a flagship programme of the NN Group and JA partnership.
To provide talented and ambitious students with the financial means to take their future into their own hands, we introduced the NN Future Matters scholarships in 2015. These scholarships enable selected students to follow Master's Programmes in the Netherlands in the field of finance, risk and/or economics. The students, who are the first in their family to study at an academic level, are coached by our senior managers and receive valuable insight into a variety of business and work environments.
Alleviating financial distress In addition to empowering people to prepare themselves economically and financially, we support them in overcoming adversity when life takes unexpected turns. Formal social support services are sometimes unable to fully reach out to people in financial need. NN helps bridge this gap by raising funds for a number of local charities that focus on families with children that live in challenging financial circumstances.
To support this goal, and to celebrate the first anniversary of NN Future Matters, in 2015 we made extra donations that totalled EUR 100,000 to local charities in ten markets where we operate. For more information on how NN Future Matters contributes to improving people's financial well-being, including examples of local activities, refer to the Sustainability Supplement, page 8.
Next to the community investment themes under the NN Future Matters umbrella, our business units and corporate foundations support a wide range of local initiatives in the areas of, for example, health and the environment. The success of these initiatives is not just measured in cash and in-kind donations, but also in the active involvement of our employees as volunteers.
For more information on community investment, refer to the Sustainability Supplement, pages 7–8.
NN Group N.V. is a public limited liability company ('naamloze vennootschap') incorporated under the laws of the Netherlands. It has a two-tier board structure consisting of an Executive Board and a Supervisory Board. The company also has a Management Board.
The organisation, duties and working methods of the Executive Board, Management Board and Supervisory Board are detailed in charters of these Boards. The charters are available for download on our corporate website.
24 years average experience in the financial services industry of an NN Group Management Board member
refer to the Report of the Supervisory Board, Financial Report, for more information The Supervisory Board is responsible for advising and supervising the Executive Board, the general course of affairs of NN Group and the businesses connected with it.
The Executive Board is entrusted with the management, the strategy and the operations of NN Group. It is comprised of Lard Friese, chair and chief executive officer, and Delfin Rueda, vice-chair and chief financial officer.
The Management Board is entrusted with the day-to-day management of NN Group and the overall strategic direction of NN Group.
For more information about Corporate Governance, refer to the Corporate Governance chapter in the Financial Report.
As a Dutch listed company NN Group must adhere to the Dutch Corporate Governance Code. NN Group endorses the Code and strongly supports its principles for sound and responsible corporate governance. NN Group considers the principles and best practices of the Code a useful and efficient guide that contributes to NN Group's effort to carefully take into account the interests of its stakeholders. The Code also supports transparency in decision-making and helps strengthen the principles of good governance. NN Group annually publishes a booklet on its application of the Dutch Corporate Governance Code. The booklet is available for download on our corporate website.
NN Group is committed to the preservation of its reputation and integrity through compliance with applicable laws, regulations and ethical standards in each of the markets in which it operates. All employees are expected to adhere to these laws, regulations and ethical standards, and management is responsible for ensuring such compliance. Compliance is therefore an essential ingredient of good corporate governance. The purpose of the NN Group Compliance Charter & Framework, which was renewed in June 2015, is to help businesses to effectively manage their compliance risks. The document is available for download on our corporate website.
Delivering
The Management Board is entrusted with the day-to-day management and the overall strategic direction of NN Group. Its members on average have about 24 years of experience and had significant and varied roles in the financial services industry.
Lard Friese (1962) Dutch Chief Executive Officer
Lard Friese was appointed as member and vice-chair of the Executive Board on 1 March 2014 and as Chief Executive Officer (CEO) and chair of the Management Board and Executive Board on 7 July 2014. Lard is responsible for the strategy, performance and day-to-day operations of NN. He has been employed by ING/NN since 2008 and brings 26 years' experience in the financial services industry, most recently with NN Insurance Eurasia and Nationale-Nederlanden.
Delfin Rueda (1964) Spanish Chief Financial Officer
Delfin Rueda was appointed to the Executive Board as Chief Financial Officer on 1 March 2014 and as member of the Management Board on 7 July 2014. Delfin is responsible for NN's finance departments and investor relations. He brings 22 years of experience in the financial services industry. Prior to joining ING in 2012, he was Chief Financial and Risk Officer and member of the Management Board at Atradius. He also held leadership positions at J.P. Morgan, UBS and Andersen Consulting.
David Knibbe (1971) Dutch Chief Executive Officer Netherlands Insurance
David Knibbe was appointed to the Management Board on 7 July 2014. From 1 September 2014, he was appointed Chief Executive Officer of Netherlands Insurance. In this role, David is responsible for NN's insurance and banking business in the Netherlands. He is also responsible for IT globally. He brings 18 years' experience in the financial services industry and is chair of the Dutch Association of Insurers.
Dorothee van Vredenburch (1964) Dutch Chief Change and Organisation
was appointed to the Management Board as Chief Change and Organisation (CCO) on 7 July 2014. Dorothee is responsible for NN's human resources, communications and sustainability. She joined ING/ NN in 2009 as managing director of Corporate Communications and Affairs of ING Group. She brings 26 years' experience in the financial services industry starting as an investment banker, and held leadership positions at amongst others Citigate First Financial.
Doug Caldwell (1969) American Chief Risk Officer
Doug Caldwell was appointed to the Management Board as Chief Risk Officer on 7 July 2014. Doug is responsible for NN's overall risk framework with direct responsibility for the risk management departments. He joined ING/NN in 1999 and brings 24 years' experience in the financial services industry, most recently with ING Insurance Asia Pacific. He also held leadership positions at NN Re, ING Group and ING Insurance US.
Robin Spencer (1970) British Chief Executive Officer International Insurance
Robin Spencer was appointed to the Management Board on 1 August 2014 and as Chief Executive Officer International Insurance on 1 September 2014. He is responsible for NN's Insurance Europe, Japan Life, Japan Closed Block VA and NN Re businesses. Robin was previously Chief Executive Officer of Aviva UK & Ireland General Insurance. He has over 19 years' experience in the insurance industry across life, non-life and asset management in the UK and internationally.
Stan Beckers (1952) Belgian Chief Executive Officer NN Investment Partners
Stan Beckers was appointed to the Management Board as Chief Executive Officer NN Investment Partners on 7 July 2014. Stan is responsible for NN's asset management business. Over the past 25 years, he also has been a member of the Investment Committees at several pension funds and of the Supervisory Board at KAS Bank, Robeco, Econowealth and St Lawrence Trading Inc. Stan is also a visiting professor at KU Leuven.
Delivering
Amounts in millions of euros, unless stated otherwise
| 2015 | 2014 | |
|---|---|---|
| Assets | ||
| Cash and cash equivalents | 7,436 | 7,530 |
| Financial assets at fair value through profit or loss: | ||
| − trading assets | 628 | |
| − investments for risk of policyholders | 35,154 | 41,222 |
| − non-trading derivatives | 4,656 | 7,207 |
| − designated as at fair value through profit or loss | 443 | 492 |
| Available-for-sale investments | 74,393 | 72,277 |
| Loans | 31,013 | 27,802 |
| Reinsurance contracts | 236 | 241 |
| Associates and joint ventures | 2,197 | 1,617 |
| Real estate investments | 1,564 | 1,104 |
| Property and equipment | 86 | 139 |
| Intangible assets | 351 | 357 |
| Deferred acquisition costs | 1,531 | 1,403 |
| Other assets | 3,092 | 3,462 |
| Total assets | 162,152 | 165,481 |
| Equity | ||
| Shareholders' equity (parent) | 20,469 | 20,355 |
| Minority interests | 9 | 76 |
| Undated subordinated notes | 986 | 986 |
| Total equity | 21,464 | 21,417 |
| Liabilities | ||
| Subordinated debt | 2,290 | 2,297 |
| Debt securities issued | 597 | |
| Other borrowed funds | 6,785 | 5,867 |
| Insurance and investment contracts | 115,984 | 119,237 |
| Customer deposits and other funds on deposit | 8,034 | 6,981 |
| Financial liabilities at fair value through profit or loss: | ||
| − non-trading derivatives | 1,701 | 3,142 |
| Other liabilities | 5,297 | 6,540 |
| Total liabilities | 140,688 | 144,064 |
| Total equity and liabilities | 162,152 | 165,481 |
Delivering
| 2015 | 2014 | |
|---|---|---|
| Continuing operations | ||
| Gross premium income | 9,205 | 9,340 |
| Investment income | 4,058 | 3,510 |
| Result on disposals of group companies | 14 | 1 |
| − gross fee and commission income | 1,015 | 1,039 |
| − fee and commission expenses | -371 | -339 |
| Net fee and commission income: | 644 | 700 |
| Valuation results on non-trading derivatives | -313 | -528 |
| Foreign currency results and net trading income | 120 | 277 |
| Share of result from associates and joint ventures | 221 | 186 |
| Other income | 46 | 59 |
| Total income | 13,995 | 13,545 |
| − gross underwriting expenditure | 10,843 | 15,861 |
| − investment result for risk of policyholders | -1,099 | -5,949 |
| − reinsurance recoveries | -81 | -90 |
| Underwriting expenditure: | 9,663 | 9,822 |
| Intangible amortisation and other impairments | 9 | 15 |
| Staff expenses | 1,172 | 1,736 |
| Interest expenses | 614 | 436 |
| Other operating expenses | 776 | 774 |
| Total expenses | 12,234 | 12,783 |
| Result before tax from continuing operations | 1,761 | 762 |
| Taxation | 166 | 135 |
| Net result from continuing operations | 1,595 | 627 |
| Discontinued operations | ||
| Net result from discontinued operations | 10 | |
| Net result from disposal of discontinued operations | -26 | |
| Total net result from discontinued operations | 0 | -16 |
| Net result from continuing and discontinued operations (before attribution to minority interests) |
1,595 | 611 |
| 2015 | 2014 | Change | 2013 | |
|---|---|---|---|---|
| Operating result ongoing business | 1,435 | 1,086 | 32% | 905 |
| Net result (after attribution minority interest) | 1,565 | 588 | 166% | 322 |
| Net operating ROE | 10.8% | 8.6% | 8.9% | |
| IGD Solvency I ratio1 | 320% | 300% | ||
| Solvency II ratio1 | 239% | |||
| Value of new business | 202 | 178 | 13% | |
| Assets under Management (end of period, in EUR billion)2 | 187 | 195 | -4.2% | 174 |
| Dividend proposal (per ordinary share, in EUR) | 1.51 | 0.57 | n.a. | |
| NN Group share price (COB 31 December 2015, in EUR) | 32.55 | 24.85 | n.a. |
| 2015 | 2014 | Change | 2013 | |
|---|---|---|---|---|
| Total claims and benefits paid | 14,225 | 11,982 | 19% | 12,653 |
| New sales life insurance (APE) | 1,295 | 1,315 | -2% | 1,227 |
| Gross premium income | 9,205 | 9,340 | -1% | 9,530 |
| Customer satisfaction and loyalty | ||||
| Insurance business units using NPS | 100% | 85% | 85% | |
| Insurance business units scoring on/above market average | 95% | 70% | n.a. | |
| Countries offering tools improving financial decision-making (#) | 13 | 13 | 12 |
| 2015 | 2014 | Change | 2013 | |
|---|---|---|---|---|
| Sustainable Assets under Management (end of period) | 4,509 | 4,052 | 11.3% | 3,442 |
| as part of total Assets under Management | 2.4% | 2.2% | 2.0% | |
| Employee engagement score | 73% | 66% | 67% | |
| Participation in engagement survey | 84% | 62% | 82% | |
| Total donations to charitable organisations (x EUR 1,000) | 1,500 | 1,072 | 40% | 1,172 |
1 The solvency ratios are not final until filed with the regulators. Solvency II ratio is based on the Partial Internal Model.
2 Assets under Management include the mortgage portfolio managed on behalf of NN Life and NN Non-life since 2Q14. The comparative figures have been restated accordingly.
For more non-financial indicators, refer to the performance data table in the Sustainability Supplement, pages 13–15.
Delivering
An application; typically a small, specialised programme downloaded onto mobile devices to support NN Group's ability to provide a quick, easy, confidential customer experience across digital channels.
The extent to which consumers are familiar with the distinctive qualities or image of NN; the recognisability of the NN Brand in the general public.
The total amount of greenhouse gases produced to directly and indirectly support ongoing activities, usually expressed in equivalent tons of carbon dioxide (CO2).
Achieving net zero carbon emissions by balancing a measured amount of carbon released with an equivalent amount sequestered or offset, or buying enough carbon credits to make up the difference.
The Central Works Council (CWC) is an entity required by the Dutch Works Council Act of 2013. It is a standing works council formed by representatives from eight Dutch work councils. The CWC is informed or consulted about important NN Group developments in the Netherlands and international developments to the extent that Dutch interests are influenced.
Activities that are focused on making a positive contribution to communities, including investments in education programmes and partnerships that aim to bring sustainable developments.
The way in which a company is governed and how it deals with the various interests of its customers, shareholders, employees, business partners and society at large.
Credit ratings, as assigned by rating agencies (such as Standard & Poor's and Moody's), are indicators of the likelihood of timely and complete repayment of interest and instalments of fixed income securities.
Contract-document issued to customers of individual insurance products or participants of group products.
Data privacy, also called data protection or information privacy, is the aspect of information technology that deals with the ability of NN Group to protect the personal data of its customers and other stakeholders.
NN Group's Defence policy outlines the criteria for controversial aspects related to the weapons or defence industry and how NN Group applies restrictions within its organisation globally.
NN Groups approach to diversity includes hiring people of various race, ethnicity, gender, age, sexual orientation, physical abilities and personal philosophies, as well as creating an inclusive culture and diversity of thought – one that welcomes, acknowledges, respects, challenges and benefits from our differences.
An emerging market economy describes a nation's economy that is progressing toward becoming more advanced, usually by means of rapid growth and industrialisation. These countries experience an expanding role both in the world economy and on the political frontier.
All forms of consideration given by NN Group in exchange for service rendered by employees or for the termination of employment.
Employee engagement is a property of the relationship between an organisation and its employees, measured by NN Group through such means as the Pulse and YES employee surveys.
The Employee Value Proposition (EVP) represents what our employees experience and benefit of during their employment period within NN and what we expect from them. It is the rational and emotional articulation of the tangible benefits employees receive as a result of working for the NN Group. The EVP highlights the attractive factors in NN for the labour market.
The effect that NN Group has on the environment, for example the amount of natural resources used and the amount of waste produced in normal operations.
ESG factors are a subset of non-financial performance indicators which include sustainable, ethical and corporate governance issues such as managing the company's carbon footprint and ensuring there are systems in place to ensure accountability.
A conglomerate of the former entities: Amsterdam Stock Exchange, Brussels Stock Exchange and Paris Stock Exchange. Located in Amsterdam, the Netherlands.
The European Works Council (EWC) is a standing works council body as required by the 2009 European Works Council Directive 2009/38 of the European Commission. The EWC is formed by chosen employee representatives of all eleven European countries where NN Group is active. EWC-members are informed about 'transnational' matters twice a year.
Ethics statement introduced in early 2013 for employees in the Dutch financial sector, along with the introduction of a social charter and update of the Banking Code. The oath or promise applies not only to employees of banks but also to employees of other financial enterprises, including insurance companies, investment firms and financial service providers. By taking the oath or promise, employees proclaim that they are bound by the Code of conduct attached to the oath or promise for the ethical and careful practice of their profession.
A line of business based on using software to provide financial services. Financial technology companies are generally providers of new solutions which demonstrate an incremental or radical innovation development of applications, processes, products or business models in the financial services industry.
Delivering
GRESB is an industry-driven organisation committed to assessing the sustainability performance of real assets globally, including real estate portfolios. On behalf of more than 50 institutional investors, GRESB Real Estate has assessed almost 1,000 property companies and funds globally.
The Global Reporting Initiative is an international independent standards organisation that helps businesses, governments and other organisations understand and communicate their impacts on issues such as climate change, human rights and corruption.
Choices that NN Group makes with regards to energy, resource use and waste management that serve to protect the environment more so than traditional options.
Green Star is a qualification that refers to top-quadrant performance in the scoring matrix of the GRESB Real Estate Assessment. The overall GRESB score is divided into two dimensions: Management & Policy and Implementation & Measurement. Participants with a score that is equal or larger than 50 on both dimensions, are Green Stars.
The ethical barriers between different divisions of a financial (or other) institution to avoid conflict of interest. Also historically known as 'Chinese Walls'.
An Initial Public Offering (IPO) refers to the public offering of a company's shares for sale for the first time on a stock exchange, or when a parent firm makes a subsidiary public through a (partial) sell-off of its shares. NN Group had its IPO on 2 July 2014.
Entities which pool money to purchase securities, real property and other investment assets or originate loans. Institutional investors include banks, insurance companies, pension funds, hedge funds, investment advisors and endowments.
A process founded on integrated thinking that results in a periodic integrated report by NN Group about value creation over time and related communications regarding aspects of value creation.
A global coalition of regulators, investors, companies, standard setters, the accounting profession and NGOs. The coalition is promoting communication about value creation as the next step in the evolution of corporate reporting.
A conflict situation which occurs between two or more states is considered to be an interstate conflict. It is these instances of conflict for which the contemporary international system, as represented in the operations of the United Nations, was originally designed to address.
Junior Achievement Europe is Europe's largest provider of education programmes for entrepreneurship, work readiness and financial literacy, reaching 3.5 million students in 39 countries in 2015.
The Dutch institute for consumer complaints about the financial services industry (Klachteninstituut Financiële Dienstverlening). It mediates in disputes between consumers and banks, insurers, brokers and other financial service providers. Mediaton occurs by the public advocate (Ombudsman) or through a (usually) binding advice of the Disputes Committee or the Appeals Committee.
An IT system that is not up to date or obsolete and often does not comply with the latest industry standards.
The materiality matrix presents the developments and topics which are important to our business and the relevance of these to our external stakeholders.
A management tool that can be used to gauge the loyalty of a firm's customer relationships. It serves as an alternative to traditional customer satisfaction research.
An organisation that is neither a part of a government nor a conventional for-profit business. Usually set up by citizens, NGOs may be funded by governments, foundations, businesses, or private persons.
Future Matters is the global community investment programme for NN Group. It aims to empower people in the markets where we operate to improve their financial well-being, and to support them in growing their economic opportunities, so they can realise their dreams and overcome adversity.
A policy set in place by NN Group to help businesses to effectively manage their compliance risks.
Organisation for Economic Co-operation and Development.
The OECD Guidelines for Multinational Enterprises are a government-backed international corporate accountability mechanism aimed at encouraging responsible business behaviour around the world.
An equity instrument that is subordinated to all other classes of equity instruments. Ordinary shares participate in the net profit for the financial year after other types of shares such as preference shares.
Delivering
A method of calculating the Solvency Capital Requirement (SCR) that combines a standard formula and an approved, internally developed internal model. NN Group's Partial Internal Model was approved by the Dutch regulator (DNB) in December 2015.
Set up to provide NN Group with an easily accessible and coherent policy framework that sets clear criteria for issuing consistent policy documents. It consists of governance documents and supporting materials and business units have the possibility to voluntarily upload their local policies, guidelines and templates.
The Product Approval and Redesign Process (PARP) refers to the assessment of a product in relation to its customer suitability, financial and non-financial risks and profitability. The PARP is conducted when NN Group introduces a new product, changes the characteristics of an existing product or reviews a product. This is to ensure that our products are acceptable for our company, our customers and our society in general.
A short version of the yearly YES survey, NN Group's yearly employee engagement survey. It was last conducted internally by NN Group in May 2014 with the goal of evaluating how our strategy, values and brand were impacting people throughout the organisation.
Reward to NN Group's employees in the form of salary or compensation, either fixed or variable, including benefits.
The NN Group N.V. 2015 Report of the Executive Board (Bestuursverslag), as referred to in section 2:391 of the Dutch Civil Code. Specific chapters to be mentioned in this matter are the Annual Review and the following chapters in the Financial Report: the Financial Developments, the Report of the Supervisory Board, Corporate Governance, the Remuneration Report and the Report of the Executive Board on internal control over financial reporting.
The Responsible Investment (RI) Policy Framework sets out NN Group's vision, approach and key principles on responsible investment. NN Group defines RI as the systematic integration of relevant ESG factors into its investment decision-making and active ownership practices.
An individual who purchases securities for his or her own personal account rather than for an organisation.
The Social Innovation Relay is an initiative of Junior Achievement supported by NN Group. It works to inspire secondary school students to develop innovative business concepts that address social challenges.
Socially Responsible Investment (SRI) funds are specialised sustainable investment products which cater to the increasing demand for products that not only generate good financial returns, but are also good for society and the environment.
Measurement of NN Group's capital position, calculated as the ratio of Own Funds (OF) to the Solvency Capital Requirement (SCR) based on NN Group's approved Partial Internal Model.
An individual, group, organisation, member or system who affects or can be affected by and organisation's actions. In sustainable business models the term includes financial shareholders as well as those affected by environmental or social factors.
Sustainable Assets under Management are assets that are managed with a specific focus on sustainability. This includes our Socially Responsible Investing (SRI) funds and mandates.
The United Nations Global Compact is an initiative of the United Nations to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation. It is a principlebased framework for business, stating ten principles in the areas of human rights, labour, environment and anti-corruption.
An operating model which focuses on how NN Group can create revenue which exceeds expenses which results in a profit, or value, to the stakeholders.
The Yearly Engagement Survey (YES) is designed as a questionnaire measuring how NN Group's brand and values are experienced by our employees, how our leaders live up to the high standards we set and how we fulfil our employee value proposition as an organisation. The results reflect employee engagement expressed as a percentage score.
Delivering
This report is available as a pdf file on www.nn-group.com/annual-report
NN Group Corporate Communications and Affairs
Addison Group www.addison-group.net
NN Group N.V. Schenkkade 65 2595 AS Den Haag P.O. Box 93604, 2509 AV Den Haag The Netherlands www.nn-group.com
Commercial register of Amsterdam, no. 52387534
For further information on NN Group's strategy, policies and performance, visit www.nn-group.com
We welcome input from our stakeholders. If you would like to provide us with feedback, please feel free to contact us via [email protected]
NN Group's 2015 Annual Report consists of three documents: the 2015 Annual Review, the 2015 Financial Report and the 2015 Sustainability Supplement.
Certain of the statements in this 2015 Annual Report are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation: (1) changes in general economic conditions, in particular economic conditions in NN Group's core markets, (2) changes in performance of financial markets, including developing markets, (3) consequences of a potential (partial) break-up of the euro, (4) the implementation of the EC Restructuring Plan, (5) changes in the availability of, and costs associated with, sources of liquidity as well as conditions in the credit markets generally, (6) the frequency and severity of insured loss events, (7) changes affecting mortality and morbidity levels and trends, (8) changes affecting persistency levels, (9) changes affecting interest rate levels, (10) changes affecting currency exchange rates, (11) changes in investor, customer and policyholder behaviour, (12) changes in general competitive factors, (13) changes in laws and regulations, (14) changes in the policies of governments and/or regulatory authorities, (15) conclusions with regard to accounting assumptions and methodologies, (16) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, (17) changes in credit and financial strength ratings, (18) NN Group's ability to achieve projected operational synergies and (19) the other risks and uncertainties detailed in the Risk Factors section contained in recent public disclosures made by NN Group and/or related to NN Group.
Any forward-looking statements made by or on behalf of NN Group in this Annual Report speak only as of the date they are made, and, NN Group assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities.
NN Group's 2015 Sustainability Supplement provides additional information with regards to our strategy, objectives and achievements related to the social, ethical and environmental aspects of our businesses. It is especially aimed at shareholders, rating agencies and NGOs. Nothing in this document is intended to extend or amend NN Group's existing obligations to our clients, shareholders or other stakeholders. All NN Group policies, procedures, guidelines, statements or anything similar that have been mentioned in the Sustainability Supplement are intended for internal guidance purposes only and are not intended to be relied upon by any third party.
© 2016 NN Group N.V.
Accelerating change
Report of the Supervisory Board Corporate governance Annual accounts
The 2015 Annual Report provides an integrated review of the performance of our company. It is in accordance with applicable Dutch law and the International Financial Reporting Standards (IFRS), which were endorsed by the European Union, as well as with the Global Reporting Initiative's G4 guidelines (GRI). It aligns relevant information about our strategy, governance systems, performance and future prospects in a way that reflects the economic, environmental and social contexts in which we operate.
at all NN Group stakeholders. It is a concise, integrated review that provides information about our dynamic operating environment and key material trends, our strategy, how we create value, the financial and non-financial performance of our business and the statement of our CEO.
developments and annual accounts, the report of our Supervisory Board and our approach to risk management, capital management and corporate governance. Target audiences are shareholders, rating agencies and other stakeholders interested in the financials and governance of NN Group.
information with regard to our strategy, objectives and achievements related to the social, ethical and environmental aspects of our businesses. It is especially aimed at shareholders, rating agencies and NGOs.
www.nn-group.com/annual-report
Report of the Supervisory Board Corporate governance Annual accounts
| − 2015 highlights | |
|---|---|
| 03 | |
| − How we are structured | 05 |
| About NN Group | 07 |
| − Our brand | 07 |
| − Our values | 09 |
| − CEO statement | 11 |
| Strategy and value creation | 13 |
| − What matters to us | 13 |
| − Our operating environment | 14 |
| − Our strategy | 18 |
| − How we create value | 21 |
| − Active Risk management | 23 |
| Delivering on our strategy | 24 |
| − Creating value as an insurer | |
| and asset manager | 24 |
| − Creating value as an investor | 28 |
| − Creating value as a listed company | 30 |
| − Creating value as an employer | 32 |
| − Creating value as a corporate citizen 34 | |
| Governance | 36 |
| − Governance and compliance | 36 |
| − Our Management Board | 37 |
| Additional information | 38 |
| − Facts and figures | 38 |
| − Glossary | 41 |
| 44 | |
| Contact and legal information | |
| 03 03 04 05 06 07 07 07 08 09 |
|---|
| 09 |
| 10 |
| 11 |
| 11 |
| 11 |
| 12 |
| 12 |
| 12 |
| 13 |
| 16 |
| 16 |
| 17 |
| 18 |
| 19 |
| 21 |
www.nn-group.com/annual-review www.nn-group.com/ sustainability-supplement
Annual accounts
| Analysis of result | ||
|---|---|---|
| 2015 | 2014 | |
| – Netherlands Life | 906 | 615 |
| – Netherlands Non-life | 122 | 128 |
| – Insurance Europe | 197 | 176 |
| – Japan Life | 160 | 140 |
| – Asset Management | 129 | 158 |
| – Other | -79 | -130 |
| Operating result ongoing business | 1,435 | 1,086 |
| Non-operating items ongoing business | 393 | 198 |
| − of which gains/losses and impairments | 356 | -28 |
| − of which revaluations | 122 | 143 |
| − of which market & other impacts | -85 | 83 |
| Japan Closed Block VA | 20 | 109 |
| Special items before tax | -100 | -687 |
| Result on divestments | 14 | 57 |
| Result before tax from | ||
| continuing operations | 1,761 | 762 |
| Taxation | 166 | 135 |
| Net result from continuing operations | 1,595 | 627 |
| Net result from discontinued operations | -16 | |
| Net result from continuing and | ||
| discontinued operations before | ||
| attribution to minority interest | 1,595 | 612 |
| Minority interest | 30 | 23 |
| Net result | 1,565 | 588 |
| New sales life insurance (APE) | 1,295 | 1,315 |
|---|---|---|
| Value of new business (VNB) | 202 | 178 |
| Total administrative expenses ongoing business |
1,758 | 1,758 |
| Net operating ROE1 | 10.8% | 8.6% |
| IGD Solvency I ratio2 | 320% | 300% |
| Solvency II ratio2 | 239% | n/a |
1 Net operating ROE is calculated as the (annualised) net operating result of the ongoing business, adjusted for the accrued coupon on undated subordinated notes classified in equity, divided by the average allocated equity of the ongoing business adjusted for revaluation reserves and excluding undated subordinated notes classified in equity.
2 The solvency ratios are not final until filed with the regulators. SII ratio is based on the partial internal model.
Note: NN Group evaluates the results of its segments using a financial performance measure called Operating result. Operating result is defined as result under IFRS-EU excluding the impact of non-operating items, divestments, discontinued operations and special items. Disclosures on comparative years also reflect the impact of current year's divestments. Non-operating items include realised capital gains/ losses and impairments on debt and equity securities, revaluations on assets marked-to-market through the profit and loss account and other non-operating market impacts. Special items include items of income or expense that are significant and arise from events or transactions that are clearly distinct from the ordinary operating activities.
The net result of NN Group improved to EUR 1,565 million in 2015 compared with EUR 588 million in 2014, mainly reflecting an increased operating result of the ongoing business, higher nonoperating items and improved special items, partly offset by a lower result of Japan Closed Block VA.
The operating result of the ongoing business increased to EUR 1,435 million in 2015 from EUR 1,086 million in 2014. The result for 2015 reflects EUR 221 million large private equity dividends and EUR 75 million lower administrative expenses in the Netherlands. Furthermore, the 2015 result was supported by a total of EUR 52 million of benefits in the technical margin following updates to certain technical provisions in Netherlands Life, while 2014 was negatively impacted by a EUR 43 million addition to the unit-linked guarantee provision driven by a decrease in interest rates. Higher results at Insurance Europe and Japan Life and lower funding costs also contributed to the increased operating result, partly offset by a lower result at Asset Management, the reinsurance business and an unfavourable claims experience in Property & Casualty (P&C) at Netherlands Non-life.
The operating result of Netherlands Life increased to EUR 906 million in 2015 from EUR 615 million in 2014, primarily driven by a higher investment margin which benefited from EUR 195 million of large private equity dividends and a higher technical margin. The technical margin increased supported by a total of EUR 52 million of benefits following updates to certain technical provisions, while 2014 was negatively impacted by a EUR 43 million addition to the unit-linked guarantee provision due to a decrease in interest rates.
The operating result of Netherlands Non-life decreased to EUR 122 million in 2015 from EUR 128 million in 2014, as EUR 26 million of private equity dividends and improved results in the Motor portfolio were offset by less favourable results in the Miscellaneous portfolio and an unfavourable claims experience in Fire due to large and weather-related claims in 2015. The combined ratio was 101.5% in 2015 compared with 99.4% in 2014.
The operating result of Insurance Europe was EUR 197 million in 2015 up from EUR 176 million in 2014. The increase was driven by higher premium-based revenues related to traditional life insurance contracts and higher fees on assets under management, as well as lower DAC amortisation and trail commissions. This was partly offset by the lower investment margin and the negative impact of the pension reforms in Poland.
The operating result of Japan Life increased to EUR 160 million in 2015 from EUR 140 million in 2014. Excluding currency effects, the operating result increased by 9.4% reflecting an increase in fees and premium-based revenues on higher in-force volumes. This was partly offset by higher administrative expenses as 2014 benefited from a EUR 6 million one-off release of a pension liability, as well as a lower investment margin due to lower interest rates on reinvested assets.
The operating result of Asset Management was EUR 129 million in 2015, down from EUR 158 million in 2014. Higher average Assets under Management (AuM) led to higher fee income, which was more than offset by an increase in administrative expenses, mainly reflecting EUR 17 million of restructuring expenses, while 2014 benefited from releases of personnel provisions of EUR 10 million.
The operating result of the segment Other improved to EUR -79 million in 2015, from EUR -130 million in 2014. The improvement reflects lower funding costs, higher interest income and lower holding expenses as well as a higher operating result at NN Bank, partly offset by a lower operating result of the reinsurance business and lower other results.
Annual accounts
The result before tax from continuing operations increased significantly to EUR 1,761 million in 2015 from EUR 762 million in 2014, which included a special item of EUR -541 million related to the impact of the agreement to make ING's closed defined benefit pension plan in the Netherlands financially independent. The improved result before tax reflects the increased operating result and higher capital gains on debt and equity securities, as well as higher revaluations on real estate. These items were partly offset by a lower result of Japan Closed Block VA and negative market and other impacts reflecting the movement in the provision for guarantees on separate account pension contracts (net of hedging) in Netherlands Life as well as lower revaluations on private equity.
The result from non-operating items related to the ongoing business improved to EUR 393 million in 2015 from EUR 198 million in 2014.
Gains/losses and impairments were EUR 356 million in 2015 compared with a loss of EUR 28 million in 2014. The improved result reflects EUR 546 million of capital gains on public and private equity and debt securities, partly offset by EUR 168 million of impairments on equity securities.
Revaluations amounted to EUR 122 million in 2015 down from EUR 143 million in 2014 reflecting lower revaluations on private equity partly offset by higher real estate revaluations.
Market & other impacts decreased to a loss of EUR 85 million in 2015, from a gain of EUR 83 million in 2014, mainly driven by the movement in the provision for guarantees on separate account pension contracts (net of hedging) at Netherlands Life. In addition, 2014 included a EUR 44 million positive impact in Insurance Europe related to the guarantee fund in Poland.
The result before tax of Japan Closed Block VA decreased to EUR 20 million in 2015 from EUR 109 million in 2014. The result for 2015 includes an operating result of EUR 64 million, a hedge-related result of EUR -55 million and a EUR 12 million reserve decrease on higher lapse assumptions for out-of-the-money policies.
Special items before tax improved to a loss of EUR 100 million compared with a loss of EUR 687 million in 2014, which included a EUR 541 million negative impact of the agreement to make ING's closed defined benefit pension plan in the Netherlands financially independent. Special items in 2015 consist of EUR 87 million expenses related to the rebranding of NN Group's subsidiaries and EUR 13 million restructuring expenses related to the target to reduce the administrative expense base of Netherlands Life, Netherlands Non-life and corporate/holding entities to EUR 700 million by the end of 2018. To achieve this target, NN Group expects to incur restructuring expenses of EUR 30–35 million per annum over the years 2016, 2017 and 2018, which will be reported as special items.
The result on divestments was EUR 14 million in 2015, down from EUR 57 million in 2014, which included the disposal of the Brazilian insurance holding SulAmérica. The result in 2015 largely reflects the liquidation of the Regional Office Hong Kong and the sale of the private equity management company, Parcom Capital Management.
The net result from continuing operations increased to EUR 1,595 million in 2015 from EUR 627 million in 2014. This reflects the increase in the result before tax from continuing operations and the recognition of deferred tax assets for previously incurred unused tax losses, as well as tax-exempt dividends and capital gains in the Netherlands mainly related to shareholdings of 5% or more. The effective tax rate for 2015 was 9.4% predominantly for the same reasons.
The net result from discontinued operations was nil in 2015 versus EUR -16 million in 2014.
New sales (APE) amounted to EUR 1,295 million in 2015, down 3.1% compared with 2014, on a constant currency basis, reflecting lower sales in Insurance Europe (-5.6%) and Japan Life (-3.3%), partly compensated by higher sales in Netherlands Life (+2.6%). The lower new sales at the international units reflect actions to preserve margins in a low interest rate environment.
The value of new business (VNB) for 2015 amounted to EUR 202 million, up 13.1% from EUR 178 million in 2014. The new business metrics for 2015 have been calculated in line with NN Group's pricing methodology. The 2014 new business metrics have been restated for comparability. The increase primarily reflects higher VNB at Insurance Europe and Japan Life driven by a shift to higher margin products, partially offset by lower VNB at Netherlands Life due to an overall decline in interest rates. The internal rate of return (IRR) on new sales slightly decreased to 10.7% from 11.0% in 2014.
Total administrative expenses of the ongoing business in 2015 remained stable at EUR 1,758 million compared with 2014. The administrative expenses in Netherlands Life, Netherlands Non-life and corporate/holding entities decreased in 2015 by EUR 75 million compared with 2014. The original cost reduction programme, which aimed to reduce the 2013 expense base by EUR 200 million, was completed one year ahead of schedule at the end of the third quarter of 2015. The new target, as announced in November 2015, is to reduce the administrative expense base of Netherlands Life, Netherlands Non-life and corporate/holding entities to EUR 700 million by the end of 2018. At the end of 2015, the administrative expense base amounted to EUR 803 million. The cost reduction in the Netherlands was mainly offset by higher administrative expenses at Asset Management and NN Bank.
For 2015, the net operating ROE for the ongoing business of NN Group increased to 10.8% from 8.6% in 2014, largely reflecting the improved profitability of the business.
The NN Group IGD Solvency I ratio increased to 320% in 2015 from 300% at the end of 2014 largely driven by the net result of EUR 1,565 million offset by capital flows to shareholders of EUR 940 million, including the proposed 2015 final dividend of EUR 341 million. The final 2014 dividend was already reflected in the NN Group IGD Solvency I ratio at year-end 2014.
The NN Group Solvency II ratio based on the Partial Internal Model was 239% at the end of 2015 and reflects the deduction of the proposed final 2015 dividend of EUR 341 million.
| 2015 | 2014 | |
|---|---|---|
| Investment margin | 825 | 630 |
| Fees and premium-based revenues | 354 | 404 |
| Technical margin | 207 | 102 |
| Operating income | 1,385 | 1,136 |
| Administrative expenses | 431 | 457 |
| DAC amortisation and trail commissions | 48 | 64 |
| Expenses | 479 | 521 |
| Operating result | 906 | 615 |
| Non-operating items | 325 | 115 |
| − of which gains/losses and impairments | 280 | -62 |
| − of which revaluations | 130 | 139 |
| − of which market & other impacts | -85 | 38 |
| Special items before tax | -11 | -352 |
| Result on divestments | 2 | |
| Result before tax | 1,222 | 377 |
| Taxation | 112 | 41 |
| Minority interests | 27 | 9 |
| Net result | 1,083 | 327 |
| New sales life insurance (APE) | 253 | 247 |
|---|---|---|
| Value of new business (VNB) | 6 | 14 |
| Total administrative expenses | 431 | 457 |
| Net operating ROE1 | 11.5% | 7.7% |
| NN Life Solvency I ratio2 | 294% | 257% |
| NN Life Solvency II ratio2 | 216% | n/a |
1 Net operating ROE is calculated as the (annualised) net operating result of the segment, divided by the average allocated equity of the segment adjusted for revaluation reserves.
2 The solvency ratios are not final until filed with the regulators. SII ratio is based on the partial internal model. The NN Life solvency ratios reflect the merger of Nationale-Nederlanden Levensverzekeringen Maatschappij N.V. and Nationale-Nederlanden Services N.V. The comparative figures from 2014 have been restated accordingly. The NN Life solvency ratios at the end of 2015 reflect a dividend of EUR 150 million paid to NN Group in March 2016.
The operating result of Netherlands Life increased to EUR 906 million in 2015 from EUR 615 million in 2014, primarily driven by a higher investment margin and a higher technical margin.
The investment margin increased to EUR 825 million in 2015 from EUR 630 million in 2014 driven by EUR 195 million of large private equity dividends.
Fees and premium-based revenues in 2015 decreased to EUR 354 million from EUR 404 million in 2014, reflecting the individual life closed book run-off and lower margins in the pension business.
The technical margin increased to EUR 207 million in 2015 from EUR 102 million in 2014 supported by a total of EUR 52 million of benefits following updates to certain technical provisions, while 2014 was negatively impacted by a EUR 43 million addition to the unit-linked guarantee provision due to a decrease in interest rates. Administrative expenses decreased to EUR 431 million in 2015 compared with EUR 457 million in 2014, supported by lower staff costs.
DAC amortisation and trail commissions were down 25% to EUR 48 million in 2015 compared with 2014, reflecting the run-off of the individual life closed book and regulatory changes.
The 2015 result before tax increased to EUR 1,222 million compared with EUR 377 million in 2014, reflecting higher operating results and non-operating results and a lower adverse impact from special items.
The non-operating items improved to EUR 325 million compared with EUR 115 million in 2014.
Gains/losses and impairments increased to EUR 280 million from a loss of EUR 62 million in 2014 mainly driven by capital gains on public and private equity and debt securities partly offset by impairments on public equity.
Revaluations were EUR 130 million in 2015 compared with EUR 139 million in 2014, as positive revaluations on real estate were more than offset by negative revaluations on private equity reflecting revaluations of those investments that paid out dividends which were recognised in the operating result.
Market and other impacts were EUR -85 million compared with EUR 38 million in 2014, mainly reflecting movements in the provision for guarantees on separate account pension contracts (net of hedging).
Special items before tax were EUR -11 million compared with EUR -352 million in 2014 which was driven by a EUR -322 million impact related to the agreement to make ING's closed defined benefit pension plan in the Netherlands financially independent.
New sales (APE) were relatively flat at EUR 253 million compared with EUR 247 million in 2014. A EUR 420 million single premium relating to the pension fund buy-out of a large company pension fund was offset by lower group pension renewals and lower sales of individual contracts.
The value of new business (VNB) in 2015 decreased to EUR 6 million from EUR 14 million in 2014, largely due to the renewal of a few large group pension contracts on more favourable terms in 2014 and due to an overall decline in interest rates. For the same reasons, the internal rate of return (IRR) decreased to 8.5% in 2015 from 11.2% in 2014.
The Solvency I ratio of NN Life improved to 294% at 31 December 2015 from 257% at 31 December 2014, primarily reflecting positive revaluations on equity and real estate investments, tightening of credit spreads and operating performance offset by dividends of EUR 565 million, including a dividend of EUR 150 million paid to NN Group in March 2016. The EUR 350 million dividend paid by NN Life in February 2015 was already reflected in its Solvency I ratio at year-end 2014.
The NN Life Solvency II ratio based on the Partial Internal Model was 216% at the end of 2015. The NN Life Solvency II ratio at the end of 2015 reflects a dividend of EUR 150 million paid to NN Group in March 2016.
| 2015 | 2014 | |
|---|---|---|
| Earned premiums, net of reinsurance | 1,503 | 1,525 |
| Investment income, net of investment | ||
| expenses | 139 | 114 |
| Other income | 4 | |
| Operating income | 1,646 | 1,640 |
| Claims incurred, net of reinsurance | 1,065 | 1,049 |
| Acquisition costs | 239 | 245 |
| Administrative expenses | 223 | 222 |
| Acquisition costs and administrative | ||
| expenses | 461 | 467 |
| Expenditure | 1,526 | 1,516 |
| Operating result insurance businesses | 119 | 123 |
| Operating result broker businesses | 2 | 4 |
| Total operating result | 122 | 128 |
| Non-operating items | 22 | 10 |
| − of which gains/losses and impairments | 19 | -3 |
| − of which revaluations | 3 | 14 |
| Special items before tax | -6 | -97 |
| Result before tax | 138 | 41 |
| Taxation | 16 | 4 |
| Net result | 122 | 38 |
| Gross premium income | 1,534 | 1,566 |
|---|---|---|
| Total administrative expenses1 | 292 | 294 |
| Combined ratio2 | 101.5% | 99.4% |
| − of which Claims ratio2 | 70.8% | 68.8% |
| − of which Expense ratio2 | 30.7% | 30.6% |
| Net operating ROE3 | 24.4% | 23.3% |
1 Including Mandema and Zicht broker businesses.
2 Excluding Mandema and Zicht broker businesses.
3 Net operating ROE is calculated as the (annualised) net operating result of the segment, divided by the average allocated equity of the segment adjusted for revaluation reserves.
The operating result of Netherlands Non-life was EUR 122 million in 2015 compared with EUR 128 million in 2014, as EUR 26 million of private equity dividends and improved results in the Motor portfolio were offset by less favourable results in the Miscellaneous portfolio and an unfavourable claims experience in the Fire portfolio. The combined ratio was 101.5% in 2015 compared with 99.4% in 2014.
The operating result in Disability & Accident (D&A) improved, driven by higher investment income from private equity dividends. The operating result in Property & Casualty (P&C) decreased due to less favourable results in the Miscellaneous portfolio, which mainly comprises liability and legal aid cover, and an unfavourable claim experience in Fire due to large and weather-related claims in 2015.
This was partly offset by a higher investment income from private equity dividends and an improved result in Motor.
The result before tax increased to EUR 138 million in 2015 from EUR 41 million in 2014, which included a special item of EUR -82 million related to the impact of the agreement to make ING's closed defined benefit pension plan in the Netherlands financially independent.
The result from non-operating items increased to EUR 22 million in 2015 from EUR 10 million in 2014, mainly reflecting higher gains on private equity partly offset by lower revaluations.
| 2015 | 2014 | |
|---|---|---|
| Investment margin | 80 | 90 |
| Fees and premium-based revenues | 536 | 518 |
| Technical margin | 194 | 194 |
| Operating income non-modelled business | 4 | 4 |
| Operating income Life Insurance | 814 | 806 |
| Administrative expenses | 306 | 310 |
| DAC amortisation and trail commissions | 315 | 322 |
| Expenses Life Insurance | 621 | 632 |
| Operating result Life Insurance | 193 | 174 |
| Non-life operating result | 4 | 1 |
| Operating result | 197 | 176 |
| Non-operating items | 21 | 66 |
| − of which gains/losses and impairments | 17 | 21 |
| − of which revaluations | 5 | 1 |
| − of which market & other impacts | 44 | |
| Special items before tax | -50 | -32 |
| Result on divestments | -2 | |
| Result before tax | 168 | 207 |
| Taxation | 19 | 46 |
| Minority interests | 3 | 14 |
| Net result | 146 | 146 |
| New sales life insurance (APE) | 494 | 528 |
|---|---|---|
| Value of new business (VNB) | 96 | 74 |
| Internal rate of return (IRR) | 10.5% | 9.6% |
| Total administrative expenses | 322 | 331 |
| Net operating ROE 1 | 10.0% | 8.4% |
1 Net operating ROE is calculated as the (annualised) net operating result of the segment, divided by the average allocated equity of the segment adjusted for revaluation reserves.
The operating result of Insurance Europe increased to EUR 197 million in 2015 from EUR 176 million in 2014, driven by higher fees and premium-based revenues and lower DAC amortisation and trail commissions, partly offset by a lower investment margin.
The investment margin for 2015 was EUR 80 million, compared with EUR 90 million for 2014 which included higher investment income in Greece in connection with an early redemption of Residential Mortgage Backed Securities. Lower reinvestment rates and lower invested volumes also contributed to the decrease.
Fees and premium-based revenues increased to EUR 536 million in 2015 from EUR 518 million in 2014 reflecting higher premium-based revenues related to traditional life insurance contracts as well as higher fees on assets under management. These items were partly offset by the negative impact of the pension reforms in Poland that came into effect in February 2014.
The technical margin was stable at EUR 194 million in 2015. A lower mortality result was offset by higher morbidity results.
Administrative expenses decreased to EUR 306 million in 2015 from EUR 310 million in 2014.
DAC amortisation and trail commissions decreased to EUR 315 million in 2015 from EUR 322 million in 2014, which included a EUR 6 million write-off of capitalised commissions in Poland.
The result before tax decreased to EUR 168 million in 2015 from EUR 207 million in 2014 reflecting higher special items and lower non-operating items, partly offset by the higher operating result.
Gains/losses and impairments decreased to EUR 17 million in 2015 from EUR 21 million in 2014.
Revaluations increased to EUR 5 million in 2015 from EUR 1 million in 2014 mainly due to positive revaluations of real estate in Belgium.
Market and other impacts decreased to nil in 2015 from EUR 44 million in 2014. Market and other impacts in 2014 included a EUR 52 million refund received from the guarantee fund in Poland, partly offset by a EUR 9 million one-off contribution to the new guarantee fund in Poland.
Special items were EUR -50 million in 2015, compared with EUR -32 million in 2014 reflecting rebranding expenses across the region incurred in 2015.
New sales (APE) decreased to EUR 494 million in 2015 from EUR 528 million in 2014 mainly due to actions to preserve margins in a low interest rate environment. Sales of life protection products were up 9.3% year-on-year, excluding currency effects, driven by a large group contract in Spain, and were up 1.3% excluding this contract.
The value of new business (VNB) for 2015 increased to EUR 96 million from EUR 74 million in 2014, reflecting a shift in business mix toward higher margin products partially offset by the impact of lower interest rates. For the same reasons, the internal rate of return (IRR) on new sales increased to 10.5% in 2015 from 9.6% in 2014.
| 2015 | 2014 | |
|---|---|---|
| Investment margin | -15 | -2 |
| Fees and premium-based revenues | 503 | 437 |
| Technical margin | -15 | -13 |
| Operating income | 473 | 422 |
| Administrative expenses | 107 | 97 |
| DAC amortisation and trail commissions | 206 | 185 |
| Expenses | 313 | 282 |
| Operating result | 160 | 140 |
| Non-operating items | -9 | 1 |
| − of which gains/losses and impairments | 6 | 3 |
| − of which revaluations | -14 | -2 |
| Special items before tax | -10 | -2 |
| Result before tax | 141 | 139 |
| Taxation | 26 | 48 |
| Net result | 116 | 91 |
| New sales life insurance (APE) | 549 | 541 |
|---|---|---|
| Value of new business (VNB) | 100 | 89 |
| Internal rate of return (IRR) | 13.3% | 13.9% |
| Total administrative expenses | 107 | 97 |
| Net operating ROE1 | 8.6% | 7.9% |
1 Net operating ROE is calculated as the (annualised) net operating result of the segment, divided by the average allocated equity of the segment adjusted for revaluation reserves.
The operating result of Japan Life increased to EUR 160 million in 2015 from EUR 140 million in 2014. The improved result reflects an increase in fees and premium-based revenues, which was partly offset by higher administrative expenses and a lower investment margin.
The investment margin was EUR -15 million in 2015 compared with EUR -2 million of 2014 due to lower interest rates on reinvested assets.
Fees and premium-based revenues increased to EUR 503 million in 2015 from EUR 437 million in 2014. Excluding currency effects, fees and premium-based revenues increased by 9.7% due to higher in-force volumes.
The technical margin decreased to EUR -15 million in 2015 from EUR -13 million in 2014, mainly due to a lower result on surrenders which was partly offset by higher mortality and morbidity results.
Administrative expenses were EUR 107 million in 2015 compared with EUR 97 million in 2014, which benefited from a EUR 6 million one-off release of a pension liability.
Annual accounts
DAC amortisation and trail commissions were EUR 206 million in 2015 compared with EUR 185 million in 2014, due to higher premium income.
The result before tax was EUR 141 million in 2015, down 2.8% from 2014, excluding currency effects, reflecting negative revaluations and higher special items for rebranding the business in 2015 partly offset by the improved operating result.
New sales (APE) were EUR 549 million in 2015, down 3.3% compared with 2014, excluding currency effects.
The value of new business (VNB) for 2015 increased to EUR 100 million, from EUR 89 million in 2014, as a shift to higher margin products more than compensated the impact of lower interest rates. The internal rate of return (IRR) on new sales in 2015 decreased to 13.3% from 13.9% in 2014.
| 2015 | 2014 | |
|---|---|---|
| Fees | 496 | 486 |
| Operating income | 496 | 486 |
| Administrative expenses | 367 | 328 |
| Operating result | 129 | 158 |
| Special items before tax | -23 | -124 |
| Result on divestments | -2 | |
| Result before tax | 106 | 31 |
| Taxation | 24 | 5 |
| Net result1 | 82 | 26 |
| Total administrative expenses | 369 | 328 |
|---|---|---|
| Net inflow Assets under Management (in EUR billion) |
-9 | |
| Assets under Management2,3 | 187 | 195 |
| Net operating ROE4 | 25.3% | 32.4% |
1 Excluding the Net result from discontinuing operations.
2 End of period, in EUR billion.
3 AuM include the mortgage portfolio managed on behalf of NN Life and NN Non-life. The comparative figures for 2014 have been restated accordingly.
4 Net operating ROE is calculated as the (annualised) net operating result of the segment, divided by the average allocated equity of the segment adjusted for revaluation reserves.
Total Assets under Management (AuM) at Asset Management were EUR 187 billion at the end of 2015, down from EUR 195 billion at the end of 2014. The decrease mainly reflects net outflows of Other Affiliated assets and Third-Party assets of EUR 4.8 billion each. The opening balance of AuM has been adjusted by EUR 8.6 billion in Proprietary assets to include the mortgage portfolio managed on behalf of NN Life and NN Non-life. The comparative figures for 2014 have been restated accordingly.
The operating result was EUR 129 million in 2015, down from EUR 158 million for 2014. Higher average AuM led to higher fee income, which was more than offset by an increase in administrative expenses. Fees were EUR 496 million in 2015, up 2.0% from 2014, as a result of higher average AuM.
Administrative expenses were EUR 367 million in 2015, up from EUR 328 million in 2014, mainly reflecting EUR 17 million of restructuring expenses while 2014 benefited from releases of personnel provisions of EUR 10 million.
The result before tax was EUR 106 million in 2015, compared with EUR 31 million in 2014. The result for 2015 includes special items of EUR -23 million reflecting expenses for rebranding the business from ING Investment Management to NN Investment Partners, while 2014 included a special item of EUR -122 million related to the agreement to make ING's closed defined benefit pension plan in the Netherlands financially independent.
| 2015 | 2014 | |
|---|---|---|
| Interest on hybrids and debt | -104 | -122 |
| Investment income & fees | 61 | 50 |
| Holding expenses | -73 | -123 |
| Amortisation of intangible assets | -6 | -7 |
| Holding result | -122 | -201 |
| Operating result reinsurance business | 11 | 31 |
| Operating result NN Bank | 37 | 27 |
| Other results | -4 | 13 |
| Operating result -79 |
-130 | |
| Non-operating items | 34 | 6 |
| − of which gains/losses and impairments | 35 | 14 |
| − of which revaluations | -8 | |
| Special items before tax | -80 | |
| Result on divestments | 11 | 62 |
| Result before tax | -33 | -142 |
| Taxation | -20 | -18 |
| Net result | -13 | -124 |
| 240 | 251 |
|---|---|
| 11 | 13 |
| 149 | 112 |
| 14.0% | 14.1% |
| 12 | 9 |
| 6.9% | 5.6% |
1 The 'NN Bank common equity Tier 1 ratio phased in' and the 'NN Bank BIS ratio phased in' are not final until filed with the regulators.
2 End of period, in EUR billion.
3 Net operating ROE is calculated as the (annualised) net operating result of NN Bank, divided by the average allocated equity adjusted for revaluation reserves.
The operating result of the segment Other was EUR -79 million in 2015 compared with EUR -130 million in 2014. The improvement reflects a better holding result and a higher operating result at NN Bank, partly offset by a lower operating result of the reinsurance business and lower other results.
The holding result improved to EUR -122 million in 2015 from EUR -201 million in 2014. The improvement is attributable to lower funding costs, higher interest income and lower holding expenses. Interest costs on hybrids and debt were EUR 104 million in 2015 compared with EUR 122 million in 2014, reflecting the refinancing of hybrid debt using the proceeds of the undated subordinated notes issued in July 2014, which are classified as equity under IFRS. The interest on the undated subordinated notes is recognised through equity while the interest on the hybrid debt redeemed with these notes was recognised in the profit and loss account. Investment income increased to EUR 61 million in 2015 from EUR 50 million in 2014, driven by interest income received on the subordinated loans provided by NN Group to NN Life in the first half of 2014. Holding expenses decreased to EUR 73 million in 2015 compared with EUR 123 million in 2014, reflecting cost reductions as well as a revised method for charging head office expenses to the segments.
The operating result of the reinsurance business decreased to EUR 11 million in 2015 from EUR 31 million in 2014, due to lower underwriting results in 2015 and favourable mortality and lapse assumption updates in the VA Europe portfolio in 2014.
The operating result of NN Bank improved to EUR 37 million in 2015 from EUR 27 million in 2014. The higher production of mortgages and an increase in customer savings led to a higher interest margin, partly offset by higher administrative expenses supporting the bank's continued growth.
The result before tax was EUR -33 million in 2015 compared with EUR -142 million in 2014, reflecting the higher operating result, higher non-operating items and EUR -80 million of special items in 2014 mainly related to the transformation programme in the Netherlands.
Gains/losses and impairments increased to EUR 35 million in 2015 from EUR 14 million in 2014, mainly reflecting the sale of government bonds in 2015, while 2014 included negative revaluations on real estate.
| 2015 | 2014 | |
|---|---|---|
| Investment margin | -1 | |
| Fees and premium-based revenues | 95 | 117 |
| Operating income | 94 | 117 |
| Administrative expenses | 19 | 21 |
| DAC amortisation and trail commissions | 10 | 12 |
| Expenses | 29 | 33 |
| Operating result | 64 | 84 |
| Non-operating items | -44 | 24 |
| − of which market & other impacts | -44 | 24 |
| Result before tax | 20 | 109 |
| Taxation | -11 | 8 |
| Net result | 31 | 101 |
| Account value | 10,028 | 13,248 |
|---|---|---|
| Net Amount at Risk | 203 | 133 |
| IFRS Reserves | 514 | 556 |
| Number of policies | 202,192 | 294,263 |
1 End of period.
The result before tax of Japan Closed Block VA decreased to EUR 20 million in 2015 from EUR 109 million in 2014. The result for 2015 includes an operating result of EUR 64 million, a hedge-related result of EUR -55 million and a EUR 12 million reserve decrease on higher lapse assumptions for out-of-the-money policies.
The operating result before tax was EUR 64 million in 2015 compared with EUR 84 million in 2014, down 26.8% excluding currency effects, due to lower fees and premium-based revenues in line with the run-off of the portfolio.
Fees and premium-based revenues were EUR 95 million in 2015 compared with EUR 117 million in 2014 due to a lower account value caused by a decreasing number of policies.
Administrative expenses decreased to EUR 19 million in 2015 from EUR 21 million in 2014, which included higher project costs to prepare for the expected large volumes of maturities.
DAC amortisation and trail commissions decreased to EUR 10 million in 2015 from EUR 12 million in 2014.
The Net Amount at Risk in the Japan Closed Block VA increased to EUR 203 million in 2015 from EUR 133 million in 2014, primarily as a result of equity markets depreciation.
The portfolio run-off resulted in a 31.3% decrease in the number of policies compared with year-end 2014.
Corporate governance Annual accounts
Jan Holsboer (1946) Dutch Chair
Jan Holsboer was appointed to the Supervisory Board of NN Group N.V. on 1 March 2014 and was appointed chair on 7 July 2014. He is a member of the Nomination and Corporate Governance Committee, Remuneration Committee and Audit Committee.
As the chair of the NN Group Supervisory Board, I am pleased to present this 2015 Annual Report.
As the Supervisory Board we take into account the best interests of all NN Group's stakeholders when overseeing and advising the Executive Board and monitoring the overall functioning of NN Group. Each member's role on the Supervisory Board, and within the committees on which they serve, contribute to NN Group's successful operations with respect to laws and regulations, the company values care, clear, commit, and the implementation of the strategy to deliver an excellent customer experience.
2015 has been a successful and eventful year for NN Group, and in turn the Supervisory Board. As ING Group continued to divest its shares, we saw many changes to the composition of the Supervisory Board. Now, with ING Group's stake below 15%, the Supervisory Board no longer has members nominated by ING Group. This is a significant step to NN Group realising its future as a standalone company.
I know I speak for my fellow Supervisory Board members, listed below, when I say I am proud of what we have helped NN Group achieve in 2015. I invite you to read our collective input, actions and involvement outlined in the report to follow.
Dick Harryvan (1953) Dutch Vice-chair
Dick Harryvan was appointed to the Supervisory Board of NN Group N.V. on 2 February 2016 and was appointed vicechair on 24 February 2016. He is a member of the Audit Committee, Remuneration Committee and Nomination and Corporate Governance Committee.
Heijo Hauser (1955) German Member
Heijo Hauser was appointed to the Supervisory Board of NN Group N.V. on 7 July 2014. He chairs the Risk Committee and is a member of the Audit Committee.
Robert Jenkins (1951) American Member
Robert Jenkins was appointed to the Supervisory Board of NN Group N.V. on 2 February 2016. He is a member of the Risk Committee and Remuneration Committee.
Hans Schoen (1954) Dutch Member
Hans Schoen was appointed to the Supervisory Board of NN Group N.V. on 7 July 2014. He chairs the Audit Committee and is a member of the Risk Committee.
Yvonne van Rooij (1951) Dutch Member
Yvonne van Rooij was appointed to the Supervisory Board of NN Group N.V. on 1 March 2014. She chairs the Remuneration Committee and she is a member of the Nomination and Corporate Governance Committee.
Hélène Vletter-van Dort (1964) Dutch Member
Hélène Vletter-van Dort was appointed to the Supervisory Board of NN Group N.V. on 6 October 2015. She chairs the Nomination and Corporate Governance Committee and she is a member of the Risk Committee.
This Report of the Supervisory Board should be read in conjunction with the section on Corporate governance (pages 18–28 and the Remuneration Report (pages 29-33), which are deemed to be incorporated by reference in this report.
The Supervisory Board of NN Group N.V. (Supervisory Board) is responsible for supervising the management of the Executive Board and the general course of affairs of NN Group and its businesses. The Supervisory Board advises the members of the Executive Board on how to perform their duties, in accordance with the best interests of NN Group, its businesses, and all relevant stakeholders. In 2015, the Supervisory Board focused on several key issues:
The composition of the Supervisory Board is such that members act critically and independently from each other, the Executive Board and any one particular interest. The knowledge, expertise and background of each member are considered in the context of the Supervisory Board as a whole. The Supervisory Board aims to have a strong representation of diversity in terms of experience, age, career stage and nationality, with a focus on enhancing gender diversity. The selection of Supervisory Board members aims to fulfil this diversity and create a robust body able to effectively oversee the activities of NN Group and its businesses.
As per 7 July 2014, the Supervisory Board was comprised of the following seven members:
The composition of the Supervisory Board in relation to the ING Group nominees is set out in the Relationship Agreement which – with the exception of certain specific provisions – terminated on 2 February 2016 when ING Group's shareholding in NN Group fell below fifteen per cent (15%). The Relationship Agreement specified that, when ING Group's interest in NN Group1 fell below thirty-five per cent (35%), ING Group's right to nominate Supervisory Board members for appointment, and to propose replacements for such members, was limited to two members. Upon termination of the Relationship Agreement ING Group no longer had the right to nominate Supervisory Board members for appointment, nor to propose replacement for such members.
In anticipation of the continued decrease of ING Group's interest, and the accompanying resignation of Mr Hamers, Mr Flynn and Mr Nagel, the Supervisory Board proposed to appoint three future Supervisory Board members on 6 October 2015. On that date NN Group held an Extraordinary General Meeting (EGM).
1 Interest in NN Group relates to the direct or indirect interest of ING Group in ordinary shares in the capital of NN Group in relation to the number of issued ordinary shares, excluding the shares held by NN Group in its own capital in treasury.
Changes to the Supervisory Board reflected the decrease of ING Group's interest in NN Group throughout the year:
With the appointment of Ms Vletter van-Dort, Mr Harryvan and Mr Jenkins, the Supervisory Board has maintained the balance of nationality, gender, age and experience. With the resignation of Mr Hamers on 6 October 2015, and Mr Flynn and Mr Nagel on 14 December 2015, all members of the NN Group Supervisory Board are independent as defined by the Dutch Corporate Governance Code. An overview of the current members can be found on page 10 of this Financial Report.
It is essential that NN Group's Supervisory Board is knowledgeable about how NN Group and its businesses are run. To this end, the Supervisory Board developed the Supervisory Board Onboarding Programme (Onboarding Programme), and the Permanent Education Programme for Supervisory Board members (Permanent Education Programme). Together, these programmes cover topics necessary to continue the lifelong learning of Supervisory Board Members, at the time of and throughout their appointments.
Following their appointments, Ms Vletter-van Dort, Mr Harryvan and Mr Jenkins participated in the Onboarding Programme, in which they became familiar with NN Group, its history, its strategic roadmap, and its (historical) financial and operational performance, including risks and challenges. Additionally, each of them was informed of their specific responsibilities as well as the key legal and compliance obligations that apply to Supervisory Board members. The Onboarding Programme continues with deep dive sessions into NN Group's business units, so that each new appointee may better understand the operations, governance and approach of NN Group's businesses.
The members of the Supervisory Board followed the 2015 Permanent Education Programme plan, which was developed on the basis of input received from the 2014 annual Supervisory Board self-assessment, and individual requests from the Supervisory Board members, Executive Board and staff. On average, the Supervisory Board spent approximately 25 hours attending permanent education sessions arranged by NN Group. These permanent education sessions included – amongst others – topics on Solvency II, IFRS 9, IT developments in digital and big data, developments in the Dutch pension market, NN Group's approach for ensuring suitable products and sales, internal audit practices, corporate governance developments, integrity and sustainability.
Annually, the Supervisory Board assesses its functioning in order to evaluate its performance and identify opportunities for individual and collective growth. In March 2016, this evaluation was carried out for the financial year 2015. The Supervisory Board looked at the functioning of the Supervisory Board as a whole, the functioning of the Supervisory Board committees and their chairs and of the individual Supervisory Board members. Following this evaluation, the chair of the Supervisory Board met with each Supervisory Board member individually to provide direct feedback. This feedback was based on the input received from the self-assessment and individuals within NN Group and following a review of outside positions and permanent education sessions.
Due to their roles as executive board members of ING Group, Mr Hamers, Mr Flynn and Mr Nagel were conflicted with respect to the following transactions:
Best practice provision III.6.1, III.6.2, and III.6.3 of the Dutch Corporate Governance Code were complied with and Mr Hamers, Mr Flynn and Mr Nagel thus did not participate in the discussions or decision-making on these transactions. Apart from the transactions mentioned above there were no other apparent conflicts of interest of material significance in 2015.
Annual accounts
The Supervisory Board held 13 Supervisory Board meetings in 2015, one of which was held in the Czech Republic as part of the Supervisory Board's visit to some of NN Group's European business units. The average attendance rate for scheduled meetings was 95%. None of the Supervisory Board members was frequently absent at these meetings and in all meetings there was sufficient presence to constitute a valid quorum.
In addition to the formal meetings, the chair of the Supervisory Board maintained regular contact with NN Group's Chief Executive Officer. In these meetings, topical issues as well as the general affairs of NN Group and its businesses were discussed. Also, the Supervisory Board had contact with regulators, and the chair of the Supervisory Board, along with a Works Council-nominated member, met with the Works Council.
During the year, the Supervisory Board was updated on topical issues in its formal meetings. Several presentations were given on NN Group's business activities and key initiatives. In the meetings, the Supervisory Board was briefed on the discussions and resulting recommendations from Supervisory Board committee meetings.
The Supervisory Board discussed and approved several items, such as amendments to policies, the financial results of NN Group (and related press releases and disclosures) and proposed financial transactions, such as NN Group's repurchase of its ordinary shares following ING Group's divestment of those shares, in line with NN Group's governance structure. With regards to governance, the Supervisory Board discussed the current governance structure of NN Group and related documents, such as the application of the Dutch Corporate Governance Code and charters of the Executive Board, Management Board and Supervisory Board.
Additional topics discussed by the Supervisory Board were:
The Supervisory Board was regularly updated on NN Group's progress in implementing the NN statement of Living our Values (Statement). The Statement addresses customer care elements, such as putting customers at the centre of everything we do, using understandable language and carefully explaining conditions, risks, returns and costs of products and services. Furthermore, the Supervisory Board reviewed, in detail, the status of the implementation of the Statement across NN Group, and the intended steps to embed the Statement in the organisation and NN Group systems.
The Management Board informed the Supervisory Board of the initiatives underway to increase NN Group's visibility of the 'tone at the top'. The Supervisory Board emphasised the importance of ensuring that NN Group develops the right messaging for behaviour and culture in order to ensure a balanced approach to growth initiatives and customer focus. NN Group is showing good progress in this initiative.
The Supervisory Board was also made aware of the initiatives underway to further embed culture and integrity into the DNA of the organisation by, amongst others, the refreshing of NN Group's Code of conduct with the objective to further align with the Statement, streamlining the product approval and review process and implementation of the customer suitability principles. Significant progress was made during 2015 and initiatives will continue in 2016.
Delivering on NN Group objectives and strategy Throughout 2015, the Supervisory Board was regularly updated on how NN Group was delivering on its objectives and strategy. The Supervisory Board attended a full day workshop on NN Group's strategy in January 2015. There, the Executive Board outlined NN Group's strategic objectives and medium-term plan (MTP) 2015– 2018. The 2015–2018 MTP outlined the Executive Board's roadmap for NN Group following its IPO. Discussion points included the equity story, strengthening the multi-access distribution network, continued development of transparent products and services and achieving greater efficiency throughout NN Group. Furthermore, the Supervisory Board was informed about NN Group's rebranding efforts in support of its strategy.
One of NN Group's most significant milestones in 2015 was obtaining approval from the Dutch Central Bank to use its Partial Internal Model for calculating NN Group's Solvency II ratio. This achievement followed years of hard work by the Executive and Management Boards and their staff. The Supervisory Board also devoted significant attention to this process both in and outside of meetings. The Supervisory Board attended several permanent education sessions regarding Solvency II regulations, particularly with regards to pending clarifications and ongoing discussions of those regulations, technical calculations that NN Group applies and the use of the models in business decisions. Furthermore, the Supervisory Board received dedicated training and a number of Supervisory Board members was interviewed by the Dutch Central Bank as part of NN Group's application for the Partial Internal Model.
The Supervisory Board continually discussed NN Group's risk management and control systems with management, giving specific attention to the requirements of Solvency II and its impact on NN Group's risk model. NN Group frequently provided updates to the Supervisory Board on the implementation of (IT) controls and the status of data quality enhancements. At the close of the third quarter of 2015, NN Group performed a test reporting run on the Solvency II figures and the Supervisory Board was informed about the results, effectiveness of the controls and additional enhancements to be made from lessons learned. They also discussed management's assessment of the adequacy and effectiveness of NN Group's risk management and control systems relating to NN Group's non-financial risks. Of particular focus was building upon the discipline to strengthen the preventative and detective control environments. With respect to non-financial risks NN Group's controls for ensuring proper business continuity management and mitigating IT security risks were a key focus.
The Supervisory Board discussed market volatility, particularly with regards to low and decreasing interest rates. The Supervisory Board was regularly briefed on how NN Group was managing its investment and reinvestment risks and their potential impact on NN Group's Solvency ratio.
The Supervisory Board was regularly updated on the activities of NN Group's investor relations team with respect to NN Group's shareholder base and discussed NN Group's Capital Markets Day, Solvency II-related disclosures and financial targets. Information relating to the composition of and developments within NN Group's shareholder base is used as input to maintain good relations with investors.
The regulatory environment in which NN Group operates continues to evolve, requiring businesses to quickly adapt to these changes. The Supervisory Board was regularly informed about developments in the Netherlands, such as the ruling by the European Court of Justice on unit-linked products, as well as developments outside of the Netherlands. The Supervisory Board ensured proactive adherence to rapidly developing laws and regulations.
In 2015, the Supervisory Board ensured proper succession of its members in preparation of ING Group's sell-down of its shareholding in NN Group. To this end, the Supervisory Board evaluated its composition considering the necessary skills, knowledge and experience based on the Supervisory Board Profile and internal competency matrices. The Supervisory Board members agreed on specific profiles for potential successors and were closely involved in the interview process with potential candidates. Additionally, the Supervisory Board considered and supported the recommendation from the Works Council in line with their right to nominate a candidate to the Supervisory Board.
There are four committees that support the Supervisory Board: the Audit Committee, the Risk Committee, the Remuneration Committee and the Nomination and Corporate Governance Committee. The committees are responsible for preparing items delegated to them on which the chair of each committee verbally reports the main
points of discussion and resulting recommendations to the Supervisory Board. This enables the Supervisory Board as a whole to make a decision on these items. The key inputs and underlying considerations leading to a recommendation are recorded for each committee.
The Audit Committee met six times in 2015. The average attendance rate for scheduled meetings was 95%. None of the Audit Committee members was frequently absent at these meetings and in all meetings there was sufficient presence to constitute a valid quorum. The members of the Audit Committee in 2015 were the chair, Mr Schoen, Mr Flynn, Mr Nagel and Mr Hauser. All meetings were also attended by the chair of the Supervisory Board, Mr Holsboer.
The composition of the Audit Committee is such that specific business know-how, financial accounting and related financial management expertise relating to the activities of NN Group are represented.
In accordance with the Charter of the Audit Committee, other attendees of the Audit Committee meetings were the Chief Executive Officer, the Chief Financial Officer and the Chief Risk Officer of NN Group, the internal and external auditors, the General Manager responsible for financial and management accounting and the General Counsel & Head of Compliance. Regularly, and when deemed necessary, subject matter specialists attended the meetings.
During the year, the chair of the Audit Committee separately met with the Chief Financial Officer of NN Group, the Head of Internal Audit and the external auditors to discuss topical issues.
The internal and external auditors attended each of the Audit Committee meetings in 2015. The Audit Committee encouraged them to share their insights and findings at the general Audit Committee meetings and in the four closed sessions that took place afterwards, where the Audit Committee met with the internal and external auditors without other attendees.
In general, the Audit Committee discussed periodic financial reports and related press releases as well as supporting documentation, such as actuarial analyses, with a focus on reserve adequacy, reports on internal control on financial reporting and periodic reports from the internal and external auditors.
The Audit Committee also discussed the audit scope, materiality and key audit matters, and reviewed the external auditors' independence, communication and fees every quarter. Regarding some key audit matters, such as Solvency II and reliability and continuity of electronic data processing, the Audit Committee worked closely together with the Risk Committee.
Estimates used in the calculation of insurance contract liabilities and Reserve Adequacy Test (RAT) The Audit Committee was frequently informed of adequacy levels of NN Group's reporting segments, including changes to them, and reasons behind such changes. The Audit Committee also addressed the methodologies and controls employed by the business units.
On a quarterly basis the Audit Committee discussed the findings with respect to the fair value measurements of investments and related disclosures.
In preparation for Solvency II requirements, the Audit Committee focused on the implementation of the framework requirements, and the development of NN Group's Partial Internal Model for calculating NN Group's Solvency II ratio. Much effort was put into developing and implementing controls on Solvency II metrics. The Audit Committee regularly received reports on the status of the development and implementation of these controls.
The Audit Committee was also regularly informed of the status of the discussions with the Dutch Central Bank on NN Group's Partial Internal Model application. The Audit Committee will continue to address Solvency II in 2016 as final interpretations of Solvency II regulations are expected to be finalised. Embedding of the reporting controls continues.
The Risk Committee met six times in 2015 with a 100% attendance rate. The members of the Risk Committee in 2015 were Mr Hauser, Mr Nagel, Mr Flynn and Mr Schoen. All meetings were also attended by the chair of the Supervisory Board, Mr Holsboer. Until 3 June 2015, Mr Nagel chaired the Risk Committee, when Mr Hauser was appointed and assumed the role of chair. Mr Nagel continued to serve as a member of the Risk Committee until the date of his resignation on 14 December 2015. Mr Flynn was also a member of the Risk Committee until 28 May 2015.
On 6 October 2015, Mr Jenkins joined the Risk Committee as an observer until he became a member on 2 February 2016, the same date his Supervisory Board membership became effective. Mr Holsboer also became a member of the Risk Committee on 2 February 2016, and Ms Vletter-van Dort joined the Risk Committee effective 24 February 2016. Other attendees at the Risk Committee meetings were the Chief Executive Officer, the Chief Financial Officer and the Chief Risk Officer of NN Group, the internal and external auditors, the General Counsel & Head of Compliance and the Head of Enterprise Risk Management. During the year, the chair of the Risk Committee regularly liaised with the Chief Risk Officer of NN Group and also held regular meetings with the external auditors and NN Group's Chief Compliance Officer.
Reliability and continuity of electronic data processing On a quarterly basis the Audit Committee was informed of and discussed the status and developments with respect to the reliability and continuity of electronic data processing and monitored the progress of remediation of identified areas for improvement.
The Audit Committee was regularly updated about the legal and societal developments with regards to legal proceedings, such as the European Court of Justice ruling on 29 April 2015 regarding unit-linked products in the Netherlands. This input was used to consider if and to what extent these developments may impact on NN Group's disclosures.
On behalf of the Supervisory Board, the Audit Committee monitored the selection process in preparation to rotate the external auditor for the financial year starting January 2016. The result was the proposal to the General Meeting on 28 May 2015 to appoint KPMG as the next external auditor for NN Group. In this decision, the Audit Committee considered the enhancements put into place by KPMG to strengthen the quality of their audit activities. The strength, background and reputation of the lead audit partners to be assigned to the case were also key factors in the decision to recommend KPMG. At the 2015 AGM, KPMG's appointment was approved for the financial years 2016, 2017, 2018 and 2019.
In its meetings, the Risk Committee discussed the periodic Enterprise Risk Management Report on key financial risk and non-financial risks. Specific attention was given to risk positions versus risk appetite and risk limits; asset and liability management and investments; and the development of risks in existing and new product portfolios. This includes developments in relation to unit-linked products in the Netherlands and other legal and compliance risks, as well as IT and control risks. The Risk Committee discussed NN Group's progress and plans for strengthening the risk management function. Also, the Risk Committee discussed NN Group's key risks in its Own Risk and Solvency Assessment (ORSA) Report and approved NN Group's 2015 Risk Appetite statement.
Furthermore, the Risk Committee also discussed and approved risk management policies in line with NN Group's governance requirements, such as NN Group's Recovery Plan, responsible investment-related policy, model validation policy, etc.
Additionally, the Risk Committee addressed the following topics:
The Risk Committee was informed of the restructuring of NN Group's Risk function, and the tools employed to strengthen risk management in NN Group and its businesses. The Risk Committee was frequently updated on the effects, if any, resulting from the change.
The increasing importance to ensure a robust risk management system to combat risks arising from technology failures and breaches cannot be sufficiently emphasised. The Risk Committee discussed NN Group's Enterprise Risk Management Report which reflects how, amongst others, NN Group is managing its operational, IT and security risks. Of particular focus was NN Group's approach to managing continuity of business and IT (security) risks.
The Risk Committee discussed Solvency II and its impact on NN Group's capital position, as well as NN Group's interest risk profile in relation to Solvency II. Also on the agenda were the Partial Internal Model application process, risk appetite, hedging, investments and liabilities and NN Group's own risk and solvency self-assessment.
Integrity and values are an important aspect of running any business, particularly ensuring the right 'tone at the top'. The Risk Committee discussed several integrity and compliance initiatives, such as NN Group's compliance and ethics programme, both as standalone topics and also as part of the quarterly Enterprise Risk Management Report.
The Remuneration Committee met seven times in 2015 and had an average attendance rate at scheduled meetings of 83%. The members of the Remuneration Committee in 2015 were the chair, Ms van Rooij, Mr Holsboer and Mr Flynn. Mr Flynn was a member of the Remuneration Committee until his resignation from the Supervisory Board on 14 December 2015. Mr Harryvan and Mr Jenkins became members of the Remuneration Committee on 2 February 2016, the date their appointments to the Supervisory Board became effective.
The Chief Change and Organisation and the Chief Executive Officer of NN Group also joined the meetings of the Remuneration Committee – unless the committee determined otherwise – especially in relation to any proposal concerning the Chief Executive Officer. The Head of Reward & Performance also joined these meetings. In addition to the regularly scheduled meetings, the chair and the members of the Remuneration Committee were in regular contact with the Chief Change and Organisation and NN Group's Head of Reward and Performance.
To ensure their ongoing learning regarding human resource management and remuneration developments, the Remuneration Committee attended a dedicated third-party training on performance management. The Remuneration Committee used the services of Willis Towers Watson to benchmark the remuneration of the Supervisory Board, the Executive Board and the Management Board with comparable companies on the external market.
The topics of discussion included:
The Remuneration Committee devoted time to the remuneration policies of NN Group. Matters that were covered in 2015 included review and endorsement of the updated remuneration policy for the Executive Board and endorsement to update the remuneration of the Supervisory Board regarding the international attendance fee. Both matters were approved at the 2015 AGM.
The Remuneration Committee reviewed the performance assessment on performance year 2014 and reviewed and approved the variable remuneration proposals for the Executive Board and Management Board. The Remuneration Committee discussed and approved the objectives for the Executive and Management Board for performance year 2015.
The Remuneration Committee also devoted time to evaluating and discussing the performance management programme for NN Group. The Remuneration Committee approved the NN Group Remuneration Framework, the Identified Staff selection criteria and the list of Identified Staff for NN Group. Furthermore, Identified Staff related remuneration matters were reviewed and approved in line with the NN Group Remuneration Framework, including the variable remuneration proposals for the Identified Staff for performance year 2014, including potential cases for holdback of deferred variable remuneration by way of malus. The Remuneration Committee also reviewed the Remuneration Committee Charter, included in the Supervisory Board Charter.
The Nomination and Corporate Governance Committee met seven times in 2015 and had an attendance rate of 100%. The members of the Nomination and Corporate Governance Committee in 2015 were the chair, Mr Holsboer, Ms van Rooij and Mr Hamers, until his resignation on 6 October 2015. Ms Vletter-van Dort joined the Nomination and Corporate Governance Committee on 6 October 2015. Mr Nagel, who joined the Nomination and Corporate Governance Committee on 3 November 2015 to replace Mr Hamers, was a member until his resignation from the Supervisory Board on 14 December 2015. Mr Harryvan, who joined the Nomination and Corporate Governance Committee as an observer as of 6 October 2015, became a member when his appointment to the Supervisory Board became effective on 2 February 2016.
The Chief Executive Officer also attended these meetings, except during discussion of matters in relation to the Chief Executive Officer. In relation to the duties described in the charter of the Nomination and Corporate Governance Committee, the chair and some of the members of the Nomination and Corporate Governance Committee met with each member of the Executive and Management Board.
The Nomination and Corporate Governance Committee evaluated the composition of the Supervisory Board, its committees and individual Supervisory Board competencies and skills. In preparation of ING Group's shareholding (direct or indirect) falling below certain thresholds, as defined in the Relationship Agreement, the Nomination and Corporate Governance Committee discussed the selection criteria and individual profiles for new Supervisory Board members. The Nomination and Corporate Governance Committee also prepared the search criteria and held interviews with proposed candidates.
The Executive Board has prepared the 2015 annual accounts and discussed these with the Supervisory Board. The 2015 annual accounts will be submitted for adoption by the General Meeting at the 2016 AGM as part of the Financial Report.
NN Group showed a strong performance in 2015, as it delivered on its IPO targets in light of a challenging market environment and regulatory changes. The Supervisory Board wishes to express its gratitude to the members of the Executive Board and the Management Board, and all employees of NN Group and its businesses, for their dedication to maintaining and building on this momentum, and for their continued commitment to build a company that truly matters in the lives of all stakeholders of NN Group.
The Hague, 22 March 2016 The Supervisory Board
NN Group will propose to pay a final dividend of EUR 1.05 per ordinary share, or EUR 341 million in total, based on the number of outstanding shares at the date of this Financial Report, excluding the shares held by NN Group in its own capital in treasury.
Report of the Supervisory Board Corporate governance Annual accounts
NN Group N.V. (NN Group) is a public limited liability company (naamloze vennootschap) incorporated under the laws of the Netherlands, having a two-tier board structure consisting of an executive board (Executive Board) and a supervisory board (Supervisory Board). NN Group also has a management board (Management Board).
NN Group was incorporated on 29 March 2011 under the name ING Insurance Topholding N.V. On 28 February 2014, NN Group entered into a legal merger with its wholly owned subsidiary ING Verzekeringen N.V. ('ING Verzekeringen'), at that time a public limited liability company incorporated under the laws of the Netherlands. On 1 March 2014, the legal merger became effective. As a result of this merger, ING Verzekeringen ceased to exist, NN Group acquired all assets and liabilities of ING Verzekeringen under universal title of succession and was renamed NN Group N.V. At that time NN Group had one shareholder: ING Groep N.V. (ING Group), a public limited liability company incorporated under the laws of the Netherlands. On 2 July 2014, ING Group offered part of its shares in the share capital of NN Group to the public and the shares in the capital of NN Group were listed on Euronext Amsterdam (IPO). After settlement of the offering on 7 July 2014 (Settlement Date), ING Group still held a majority of the shares in the share capital of NN Group.
As required under the restructuring plan developed by ING Group as a condition to receiving approval from the European Commission for the Dutch State aid it received in 2008 and 2009 and approved by the European Commission, ING Group has divested more than 50% of its shareholding in NN Group before 31 December 2015. On 31 December 2015 ING Group held 25.8% of the issued and outstanding ordinary shares in the share capital of NN Group. ING Group is obliged to divest its remaining interest before 31 December 2016. Information on the current shareholding of ING Group in NN Group can be found in note 12 to the consolidated annual accounts on page 69. On 10 June 2014, NN Group and ING Group entered into an agreement containing certain arrangements regarding the continuing relationship between NN Group and ING Group (Relationship Agreement). The Relationship Agreement, with the exception of certain specific provisions, terminated on 2 February 2016, the date on which ING Group's holding of ordinary shares in the share capital of NN Group fell below 15% of the issued and outstanding ordinary shares. The full text of the Relationship Agreement is available on the website of NN Group.
In accordance with the Relationship Agreement, as in force until 2 February 2016, NN Group applies the full large company regime (volledig structuurregime) as of 5 October 2015, the date on which ING Group's holding of ordinary shares in the share capital of NN Group fell below 30% of the issued and outstanding ordinary shares. Before that date, NN Group voluntarily applied the mitigated large company regime (gemitigeerd structuurregime).
The Executive Board is entrusted with the management, the strategy and the operations of NN Group under supervision of the Supervisory Board. In performing its duties, the Executive Board must carefully consider and act in accordance with the interests of NN Group and the business connected with it, taking into consideration the interests of all the stakeholders of NN Group. The organisation, duties and working methods of the Executive Board are detailed in the charter of the Executive Board. This charter is available on the website of NN Group.
Certain resolutions of the Executive Board require the approval of the Supervisory Board and/or general meeting of shareholders (General Meeting). These resolutions are outlined in the articles of association of NN Group (Articles of Association, available on the website of NN Group) and in the charter of the Executive Board. Until 5 October 2015, the date on which ING Group's holding of ordinary shares in the share capital of NN Group fell below 30% of the issued and outstanding ordinary shares, the approval of the Supervisory Board for some of these resolutions had to include the affirmative vote of the ING Group Nominees, see 'Supervisory Board – Composition' (Affirmative Vote). A number of the resolutions that required the Affirmative Vote is further described below. A complete list of these resolutions can be found in the Relationship Agreement, as in force until 2 February 2016.
As of 5 October 2015, NN Group applies the full large company regime. Under this regime the members of the Executive Board are appointed by the Supervisory Board. Prior to appointing a member of the Executive Board, the Supervisory Board must notify the General Meeting of such intended appointment.
Until 5 October 2015 NN Group applied the mitigated large company regime. Under this regime the members of the Executive Board were appointed by the General Meeting upon nomination of the Supervisory Board. The General Meeting could reject the nomination by a two-thirds majority of the votes cast by shareholders representing more than 50% of NN Group's issued share capital.
Under the full large company regime, only the Supervisory Board may suspend or remove a member of the Executive Board. However, the Supervisory Board is only entitled to remove a member of the Executive Board after the General Meeting has been consulted on the intended removal.
Under the mitigated large company regime, the General Meeting could suspend or remove a member of the Executive Board. A resolution to suspend or remove a member of the Executive Board other than pursuant to a proposal of the Supervisory Board required a two-thirds majority of votes cast representing more than 50% of NN Group's issued share capital. If such two-thirds majority of votes casts represented less than 50% of the issued share capital, no new meeting could be convened.
Report of the Supervisory Board Corporate governance Annual accounts
The Executive Board must consist of two or more members, with the total number of members of the Executive Board determined by the Supervisory Board after consultation with the Executive Board.
The profile of the Executive Board is available on the corporate website. NN Group aims to have an adequate and balanced composition of the Executive Board. The Executive Board consists of two members and several relevant selection criteria need to be balanced when composing the Executive Board.
The composition of the Executive Board did not meet the gender balance of having at least 30% men and at least 30% women amongst the members of the Executive Board in 2015. NN Group will continue to strive for an adequate and balanced composition of the Executive Board in future appointments, by taking into account all relevant selection criteria including but not limited to gender balance, executive experience, experience in corporate governance of large listed companies and experience in the political and social environment.
As at 31 December 2015 the Executive Board consisted of the following persons:
| Name | Position | Date of birth | Gender | Nationality | Appointment | Termination/ reappointment |
|---|---|---|---|---|---|---|
| Lard Friese | Chair, Chief Executive Officer (CEO) | 26 November 1962 | male | Dutch | 1 March 2014 | 2017 |
| Delfin Rueda | Vice-chair, Chief Financial Officer (CFO) | 8 April 1964 | male | Spanish | 1 March 2014 | 2018 |
Lard Friese was appointed as member and vice-chair of the Executive Board on 1 March 2014 and chair and Chief Executive Officer as from 7 July 2014. From 1 October 2013 until the legal merger between NN Group and ING Verzekeringen which became effective on 1 March 2014, he was a member and vice-chair of the Management Board of ING Verzekeringen. Mr Friese is responsible for the strategy, performance and day-today operations of NN. Mr Friese has been employed by ING since 2008 in various positions. He was appointed Chief Executive Officer of Nationale-Nederlanden and chair of the Dutch Intermediary Division (Nationale-Nederlanden, Movir, Westland Utrecht Bank) on 1 September 2008. In 2009, he became Chief Executive Officer of ING Insurance Benelux responsible for the whole of ING Insurance's operations in the Netherlands, Belgium and Luxembourg. He was appointed to the Management Board of ING Verzekeringen with responsibility for the Insurance operations in the Netherlands, Belgium and Luxembourg, Central and Rest of Europe and Asia/ Pacific on 1 January 2011 until 3 November 2011. From 30 March 2011 until 7 July 2014 he was appointed to the Management Board of NN Insurance Eurasia N.V., a direct subsidiary of NN Group and formerly named ING Insurance Eurasia N.V. (NN Insurance Eurasia). As of 1 July 2013 he also assumed responsibility for Investment Management in the Management Board of NN Insurance Eurasia and, as from the end of 2013, also for the insurance business in Japan. From 2006 to 2008 Mr Friese was employed by Ceska Pojistovna a.s. (Prague, Czech Republic) as Chief Executive Officer and vice-chair of the board of directors and was a member of the executive committee of Generali PPF Holding (Prague, Czech Republic). From 2003 to 2006 Mr Friese was employed by VNU/ ACNielsen (Brussels, Belgium) as senior vice-president and chief retail services officer Europe and he was a member of the European board. Before that, from 1993 to 2003, he worked at Aegon N.V. as a member of the board of directors of Aegon Levensverzekering N.V. (life insurance) in The Hague, the Netherlands and as senior vice-president of Aegon the Netherlands in Tokyo, Japan. Between 1988 and 1993 Mr Friese held various positions at insurance company NOG Verzekeringen (Amsterdam, the Netherlands). Mr Friese began his career in 1986 as a (junior) tax consultant at Kammer Luhrmann Van Dien & Co (now PwC) in Utrecht and Arnhem, the Netherlands. Mr Friese holds a Master of Law degree from Utrecht University (the Netherlands). Besides being a member of the Executive Board, Mr Friese is a member of the board of representatives of Foundation VUmc CCA and a member of the Geneva Association.
Delfin Rueda was appointed to the Executive Board as Chief Financial Officer on 1 March 2014. From 1 October 2013 until the legal merger between NN Group and ING Verzekeringen which became effective on 1 March 2014, he was a member of the Management Board and Chief Financial Officer of ING Verzekeringen. Mr Rueda has served as Chief Financial Officer and as a member of the Management Board of NN Insurance Eurasia from 1 November 2012 until 7 July 2014. Mr Rueda is responsible for NN's finance departments, the Chief Actuary Office, and investor relations. Prior to joining ING in November 2012, Mr Rueda served as Chief Financial and Risk Officer and as a member of the management board at Atradius (2005–2012). From 2000 to 2005, Mr Rueda served as senior vice-president of the Financial Institutions Group, Corporate Finance at J.P. Morgan. Prior to that, from 1993 to 2000, he was executive director of the Financial Institutions Group, Corporate Finance at UBS. Mr Rueda began his career with Andersen Consulting, which later became Accenture, where he undertook different advisory assignments in information systems and strategic management services from 1987 to 1991. Mr Rueda has a degree in Economic Analysis and Quantitative Economics from the Complutense University of Madrid (Spain) and an MBA with a Finance major from the Wharton School, University of Pennsylvania (US).
Information on the remuneration policy for members of the Executive Board and on their individual remuneration can be found in the Remuneration Report, on pages 29-33 of this Financial Report.
Report of the Supervisory Board Corporate governance
The Management Board is entrusted with the day-to-day management and the overall strategic direction of NN Group. In performing its duties, the Management Board must carefully consider and act in accordance with the interests of NN Group and the business connected with it, taking into consideration the interests of all the stakeholders of NN Group. The authority to manage NN Group is vested in the Executive Board as a whole, notwithstanding that each of the members of the Management Board is responsible and accountable towards the Executive Board and within the Management Board for the specific tasks as assigned. The organisation, duties and working methods of the Management Board are detailed in the charter of the Management Board. This charter is available on the website of NN Group.
The Management Board consists of the members of the Executive Board and such other members as appointed by the Executive Board after consultation with the Supervisory Board. The number of members of the Management Board is determined by the Executive Board.
The members of the Management Board may be suspended and removed by the Executive Board, after consultation with the Supervisory Board.
As at 31 December 2015 the Management Board consisted of the following persons:
| Name | Position | Date of birth | Gender | Nationality | Appointment |
|---|---|---|---|---|---|
| Lard Friese | Chair, Chief Executive Officer (CEO) | 26 November 1962 | male | Dutch | 7 July 2014 |
| Delfin Rueda | Vice-chair, Chief Financial Officer (CFO) | 8 April 1964 | male | Spanish | 7 July 2014 |
| Stan Beckers | Chief Executive Officer NN Investment Partners | 22 March 1952 | male | Belgian | 7 July 2014 |
| Doug Caldwell Chief Risk Officer (CRO) | 17 September 1969 | male | American | 7 July 2014 | |
| David Knibbe | Chief Executive Officer Netherlands Insurance and Global IT | 15 March 1971 | male | Dutch | 7 July 2014 |
| Robin Spencer Chief Executive Officer International Insurance | 30 January 1970 | male | British | 1 August 2014 | |
| Dorothee van Vredenburch |
Chief Change and Organisation (CCO) | 10 September 1964 | female | Dutch | 7 July 2014 |
Information with respect to the members of the Management Board who are also members of the Executive Board, Lard Friese and Delfin Rueda, can be found under 'Executive Board – Composition', on page 19 of this Financial Report.
Stan Beckers was appointed to the Management Board as Chief Executive Officer NN Investment Partners as from 7 July 2014. From 1 July 2013 until 7 July 2014, he was a member of the Management Board and Chief Executive Officer of ING Investment Management International. Mr Beckers is responsible for NN's asset management business. Prior to joining ING in 2013, Mr Beckers held various positions in Barclays Global Investors which was later acquired by Blackrock. Mr Beckers served as co-head of Blackrock Solutions EMEA (2010–2013), he was Chief Investment Officer of Barclays Global Investors Europe Active Equity Group (2008–2010) and he served as Chief Executive Officer and Chief Investment Officer of Alpha Management Group of Barclays Global Investors (2004– 2007). From 2003 to 2004, Mr Beckers served as chief investment officer of Kedge Capital. From 2000 to 2003, Mr Beckers served as Chief Investment Officer of WestLB Asset Management. Prior to that, from 1982 to 2000, he held various functions, the last one being Chief Executive Officer of Barra Institutional Analytics. Mr Beckers started his career in 1979 as a professor of Finance at KU Leuven, Belgium. Over the past 25 years, Mr Beckers also has been a member of the Investment Committees at several pension funds and of the supervisory board at KAS Bank, Robeco, Econowealth and St Lawrence Trading Inc. He has a PhD in Business Administration from the University of California, Berkeley (US) and has an engineering degree in Quantitative Methods and Computer Sciences from KU Leuven (Belgium). Besides being a member of the Management Board, Mr Beckers is a visiting professor at KU Leuven.
Doug Caldwell was appointed to the Management Board as Chief Risk Officer as from 7 July 2014. From 1 October 2013 until 7 July 2014, he first was a member of the Management Board and Chief Risk Officer of ING Verzekeringen and, after the legal merger between NN Group and ING Verzekeringen which became effective on 1 March 2014, of NN Group. Since 1 December 2012, he has been Chief Risk Officer and a member of the Management Board of NN Insurance Eurasia, Mr Caldwell is responsible for NN's overall risk framework with direct responsibility for the risk management departments. Mr Caldwell has been employed by ING since 1999 in various positions. From 2010 to 2012, he was chief risk officer of ING Insurance Asia Pacific, Hong Kong. Prior to joining ING, Mr Caldwell served as a consultant at Ernst & Young Accountants LLP in Atlanta (from 1990 to 1996) and as valuation actuary at ARM Financial Group in Louisville (from 1996 to 1999). Mr Caldwell has a degree in Mathematics from Auburn University (US), he is a Fellow of the Society of Actuaries and is a Chartered Enterprise Risk Analyst. Besides being a member of the Management Board, Mr Caldwell is a member of the board of directors of Global Refuge International (US based non-profit organisation).
David Knibbe was appointed to the Management Board as from 7 July 2014. From 1 January 2011 until 1 September 2014, he served as Chief Executive Officer of ING Insurance Europe. From 1 September 2014, Mr Knibbe was appointed Chief Executive Officer of Netherlands Insurance. In his role as Chief Executive Officer Netherlands Insurance, Mr Knibbe is responsible for NN's insurance and banking business in the Netherlands. He is also responsible for IT globally. During the year 2010, Mr Knibbe was Chief Executive Officer Insurance Corporate Clients in the Netherlands. From 2007 to 2008, Mr Knibbe was general manager of Nationale-Nederlanden Individual Life (retail life and individual pensions), which then became Intermediary Pensions and Retail Life with the addition of the SME pensions business in 2008.
In 2009, Mr Knibbe became general manager Pensions with the addition of corporate pensions and removal of retail life from his area of responsibility. Prior to that, from 2004 to 2007, Mr Knibbe was director Disability and Accident Insurance of Nationale-Nederlanden. From 2002 to 2004, he was managing director of ING's life insurance and employee benefits joint venture with Piraeus Bank in Greece. Mr Knibbe was head of Investments of Central-Holland of ING Bank from 2000 to 2002. Mr Knibbe started his professional career in 1997 when he joined ING, serving in various positions in investment management and banking. Mr Knibbe has a degree in Monetary Economics from the Erasmus University in Rotterdam (the Netherlands). Besides being a member of the Management Board, Mr Knibbe is chair of the board of the Dutch Association of Insurers (Verbond van Verzekeraars) (appointed in December 2015) and member of the board of the Confederation of Netherlands Industry and Employers (VNO-NCW).
Robin Spencer was appointed to the Management Board as from 1 August 2014 and as Chief Executive Officer International Insurance on 1 September 2014. He is responsible for all NN Group's international insurance businesses as well as reinsurance globally. He has over 20 years' experience in the insurance industry across life, non-life and asset management in the UK and internationally. Mr Spencer was previously Chief Executive Officer of Aviva UK & Ireland General Insurance and member of the Aviva's executive committee. From 2010 to 2012, Mr Spencer was Chief Risk Officer of Aviva and was chair of the European CRO Forum in 2012. Mr Spencer was Chief Executive Officer of Aviva Canada from 2007 to 2010 having previously been the Chief Financial Officer of Aviva Canada from 2005 to 2007. While in Canada, Mr Spencer was on the Board and, in 2009, chair of the Canadian Property and Casualty Insurance Compensation Corporation.
Mr Spencer started his career as a financial analyst with Procter & Gamble and is a qualified accountant (ACMA). He holds an MA in Economics from Aberdeen University.
Dorothee van Vredenburch was appointed to the Management Board as chief change and organisation as from 7 July 2014. From 1 October 2013 until 7 July 2014, she first was a member of the Management Board of ING Verzekeringen and, after the legal merger between NN Group and ING Verzekeringen which became effective on 1 March 2014, of NN Group. Ms van Vredenburch has also been a member of the Management Board of NN Insurance Eurasia since 1 November 2012. Ms van Vredenburch is responsible for NN's HR, communications and sustainability. Ms van Vredenburch joined ING in 2009 as managing director of Corporate Communications and Affairs of ING Group and, from 2010, also of NN Insurance Eurasia. Prior to joining ING in 2009, Ms van Vredenburch served as managing director and chair of the board for Citigate Europe (from 2001 to 2005) and in 2007 she founded RedZebra Group, a Netherlands-based consulting firm. Ms van Vredenburch started her career in 1987 as investment analyst at Amro International Services (London) and had similar roles at Swiss Bank Corporation and at Carnegie International Securities Ltd. in London until 1992. In 1993, she founded First Financial Communications B.V., a financial communications firm that later became part of the global marketing and communications Incepta Group (Citigate), which merged with Huntsworth Plc. Ms van Vredenburch holds a BTEC HND degree in Business and Finance from CCAT in Cambridge (UK). Besides being a member of the Management Board, Ms van Vredenburch is a member of the board of Junior Achievement Europe.
The Supervisory Board is responsible for supervising the management of the Executive Board and the general course of affairs of NN Group and its businesses. The Supervisory Board may, on its own initiative, provide the Executive Board with advice and may request any information from the Executive Board that it deems appropriate. In performing its duties, the Supervisory Board must carefully consider and act in accordance with the interests of NN Group and the business connected with it, taking into consideration the relevant interests of all the stakeholders of NN Group. The organisation, duties and working methods of the Supervisory Board are detailed in the charter of the Supervisory Board. This charter is available on the website of NN Group.
The members of the Supervisory Board are appointed by the General Meeting upon nomination of the Supervisory Board. The General Meeting and the works council of NN Group (Works Council) may recommend candidates for nomination to the Supervisory Board. The Supervisory Board must simultaneously inform the General Meeting and the Works Council of the nomination. The nomination must state the reasons on which it is based.
The Supervisory Board is required to nominate one-third of the Supervisory Board members on the enhanced recommendation (versterkt aanbevelingsrecht) of the Works Council, unless the Supervisory Board objects to the recommendation on the grounds that the recommended candidate is not suitable to fulfil the duties of a member of the Supervisory Board or that the Supervisory Board will not be properly composed if the nominated candidate would be appointed.
The General Meeting may reject the nomination of a Supervisory Board member by an absolute majority of the votes cast by shareholders representing at least one-third of NN Group's issued share capital. If the General Meeting resolves to reject the nomination by an absolute majority of the votes cast, but this majority does not represent at least one-third of NN Group's issued share capital, a new meeting can be convened in which the nomination can be rejected by an absolute majority of the votes cast, irrespective of the part of NN Group's issued share capital represented. If the General Meeting resolves to reject the recommendation, the Supervisory Board will then prepare a new nomination. If the General Meeting does not appoint the person nominated by the Supervisory Board and does not resolve to reject the nomination, the Supervisory Board will appoint the person nominated.
A member of the Supervisory Board is appointed for a maximum period of four years. The members of the Supervisory Board retire periodically in accordance with a rotation plan drawn up by the Supervisory Board. This rotation plan is available on the website of NN Group.
The Supervisory Board may suspend a member of the Supervisory Board. The suspension will lapse by law if NN Group has not submitted a petition to the Commercial Division of the Amsterdam Court of Appeal (Ondernemingskamer van het Gerechtshof te Amsterdam) within one month after commencement of the suspension.
The General Meeting can, by an absolute majority of votes cast, representing at least one-third of the issued share capital, resolve to abandon its trust (het vertrouwen opzeggen) in the entire Supervisory Board. A resolution to remove the Supervisory Board for lack of confidence cannot be adopted until the Executive Board has notified the Works Council of the proposal for the resolution and the reasons therefore. If the General Meeting removes the Supervisory Board members for lack of confidence, the Executive Board must request the Commercial Division of the Amsterdam Court of Appeal to temporarily appoint one or more Supervisory Board members.
The Supervisory Board must consist of three or more members, with the total number of members of the Supervisory Board determined by the Supervisory Board. As at 31 December 2015 the Supervisory Board consisted of five members. As of 2 February 2016 the Supervisory Board consists of seven members, who are all independent within the meaning of best practice provision III.2.2. of the Dutch Corporate Governance Code.
Until 5 October 2015, the date on which ING Group's holding of ordinary shares in the share capital of NN Group fell below 35% of the issued and outstanding ordinary shares, ING Group had a right to nominate three members of the Supervisory Board (ING Group Nominees) and to nominate and propose replacements for these members. As of this date, ING Group's right was limited to two ING Group Nominees. ING Group's right lapsed on 2 February 2016, the date on which ING Group's holding of ordinary shares in the share capital of NN Group fell below 15% of the issued and outstanding ordinary shares. The nomination rights of ING Group will not revive should ING Group's shareholding subsequently re-exceed the relevant thresholds.
Until 5 October 2015, the Works Council only exercised its enhanced recommendation right in respect of one member of the Supervisory Board. In accordance with the Relationship Agreement, as in force until 2 February 2016, the Works Council further exercised its enhanced recommendation right upon resignation of the first of the ING Group Nominees on 6 October 2015.
The profile of the Supervisory Board is available on the corporate website. NN Group aims to have an adequate and balanced composition of the Supervisory Board, including a gender balance by having at least 30% men and at least 30% women amongst its members. However, because of the fact that several relevant selection criteria need to be balanced when composing the Supervisory Board, the composition of the Supervisory Board did not meet the above-mentioned gender balance in 2015, except for the period from 14 December 2015 up to and including 31 December 2015. NN Group will continue to strive for an adequate and balanced composition of the Supervisory Board in future appointments, by taking into account all relevant selection criteria including but not limited to gender balance, executive experience, experience in corporate governance of large listed companies and experience in the political and social environment.
On 31 December 2015 the Supervisory Board consisted of the following persons:
| Name | Position | Date of birth | Gender | Nationality | Appointment | Termination/ reappointment |
|---|---|---|---|---|---|---|
| Jan Holsboer | Chair | 8 May 1946 | male | Dutch | 1 March 2014 | 2016 |
| Heijo Hauser | Member | 23 June 1955 | male | German | 7 July 2014 | 2018 |
| Yvonne van Rooij |
Member (recommended by Works Council) 4 June 1951 | female | Dutch | 1 March 2014 | 2016 | |
| Hans Schoen | Member | 2 August 1954 | male | Dutch | 7 July 2014 | 2018 |
| Hélène Vletter -van Dort |
Member (recommended by Works Council) 15 October 1964 | female | Dutch | 6 October 2015 2019 |
Jan Holsboer was appointed to the Supervisory Board on 1 March 2014. He was appointed chair on 7 July 2014. From 14 May 2012 until the legal merger between NN Group and ING Verzekeringen which became effective on 1 March 2014, he was a member of the supervisory board of ING Verzekeringen. From 14 May 2012 until 7 July 2014, Mr Holsboer was also a member of the supervisory boards of ING Group, ING Bank N.V. ('ING Bank') and NN Insurance Eurasia. Previously, Mr Holsboer was a member of the executive board of Univar N.V. and from 1990 until 1999 he was a member of the executive boards of Nationale-Nederlanden and ING Group. As per 18 March 2016, he resigned as 'non-executive' (senior independent) director of PartnerRe Ltd (Bermuda). Besides being a member of the Supervisory Board, Mr Holsboer is, among others, chair of the Supervisory Board of TD Bank N.V., non-executive director of YAFA S.p.A. (Turin, Italy) and a member of the Supervisory Board of YAM Invest N.V.
NN Group N.V. 2015 Financial Report 22
Heijo Hauser was appointed to the Supervisory Board as from 7 July 2014. From January 1991 until June 2011, Mr Hauser was managing director of Towers Watson in Germany. He specialised in providing consulting services to insurance companies in areas such as strategy, distribution, product and risk management. He also managed Towers Watson's businesses in the German speaking, Nordic and Central European countries. From September 1987 until December 1990, Mr Hauser was managing director of the travel and financial services subsidiaries of Metro in Germany. Other previous positions include sales director of Deutsche Krankenversicherung and marketing actuary of Victoria Lebensversicherung. Mr Hauser holds a Master's degree in Mathematics from the Ruhr University of Bochum (Germany), and is a member of the German Actuarial Society. Besides being a member of the Supervisory Board, Mr Hauser is chair of the board of Freundeskreis Elisabeth-Hospiz e.V.
Yvonne van Rooij was appointed to the Supervisory Board on 1 March 2014. From 14 May 2012 until the legal merger between NN Group and ING Verzekeringen which became effective on 1 March 2014, she was a member of the supervisory board of ING Verzekeringen. From 14 May 2012 until 7 July 2014, Ms van Rooij was also a member of the supervisory boards of ING Group, ING Bank and NN Insurance Eurasia. Besides being a member of the Supervisory Board, Ms van Rooij is member of the supervisory board of Holding Pricewaterhouse Coopers Nederland B.V., chair of Nederlandse Vereniging van Ziekenhuizen (Dutch association of hospitals), chair of the supervisory board of Philips Electronics Nederland B.V., a member of the board of Stichting Administratiekantoor Koninklijke Brill N.V., a member of the board of Stichting Koninklijk Concertgebouworkest, a member of the advisory board of Nexus Institute, a member of the board of Stichting Instituut GAK, a member of the board of the Confederation of Netherlands Industry and Employers (VNO-NCW), and a member of the advisory council of the Ministry of Finance on public reporting, a member of the advisory board of Stichting Nationaal Fonds Kunstbezit, a member of the curatorium of protectors National Monument Kamp Vught and a member of the supervisory board of Stichting Gemeentemuseum Den Haag. Ms van Rooij's previous positions include, among others, Minister of Foreign Trade, member of the Dutch Parliament and member of the European Parliament. She was also President of Utrecht University.
Hans Schoen was appointed to the Supervisory Board as from 7 July 2014. From September 1977 until October 2008, Mr Schoen worked at KPMG Accountants and was a partner from January 1989 onwards. He specialised in providing audit and advisory services to domestic and foreign insurance companies. Other former significant positions of Mr Schoen include member and chair of several insurance industry committees of the NIVRA and the Dutch Accounting Standard Boards.
He was also member of the governmental advice committee Traas in respect of the financial and prudential reporting obligations of Dutch insurance companies, member of several advisory committees of the IASC/IASB on insurance company financial reporting requirements and member and part-time acting director of research of the Technical Expert Group of EFRAG in Brussels (Belgium). Mr Schoen holds a degree in Economics and a Postdoctoral degree in Accountancy from the University of Amsterdam (the Netherlands). In September 2015, he also obtained a PhD at the VU University Amsterdam (the Netherlands). Besides being a member of the Supervisory Board, Mr Schoen is chair of the EFRAG Insurance Accounting Working Group.
Hélène Vletter-van Dort was appointed to the Supervisory Board on 6 October 2015. Besides being a member of the Supervisory Board Ms Vletter-van Dort is, among others, professor of Financial Law & Governance at the Erasmus School of Law, professor of Securities Law at the University of Groningen, member of the Monitoring Committee Corporate Governance Code, chair of the supervisory board of Intertrust N.V., arbitrator with the Netherlands Arbitration Institute and chair of the Appeal Panel of the Single Resolution Board. Ms Vletter-van Dort is a former member of the supervisory board of the Dutch Central Bank and former chair of its committee on supervisory policy. Other previous positions include, among others, visiting research professor at New York University, judge at the Enterprise Chamber of the Amsterdam Court of Appeal, lawyer at Clifford Chance in Amsterdam (the Netherlands) and member of the supervisory board of Fortis Bank Nederland (Holding) N.V. and Fortis Bank (Nederland) N.V.
On 2 February 2016, the appointments of Dick Harryvan and Robert Jenkins as members of the Supervisory Board became effective:
| Name | Position | Date of birth | Gender | Nationality | Appointment | Termination/ reappointment |
|---|---|---|---|---|---|---|
| Dick Harryvan | Vice-chair (as of 24 February 2016) | 10 May 1953 | male | Dutch | 2 February 2016 2020 | |
| Robert Jenkins Member | 17 January 1951 | male | American | 2 February 2016 2020 |
Dick Harryvan was appointed to the Supervisory Board on 6 October 2015, which became effective on 2 February 2016. He was appointed vice-chair of the Supervisory Board on 24 February 2016. From 2006 through 2009 Mr Harryvan was a member of the executive board of ING Group and Chief Executive Officer of ING Direct. Other former positions include co-chair of the International Academy of Retail Banking, non-executive director of Voya Financial Inc., general manager Bancassurance at ING Bank, deputy general manager at Nationale-Nederlanden and vicepresident Operations of The Halifax Insurance Company. Besides being a member of the Supervisory Board Mr Harryvan is, among others, member of the advisory board of Gulf Bank, member of the supervisory board of ANWB B.V., member of the advisory board of the Official Monetary and Financial Institutions Forum (OMFIF) and partner at Orange Growth Capital.
Robert Jenkins was appointed to the Supervisory Board on 6 October 2015, which became effective on 2 February 2016. From 2009 until 2014, Mr Jenkins was a senior advisor to CVC Capital Partners.
From 2011 until 2013 he was an external member of the interim Financial Policy Committee of the Bank of England. Mr Jenkins was Chief Executive Officer and managing partner of Combinatorics Capital, LLC. from September 2009 until July 2011. Mr Jenkins has also served as chair of the Investment Management Association, United Kingdom, chair of the board of F&C Asset Management, plc. (non-executive) and Chief Executive Officer of the F&C Group. Other former positions include Chief Executive Officer of Foreign & Colonial Management Limited, managing director and Chief Operating Officer of Credit Suisse Asset Management Holding, United Kingdom, Chief Executive Officer and Chief Investment Officer of Credit Suisse Investment Management Group Ltd., United Kingdom, chief investment officer and head of asset management of Credit Suisse, Japan, and senior executive in the Citigroup trading and sales organisation. Besides being a member of the Supervisory Board Mr Jenkins is, amongst others, chair of the AQR Asset Management Institute at London Business School, adjunct professor of Finance at the London Business School, senior fellow at Better Markets and member of the Board of Governors of the CFA Institute.
Report of the Supervisory Board Corporate governance Annual accounts
More information on the composition of the Supervisory Board can be found in the Report of the Supervisory Board Report on pages 10–17 of this Financial Report.
Information on the remuneration of the members of the Supervisory Board can be found in the Remuneration Report, on pages 29-33 of this Financial Report.
The Supervisory Board has established from among its members four committees: the Audit Committee, the Risk Committee, the Nomination and Corporate Governance Committee and the Remuneration Committee. The function of these committees is to prepare the discussion and decision-making of the Supervisory Board. The organisation, duties and working methods of the committees of Supervisory Board are detailed in a separate charter for each committee. These charters are available on the website of NN Group.
The Audit Committee assists the Supervisory Board in supervising the activities of the Executive Board with respect to, among other things, the structure and operation of the internal risk-management and control systems, the financial-reporting process, the preparation and disclosure of periodic financial reports and any ad hoc financial information, compliance with legislation and regulations and the independence and performance of NN Group's internal and external auditors.
Information on the composition of the Audit Committee can be found in the Report of the Supervisory Board on page 14 of this Financial Report.
The Risk Committee assists the Supervisory Board in supervising the activities of the Executive Board with respect to NN Group's strategy, its financial policies and risk policies, including the risks inherent in its business activities and the financing of NN Group.
Information on the composition of the Risk Committee can be found in the Report of the Supervisory Board on page 15 of this Financial Report.
The Remuneration Committee advises the Supervisory Board, among other things, on the terms and conditions of employment, including their remuneration, of members of the Executive Board and the policies and general principles on which the terms and conditions of employment of members of the Executive Board, members of the Management Board, senior managers and other employees of NN Group and its subsidiaries are based.
Information on the composition of the Remuneration Committee can be found in the Report of the Supervisory Board on page 16 of this Financial Report.
The Nomination and Corporate Governance Committee advises the Supervisory Board, among other things, on the composition of the Supervisory Board and Executive Board and assists the Supervisory Board in monitoring and evaluating the corporate governance of NN Group as a whole and the reporting thereon in the Annual Report and to the General Meeting.
Information on the composition of the Nomination and Corporate Governance Committee can be found in the Report of the Supervisory Board on page 17 of this Financial Report.
Each year, not later than in the month of June, a general meeting is held. Its general purpose is to discuss the Annual Report, adopt the financial statements, release the members of the Executive Board and the members of the Supervisory Board from liability for their respective duties, appoint and reappoint members of the Executive Board and Supervisory Board and decide on dividend to be declared, if applicable, and to decide on other items that require shareholder approval under Dutch law. Extraordinary general meetings are held whenever the Supervisory Board or the Executive Board deems such to be necessary. In addition, one or more shareholders who jointly represent at least 10% of the issued share capital of NN Group may, on application, be authorised by the court in interlocutory proceedings of the district court to convene a general meeting.
General meetings are convened by a public notice via the website of NN Group no later than on the forty-second day before the day of the general meeting. The notice includes in any event the place and time of the meeting and the agenda items. Shareholders who, alone or jointly, represent at least 3% of the issued share capital of NN Group may request to place items on the agenda, provided that the reasons for the request are stated therein and the request must be received by the chair of the Executive Board or the chair of the Supervisory Board in writing at least 60 days before the date of the general meeting.
Each holder of shares in the share capital of NN Group entitled to vote, and each other person entitled to attend and address the general meeting, is authorised to attend the general meeting, to address the general meeting and to exercise voting rights. For each general meeting a statutory record date will in accordance with Dutch law be set on the twenty-eighth day prior to the date of the general meeting, in order to determine in which persons voting rights and rights to attend and address the general meeting are vested. Those entitled to attend and address a general meeting may be represented at a general meeting by a proxy holder authorised in writing.
Each share in the share capital of NN Group confers the right on the holder to cast one vote.
The authorised share capital of NN Group consists of ordinary shares and preference shares. Depositary receipts for shares are not issued with the cooperation of NN Group.
Currently, only ordinary shares are issued, while a call option to acquire preference shares is granted to the foundation (stichting): Stichting Continuiteit NN Group ('NN Group Continuity Foundation'). The objects of NN Group Continuity Foundation are to protect the interests of NN Group, the business maintained by NN Group and the entities with which NN Group forms a group and all persons involved therein, in such way that the interest of NN Group and those businesses and all persons involved therein are protected to the best of its abilities, and by making every effort to prevent anything which may affect the independence and/or the continuity and/or the identity of NN Group and of those businesses in violation of the interests referred above.
At a general meeting all resolutions must be adopted by an absolute majority of the votes cast, except in those cases in which the law or the Articles of Association require a greater majority. If there is a tie in voting, the proposal concerned will be rejected.
The most important powers of the General Meeting are to:
NN Group Continuity Foundation shall pursue its objects, inter alia, by acquiring and holding preference shares in the share capital of NN Group and by enforcing the rights, in particular the voting rights, attached to those preference shares. To this end, NN Group Continuity Foundation has been granted a call option by NN Group.
According to the call option agreement concluded between NN Group and NN Group Continuity Foundation, NN Group Continuity Foundation has the right to subscribe for preference shares in the share capital of NN Group, consisting of the right to subscribe for such preference shares repeatedly, each time up to a maximum corresponding with 100% of the issued share capital of NN Group in the form of ordinary shares, as outstanding immediately prior to the exercise of the subscribed rights, less one share, from which maximum shall be deducted any preference shares already placed with NN Group Continuity Foundation at the time of the exercise of the subscribed rights.
Annual accounts
Until 5 October 2015, the date on which ING Group's holding of ordinary shares in the share capital of NN Group fell below 30% of the issued and outstanding ordinary shares, NN Group Continuity Foundation could not exercise the call option without the prior consent of ING Group.
As at 31 December 2015, the board of NN Continuity Foundation consisted of three members, who are independent from NN Group: Marc van Gelder (chair), Hessel Lindenbergh (treasurer) and Steven Perrick (secretary).
The General Meeting may resolve to issue shares in the share capital of NN Group, or grant rights to subscribe for such shares, upon a proposal of the Executive Board which has been approved by the Supervisory Board, including the Affirmative Vote until 5 October 2015. The Articles of Association provide that the General Meeting may delegate the authority to issue shares, or grant rights to subscribe for shares, to the Executive Board, upon a proposal of the Executive Board which has been approved by the Supervisory Board (including the Affirmative Vote until 5 October 2015).
If the Executive Board has been designated as the body authorised to resolve upon an issue of shares in the share capital of NN Group, the number of shares of each class concerned must be specified in such designation and upon such designation, the duration of the designation shall be set, which shall not exceed five years. A resolution of the Executive Board to issue shares requires the approval of the Supervisory Board, including the Affirmative Vote until 5 October 2015.
On 28 May 2015, the General Meeting designated the Executive Board for a term of 18 months, starting on 28 May 2015 and thus ending on 28 November 2016, as the competent body to resolve, subject to the approval of the Supervisory Board, on the issuance of ordinary shares in the share capital of NN Group and on the granting of rights to subscribe for such shares. The authority of the Executive Board is limited to a maximum of 10% of the issued share capital of NN Group at 28 May 2015, plus a further 10% of the issued share capital of NN Group at 28 May 2015 in case of a merger or acquisition or, if necessary in the opinion of the Executive Board and the Supervisory Board, to safeguard or conserve the capital position of NN Group.
Each holder of ordinary shares in the share capital of NN Group has a pre-emptive right in proportion to the aggregate nominal value of its shareholding of ordinary shares upon the issue of new ordinary shares (or the granting of rights to subscribe for ordinary shares). Holders of ordinary shares have no pre-emptive right upon (a) the issue of new ordinary shares (or the granting of rights to subscribe for ordinary shares): (i) against a payment in kind (ii) to employees of NN Group or of a group company or (iii) to persons exercising a previously-granted right to subscribe for ordinary shares and (b) the issue of preference shares.
Upon a proposal of the Executive Board which has been approved by the Supervisory Board, the General Meeting may resolve to limit or exclude the pre-emptive rights. According to the Articles of Association, the General Meeting may designate the Executive Board as the competent body to do so upon a proposal of the Executive Board which has been approved by the Supervisory Board (including the Affirmative Vote until 5 October 2015).
Both resolutions require a majority of at least two-thirds of the votes cast, if less than one-half of the issued share capital is represented at the general meeting. The designation to the Executive Board to resolve to limit or exclude the pre-emptive rights may be granted for a specified period of time of not more than five years and only if the Executive Board has also been designated or is simultaneously designated the authority to resolve to issue shares. A resolution of the Executive Board to limit or exclude the pre-emptive rights requires the approval of the Supervisory Board.
On 28 May 2015, the General Meeting designated the Executive Board for a term of 18 months, starting on 28 May 2015 and thus ending on 28 November 2016, as the competent body to resolve, subject to the approval of the Supervisory Board, to limit or exclude the pre-emptive rights of existing shareholders.
NN Group may acquire fully paid-up shares in its own share capital for no consideration (om niet) or if: (a) NN Group's shareholders' equity less the payment required to make the acquisition, does not fall below the sum of called-up and paid-in share capital and any statutory reserves, and (b) the nominal value of the shares which NN Group acquires, holds or holds as pledge, or which are held by a subsidiary, does not exceed half of the issued share capital. The acquisition of its own shares by NN Group for consideration requires authorisation by the General Meeting. The authorisation is not required for the acquisition of shares for employees of NN Group or of a group company under a scheme applicable to such employees. The Executive Board may resolve, subject to the approval of the Supervisory Board, including the Affirmative Vote until 5 October 2015, to alienate the shares acquired by NN Group in its own share capital. The resolution of the Executive Board to acquire shares in its own share capital for consideration requires the prior approval of the Supervisory Board, including the Affirmative Vote until 5 October 2015. No voting rights may be exercised in the general meeting with respect to any share or depositary receipt for such share held by NN Group or by a subsidiary, and no payments will be made on shares which NN Group holds in its own share capital.
On 28 May 2015, the General Meeting authorised the Executive Board for a term of 18 months, starting on 28 May 2015 and thus ending on 28 November 2016, to acquire in the name of NN Group, subject to the approval of the Supervisory Board, fully paid-up ordinary shares in the share capital of NN Group. This authorisation is subject to the condition that following the acquisition the aggregate par value of the ordinary shares in the share capital of NN Group which are held or held as pledge by NN Group, or held by its subsidiaries for their own account, shall not exceed 10% of the issued share capital of NN Group at 28 May 2015, or 20% in case of a major capital restructuring. Shares may be acquired at the stock exchange or otherwise, at a price not less than the par value of the ordinary shares in the share capital of NN Group and not higher than 110% of the highest market price of the shares on Euronext Amsterdam on the date of the acquisition or on the preceding day of stock market trading.
The transfer of ordinary shares in the share capital of NN Group included in the Statutory Giro System must take place in accordance with the provisions of the Dutch Securities Giro Act (Wet giraal effectenverkeer).
The transfer of shares in the share capital of NN Group not included in the Statutory Giro System requires an instrument intended for that purpose. To become effective, NN Group has to acknowledge the transfer, unless NN Group itself is a party to the transfer. The Articles of Association do not restrict the transfer of ordinary shares in the share capital of NN Group, while the transfer of preference shares in the share capital of NN Group requires the prior approval of the Executive Board.
NN Group is not aware of the existence of any agreement pursuant to which the transfer of ordinary shares in the share capital of NN Group is restricted.
Pursuant to the Dutch Financial Supervision Act (Wet op het financieel toezicht), any person who, directly or indirectly, acquires or disposes of a capital interest and/or voting rights in NN Group must immediately give notice to the Dutch Authority for Financial Markets (Autoriteit Financiële Markten) of such acquisition or disposal if, as a result of such acquisition or disposal, the percentage of capital interest and/or voting rights held by such person reaches, exceeds or falls below the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%.
Information on shareholders with an (indirect) interest of 3% or more can be found in the chapter 'Creating value as an investor' in the Annual Review, page 31, and is deemed to be incorporated by reference herein.
Pursuant to EU regulation No 236/2012, each person holding a net short position representing 0.2% of the issued share capital of NN Group must report this position, and any subsequent increase by 0.1% to the Dutch Authority for Financial Markets.
Each net short position equal to 0.5% of the issued share capital of NN Group and any subsequent increase of that position by 0.1% will be made public via the short selling register of the Dutch Authority for Financial Markets.
Each person holding a gross short position in relation to the issued share capital of NN Group that reaches, exceeds or falls below any one of the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%, must immediately give written notice to the Dutch Authority for Financial Markets.
Transactions between NN Group and any legal or natural person who holds at least 10% of the shares in NN Group will be agreed on terms that are customary in the sector concerned. An overview of related party transactions can be found on page 116 of this Financial Report and is deemed to be incorporated by reference herein.
On 10 June 2014, NN Group and ING Group entered into a warrant agreement in which NN Group has agreed to issue warrants to ING Group that will be exercisable for a number of ordinary shares in the share capital of NN Group up to 9.99% in the aggregate of the issued ordinary shares immediately following the Settlement Date or 34,965,000 ordinary shares. These warrants include certain customary anti-dilution provisions which provide for adjustments of both the initial exercise price and the number of ordinary shares in the share capital of NN Group to which the holder of the warrants is entitled to, in case of corporate events which lead to an immediate impact on the share price such as a share buyback, stock split, rights issue, extraordinary dividend, etc. The warrants became exercisable starting on the first anniversary of the Settlement Date and will expire on the tenth anniversary of the Settlement Date. ING Group has committed to not exercise its warrant before the third anniversary of the Settlement Date. Upon exercise of a warrant, the holder thereof will receive the number of ordinary shares in the share capital of NN Group into which such warrant is exercisable against payment of the aggregate exercise price. The holders of warrants will not be entitled, by virtue of holding warrants, to vote, to consent, to receive dividends, if any, to receive notices with respect to any general meeting or to exercise any rights whatsoever as the holders of shares in the share capital of NN Group until they become holders of the ordinary shares in the share capital of NN Group issued upon exercise of the warrants.
NN Group is subject to the Dutch Corporate Governance Code. The application of the Dutch Corporate Governance Code by NN Group is described in the publication 'Application of the Dutch Corporate Governance Code by NN Group, Financial Year 2015', dated March 2016, which is available on the website of NN Group. This publication is to be read in conjunction with this chapter and is deemed to be incorporated by reference herein. The Dutch Corporate Governance Code is available on the website of the Dutch Corporate Governance Code Monitoring Committee (www.commissiecorporategovernance.nl).
Annual accounts
The General Meeting may pass a resolution to amend the Articles of Association with an absolute majority of the votes cast, but only on a proposal of the Executive Board, which has been approved by the Supervisory Board, including the Affirmative Vote until 5 October 2015.
NN Group is not a party to any material agreement that takes effect, alters or terminates upon a change of control of NN Group following a take-over bid as referred to in art. 5:70 of the Dutch Financial Supervision Act, other than a revolving credit facility agreement entered into with a syndicate of lenders and, until 2 February 2016, the Relationship Agreement. The revolving credit facility agreement includes a change of control provision which entitles the lenders to cancel the commitment under the facility and declare any outstanding amounts under the facility immediately due and payable whereupon such amounts will become immediately due and payable.
The external auditor is appointed by the General Meeting upon nomination of the Supervisory Board. On 13 May 2013 the General Meeting of ING Group extended the appointment of Ernst & Young Accountants LLP (EY) as external auditor of ING Group and its subsidiaries, including NN Group, for the financial years 2014 and 2015, to report on the outcome of these audits to the Executive Board and the Supervisory Board and to provide an audit opinion on the financial statements. On 6 May 2014, the General Meeting confirmed this appointment. On 28 May 2015, the General Meeting appointed KPMG Accountants N.V. as the external auditor of NN Group for the financial years 2016 through 2019.
A description of the main characteristics of the risk management and control systems with regard to the process of financial reporting of NN Group and its group companies can be found in Note 50 on pages 119–141, which is deemed to be incorporated by reference herein.
This chapter, including parts of this Annual Report incorporated by reference, together with the separate publication 'Application of the Dutch Corporate Governance Code by NN Group, Financial Year 2015', dated March 2016, which is available on the website of NN Group, also serves as the corporate governance statement referred to in section 2a of the Decree with respect to the contents of the Annual Report (Besluit tot vaststelling van nadere voorschriften omtrent de inhoud van het jaarverslag).
The assignment contracts with the members of the Executive Board provide for severance payments, which are to become due in case of termination of the contract in connection with a public bid as defined in section 5:70 of the Dutch Financial Supervision Act. Severance payments to the members of the Executive Board are limited to a maximum of one year's fixed salary, in line with the Corporate Governance Code and the Dutch Financial Supervision Act.
The external auditor may be questioned at the General Meeting in relation to its audit opinion on the financial statements. The external auditor will therefore attend and be entitled to address this meeting. The external auditor attended the meetings of the Audit Committee and the Risk Committee in 2015.
More information on NN Group's policy on external auditor independence is available on the website of NN Group.
This Remuneration Report describes NN Group's remuneration philosophy and system. Furthermore, details are provided on the remuneration of the Supervisory Board and the Executive Board. This Report is divided into the following subsections:
NN Group has an overall remuneration policy described in the NN Group Remuneration Framework, which provides for reward guidelines and principles for all country and business unit remuneration policies within NN Group. NN Group aims to apply a clear and transparent remuneration policy that is adequate to attract and retain expert leaders, senior staff and other highly qualified employees. The remuneration policy is also designed to support NN Group's employees to act with integrity and keep the future of our clients, our company and other stakeholders in mind.
NN Group's remuneration policy for executives and senior staff is based on a total compensation approach and is benchmarked on a regular basis (where data is available) with relevant national and international peers, both within and outside the financial sector. Clear performance objectives are set and assessed which are aligned with the overall strategy of NN Group, both in the short and long term, to ensure that remuneration is properly linked to individual, team and NN Group performance.
The remuneration policy supports a focus on the company's long term interests and the interests of its clients by ensuring that there is careful management of risk and that staff are not encouraged, via remuneration, to take excessive risk. In addition, the remuneration policy ensures that NN Group complies with all the relevant (inter) national regulations on remuneration, such as the Dutch Central Bank's Regulation for Sound Remuneration (Regeling Beheerst Beloningsbeleid Wft 2014) and the Act on the Remuneration Policies of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen), as relevant to our business. The remuneration disclosure based on art. 25 Dutch Central Bank's Regulation for Sound Remuneration (Regeling Beheerst Beloningsbeleid Wft 2014) is published on the website of NN Group.
With respect to performance year 2015, the total amount of variable remuneration approved is EUR 83.5 million. The amounts will be processed in March or April 2016. The total number of staff of NN Group eligible for variable remuneration is 10,900.
The Executive Board members were appointed to the Executive Board on 1 March 2014. The Executive Board members have an engagement contract (in Dutch: overeenkomst van opdracht) with NN Group N.V. and have been appointed to the Executive Board for a period of three years (CEO) and four years (CFO). Their contracts allow for re-appointment to the Executive Board for consecutive periods of up to four years. In the event the contract is terminated upon initiative of the Company, the Executive Board members are entitled to a gross severance payment of one year base salary, except in the following circumstances: (i) the contract was terminated for cause; or (ii) if payment would be deemed reward for failure at the sole discretion of the Supervisory Board; or (iii) if the Executive Board member takes the initiative to terminate the contract.
The remuneration policy of the members of the Executive Board as per 7 July 2014, was amended due to the introduction of new legislation: the Act on the Remuneration Policies of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen) and new Dutch pension legislation (Witteveenkader 2015). The amended remuneration policy was approved by the General Meeting on 28 May 2015 and effective with retroactive effect as per 1 January 2015. The data presented in this report relates to remuneration awarded to the members of the Executive Board in respect of the whole of 2015.
The 2015 remuneration of the Executive Board members consisted of a combination of fixed remuneration (base salary (of which 80% is paid in cash and 20% in shares) and base salary allowances), variable remuneration, pension arrangements and other emoluments as described below. The total compensation of the Executive Board is benchmarked annually against market data that includes peers both inside and outside the financial sector in the Netherlands and abroad. Peers are selected with reference to asset base, market capitalisation, revenue and number of employees. In line with the remuneration policy as adopted at the General Meeting of 28 May 2015, the Supervisory Board aims to set the remuneration levels slightly below market median. If, based on the annual benchmark, the remuneration level is not in line with the approved policy, appropriate measures will be considered.
The Supervisory Board decided to increase the base salary of the Executive Board as per 1 January 2015, to reflect the greater responsibilities the Executive Board members assumed post IPO and in view of the market position of the remuneration of the Executive Board. In addition to this and taking into account the implementation of the Act on the Remuneration Policies of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen), the Supervisory Board decided to incorporate part of what was target variable remuneration in 2014 into base salary, partly in cash (80%) and partly in shares (20%). A discount was applied to the remuneration that moved from variable to fixed. The new Executive Board remuneration policy was approved by the General Meeting on 28 May 2015.
The remuneration policy for the Executive Board combines the short and long-term variable components into one structure. This structure supports both long-term value creation and shortterm company objectives. Variable remuneration is based on both financial and non-financial performance of the individual and the Company. Performance was assessed based on a number of targets regarding economic, environmental, customer satisfaction and social criteria. Estimated risks and capital adequacy were also taken into account when determining the award of variable remuneration. The Risk and Compliance function provided input in this respect. The emphasis on long-term performance indicators within the variable component of the compensation package is realised by means of deferral of 60% of the total variable remuneration. Furthermore, a yearly re-evaluation by the Supervisory Board will take place with the possibility to hold back (i.e. prevent from ever vesting) and/or claw back vested and paid variable remuneration. The Supervisory Board has the authority to reclaim any variable remuneration allocated to an Executive Board member based on inaccurate data and/or behaviour that led to significant harm to the company. In addition, the Supervisory Board has the authority to adjust variable remuneration in the event that the application of the predetermined performance criteria would result in an undesired outcome.
The maximum variable remuneration of the Executive Board members for performance year 2015 onwards has been capped at 20% of the base salary and the on target level of the annual variable remuneration has been set at 16% of the base salary. Additionally, the short-term component of variable remuneration (the so called Upfront Portion) is 40% of the total variable remuneration and is equally divided between an award in cash and an award in stock. The other 60% of the variable remuneration (the so called Deferred Portion) is also equally divided between an award in deferred cash and an award in deferred stock. Both the deferred cash and the deferred stock awards are subject to a tiered vesting on the first, second and third anniversary of the grant date (one third per annum). A retention period of five years starting from the date of award is applicable to all stock awards (both upfront and deferred), with the exception that part of the stock will be withheld at the relevant date of vesting to cover any income tax liability arising from the vested share award (withholdto-cover). In addition to the general principles described above, more specific details on the 2015 variable remuneration of the Executive Board are provided below.
The performance targets of the Executive Board were set by the Supervisory Board of NN Group at the start of the 2015 performance year. In 2015 the financial and non-financial performance objectives included the following:
| 2015 Financial performance | 2015 Non-financial performance |
|---|---|
| objectives Executive Board | objectives Executive Board |
| Free cash flow at holding, | Organisation & people, including |
| operating result before tax | focus on employee engagement and |
| ongoing business, expense | development of leadership and talent |
| reduction in the Netherlands, net operating ROE NN Group |
Strategically position NN Group for a sustainable future in the medium to long term, including: • Define and execute medium/ long-term Corporate Strategy • Maintain and further develop an excellent relationship and communication with shareholders • Compliant with S-II requirements for capital models and risk governance by 1 January 2016 |
| Customer & society measures, including improving the customer experience and suitability, improving results of the Net Promoter Score, brand awareness and the maintaining of a high level of professionalism and care for all relevant interactions with key stakeholders2 |
1 For the CEO the financial performance objectives have a weight of 45%; the non-financial performance objectives have a weight of 55%. For the CFO the financial performance objectives have a weight of 25%; the non-financial performance objectives have a weight of 75%.
2 The customer experience and suitability objectives have a weight of 20% of the total performance objectives of the Executive Board.
In 2015 there was no hold back applied to unvested deferred variable remuneration nor was claw back applied to paid or vested variable remuneration for any of the Executive Board members.
Due to the enactment of new Dutch pension legislation, the pension arrangements of the members of the Executive Board have been amended as per 1 January 2015. A defined contribution pension scheme was provided to the members of the Executive Board until 31 December 2014. New legislation limits pension contributions to standard tax deferred pension schemes. To meet the requirements of this new legislation, the Supervisory Board proposed that the members of the Executive Board join the same new pension arrangements as applicable to all staff of NN Group in the Netherlands. The General Meeting approved this amendment on 28 May 2015. The arrangements comprise a collective defined contribution (CDC) plan up to the new tax limit and a taxable individual savings allowance on pensionable fixed remuneration exceeding the tax limit.
The tables on the following page provide details on the amount of contribution that was paid by NN Group to the pension arrangement of the members of the Executive Board.
Members of the Executive Board were eligible for a range of other emoluments, such as health care insurance, lifecycle saving schemes and expat allowances (CFO only). Executive Board members were also able to obtain banking and insurance services from NN Group in the ordinary course of business and on terms that apply to all employees of NN Group in the Netherlands. As per 31 December 2015, the members of the Executive Board have no loans outstanding with NN and no guarantees or advanced payments were granted to members of the Executive Board. The table below provide details on the amount of amount of emoluments that was paid by NN Group to the benefit of the Executive Board.
| Lard Friese | Delfin Rueda | |||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| Base salary in cash | 944 | 850 | 820 | 700 |
| Base salary in shares | 236 | n.a. | 205 | n.a. |
| Total base salary | 1,180 | 850 | 1,025 | 700 |
| Variable remuneration | 214 | 850 | 185 | 700 |
| Total direct remuneration | 1,394 | 1,700 | 1,210 | 1,400 |
| Employer contribution to pension fund |
25 | 1801 | 25 | 1411 |
| Individual savings allowance | 295 | n.a. | 253 | n.a. |
| Other emoluments | 42 | 31 | 155 | 141 |
1 Until 31 December 2014, the Executive Board participated in a defined contribution pension scheme. As per 1 January 2015, the pension arrangement of the Executive Board was changed after approval of the General Meeting. The new arrangement comprises a collective defined contribution (CDC) plan up to the new tax limit and a taxable cash individual savings allowance on pensionable fixed remuneration exceeding the tax limit. The pension arrangement of the Executive Board is the same as the pension arrangement applicable to all staff of NN Group in the Netherlands.
| Upfront cash paid |
Deferred cash granted |
Upfront shares granted |
Deferred shares granted |
Total | |
|---|---|---|---|---|---|
| Lard Friese | 42.8 | 64.2 | 42.8 | 64.2 | 214 |
| Delfin Rueda | 37.0 | 55.5 | 37.0 | 55.5 | 185 |
Members of the Executive Board receive share awards under NN Group's Aligned Remuneration Plan (ARP). The ARP only provides for cash-based and share-based awards; there are no share options and performance shares are no longer awarded under the ARP.
Until March 2014 (prior to the IPO) the Long-Term Sustainable Performance Plan (LSPP) was in place at ING Group which included awards of deferred cash, upfront shares, deferred shares and performance shares. Share-based LSPP awards which were outstanding to active NN Group employees on the IPO date (2 July 2014) were converted into similar awards over NN Group shares.
Until March 2010, ING Group also awarded share options under its (Dutch) Long-Term Equity Ownership (LEO) plans. The ING Group share options have a total term of ten years, comprising of a vesting period of three years, after which they can be exercised during the remaining seven years.
In 2015 no awards were made to the Executive Board members under the LSPP. The two tables below provide an overview of the holdings of the Executive Board members under the Dutch LEO and LSPP plans and the shares awarded and vested under the ARP.
| Award | Outstanding as at 1 January 2015 |
Exercised in 2015 |
Expired in 2015 |
Outstanding as at 31 December 2015 |
Exercise price in euros |
Expiry | |
|---|---|---|---|---|---|---|---|
| Lard Friese | 2009 | 145,884 | 0 | 0 | 145,884 | 2.90 | 2019 |
| 2010 | 161,136 | 0 | 0 | 161,136 | 7.35 | 2020 |
1 Mr Friese has options over ING Group shares pursuant to the ING Group Options LEO Plan. The option rights of Mr Friese have all fully vested and remain exercisable until 2019 and 2020 respectively.
2 Mr Rueda does not have any outstanding options over ING Group shares.
For the Executive Board the following numbers of NN shares have been awarded and vested during 2015.
| Plan | Award date | Outstanding and unvested per 1 January 2015 |
Awarded during 2015 |
Vested during 2015 |
Outstanding and unvested per 31 December 2015 |
Vesting Price | |
|---|---|---|---|---|---|---|---|
| Lard Friese | Deferred Shares Plan | 16 May 2012 | 4,594 | 4,594 | 0 | EUR 25.93 | |
| Deferred Shares Plan | 15 May 2015 | 3,963 | 1,981 | 1,982 | EUR 25.99 | ||
| Deferred Shares Plan | 14 May 2014 | 9,442 | 3,147 | 6,295 | EUR 25.63 | ||
| Deferred Shares Plan | 1 June 2015 | 10,320 | 10,320 | ||||
| Upfront Shares Plan | 1 June 2015 | 6,880 | 6,880 | 0 | EUR 25.55 | ||
| Delfin Rueda | Deferred Shares Plan | 8 Nov 2012 | 3,851 | 3,851 | 0 | EUR 29.62 | |
| Deferred Shares Plan | 14 May 2014 | 7,403 | 2,467 | 4,936 | EUR 25.63 | ||
| Deferred Shares Plan | 1 June 2015 | 8,499 | 8,499 | ||||
| Upfront Shares Plan | 1 June 2015 | 5,666 | 5,666 | 0 | EUR 25.55 |
The table below shows an overview of the NN shares held by the members of the Executive Board as per 31 December 2015 and 31 December 2014.
| 31 December 2015 | 31 December 2014 | |
|---|---|---|
| Lard Friese | 17,019 | 3,750 |
| Delfin Rueda | 16,585 | 6,321 |
Following the Settlement Date of the IPO (7 July 2014), the Supervisory Board was comprised of the following seven members:
On 6 October 2015 Ms Vletter-van Dort was appointed to the Supervisory Board in an Extraordinary General Meeting and Mr Hamers resigned from the Supervisory Board on the same date. In that same meeting, Mr Jenkins and Mr Harryvan were appointed as members of the Supervisory Board, which appointments became effective on 2 February 2016, the date when ING Group's shareholding in NN Group fell below fifteen percent (15%). On 14 December 2015, Mr Flynn and Mr Nagel resigned from the Supervisory Board. More information on the composition of the Supervisory Board and its Committees can be found in the Report of the Supervisory Board, on pages 10–17 of this Financial Report.
The remuneration of the members of the Supervisory Board was set by the General Meeting of NN Group on 6 May 2014, and has been amended by the General Meeting as per 28 May 2015 in relation to the international attendance fee. The remuneration of the Supervisory Board consists of fixed annual fees for the Supervisory Board and the Committees based upon the number of meetings as stated in the protocol. Only if the actual number of meetings exceeds the number of meetings stated in the protocol by at least two meetings is an additional pro-rata fee paid.
NN Group does not grant variable remuneration, shares or options to the Supervisory Board. Supervisory Board members may obtain banking and insurance services from NN Group in the ordinary course of business and on terms that are customary in the sector. As per 31 December 2015, the members of the Supervisory Board have
no loans outstanding with NN Group and no guarantees or advanced payments were granted to members of the Supervisory Board.
In line with market practice, a distinction is made between chair, vice-chair and other members. A fixed gross expense allowance of EUR 500 per Supervisory Board meeting is payable to cover all out-of-pocket expenses, and thus expenses for Supervisory Board meetings will not be reimbursed separately. Travel and lodging expenses in relation to meetings are paid by NN Group. An additional fee is payable for the additional time commitments when intercontinental or international travel is required for attending meetings. The remuneration levels for Supervisory Board members were reviewed in 2015 as a consequence of the increased level of responsibility and the increased frequency and intensity of Supervisory Board meetings. An increase of the international attendance fee from EUR 1,000 to EUR 2,500 was approved by the General Meeting on 28 May 2015.
| Function in Supervisory Board |
Fixed annual fee |
Expense allowance (per meeting) |
Additional allowance for intercontinental/ international meeting attendance (per meeting) |
|---|---|---|---|
| Chair | 75,000 | 500 | 3,500/2,500 |
| Vice-chair | 65,000 | 500 | 3,500/2,500 |
| Member | 45,000 | 500 | 3,500/2,500 |
| Function in Supervisory Board |
Fixed annual fee |
|---|---|
| Nomination and Corporate Governance Committee |
|
| Chair | 11,000 |
| Member | 7,000 |
| Remuneration Committee | |
| Chair | 11,000 |
| Member | 7,000 |
| Risk Committee | |
| Chair | 11,000 |
| Member | 7,000 |
| Audit Committee | |
| Chair | 15,000 |
| Member | 10,000 |
| Fees | Total fixed gross expense allowance |
Total international attendance fees |
VAT | |||||
|---|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| J.H. (Jan) Holsboer (Chair)2 | 124,125 | 46,500 | 6,500 | 2,000 | 2,500 | 1,000 | 27,956 | 10,395 |
| H.J (Heijo) Hauser | 81,117 | 31,000 | 6,000 | 2,000 | 14,000 | 4,000 | 21,235 | 7,770 |
| J.W. (Hans) Schoen | 81,828 | 31,000 | 6,500 | 2,000 | 2,500 | 1,000 | 19,074 | 7,140 |
| Y.C.M.T. (Yvonne) van Rooij2 | 82,875 | 31,500 | 6,500 | 2,000 | 2,500 | 1,000 | 19,294 | 7,245 |
| H.M. (Hélène) Vletter-van Dort2,3 | 25,908 | n.a. | 2,500 | n.a. | 0 | n.a. | 5,966 | n.a. |
| R.A.J.G. (Ralph) Hamers3,4 | 46,498 | 26,000 | 3,500 | 1,500 | 0 | 1,000 | 5,425 | n.a. |
| P.G. (Patrick) Flynn4,5 | 82,592 | 37,000 | 4,000 | 1,500 | 0 | 1,000 | 11,205 | n.a. |
| W.F. (Wilfred) Nagel4,5 | 62,861 | 33,000 | 5,500 | 1,500 | 0 | n.a. | 8,458 | n.a. |
1 This table shows the fixed fees, expense allowances and international attendance fees for the members of the Supervisory Board for 2015 and the second half of 2014. The fees, expense allowances and international attendance fees for the Supervisory Board members for the period from 1 January 2014 (respectively 1 March 2014) up to and including June 2014 were paid by ING Group. These amounts are not included in the table above.
2 Mr Holsboer and Ms Van Rooij were members of the Supervisory Board of ING Verzekeringen N.V. on 1 January 2014, which company ceased to exist as a result of a legal merger between NN Group N.V. and ING Verzekeringen N.V., effective as per 1 March 2014. As per this date, the Supervisory Board of NN Group N.V. was installed and Mr Holsboer and Ms van Rooij were appointed to the Supervisory Board of NN Group. The other members were appointed to the Supervisory Board of NN Group N.V. as per 7 July 2014 with the exception of Ms Vletter-van Dort, who was appointed as per 6 October 2015. The appointments of Mr Jenkins and Mr Harryvan became effective on 2 February 2016 and thus they are not included in this overview.
3 Ms Vletter-van Dort was appointed to the Supervisory Board as per 6 October 2015. Mr Hamers resigned as per the same date. Therefore, fees and allowances received by Ms Vletter-van Dort are shown as from 6 October 2015. Fees and allowances for Mr Hamers are shown up to 6 October 2015.
4 As a result of NN Group being included in the ING Group VAT fiscal unity up to 29 May 2015, VAT was not due to fees and allowances paid to ING Group with respect to the services of Mr Hamers, Mr Flynn and Mr Nagel up to 29 May 2015. The fees and allowances of these three members were paid directly to ING Group.
5 As per 14 December 2015, Mr Flynn and Mr Nagel resigned from their positions as members of the Supervisory Board. Therefore, the fees of Mr Flynn and Mr Nagel are shown until 14 December 2015.
Report of the Supervisory Board Corporate governance Annual accounts
On 1 September 2015, the Group Works Council ING Insurance/IM was transformed to the Central Works Council NN Group (resulting from the IPO). The list below mentions all Central Works Council members as of 1 September 2015.
| Central works council 2015 | ||
|---|---|---|
| Works council NN Schade & Inkomen | M.L.R. (Michel) Vonk | Chair |
| Works council Support Functions NN Group | H.P. (Hennie) Post | Vice-chair |
| Works council NN Schade & Inkomen | H. (Hans) Askamp | Secretary |
| Works council Zicht Adviseurs | I.M. (Ingrid) van der Klugt | Vice-secretary |
| Works council NN Leven | R.R.A. (Robert) Coleridge | Member |
| Works council NN Leven | A. (Alexander) ter Haar | |
| R.M.A. (Remco) van Vessem | ||
| O.H.R. (Oscar) Willems | ||
| Works council NN Bank | L.H. (Leo) Baars | |
| M. (Martijn) Bos | ||
| A. (Alfred) Botterman | ||
| Works council NN Investment Partners | J.W. (Jaap) Engberts | |
| A. (Aad) Kant | ||
| M. (Miriam) ter Weeme | ||
| Works council Support Functions NN Group | R.B. (Reinoud) Rijpkema | |
| C.J. (Kees) van der Vlugt | ||
| Works council AZL | J.G.C.M. (Jan) Krutzen | |
| Works council Mandema & Partners | I.H.M. (Iris) Min-Bader | |
| Works council Zicht Adviseurs | R.F.C.M. (Rob) Stabèl | |
| European works council 2015 | ||
| The Netherlands: | A. (Aad) Kant | Chair |
| R.B. (Reinoud) Rijpkema | Vice-chair | |
| H. (Hennie) Post | ||
| Belgium: | R. (René) De Meij | Secretary |
| Bulgaria: | N. (Nikolay) Mladenski | |
| Czech Republic: | V.K. (Vladimir) Koudel | |
| Greece: | N. (Nikolaos) Ploumis | |
| Hungary: | C. (Csilla) Dobos | |
| Luxembourg: | C. (Christophe) Guissart | |
| Poland: | A.(Agnieszka) Brodzik | |
| Slovakia: | M. (Marcel) Foríšek | |
Spain: A. (Angel) Otero Martinez
Annual accounts
Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Executive Board of NN Group N.V. assessed the effectiveness of our internal control over financial reporting as of 31 December 2015. In making this assessment, the Executive Board performed tests based on the criteria of the Committee of Sponsoring Organisations of the Treadway Commission ('COSO') in Internal Control – Integrated Framework (2013 framework).
Based on the Executive Board's assessment, those criteria and with reference to the Best Practice provision II.1.5 of the Dutch Corporate Governance Code, the Executive Board concluded that risk management and control systems worked properly in the year under review and that it provides a reasonable assurance that the financial reporting does not contain any errors of material importance. The Executive Board declares that, to the best of its knowledge, NN Group's internal control over financial reporting is effective as of 31 December 2015.
The Hague, 22 March 2016
Lard Friese CEO, Chair of the Executive Board
Delfin Rueda CFO, Vice-chair of the Executive Board
Report of the Supervisory Board Corporate governance Annual accounts
The Executive Board is required to prepare the annual accounts and the Report of the Executive Board of NN Group N.V. for each financial year in accordance with applicable Dutch law and those International Financial Reporting Standards (IFRS) that were endorsed by the European Union.
The Executive Board is responsible for maintaining proper accounting records, for safeguarding assets and for taking reasonable steps to prevent and detect fraud and other irregularities. It is responsible for selecting suitable accounting policies and applying them on a consistent basis, making judgments and estimates that are prudent and reasonable. It is also responsible for establishing and maintaining internal procedures which ensure that all major financial information is known to the Executive Board, so that the timeliness, completeness and correctness of the external financial reporting are assured.
As required by section 5:25c paragraph 2(c) of the Dutch Financial Supervision Act, each of the signatories hereby confirms that to the best of his knowledge:
The Hague, 22 March 2016
Lard Friese CEO, Chair of the Executive Board
Delfin Rueda CFO, Vice-chair of the Executive Board
| Consolidated balance sheet | 38 | |
|---|---|---|
| Consolidated profit and loss account | 39 | |
| Consolidated statement of comprehensive income | 41 | |
| Consolidated statement of cash flows | 42 | |
| Consolidated statement of changes in equity | 44 | |
| Notes to the Consolidated annual accounts | 46 | |
| 1 | Accounting policies | 46 |
| 2 | Cash and cash equivalents | 58 |
| 3 | Financial assets at fair value through profit or loss | 58 |
| 4 | Available-for-sale investments | 59 |
| 5 | Loans | 61 |
| 6 | Associates and joint ventures | 62 |
| 7 | Real estate investments | 64 |
| 8 | Property and equipment | 64 |
| 9 | Intangible assets | 65 |
| 10 | Deferred acquisition costs | 67 |
| 11 | Other assets | 67 |
| 12 | Equity | 68 |
| 13 | Subordinated debt | 73 |
| 14 | Debt securities issued | 73 |
| 15 | Other borrowed funds | 73 |
| 16 | Insurance and investment contracts, reinsurance contracts |
74 |
| 17 | Customer deposits and other funds on deposit | 77 |
| 18 | Financial liabilities at fair value through profit or loss | 77 |
| 19 | Other liabilities | 78 |
| 20 | Gross premium income | 79 |
| 21 | Investment income | 80 |
| 22 | Net fee and commission income | 80 |
| 23 | Valuation results on non-trading derivatives | 81 |
| 24 | Foreign currency results and net trading income | 81 |
| 25 | Underwriting expenditure | 81 |
| 26 | Intangible amortisation and other impairments | 83 |
| 27 | Staff expenses | 83 |
| 28 | Interest expenses | 85 |
| 29 | Other operating expenses | 85 |
|---|---|---|
| 30 | Earnings per ordinary share | 86 |
| 31 | Interest and dividend included in net cash flow | 87 |
| 32 | Segments | 88 |
| 33 | Principal subsidiaries and geographical information | 92 |
| 34 | Taxation | 94 |
| 35 | Fair value of financial assets and liabilities | 97 |
| 36 | Fair value of non-financial assets | 103 |
| 37 | Derivatives and hedge accounting | 106 |
| 38 | Assets by contractual maturity | 107 |
| 39 | Liabilities by maturity | 109 |
| 40 | Assets not freely disposable | 110 |
| 41 | Transferred, but not derecognised financial assets | 110 |
| 42 | Offsetting of financial assets and liabilities | 110 |
| 43 | Contingent liabilities and commitments | 111 |
| 44 | Legal proceedings | 112 |
| 45 | Companies and businesses acquired and divested | 114 |
| 46 | Structured entities | 115 |
| 47 | Related parties | 116 |
| 48 | Key management personnel compensation | 117 |
| 49 | Subsequent events | 119 |
| 50 | Risk management | 119 |
| 51 | Capital and liquidity management | 141 |
| Authorisation of the Consolidated annual accounts | 148 |
| Parent company balance sheet | 149 |
|---|---|
| Parent company profit and loss account | 150 |
| Parent company statement of changes in equity | 151 |
| Notes to the Parent company annual accounts | 153 |
| Authorisation of the Parent company annual accounts | 158 |
| Independent auditor's report | 159 |
|---|---|
| Proposed appropriation of result | 164 |
| Subsequent events | 165 |
| Contact and legal information page | 166 |
Amounts in millions of euros, unless stated otherwise
As at 31 December
| notes | 2015 | 2014 | |
|---|---|---|---|
| Assets | |||
| Cash and cash equivalents | 2 | 7,436 | 7,530 |
| Financial assets at fair value through profit or loss: | 3 | ||
| − trading assets | 628 | ||
| − investments for risk of policyholders | 35,154 | 41,222 | |
| − non-trading derivatives | 4,656 | 7,207 | |
| − designated as at fair value through profit or loss | 443 | 492 | |
| Available-for-sale investments | 4 | 74,393 | 72,277 |
| Loans | 5 | 31,013 | 27,802 |
| Reinsurance contracts | 16 | 236 | 241 |
| Associates and joint ventures | 6 | 2,197 | 1,617 |
| Real estate investments | 7 | 1,564 | 1,104 |
| Property and equipment | 8 | 86 | 139 |
| Intangible assets | 9 | 351 | 357 |
| Deferred acquisition costs | 10 | 1,531 | 1,403 |
| Other assets | 11 | 3,092 | 3,462 |
| Total assets | 162,152 | 165,481 | |
| Equity | |||
| Shareholders' equity (parent) | 20,469 | 20,355 | |
| Minority interests | 9 | 76 | |
| Undated subordinated notes | 986 | 986 | |
| Total equity | 12 | 21,464 | 21,417 |
| Liabilities Subordinated debt |
13 | 2,290 | 2,297 |
| Debt securities issued | 14 | 597 | |
| Other borrowed funds | 15 | 6,785 | 5,867 |
| Insurance and investment contracts | 16 | 115,984 | 119,237 |
| Customer deposits and other funds on deposit | 17 | 8,034 | 6,981 |
| Financial liabilities at fair value through profit or loss: | 18 | ||
| − non-trading derivatives | 1,701 | 3,142 | |
| Other liabilities | 19 | 5,297 | 6,540 |
| Total liabilities | 140,688 | 144,064 | |
| Total equity and liabilities | 162,152 | 165,481 |
References relate to the notes starting on page 46. These form an integral part of the Consolidated annual accounts.
| notes | 2015 | 2014 | ||
|---|---|---|---|---|
| Continuing operations | ||||
| Gross premium income | 20 | 9,205 | 9,340 | |
| Investment income | 21 | 4,058 | 3,510 | |
| Result on disposals of group companies | 14 | 1 | ||
| − gross fee and commission income | 1,015 | 1,039 | ||
| − fee and commission expenses | -371 | -339 | ||
| Net fee and commission income: | 22 | 644 | 700 | |
| Valuation results on non-trading derivatives | 23 | -313 | -528 | |
| Foreign currency results and net trading income | 24 | 120 | 277 | |
| Share of result from associates and joint ventures | 6 | 221 | 186 | |
| Other income | 46 | 59 | ||
| Total income | 13,995 | 13,545 | ||
| − gross underwriting expenditure | 10,843 | 15,861 | ||
| − investment result for risk of policyholders | -1,099 | -5,949 | ||
| − reinsurance recoveries | -81 | -90 | ||
| Underwriting expenditure: | 25 | 9,663 | 9,822 | |
| Intangible amortisation and other impairments | 26 | 9 | 15 | |
| Staff expenses | 27 | 1,172 | 1,736 | |
| Interest expenses | 28 | 614 | 436 | |
| Other operating expenses | 29 | 776 | 774 | |
| Total expenses | 12,234 | 12,783 | ||
| Result before tax from continuing operations | 1,761 | 762 | ||
| Taxation | 34 | 166 | 135 | |
| Net result from continuing operations | 1,595 | 627 | ||
| Discontinued operations | ||||
| Net result from discontinued operations | 10 | |||
| Net result from disposal of discontinued operations | -26 | |||
| Total net result from discontinued operations | 0 | -16 | ||
| Net result from continuing and discontinued operations | 1,595 | 611 |
| 2015 | 2014 | |
|---|---|---|
| Net result from continuing and discontinued operations attributable to: | ||
| Shareholders of the parent | 1,565 | 588 |
| Minority interests | 30 | 23 |
| Net result from continuing and discontinued operations | 1,595 | 611 |
| Net result from continuing operations attributable to: | ||
| Shareholders of the parent | 1,565 | 604 |
| Minority interests | 30 | 23 |
| Net result from continuing operations | 1,595 | 627 |
| Net result from discontinued operations attributable to: | ||
| Shareholders of the parent | -16 | |
| Minority interests | ||
| Net result from discontinued operations | 0 | -16 |
| amounts in euros | 2015 | 2014 |
|---|---|---|
| Earnings per ordinary share | ||
| Basic earnings per ordinary share | 4.51 | 1.63 |
| Diluted earnings per ordinary share | 4.49 | 1.62 |
| Earnings per ordinary share from continuing operations | ||
| Basic earnings per ordinary share from continuing operations | 4.51 | 1.68 |
| Diluted earnings per ordinary share from continuing operations | 4.49 | 1.67 |
| Earnings per ordinary share from discontinued operations | ||
| Basic earnings per ordinary share from discontinued operations | -0.05 | |
| Diluted earnings per ordinary share from discontinued operations | -0.05 |
| 2015 | 2014 | |||
|---|---|---|---|---|
| Net result from continuing and discontinued operations | 1,595 | 611 | ||
| − unrealised revaluations Available-for-sale investments and other | -708 | 6,258 | ||
| − realised gains/losses transferred to the profit and loss account | -345 | 1 | ||
| − changes in cash flow hedge reserve | -435 | 1,738 | ||
| − deferred interest credited to policyholders | 644 | -2,950 | ||
| − share of other comprehensive income of associates and joint ventures | 9 | 43 | ||
| − exchange rate difference | 188 | 117 | ||
| Items that may be reclassified subsequently to the profit and loss account: | -647 | 5,207 | ||
| − remeasurement of the net defined benefit asset/liability | 28 | -121 | ||
| − unrealised revaluations property in own use | -3 | 1 | ||
| Items that will not be reclassified to the profit and loss account: | 25 | -120 | ||
| Total other comprehensive income | -622 | 5,087 | ||
| Total comprehensive income | 973 | 5,698 | ||
| Comprehensive income attributable to: | ||||
| Shareholders of the parent | 943 | 5,675 | ||
| Minority interests | 30 | 23 | ||
| Total comprehensive income | 973 | 5,698 |
| 2015 | 2014 | |
|---|---|---|
| Result before tax | 1,761 | 745 |
| Adjusted for: | ||
| − depreciation | 48 | 92 |
| − deferred acquisition costs and value of business acquired | -45 | -60 |
| − underwriting expenditure (change in insurance liabilities) | -4,103 | -2,708 |
| − other | -203 | -25 |
| Taxation paid | -39 | -89 |
| Changes in: | ||
| − trading assets | 628 | 121 |
| − non-trading derivatives | 698 | -654 |
| − other financial assets at fair value through profit or loss | 73 | 39 |
| − loans | -3,837 | -2,293 |
| − other assets | 340 | 349 |
| − customer deposits and other funds on deposit | 1,052 | 1,212 |
| − financial liabilities at fair value through profit or loss – non-trading derivatives | -502 | -494 |
| − other liabilities | -2,676 | -668 |
| Net cash flow from operating activities | -6,805 | -4,433 |
| Investments and advances: | ||
| − group companies | -31 | |
| − associates and joint ventures | -90 | -497 |
| − available-for-sale investments | -8,574 | -8,384 |
| − real estate investments | -369 | -397 |
| − property and equipment | -41 | -17 |
| − investments for risk of policyholders | -5,668 | -6,568 |
| − other investments | -32 | -6,090 |
| Disposals and redemptions: | ||
| − group companies | 3 | 148 |
| − associates and joint ventures | 277 | 353 |
| − available-for-sale investments | 6,282 | 5,506 |
| − real estate investments | 10 | |
| − property and equipment | 2 | |
| − investments for risk of policyholders | 13,877 | 12,785 |
| − other investments | 499 | 5,734 |
| Net cash flow from investing activities | 6,135 | 2,583 |
| Proceeds from issuance of undated subordinated notes | 986 | |
| Proceeds from issuance of subordinated debt and debt securities issued | 597 | 985 |
| Repayments of subordinated debt and debt securities issued | -1,571 | |
| Proceeds from other borrowed funds | 13,100 | 9,539 |
| Repayments of other borrowed funds | -12,194 | -8,437 |
| Capital contribution | 57 | 850 |
| Dividend paid | -271 | -187 |
| Purchase/sale of treasury shares | -597 | |
| Coupon on undated subordinated notes | -45 | |
| Net cash flow from financing activities | 647 | 2,165 |
| 2015 | 2014 | |
|---|---|---|
| Cash and cash equivalents at beginning of the period | 7,530 | 7,225 |
| Net cash flow | -23 | 315 |
| Effect of exchange rate changes on cash and cash equivalents | -71 | -10 |
| Cash and cash equivalents at end of the period | 7,436 | 7,530 |
| Share capital | Share premium |
Reserves | Total Shareholders' equity (parent) |
Minority interest |
Undated subordinated notes |
Total equity | |
|---|---|---|---|---|---|---|---|
| Balance as at 1 January 2015 | 42 | 12,098 | 8,215 | 20,355 | 76 | 986 | 21,417 |
| Unrealised revaluations Available-for-sale investments and other |
-708 | -708 | -708 | ||||
| Realised gains/losses transferred to the profit and loss account |
-345 | -345 | -345 | ||||
| Changes in cash flow hedge reserve | -435 | -435 | -435 | ||||
| Deferred interest credited to policyholders | 644 | 644 | 644 | ||||
| Share of other comprehensive income of associates and joint ventures |
9 | 9 | 9 | ||||
| Exchange rate differences | 188 | 188 | 188 | ||||
| Remeasurement of the net defined benefit asset/liability |
28 | 28 | 28 | ||||
| Unrealised revaluations property in own use | -3 | -3 | -3 | ||||
| Total amount recognised directly in | |||||||
| equity (Other comprehensive income) | 0 | 0 | -622 | -622 | 0 | 0 | -622 |
| Net result for the period | 1,565 | 1,565 | 30 | 1,595 | |||
| Total comprehensive income | 0 | 0 | 943 | 943 | 30 | 0 | 973 |
| Changes in share capital | -2 | -2 | 4 | 0 | 0 | ||
| Capital contribution | 57 | 57 | 57 | ||||
| Dividend | -251 | -251 | -20 | -271 | |||
| Purchase/sale of treasury shares | -597 | -597 | -597 | ||||
| Employee stock option and share plans | 5 | 5 | 5 | ||||
| Coupon on undated subordinated notes | -34 | -34 | -34 | ||||
| Changes in composition of the group | |||||||
| and other changes | -9 | -9 | -77 | -86 | |||
| Balance as at 31 December 2015 | 40 | 12,153 | 8,276 | 20,469 | 9 | 986 | 21,464 |
| Share capital | Share premium |
Reserves | Total Shareholders' equity (parent) |
Minority interest |
Undated subordinated notes |
Total equity | |
|---|---|---|---|---|---|---|---|
| Balance as at 1 January 2014 | 0 | 11,605 | 2,457 | 14,062 | 68 | 0 | 14,130 |
| Unrealised revaluations Available-for-sale | |||||||
| investments and other | 6,258 | 6,258 | 6,258 | ||||
| Realised gains/losses transferred to the profit and loss account |
1 | 1 | 1 | ||||
| Changes in cash flow hedge reserve | 1,738 | 1,738 | 1,738 | ||||
| Deferred interest credited to policyholders | -2,950 | -2,950 | -2,950 | ||||
| Share of other comprehensive income of associates and joint ventures |
43 | 43 | 43 | ||||
| Exchange rate differences | 117 | 117 | 117 | ||||
| Remeasurement of the net defined benefit asset/liability |
-121 | -121 | -121 | ||||
| Unrealised revaluations property in own use | 1 | 1 | 1 | ||||
| Total amount recognised directly in | |||||||
| equity (Other comprehensive income) | 0 | 0 | 5,087 | 5,087 | 0 | 0 | 5,087 |
| Net result for the period | 588 | 588 | 23 | 611 | |||
| Total comprehensive income | 0 | 0 | 5,675 | 5,675 | 23 | 0 | 5,698 |
| Issuance of undated subordinated notes | 0 | 986 | 986 | ||||
| Changes in share capital | 42 | -42 | 0 | 0 | |||
| Capital contribution | 850 | 850 | 850 | ||||
| Dividend | -315 | -315 | -10 | -325 | |||
| Employee stock option and share plans | 12 | 12 | 12 | ||||
| Changes in composition of the group | |||||||
| and other changes | 71 | 71 | -5 | 66 | |||
| Balance as at 31 December 2014 | 42 | 12,098 | 8,215 | 20,355 | 76 | 986 | 21,417 |
NN Group N.V. ('NN Group') is a public limited liability company (naamloze vennootschap) incorporated under Dutch law. NN Group has its official seat in Amsterdam, the Netherlands, and its office address in The Hague, the Netherlands. NN Group is recorded in the Commercial Register of Amsterdam, no. 52387534. The principal activities of NN Group are described in the section 'At a glance'.
NN Group prepares its Consolidated annual accounts in accordance with International Financial Reporting Standards as adopted by the European Union ('IFRS-EU') and Part 9 of Book 2 of the Dutch Civil Code. In the annual accounts the term 'IFRS-EU' is used to refer to these standards, including the decisions NN Group made with regard to the options available under IFRS-EU. IFRS-EU provides a number of options in accounting policies. The key areas in which IFRS-EU allows accounting policy choices, and the related NN Group accounting policy, are summarised as follows:
NN Group applies fair value hedge accounting to portfolio hedges of interest rate risk (macro hedging) under the EU 'carve out' of IFRS-EU.
NN Group's accounting policies under IFRS-EU and its decision on the options available are included below. Except for the options included above, the principles are IFRS-EU and do not include other significant accounting policy choices made by NN Group. The accounting policies that are most significant to NN Group are included in the section 'Critical accounting policies'.
The preparation of the Consolidated annual accounts requires the use of estimates and assumptions. These estimates and assumptions affect the reported amounts of the assets and liabilities and the amounts of the contingent liabilities at the balance sheet date, as well as reported income and expenses for the year. The actual outcome may differ from these estimates.
The presentation of, and certain terms used in, the Consolidated balance sheet, Consolidated profit and loss account, Consolidated statement of cash flows, Consolidated statement of changes in equity and the notes was changed to provide additional and more relevant information or (for changes in comparative information) to better align with the current period presentation. The impact of these changes is explained in the respective notes when significant.
In 2015, no changes to IFRS-EU became effective that had any impact on the annual accounts of NN Group. Upcoming changes in IFRS-EU effective after 2015 relevant to NN Group mainly relate to IFRS 9 'Financial Instruments'.
IFRS 9 'Financial Instruments' was issued by the IASB in July 2014. IFRS 9 replaces most of the current IAS 39 'Financial Instruments: Recognition and Measurement', and includes requirements for classification and measurement of financial assets and liabilities, impairment of financial assets and hedge accounting. IFRS 9 is effective in 2018, if endorsed by the EU. However, if the recently published Exposure Draft 'Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts' is finalised, NN Group could have the possibility to postpone implementation of IFRS 9 until the effective date of the expected insurance contracts standard or 1 January 2021, whichever is the earliest.
The classification and measurement of financial assets under IFRS 9 will depend on NN Group's business model and the instrument's contractual cash flow characteristics. These may result in financial assets being recognised at amortised cost, at fair value through other comprehensive income (equity) or at fair value through profit or loss. In many instances, the classification and measurement under IFRS 9 will be similar to IAS 39, although certain differences will arise. The classification of financial liabilities remains unchanged.
The recognition and measurement of impairment under IFRS 9 is intended to be more forward-looking than under IAS 39. The new impairment requirements will apply to all financial assets measured at amortised cost and at fair value through other comprehensive income (equity). Initially, a provision is required for expected credit losses resulting from default events that are expected within the next twelve months. In the event of a significant increase in credit risk, a provision is required for expected credit losses resulting from all possible default events over the expected life of the financial asset.
Annual accounts
The hedge accounting requirements of IFRS 9 aim to simplify hedge accounting.
NN Group is currently assessing the impact of the new requirements. The implementation of IFRS 9, if and when endorsed by the EU, may have a significant impact on Shareholders' equity, Net result and/or Other comprehensive income.
This standard becomes effective as of 1 January 2018, subject to endorsement by the EU. IFRS 15 provides more specific guidance on recognising revenue other than insurance contracts and financial instruments. The implementation of IFRS 15, if and when endorsed by the EU, is not expected to have a significant impact on the Consolidated annual accounts of NN Group.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019, subject to endorsement by the EU. IFRS 16 contains a new accounting model for lessees. The implementation of IFRS 16, if and when endorsed by the EU, is not expected to have a significant impact on Shareholders' equity and Net result of NN Group.
NN Group has identified the accounting policies that are most critical to its business operations and to the understanding of its results. These critical accounting policies are those which involve the most complex or subjective decisions or assessments, and relate to insurance contracts, deferred acquisition costs, the determination of the fair value of real estate and financial assets and liabilities and impairments. In each case, the determination of these items is fundamental to the financial condition and results of operations, and requires management to make complex judgements based on information and financial data that may change in future periods. As a result, determinations regarding these items necessarily involve the use of assumptions and subjective judgements as to future events and are subject to change, as the use of different assumptions or data could produce significantly different results. For a further discussion of the application of these accounting policies, reference is made to the applicable notes to the Consolidated annual accounts and the information below.
Reference is made to Note 50 'Risk management' for a sensitivity analysis of certain assumptions as listed below.
The determination of insurance liabilities and DAC is an inherently uncertain process, involving assumptions about factors such as social, economic and demographic trends, inflation, investment returns, policyholder behaviour, court decisions, changes in laws and other factors, and, in the life insurance business, assumptions concerning mortality and morbidity trends. Specifically, assumptions that could have a significant impact on financial results include interest rates, mortality, morbidity, property and casualty claims, investment yields on equity and real estate and foreign currency exchange rates.
Insurance liabilities also include the impact of minimum guarantees which are contained within certain products. This impact is dependent upon the difference between the potential minimum benefits payable and the total account balance, expected mortality and surrender rates. The determination of the potential minimum benefits payable also involves the use of assumptions about factors such as inflation, investment returns, policyholder behaviour, mortality and morbidity trends and other factors.
The use of different assumptions could have a significant effect on insurance liabilities, DAC and underwriting expenditure. Changes in assumptions may lead to changes in insurance liabilities over time.
The adequacy of the insurance liabilities, net of DAC and VOBA (the net insurance liabilities), is evaluated at each reporting period by each business unit for the business originated in that business unit. The test involves comparing the established insurance liability with current best estimate actuarial assumptions and a risk margin. The use of different assumptions in this test could lead to a different outcome.
Real estate investments are reported at fair value. The fair value of real estate investments is based on regular appraisals by independent, qualified valuers. The fair value is established using valuation methods such as comparable market transactions, capitalisation of income methods or discounted cash flow calculations. The underlying assumption used in the valuation is that the properties are let or sold to third parties based on the actual letting status. The discounted cash flow analysis and capitalisation of income method are based on calculations of the future rental income in accordance with the terms in existing leases and estimations of the rental values for new leases when leases expire and incentives like rent-free periods. The cash flows are discounted using market-based interest rates that reflect appropriately the risk characteristics of real estate investments.
Reference is made to Note 36 'Fair value of non-financial assets' for more disclosure on fair value of real estate investments at the balance sheet date.
The use of different assumptions and techniques could produce significantly different valuations.
Annual accounts
The fair value of financial assets and liabilities is based on unadjusted quoted market prices at the balance sheet date where available. Such quoted market prices are primarily obtained from exchange prices for listed instruments. Where an exchange price is not available, market prices may be obtained from independent market vendors, brokers or market makers. In general, positions are valued taking the bid price for a long position and the offer price for a short position. In some cases positions are marked at mid-market prices.
When markets are less liquid there may be a range of prices for the same security from different price sources; selecting the most appropriate price requires judgement and could result in different estimates of the fair value.
For certain financial assets and liabilities quoted market prices are not available. For these financial assets and liabilities, fair value is determined using valuation techniques, based on market conditions existing at each balance sheet date. These valuation techniques range from discounting of cash flows to valuation models, where relevant pricing factors including the market price of underlying reference instruments, market parameters (volatilities, correlations and credit ratings) and customer behaviour are taken into account. All valuation techniques used are subject to internal review and approval.
Valuation techniques are subjective in nature and significant judgement is involved in establishing the fair value for certain financial assets and liabilities. Valuation techniques involve various assumptions regarding pricing factors. The use of different valuation techniques and assumptions could produce significantly different estimates of the fair value.
Reference is made to Note 35 'Fair value of financial assets and liabilities' for more disclosure on fair value of financial assets and liabilities at the balance sheet date.
Impairments are especially relevant in two areas: Available-for-sale debt and equity securities and Goodwill/Intangible assets.
All debt and equity securities (other than those carried at fair value through profit or loss) are subject to impairment testing every reporting period. The carrying value is reviewed in order to determine whether an impairment loss has been incurred. Evaluation for impairment includes both quantitative and qualitative considerations. For debt securities, such considerations include actual and estimated incurred credit losses indicated by payment default, market data on (estimated) incurred losses and other current evidence that the issuer may be unlikely to pay amounts when due. Equity securities are impaired when management believes that, based on a significant or prolonged decline of the fair value below the acquisition price, there is sufficient reason to believe that the acquisition cost may not be recovered. 'Significant' and 'prolonged' are interpreted on a case-by-case basis for specific equity securities. Generally 25% and six months are used as triggers. Upon impairment of Available-for-sale debt and equity securities the full difference between the (acquisition) cost and fair value is removed from equity and recognised in Net result. Impairments on debt securities may be reversed if there is a decrease in the amount of the impairment which can be objectively related to an observable event after the impairment. Impairments on equity securities cannot be reversed.
Impairment reviews with respect to goodwill and intangible assets are performed at least annually, and more frequently if events indicate that impairments may have occurred. Goodwill is tested for impairment by comparing the carrying value of the reporting unit to which the goodwill was allocated to the best estimate of the recoverable amount of that reporting unit. The carrying value is determined as the IFRS-EU net asset value including goodwill. The recoverable amount is estimated as the higher of fair value less cost to sell and value in use. Several methodologies are applied to arrive at the best estimate of the recoverable amount. A reporting unit is the lowest level at which goodwill is monitored. Other intangible assets are tested for impairment by comparing the carrying value with the best estimate of the recoverable amount of the individual intangible asset.
The identification of impairments is an inherently uncertain process involving various assumptions and factors, including financial condition of the counterparty, expected future cash flows, statistical loss data, discount rates, observable market prices, etc. Estimates and assumptions are based on management's judgement and other information available. Significantly different results can occur as circumstances change and additional information becomes known.
NN Group comprises NN Group N.V. and all its subsidiaries. The Consolidated annual accounts of NN Group comprise the accounts of NN Group N.V. and all entities over which NN Group has control. NN Group has control over an entity when NN Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The assessment of control is based on the substance of the relationship between NN Group and the entity and considers existing and potential voting rights that are substantive. For a right to be substantive, the holder must have the practical ability to exercise that right.
For interests in investment entities, the existence of control is determined taking into account both NN Group's financial interests for own risk and its role as asset manager. Financial interests for risk of policyholders are not taken into account when the policyholders decide on the investment allocations of their insurance policies (i.e. the policyholder has the 'power') and assume all risks and benefits on these investments (i.e. the policyholder assumes the variable returns).
Annual accounts
The results of the operations and the net assets of subsidiaries are included in the profit and loss account and the balance sheet from the date control is obtained until the date control is lost. On disposal, the difference between the sales proceeds, net of directly attributable transaction costs, and the net assets is included in Net result.
A subsidiary which NN Group has agreed to sell but is still legally owned by NN Group may still be controlled by NN Group at the balance sheet date and, therefore, still be included in the consolidation. Such a subsidiary may be presented as held for sale if certain conditions are met.
All intercompany transactions, balances and unrealised gains and losses on transactions between group companies are eliminated. Where necessary, the accounting policies used by subsidiaries are changed to ensure consistency with NN Group policies. In general, the reporting dates of subsidiaries are the same as the reporting date of NN Group N.V.
A list of principal subsidiaries is included in Note 33 'Principal subsidiaries and geographical information'.
Items included in the annual accounts of each of NN Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The Consolidated annual accounts are presented in euros, which is NN Group's functional and presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transactions. Exchange rate differences resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account, except when deferred in equity as part of qualifying cash flow hedges or qualifying net investment hedges.
Exchange rate differences on non-monetary items, measured at fair value through profit or loss, are reported as part of the fair value gain or loss. Exchange rate differences on non-monetary items measured at fair value through Other comprehensive income (equity) are included in the revaluation reserve in equity.
Exchange rate differences in the profit and loss account are generally included in Foreign currency results and Net trading income. Exchange rate differences relating to the disposal of Available-for-sale debt and equity securities are considered to be an inherent part of the capital gains and losses recognised in Investment income. As mentioned below in Group companies, on disposal of group companies, any exchange rate difference deferred in equity is recognised in the profit and loss account in Result on disposals of group companies.
The results and financial positions of all group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
On consolidation, exchange rate differences arising from the translation of a monetary item that forms part of the net investment in a foreign operation, and of borrowings and other instruments designated as hedges of such investments, are taken to Shareholders' equity. When a foreign operation is sold the corresponding exchange rate differences are recognised in the profit and loss account as part of the gain or loss on sale.
Goodwill and fair value adjustments arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the exchange rate prevailing at the balance sheet date.
Financial assets and liabilities are generally (de)recognised at trade date, which is the date on which NN Group commits to purchase or sell the asset. Loans and receivables are recognised at settlement date, which is the date on which NN Group receives or delivers the asset.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where NN Group has transferred substantially all risks and rewards of ownership. If NN Group neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, it derecognises the financial asset if it no longer has control over the asset.
Realised gains and losses on investments are determined as the difference between the sales proceeds and (amortised) cost. For equity securities, the cost is determined using a weighted average per portfolio. For debt securities, the cost is determined by specific identification.
Annual accounts
The fair values of financial instruments are based on unadjusted quoted market prices at the balance sheet date where available. The quoted market price used for financial assets held by NN Group is the current bid price; the quoted market price used for financial liabilities is the current offer price.
The fair values of financial instruments that are not traded in an active market are determined using valuation techniques, based on market conditions existing at each balance sheet date.
Reference is made to Note 35 'Fair value of financial assets and liabilities' for the basis of determination of the fair value of financial instruments.
Financial assets and financial liabilities are offset, and the net amount reported in the balance sheet when NN Group has a current legally enforceable right to set off the recognised amounts and intends to either settle on a net basis or to realise the asset and settle the liability simultaneously.
NN Group assesses periodically and at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, but before the balance sheet date, (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. In the specific case of equity investments classified as Available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. 'Significant' and 'prolonged' are interpreted on a case-by-case basis for specific equity securities; generally 25% and six months are used as triggers.
In certain circumstances NN Group may grant borrowers postponement and/or reduction of loan principal and/or interest payments for a temporary period of time to maximise collection opportunities and, if possible, avoid default, foreclosure or repossession. When such postponement and/or reduction of loan principal and/or interest payments is executed based on credit concerns it is also referred to as 'forbearance'. In general, forbearance represents an impairment trigger under IFRS-EU. In such cases, the net present value of the postponement and/or reduction of loan principal and/or interest payments is taken into account in the determination of the appropriate level of Loan loss provisioning as described below. If the forbearance results in a substantial modification of the terms of the loan, the original loan is derecognised and a new loan is recognised at its fair value at the modification date.
In determining the impairment loss, expected future cash flows are estimated on the basis of the contractual cash flows of the assets in the portfolio. NN Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and then individually or collectively for financial assets that are not individually significant.
If there is objective evidence that an impairment loss on an asset carried at amortised cost has occurred, the amount of the loss is measured as the difference between the asset's carrying value and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying value of the asset is reduced through the use of an allowance account ('Loan loss provisions') and the amount of the loss is recognised in the profit and loss account in 'Investment income'. If the asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. When a loan is uncollectable, it is written off against the related loan loss provision. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the previously recognised impairment loss is reversed by adjusting the provision. The amount of the reversal is recognised in the profit and loss account.
If there is objective evidence that an impairment loss on Available-for-sale debt and equity investments has occurred, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in Net result – is removed from equity and recognised in the profit and loss account.
Impairment losses recognised on equity instruments can never be reversed. If, in a subsequent period, the impairment loss on a loan or a debt instrument classified as Available-for-sale reverses, which can be objectively related to an event occurring after the impairment loss was recognised in the profit and loss account, the impairment loss is reversed through the profit and loss account.
The maximum credit risk exposure for items on the balance sheet is generally the carrying value for the relevant financial assets. For the off-balance sheet items the maximum credit exposure is the maximum amount that could be required to be paid. Reference is made to Note 43 'Contingent liabilities and commitments' for these off-balance sheet items. Collateral received is not taken into account when determining the maximum credit risk exposure. The manner in which NN Group manages credit risk and determines credit risk exposures is explained in Note 50 'Risk management'.
Report of the Supervisory Board Corporate governance Annual accounts
The leases entered into by NN Group as a lessee are primarily operating leases. The total payments made under operating leases are recognised in the profit and loss account on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any penalty payment to be made to the lessor is recognised as an expense in the period in which termination takes place.
Income tax on the result for the year comprises current and deferred tax. Income tax is generally recognised in the profit and loss account, but is recognised directly in equity if the tax relates to items that are recognised directly in equity.
Deferred tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values in the balance sheet. Deferred tax is determined using tax rates (and laws) applicable in the jurisdictions in which NN Group is liable to taxation, that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets and liabilities are not discounted.
Deferred tax assets are recognised where it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by NN Group and it is probable that the difference will not reverse in the foreseeable future. The tax effects of income tax losses available for carry forward are recognised as an asset where it is probable that future taxable profits will be available against which these losses can be utilised.
Offsetting deferred tax assets with deferred tax liabilities is allowed as long as there is a legally enforceable right to offset current tax assets against current tax liabilities and the deferred taxes relate to income taxes levied by the same taxation authority on the same entity or on the same fiscal unity.
The net defined benefit asset or liability recognised in the balance sheet in respect of defined benefit pension plans is the fair value of the plan assets less the present value of the defined benefit obligation at the balance sheet date. Plan assets are measured at fair value at the balance sheet date. For determining the pension expense, the expected return on plan assets is determined using a high quality corporate bond rate identical to the discount rate used in determining the defined benefit obligation.
For defined contribution plans, NN Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. NN Group has no further payment obligations once the contributions have been paid. The contributions are recognised as staff expenses in the profit and loss account when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
Some NN Group companies provide post-employment benefits to certain employees and former employees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting methodology similar to that for defined benefit pension plans.
Reorganisation provisions include employee termination benefits when NN Group is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Provisions are discounted when the effect of the time value of money is significant, using a before tax discount rate. The determination of provisions is an inherently uncertain process involving estimates regarding amounts and timing of cash flows.
Share-based payment expenses are recognised as staff expenses over the vesting period. A corresponding increase in equity is recognised for equity-settled share-based payment transactions. The fair value of equity-settled share-based payment transactions is measured at the grant date. For cash-settled share-based payment transactions, a liability is recognised at fair value; this fair value is remeasured at every balance sheet date.
Interest income and expenses are recognised in the profit and loss account using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expenses over the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts throughout the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying value of the financial asset or financial liability. When calculating the effective interest rate, NN Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses.
Annual accounts
The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. All interest income and expenses from non-trading derivatives are classified as interest income and interest expenses in the profit and loss account. Changes in the 'clean fair value' are included in Valuation results on non-trading derivatives.
NN Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions when conducting asset management activities. The assets and income arising thereon are excluded from these annual accounts, as they are not assets or income of NN Group. Fees received acting as trustee and in other fiduciary capacities are recognised as income.
The Consolidated statement of cash flows is prepared in accordance with the indirect method, classifying cash flows as cash flows from operating, investing and financing activities. In the net cash flow from operating activities, the result before tax is adjusted for those items in the profit and loss account, and changes in balance sheet items, which do not result in actual cash flows during the year.
Cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition. Investments qualify as a cash equivalent if they are readily convertible into a known amount of cash and are not subject to significant risk of changes in value.
Cash flows arising from foreign currency transactions are translated into the functional currency using the exchange rates at the date of the cash flows.
The difference between the net cash flow in accordance with the statement of cash flows and the change in Cash and cash equivalents in the balance sheet is due to exchange rate differences and is accounted for separately as part of the reconciliation of the net cash flow and the balance sheet change in Cash and cash equivalents.
The parent company profit and loss account is drawn up in accordance with Article 402, Book 2 of the Dutch Civil Code.
Financial assets and liabilities at fair value through profit or loss (Notes 3 and 18)
A financial asset or liability is classified as at fair value through profit or loss if it is acquired principally for the purpose of selling in the short-term or if designated by management as such. Management will make this designation only if this eliminates a measurement inconsistency or if the related assets and liabilities are managed on a fair value basis.
Transaction costs on initial recognition are expensed as incurred. Interest income from debt securities and loans and receivables classified as at fair value through profit or loss is recognised in the profit and loss account using the effective interest method. Dividend income from equity instruments classified as at fair value through profit or loss is recognised in the profit and loss account when the dividend has been declared.
Investments for risk of policyholders are investments against insurance liabilities for which all changes in the fair value of invested assets are offset by similar changes in insurance liabilities. Investments for risk of policyholders are recognised at fair value; changes in fair value are recognised in the profit and loss account.
Derivatives are recognised at fair value. Derivatives are presented as assets when the fair value is positive and as liabilities when the fair value is negative.
Certain derivatives embedded in other contracts are measured as separate derivatives when:
These embedded derivatives are measured at fair value with changes in fair value recognised in the profit and loss account. An assessment is carried out when NN Group first becomes party to the contract. A reassessment is carried out only when there is a change in the terms of the contract that significantly modifies the expected cash flows.
The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. NN Group designates certain derivatives as hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge), hedges of highly probable future cash flows attributable to a recognised asset or liability or a forecast transaction (cash flow hedge), or hedges of a net investment in a foreign operation. Hedge accounting is used for derivatives designated in this way provided certain criteria are met.
NN Group N.V. 2015 Financial Report
Report of the Supervisory Board Corporate governance Annual accounts
At the inception of the hedge transaction NN Group documents the relationship between hedging instruments and hedged items, its risk management objectives, together with the methods selected to assess hedge effectiveness. In addition NN Group documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of the hedged items. NN Group applies fair value hedge accounting to portfolio hedges of interest rate risk (macro hedging) under the EU 'carve out' of IFRS-EU. The EU 'carve-out' macro hedging enables a group of derivatives (or proportions) to be viewed in combination and jointly designated as the hedging instrument and removes some of the limitations in fair value hedge accounting relating to hedging core deposits and under-hedging strategies. Under the IFRS-EU 'carve-out', hedge accounting may be applied to core deposits and ineffectiveness only arises when the revised estimate of the amount of cash flows in scheduled time buckets falls below the designated amount of that bucket.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in Other comprehensive income (equity) in the Cash flow hedge reserve. The gain or loss relating to the ineffective portion is recognised immediately in the profit and loss account. Amounts accumulated in equity are recycled to the profit and loss account in the periods in which the hedged item affects Net result. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the profit and loss account. When a forecast transaction is no longer expected to occur, the cumulative gain or loss in equity is transferred immediately to the profit and loss account.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in the profit and loss account, together with fair value adjustments to the hedged item attributable to the hedged risk. If the hedge relationship no longer meets the criteria for hedge accounting, the cumulative adjustment of the hedged item is, in the case of interest bearing instruments, amortised through the profit and loss account over the remaining term of the original hedge or recognised directly when the hedged item is derecognised. For non-interest bearing instruments, the cumulative adjustment of the hedged item is recognised in the profit and loss account only when the hedged item is derecognised.
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in Other comprehensive income (equity) and the gain or loss relating to the ineffective portion is recognised immediately in the profit and loss account. Gains and losses in equity are included in the profit and loss account when the foreign operation is disposed.
Derivatives that are used by NN Group as part of its risk management strategies, that do not qualify for hedge accounting under NN Group's accounting policies, are presented as non-trading derivatives. Non-trading derivatives are measured at fair value with changes in the fair value taken to 'Valuation results on non-trading derivatives' in the profit and loss account.
Available-for-sale financial assets include Available-for-sale debt securities and Available-for-sale equity securities. Available-for-sale financial assets are initially recognised at fair value plus transaction costs. For Available-for-sale debt securities, the difference between cost and redemption value is amortised. Interest income is recognised using the effective interest method. Available-for-sale financial assets are subsequently measured at fair value. Interest income from debt securities classified as Available-for-sale is recognised in Investment income in the profit and loss account. Dividend income from equity instruments classified as Available-for-sale is recognised in Investment income in the profit and loss account when the dividend has been declared.
Unrealised gains and losses arising from changes in the fair value are recognised in Other comprehensive income (equity). On disposal, the related accumulated fair value adjustments are included in the profit and loss account as Investment income. For impairments of Available-for-sale financial assets reference is made to the section 'Impairments of financial assets'.
Loans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus transaction costs. Subsequently, they are carried at amortised cost using the effective interest method less any impairment losses. Interest income from loans is recognised in Investment income in the profit and loss account using the effective interest method.
Associates are all entities over which NN Group has significant influence but not control. Significant influence generally results from a shareholding of 20% or more of the voting rights, but also the ability to participate in the financial and operating policies through situations including, but not limited to, one or more of the following:
Annual accounts
Joint ventures are all entities in which NN Group has joint control.
Associates and joint ventures are initially recognised at cost (including goodwill) and subsequently accounted for using the equity method of accounting.
Subsequently, NN Group's share of profits or losses is recognised in the profit and loss account and its share of changes in reserves is recognised in Other comprehensive income (equity). The cumulative changes are adjusted against the carrying value of the investment. When NN Group's share of losses in an associate or joint venture equals or exceeds the book value of the associate or joint venture, NN Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
Unrealised gains and losses on transactions between NN Group and its associates and joint ventures are eliminated to the extent of NN Group's interest. Accounting policies of associates and joint ventures have been changed where necessary to ensure consistency with the policies of NN Group. The reporting dates of all significant associates and joint ventures are consistent with the reporting date of NN Group.
For interests in investment entities the existence of significant influence is determined taking into account both NN Group's financial interests for own risk and its role as asset manager.
Associates include interests in real estate funds and private equity funds. The underlying assets of both the real estate and the private equity funds are measured at fair value. The fair value of underlying real estate in real estate funds is determined as set out below for Real estate investments. The fair value of underlying private equity investments in private equity funds is generally based on a forward-looking market approach. This approach uses a combination of company financials and quoted market multiples. In the absence of quoted prices in an active market, fair value is estimated on the basis of an analysis of the investee's financial position and results, risk profile, prospects, price, earnings comparisons and by reference to market valuations for similar entities quoted in an active market. Valuations of private equity investments are mainly based on an 'adjusted multiple of earnings' methodology on the following basis:
Real estate investments are measured at fair value. Changes in the carrying value resulting from revaluations are recognised in the profit and loss account. On disposal the difference between the sales proceeds and carrying value is recognised in the profit and loss account. The fair value of real estate investments is based on regular appraisals by independent qualified valuers. For each reporting period every property is valued either by an independent valuer or internally. Market transactions and disposals made by NN Group are monitored as part of the validation procedures to test the valuations. Valuations performed earlier in the year are updated if necessary to reflect the situation at the year-end. All properties are valued independently at least every five years, but more frequently in practice.
The fair value represents the estimated amount for which the property could be exchanged on the date of valuation between a willing buyer and willing seller in an at-arm's-length transaction after proper marketing wherein the parties each acted knowledgeably, prudently and without compulsion. The fair value is based on appraisals using valuation methods such as comparable market transactions, capitalisation of income methods or discounted cash flow calculations. The underlying assumption used in the valuation is that the properties are let or sold to third parties based on the actual letting status. The discounted cash flow analysis and capitalisation of income method are based on calculations of the future rental income in accordance with the terms in existing leases and estimations of the rental values for new leases when leases expire and incentives like rent-free periods. The cash flows are discounted using market-based interest rates that reflect appropriately the risk characteristics of real estate. The valuation of real estate investments takes (expected) vacancies into account. Occupancy rates differ significantly from investment to investment. For real estate investments held through (minority shares in) real estate investment funds, the valuations are performed under the responsibility of the funds' asset manager.
Subsequent expenditures are recognised as part of the asset's carrying value only when it is probable that future economic benefits associated with the item will flow to NN Group and the cost of an item can be measured reliably. All other repairs and maintenance costs are recognised immediately in the profit and loss account.
Land and buildings held for own use are stated at fair value at the balance sheet date. Increases in the carrying value are recognised in Other comprehensive income (equity).
Annual accounts
Decreases in the carrying value that offset previous increases of the same asset are charged against Other comprehensive income (equity); all other decreases are recognised in the profit and loss account. Increases that reverse a revaluation decrease on the same asset previously recognised in net result are recognised in the profit and loss account. Depreciation is recognised based on the fair value and the estimated useful life (in general 20–50 years). Depreciation is calculated on a straight-line basis. On disposal, the related revaluation reserve in equity is transferred within equity to Retained earnings.
The fair value of land and buildings is based on regular appraisals by independent qualified valuers or internally, similar to appraisals of real estate investments. Subsequent expenditure is included in the asset's carrying value when it is probable that future economic benefits associated with the item will flow to NN Group and the cost of the item can be measured reliably.
Equipment is stated at cost less accumulated depreciation and any impairment losses. The cost of the assets is depreciated on a straightline basis over its estimated useful life, which is generally as follows: two to five years for data processing equipment, and four to ten years for fixtures and fittings. Expenditure incurred on maintenance and repairs is recognised in the profit and loss account as incurred. Expenditure incurred on major improvements is capitalised and depreciated. The difference between the proceeds on disposal and net carrying value is recognised in the profit and loss account in Other income.
NN Group's acquisitions are accounted for using the acquisition method of accounting. The consideration for each acquisition is measured at the aggregate of the fair value (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued in exchange for control of the acquiree. Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Goodwill, being the difference between the cost of the acquisition (including assumed debt) and NN Group's interest in the fair value of the acquired assets, liabilities and contingent liabilities as at the date of acquisition, is capitalised as an intangible asset. The results of the operations of the acquired companies are included in the profit and loss account from the date control is obtained.
Where a business combination is achieved in stages, NN Group's previously held interests in the assets and liabilities of the acquired entity are remeasured to fair value at the acquisition date (i.e. the date NN Group obtains control) and the resulting gain or loss, if any, is recognised in the profit and loss account. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in Other comprehensive income (equity) are reclassified to the profit and loss account, where such treatment would be appropriate if that interest were disposed of.
Acquisition-related costs are recognised in the profit and loss account as incurred and presented in the profit and loss account as Other operating expenses.
Until 2009, before IFRS 3 'Business Combinations' was revised, the accounting of previously held interests in the assets and liabilities of the acquired entity were not remeasured at the acquisition date and the acquisition-related costs were considered to be part of the total consideration. Goodwill is only capitalised on acquisitions after the implementation date of IFRS-EU (1 January 2004). Accounting for acquisitions before that date has not been restated; goodwill and internally generated intangibles on these acquisitions were recognised directly in Shareholders' equity.
The initial accounting for the fair value of the net assets of the companies acquired during the year may be determined only provisionally as the determination of the fair value can be complex and the time between the acquisition and the preparation of the annual accounts can be limited. The initial accounting shall be completed within a year after acquisition.
Goodwill is allocated to reporting units for the purpose of impairment testing. These reporting units represent the lowest level at which goodwill is monitored for internal management purposes, which is either at the segment level or at a level below. This test is performed annually or more frequently if there are indicators of impairment. Under the impairment tests, the carrying value of the reporting units (including goodwill) is compared to its recoverable amount which is the higher of its fair value less costs to sell and its value in use.
Computer software that has been purchased or generated internally for own use is stated at cost less amortisation and any impairment losses. Amortisation is calculated on a straight-line basis over its useful life. This period will generally not exceed three years. Amortisation is included in Other operating expenses.
VOBA is an asset that represents the present value of estimated net cash flows embedded in the insurance contracts of an acquired company, which existed at the time the company was acquired. It represents the difference between the fair value of insurance liabilities and their carrying value. VOBA is amortised in a similar manner to the amortisation of deferred acquisition costs as described in the section 'Deferred acquisition costs'.
Annual accounts
Other intangible assets are capitalised and amortised over their expected economic life, which is generally between three and ten years.
Deferred acquisition costs (DAC) represent costs of acquiring insurance and investment contracts that are deferred and amortised. The deferred costs, all of which vary with (and are primarily related to) the production of new and renewal business, consist principally of commissions, certain underwriting and contract issuance expenses, and certain agency expenses.
For traditional life insurance contracts, certain types of flexible life insurance contracts and non-life contracts, DAC is amortised over the premium payment period in proportion to the premium revenue recognised.
For other types of flexible life insurance contracts DAC is amortised over the lives of the policies in relation to the emergence of estimated profits. Amortisation is adjusted when estimates of current or future profits, to be realised from a group of products, are revised.
DAC is evaluated for recoverability at issue. Subsequently it is tested on a regular basis together with the life insurance liabilities and VOBA. The test for recoverability is described in the section 'Insurance and investment contracts, reinsurance contracts'.
For certain products DAC is adjusted for the impact of unrealised results on allocated investments through equity.
Subordinated debt and Other borrowed funds are recognised initially at their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between proceeds, net of transaction costs, and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method.
If NN Group purchases its own debt, it is derecognised from the balance sheet, and the difference between the carrying value of the liability and the consideration paid is recognised in the profit and loss account.
Financial liabilities include only instruments of which the terms and conditions represent a contractual obligation to pay interest and/or principal. Instruments that are similar in substance, but of which the terms and conditions do not include a contractual obligation to pay interest and principal are classified as equity.
Insurance liabilities are established in accordance with IFRS 4 'Insurance Contracts'. Under IFRS 4, an insurer may continue its existing pre-IFRS accounting policies for insurance contracts, provided that certain minimum requirements are met. Upon adoption of IFRS-EU in 2005, NN Group decided to continue the then existing accounting principles for insurance contracts under IFRS-EU. NN Group operates in many different countries and the accounting principles for insurance contracts follow local practice in these countries. For NN Group's businesses in the Netherlands, NN Group applies accounting standards generally accepted in the Netherlands (Dutch GAAP) for its insurance contracts. Changes in those local accounting standards (including Dutch GAAP) subsequent to the adoption of IFRS-EU are considered for adoption on a case-by-case basis. If adopted, the impact thereof is accounted for as a change in accounting policies under IFRS-EU.
In addition, for certain specific products or components thereof, NN Group applies the option in IFRS 4 to measure (components of) insurance liabilities using market consistent interest rates and other current estimates and assumptions. This relates mainly to certain guarantees embedded in insurance contracts in Japan.
Insurance policies which bear significant insurance risk and/or contain discretionary participation features are presented as insurance contracts. Insurance liabilities represent estimates of future payouts that will be required for life and non-life insurance claims, including expenses relating to such claims. For some insurance contracts the measurement reflects current market assumptions. Unless indicated otherwise below, changes in the insurance liabilities are recognised in the profit and loss account.
The life insurance liabilities is generally calculated on the basis of a prudent prospective actuarial method. Specific methodologies may differ between business units as they may reflect local regulatory requirements and local practices for specific product features in the local markets.
Insurance liabilities on traditional life policies are calculated using various assumptions, including assumptions on mortality, morbidity, expenses, investment returns and surrenders. Assumptions for insurance liabilities on traditional life insurance contracts, including traditional whole -life and term -life insurance liabilities, are based on best estimate assumptions including margins for adverse deviations. Generally, the assumptions are set initially at the policy issue date and remain constant throughout the life of the policy.
Insurance liabilities for universal life, variable life and annuity contracts, unit-linked contracts, etc. are generally set equal to the balance that accrues to the benefit of the policyholders.
Annual accounts
Certain contracts contain minimum (interest) guarantees on the amounts payable upon death and/or maturity. The insurance liabilities include the impact of these minimum (interest) guarantees, taking into account the difference between the potential minimum benefit payable and the total account balance, expected mortality and surrender rates.
Unamortised interest rate rebates on periodic and single premium contracts are deducted from the life insurance contract liabilities. Interest rate rebates granted during the year are amortised in conformity with the anticipated recovery pattern and are recognised in the profit and loss account.
The liabilities are calculated in proportion to the unexpired periods of risk. For insurance policies covering a risk increasing during the term of the policy at premium rates independent of age, this risk is taken into account when determining the liability. Further liabilities are formed to cover claims under unexpired insurance contracts, which may exceed the unearned premiums and the premiums due in respect of these contracts.
Claims liabilities are calculated either on a case-by-case basis or by approximation on the basis of experience. Liabilities have also been recognised for claims incurred but not reported (IBNR) and for future claims handling expenses. The adequacy of the Claims liabilities is evaluated each year using standard actuarial techniques. In addition, IBNR liabilities are set to recognise the estimated cost of losses that have occurred but which have not yet been notified to NN Group.
For insurance contracts with discretionary participation features a deferred profit sharing amount is recognised for the full amount of the unrealised revaluation on allocated investments. Upon realisation, the profit sharing on unrealised revaluations is reversed and a deferred profit sharing amount is recognised for the share of realised results on allocated investments that is expected to be shared with policyholders. The deferred profit sharing amount is reduced by the actual allocation of profit sharing to individual policyholders. The change in the deferred profit sharing amount on unrealised revaluation (net of tax) is recognised in the revaluation reserve in Other comprehensive income (equity).
Liabilities for life insurance for risk of policyholders are generally shown at the balance sheet value of the related investments.
Reinsurance premiums, commissions and claim settlements, as well as the reinsurance element of insurance contracts are accounted for in the same way as the original contracts for which the reinsurance was concluded. If the reinsurers are unable to meet their obligations, NN Group remains liable to its policyholders for the portion reinsured. Consequently, provisions are recognised for receivables on reinsurance contracts which are deemed uncollectable. Both reinsurance premiums and reinsurance recoveries are included in Underwriting expenditure in the profit and loss account.
The adequacy of the insurance liabilities, net of DAC and VOBA (the net insurance liabilities), is evaluated at each reporting period by each business unit for the business originated in that business unit. The test involves comparing the established insurance liability with current best estimate actuarial assumptions and a risk margin. The assumed investment returns are a combination of the run-off of current portfolio yields on existing assets and reinvestment rates in relation to maturing assets and anticipated new premiums.
If, for any business unit, it is determined using a best estimate (50%) confidence level, that a shortfall exists, and there are no offsetting amounts within other business units in the same segment, the shortfall is recognised immediately in the profit and loss account.
If, for any business unit, the net insurance liabilities are not adequate using a prudent (90%) confidence level, but there are offsetting amounts within other business units, then the business unit is allowed to take measures to strengthen the net insurance liabilities over a period no longer than the expected life of the policies. To the extent that there are no offsetting amounts within other business units, any shortfall at the 90% confidence level is recognised immediately in the profit and loss account.
If the net insurance liabilities are determined to be adequate at above the 90% confidence level, no reduction in the net insurance liabilities is recognised.
Insurance policies without discretionary participation features which do not bear significant insurance risk are presented as Investment contracts. Investment contract liabilities are determined at amortised cost, using the effective interest method (including certain initial acquisition expenses), or at fair value.
Premiums from insurance policies are recognised as income when due from the policyholder. Receipts under investment contracts are not recognised as gross premium income; instead deposit accounting is applied.
Annual accounts
Fees and commissions are generally recognised as the service is provided. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts as the service is provided. Asset management fees related to investment funds and investment contract fees are recognised on a pro-rata basis over the period the service is provided. The same principle is applied for wealth management, financial planning and custody services that are continuously provided over an extended period of time.
Earnings per ordinary share is calculated on the basis of the weighted average number of ordinary shares outstanding. In calculating the weighted average number of ordinary shares outstanding, own shares held by group companies are deducted from the total number of ordinary shares in issue.
Changes in the number of ordinary shares outstanding without a corresponding change in resources are taken into account, including if these changes occurred after the reporting date but before the annual accounts are authorised for issue.
Diluted earnings per share data are computed as if all convertible instruments outstanding at the year-end were exercised at the beginning of the period. It is also assumed that NN Group uses the assumed proceeds received to buy its own shares against the average market price in the financial year. The net increase in the number of shares resulting from the exercise is added to the average number of shares used to calculate diluted earnings per share.
A segment is a distinguishable component of NN Group, engaged in providing products or services, subject to risks and returns that are different from those of other segments. A geographical area is a distinguishable component of NN Group engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. The geographical analysis is based on the location of the business unit from which the transactions are originated.
| 2015 | 2014 | |
|---|---|---|
| Cash and bank balances | 3,077 | 1,830 |
| Money market funds | 2,944 | 1,830 |
| Short-term deposits | 1,415 | 3,870 |
| Cash and cash equivalents | 7,436 | 7,530 |
NN Group held EUR 474 million (2014: EUR 321 million) at central banks.
| 2015 | 2014 | |
|---|---|---|
| Trading assets | 628 | |
| Investments for risk of policyholders | 35,154 | 41,222 |
| Non-trading derivatives | 4,656 | 7,207 |
| Designated as at fair value through profit or loss | 443 | 492 |
| Financial assets at fair value through profit or loss | 40,253 | 49,549 |
In 2014, Trading assets included private equity investments at fair value through profit or loss. Reference is made to Note 45 'Companies and businesses acquired and divested'.
| 2015 | 2014 | |
|---|---|---|
| Equity securities | 32,740 | 38,853 |
| Debt securities | 1,369 | 1,537 |
| Loans and receivables | 1,045 | 832 |
| Investments for risk of policyholders | 35,154 | 41,222 |
Investments in investment funds (with underlying investments in debt and equity securities, real estate and derivatives) are included in equity securities.
| 2015 | 2014 | |
|---|---|---|
| Derivatives used in: | ||
| − fair value hedges | 11 | 48 |
| − cash flow hedges | 2,756 | 3,620 |
| Other non-trading derivatives | 1,889 | 3,539 |
| Non-trading derivatives | 4,656 | 7,207 |
Other non-trading derivatives includes derivatives for which no hedge accounting is applied.
| 2015 | 2014 | |
|---|---|---|
| Equity securities | 239 | 486 |
| Debt securities | 204 | 6 |
| Designated as at fair value through profit or loss | 443 | 492 |
| 2015 | 2014 | |
|---|---|---|
| Equity securities: | ||
| – shares in NN Group managed investment funds | 2,094 | 1,920 |
| – shares in third-party managed investment funds | 1,539 | 1,439 |
| – other | 3,207 | 2,927 |
| Equity securities | 6,840 | 6,286 |
| Debt securities | 67,553 | 65,991 |
| Available-for-sale investments | 74,393 | 72,277 |
| Equity securities | Debt securities | Total | ||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Available-for-sale investments – Opening balance | 6,286 | 5,620 | 65,991 | 55,394 | 72,277 | 61,014 |
| Additions | 1,453 | 1,426 | 7,121 | 6,773 | 8,574 | 8,199 |
| Amortisation | -140 | -107 | -140 | -107 | ||
| Transfers and reclassifications | -170 | 0 | -170 | |||
| Changes in unrealised revaluations | 605 | 132 | -1,602 | 8,496 | -997 | 8,628 |
| Impairments | -170 | -120 | -170 | -120 | ||
| Reversal of impairments | 3 | 0 | 3 | |||
| Disposals and redemptions | -1,272 | -615 | -5,010 | -4,764 | -6,282 | -5,379 |
| Changes in the composition of the group and other changes | -102 | -8 | -15 | -102 | -23 | |
| Exchange rate differences | 40 | 21 | 1,193 | 211 | 1,233 | 232 |
| Available-for-sale investments – Closing balance | 6,840 | 6,286 | 67,553 | 65,991 | 74,393 | 72,277 |
Reference is made to Note 21 'Investment income' for details per segment on impairments.
In 2014, Transfers and reclassifications includes transfers of investments in real estate funds from Available-for-sale investments to Associates and joint ventures and the transfer of the investment in Sul América S.A. from Associates and joint ventures to Available-for-sale investments, both following changes in ownership interests.
NN Group's total exposure to debt securities is included in the following balance sheet lines:
| 2015 | 2014 | |
|---|---|---|
| Available-for-sale investments | 67,553 | 65,991 |
| Loans | 2,620 | 4,714 |
| Available-for-sale investments and Loans | 70,173 | 70,705 |
| Investments for risk of policyholders | 1,369 | 1,537 |
| Designated as at fair value through profit or loss | 204 | 6 |
| Financial assets at fair value through profit or loss | 1,573 | 1,543 |
| Debt securities | 71,746 | 72,248 |
NN Group's total exposure to debt securities included in Available-for-sale investments and Loans of EUR 70,173 million (2014: EUR 70,705 million) is specified as follows by type of exposure:
| Loans | Total | |||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| 53,936 | 52,344 | 53,936 | 52,344 | |||
| 450 | 609 | 450 | 609 | |||
| 8,817 | 7,824 | 8,817 | 7,824 | |||
| 3,602 | 4,367 | 3,602 | 4,367 | |||
| 66,805 | 65,144 | 0 | 0 | 66,805 | 65,144 | |
| 192 | 261 | 192 | 261 | |||
| 385 | 360 | 1,866 | 2,874 | 2,251 | 3,234 | |
| 36 | 38 | 22 | 29 | 58 | 67 | |
| 132 | 175 | 732 | 1,498 | 864 | 1,673 | |
| 3 | 13 | 313 | 3 | 326 | ||
| 748 | 847 | 2,620 | 4,714 | 3,368 | 5,561 | |
| 70,705 | ||||||
| 67,553 | Available-for-sale investments 65,991 |
2,620 4,714 70,173 |
| 2015 | 2014 | |
|---|---|---|
| Listed | 4,447 | 3,650 |
| Unlisted | 2,393 | 2,636 |
| Available-for-sale equity securities | 6,840 | 6,286 |
| Reclassifications to Loans (2009) | |||||||
|---|---|---|---|---|---|---|---|
| As per reclassification date | Q2 2009 | ||||||
| Fair value | 6,135 | ||||||
| Range of effective interest rates | 1.4%-24.8% | ||||||
| Expected recoverable cash flows | 7,118 | ||||||
| Unrealised fair value losses in Shareholders' equity (before tax) | -896 | ||||||
| Recognised fair value gains/losses in Shareholders' equity (before tax) between the beginning of the year in which the reclassification occurred and the reclassification date |
173 | ||||||
| Recognised fair value gains/losses in Shareholders' equity (before tax) in the year prior to reclassification | -971 | ||||||
| Impairments (before tax) between the beginning of the year in which the reclassification occurred and the reclassification date | nil | ||||||
| Impairment (before tax) in the year prior to reclassification | nil | ||||||
| Years after reclassification | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 |
| Carrying value | 533 | 809 | 1,098 | 1,694 | 3,057 | 4,465 | 5,550 |
| Fair value | 676 | 984 | 1,108 | 1,667 | 2,883 | 4,594 | 5,871 |
| Unrealised fair value gains/losses in Shareholders' equity (before tax) |
-203 | -213 | -111 | -186 | -307 | -491 | -734 |
| Effect on Shareholders' equity (before tax) if |
Effect on result (before tax) for the year (interest income and sales results) 1 -2 -10 -47 90 89 n.a. Impairments (before tax) nil nil nil nil nil nil nil Provisions for credit losses (before tax) nil nil nil nil nil nil nil Reclassifications out of Available-for-sale investments to Loans are allowed under IFRS-EU as of the third quarter of 2008. In the second quarter of 2009 NN Group reclassified certain financial assets from Available-for-sale investments to Loans. NN Group identified assets, eligible for reclassification, for which at the reclassification date it had the intention to hold for the foreseeable future. The table above
reclassification had not been made 143 175 10 -27 -174 129 321
reclassification had not been made nil nil nil nil nil nil nil
reclassification (mainly interest income) n.a. n.a. n.a. n.a. n.a. n.a. 121
provides information on this reclassification made in the second quarter of 2009. Information is provided for this reclassification as at the date of reclassification and as at the end of the subsequent reporting periods. This information is disclosed under IFRS-EU for as long as the reclassified assets continue to be recognised in the balance sheet.
Effect on result (before tax) if
Effect on result (before tax) after the
| 2015 | 2014 | |
|---|---|---|
| Loans secured by mortgages | 22,398 | 18,175 |
| Unsecured loans | 4,438 | 3,706 |
| Asset-backed securities | 2,620 | 4,714 |
| Deposits | 432 | 928 |
| Policy loans | 236 | 193 |
| Other | 976 | 161 |
| Loans-before Loan loss provisions | 31,100 | 27,877 |
| Loan loss provisions | -87 | -75 |
| Loans | 31,013 | 27,802 |
For the change in Loans-Other, reference is made to Note 16 'Insurance and investment contracts, reinsurance contracts- Changes in Investment contracts'.
| 2015 | 2014 | |
|---|---|---|
| Loans secured by mortgages – Opening balance | 18,175 | 15,375 |
| Additions/origination | 5,776 | 3,831 |
| Redemption | -1,394 | -1,120 |
| Amortisation | -42 | -12 |
| Transfers to/from Other assets/liabilities | -90 | |
| Impairments and write-offs | -13 | -7 |
| Fair value changes recognised on hedged items | -14 | 108 |
| Loans secured by mortgages – Closing balance | 22,398 | 18,175 |
NN Group has sold mortgage loans to securitisation entities that, in turn, issued notes to investors that are collateralised by the purchased assets. These mortgage loans continue to be recognised on NN Group's balance sheet as NN Group retained all or substantially all of the risks and rewards of the mortgage loans. Reference is made to Note 46 'Structured entities'.
| 2015 | 2014 | |
|---|---|---|
| Loan loss provisions – Opening balance | 75 | 89 |
| Write-offs | -14 | -26 |
| Increase in loan loss provisions | 39 | 13 |
| Changes in the composition of the group and other changes | -13 | |
| Exchange rate differences | -1 | |
| Loan loss provisions – Closing balance | 87 | 75 |
| Interest held | Balance sheet value |
Total assets |
Total liabilities |
Total income |
Total expenses |
|
|---|---|---|---|---|---|---|
| CBRE Dutch Office Master Fund I C.V. | 27% | 293 | 1,335 | 236 | 222 | 47 |
| Parcom Investment Fund III B.V. | 100% | 216 | 233 | 17 | 65 | 1 |
| CBRE UK Property Fund LP | 23% | 201 | 892 | 133 | 28 | |
| Parcom Investment Fund II B.V. | 100% | 185 | 205 | 20 | 98 | 1 |
| CBRE Retail Property Fund Iberica LP | 31% | 184 | 1,305 | 712 | 227 | 42 |
| Parcom Buy Out Fund IV B.V. | 100% | 145 | 163 | 18 | 161 | 5 |
| CBRE Property Fund Central Europe LP | 25% | 116 | 885 | 419 | 71 | |
| Allee Center Kft | 50% | 103 | 224 | 17 | 27 | 8 |
| CBRE European Industrial Fund LP | 27% | 101 | 571 | 191 | 65 | 23 |
| Fiumaranuova s.r.l. | 50% | 87 | 212 | 38 | 23 | 8 |
| Parquest Capital B FPCI | 40% | 62 | 176 | 18 | 5 | 7 |
| SNC Le Havre Lafayette | 50% | 58 | 139 | 24 | 21 | 4 |
| DPE Deutschland II B GmbH & Co KG | 34% | 54 | 160 | 13 | 1 | |
| CBRE Property Fund Central and Eastern Europe FGR | 21% | 52 | 619 | 365 | 43 | 47 |
| The Capital (London) Fund | 20% | 51 | 255 | 30 | ||
| Other | 289 | |||||
| Associates and joint ventures | 2,197 |
The above associates and joint ventures mainly consist of non-listed investment entities investing in real estate and private equity.
Significant influence exists for certain associates in which the interest held is below 20%, based on the combination of NN Group's financial interest for own risk and other arrangements, such as participation in the relevant boards.
Other represents a large number of associates and joint ventures with an individual balance sheet value of less than EUR 50 million. The amounts presented in the table above could differ from the individual annual accounts of the associates due to the fact that the individual amounts have been brought in line with NN Group's accounting principles.
Annual accounts
The reporting dates of all significant associates and joint ventures are consistent with the reporting date of NN Group.
The associates and joint ventures of NN Group are subject to legal and regulatory restrictions regarding the amount of dividends that can be paid to NN Group. These restrictions are, for example, dependent on the laws in the country of incorporation for declaring dividends or as a result of minimum capital requirements imposed by industry regulators in the countries in which the associates and joint ventures operate. In addition, the associates and joint ventures also consider other factors in determining the appropriate levels of equity needed. These factors and limitations include, but are not limited to, rating agency and regulatory views, which can change over time.
| Interest held | Balance sheet value |
Total assets |
Total liabilities |
Total income |
Total expenses |
|
|---|---|---|---|---|---|---|
| CBRE Dutch Office Master Fund I C.V. | 28% | 255 | 1,203 | 298 | 112 | 50 |
| CBRE UK Property Fund LP | 27% | 188 | 786 | 75 | 122 | 18 |
| CBRE Retail Property Fund Iberica LP | 31% | 151 | 1,095 | 599 | 215 | 52 |
| CBRE Property Fund Central Europe LP | 25% | 107 | 888 | 459 | 67 | 23 |
| Allee Center Kft | 50% | 103 | 225 | 19 | 16 | 6 |
| Fiumaranuova s.r.l. | 50% | 91 | 203 | 21 | 11 | 4 |
| CBRE Retail Property Fund France Belgium C.V. | 15% | 85 | 1,289 | 723 | 147 | 69 |
| CBRE European Industrial Fund LP | 22% | 73 | 504 | 175 | 53 | 22 |
| Dolphin Capital B FPCI | 40% | 68 | 175 | 5 | 3 | |
| CBRE French Residential Fund C.V. | 42% | 59 | 212 | 56 | -15 | 9 |
| CBRE Property Fund Central and Eastern Europe FGR | 21% | 52 | 657 | 406 | 49 | 51 |
| Other | 385 | |||||
| Associates and joint ventures | 1,617 |
| 2015 | 2014 | |
|---|---|---|
| Associates and joint ventures – Opening balance | 1,617 | 1,071 |
| Additions | 90 | 497 |
| Transfers to/from Available-for-sale investments | 170 | |
| Share in changes in equity (Revaluations) | 9 | 48 |
| Share of result | 221 | 186 |
| Dividends received | -49 | -40 |
| Disposals | -277 | -353 |
| Changes in the composition of the group and other changes | 572 | -8 |
| Exchange rate differences | 14 | 46 |
| Associates and joint ventures – Closing balance | 2,197 | 1,617 |
Changes in the composition of the group and other changes in 2015 mainly relate to the investments in private equity funds recognised as associates following the sale of Parcom Capital Management. Reference is made to Note 45 'Companies and businesses acquired and divested'.
Disposals in 2015 mainly relate to the sale of investments in real estate funds.
In 2014, the sale to Swiss Re Group of 37.7 million units in Sul América S.A. was completed. The transaction further reduced the interest in the Brazilian insurance holding to approximately 10%. A total cash consideration of EUR 176 million was received. The transaction resulted in a net gain of EUR 56 million which represents the difference between the carrying value and the fair value for both the 11.3% interest in scope of the transaction with Swiss Re and the retained 10% interest. The net gain was recognised in 'Share of result from Associates and joint ventures'. The remaining interest was transferred to ING Group by way of a dividend in kind. Together with a dividend paid to ING Group for the proceeds of the 11.3% divestment, this resulted in a dividend of EUR 315 million in 2014.
| 2015 | 2014 | |
|---|---|---|
| Real estate investments – Opening balance | 1,104 | 721 |
| Additions | 369 | 397 |
| Transfers to/from Property in own use | 63 | 3 |
| Transfers to/from Other assets | 3 | |
| Fair value gains/losses | 25 | -7 |
| Disposals | -10 | |
| Real estate investments – Closing balance | 1,564 | 1,104 |
The total amount of rental income recognised in the profit and loss account for the year ended 31 December 2015 is EUR 110 million (2014: EUR 71 million).
The total amount of direct operating expenses (including repairs and maintenance) in relation to Real estate investments for the year ended 31 December 2015 is EUR 31 million (2014: EUR 20 million).
| 2015 | 2014 | |
|---|---|---|
| Most recent appraisal in current year | 100% | 100% |
| 100% | 100% |
NN Group's total exposure to real estate is included in the following balance sheet lines:
| 2015 | 2014 | |
|---|---|---|
| Real estate investments | 1,564 | 1,104 |
| Available-for-sale investments | 1,054 | 1,040 |
| Associates and joint ventures | 1,457 | 1,475 |
| Property and equipment – Property in own use | 42 | 88 |
| Other assets – Property obtained from foreclosures | 4 | 4 |
| Real estate exposure | 4,121 | 3,711 |
Furthermore, the exposure is impacted by third-party interests, leverage in funds and off-balance commitments, resulting in an overall exposure of EUR 5,080 million (2014: EUR 4,908 million). Reference is made to Note 50 'Risk management'.
| 2015 | 2014 | |
|---|---|---|
| Property in own use | 42 | 88 |
| Equipment | 44 | 51 |
| Property and equipment | 86 | 139 |
| 2015 | 2014 | |
|---|---|---|
| Property in own use – Opening balance | 88 | 100 |
| Additions | 25 | 2 |
| Transfers to/from Real estate investments | -63 | -3 |
| Revaluations | -4 | -9 |
| Impairments | -2 | |
| Depreciation | -2 | -2 |
| Property in own use – Closing balance | 42 | 88 |
| Gross carrying value | 81 | 173 |
| Accumulated depreciation, revaluations and impairments | -39 | -85 |
| Net carrying value | 42 | 88 |
| Revaluation surplus – Opening balance | 10 | 9 |
| Revaluation in year | -1 | 1 |
| Released in year | -3 | |
| Revaluation surplus – Closing balance | 6 | 10 |
| Data processing equipment | Fixtures and fittings and other equipment |
Total | ||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Equipment – Opening balance | 19 | 25 | 32 | 39 | 51 | 64 |
| Additions | 8 | 9 | 8 | 6 | 16 | 15 |
| Disposals | -1 | -1 | -2 | 0 | ||
| Depreciation | -10 | -15 | -11 | -13 | -21 | -28 |
| Equipment – Closing balance | 16 | 19 | 28 | 32 | 44 | 51 |
| Gross carrying value | 83 | 76 | 116 | 109 | 199 | 185 |
| Accumulated depreciation | -67 | -57 | -88 | -77 | -155 | -134 |
| Net carrying value | 16 | 19 | 28 | 32 | 44 | 51 |
| Value of business acquired |
Goodwill | Software | Other | Total | |
|---|---|---|---|---|---|
| Intangible assets – Opening balance | 17 | 265 | 51 | 24 | 357 |
| Additions | 17 | 3 | 20 | ||
| Capitalised expenses | 12 | -1 | 11 | ||
| Amortisation and unlocking | -3 | -19 | -7 | -29 | |
| Disposals | -2 | -2 | |||
| Exchange rate differences | -5 | -1 | -6 | ||
| Intangible assets – Closing balance | 14 | 260 | 59 | 18 | 351 |
| Gross carrying value | 41 | 381 | 714 | 118 | 1,254 |
| Accumulated amortisation | -27 | -606 | -54 | -687 | |
| Accumulated impairments | -121 | -49 | -46 | -216 | |
| Net carrying value | 14 | 260 | 59 | 18 | 351 |
| Value of business acquired |
Goodwill | Software | Other | Total | |
|---|---|---|---|---|---|
| Intangible assets – Opening balance | 20 | 264 | 76 | 32 | 392 |
| Additions | 18 | 18 | |||
| Capitalised expenses | 21 | 21 | |||
| Amortisation and unlocking | -3 | -55 | -6 | -64 | |
| Impairments | -8 | -8 | |||
| Disposals | -2 | -2 | |||
| Changes in the composition of the group and other changes | 1 | -2 | -1 | ||
| Exchange rate differences | 1 | 1 | |||
| Intangible assets – Closing balance | 17 | 265 | 51 | 24 | 357 |
| Gross carrying value | 41 | 386 | 687 | 117 | 1,231 |
| Accumulated amortisation | -24 | -587 | -47 | -658 | |
| Accumulated impairments | -121 | -49 | -46 | -216 | |
| Net carrying value | 17 | 265 | 51 | 24 | 357 |
Amortisation of software and other intangible assets is included in the profit and loss account in 'Other operating expenses' and 'Intangible amortisation and other impairments' respectively. Amortisation of VOBA is included in 'Underwriting expenditure'.
| 2015 | 2014 | |
|---|---|---|
| Insurance Europe | 97 | 102 |
| Asset Management | 163 | 163 |
| Goodwill | 260 | 265 |
Goodwill is tested for impairment at the lowest level at which it is monitored for internal management purposes. This level is defined as the so called 'reporting units' as set out above. Goodwill is tested for impairment by comparing the carrying value of the reporting unit to the best estimate of the recoverable amount of that reporting unit. The carrying value is determined as the IFRS-EU book value including goodwill. The recoverable amount is estimated as the higher of fair value less cost to sell and value in use. Several methodologies are applied to arrive at the best estimate of the recoverable amount.
The identification of impairment is an inherently uncertain process involving various assumptions and factors. Estimates and assumptions (including unobservable Level 3 inputs) are based on management's judgement and other information available.
As a first step of the impairment test, the best estimate of the recoverable amount of reporting units to which goodwill is allocated is determined separately for each relevant reporting unit based on Price-to-Earnings, Price-to-Book, and Price-to-Assets under management ratios. The main assumptions in this valuation are the multiples for Price-to-Earnings, Price-to-Book and Price-to-Assets under management; these are derived from or corroborated against market information that is related to observable transactions in the market for comparable businesses. In addition, for life insurance business, the market value surplus is used. Earnings and carrying values are equal to or derived from the relevant measure under IFRS-EU.
If the outcome of this first step indicates that the difference between recoverable amount and carrying value may not be sufficient to support the amount of goodwill allocated to the reporting unit, an additional analysis is performed in order to determine a recoverable amount in a manner that better addresses the specific characteristics of the relevant reporting unit.
In both 2015 and 2014, the first step as described above indicates that there is a significant excess of recoverable amount over book value for both reporting units to which goodwill is allocated. As a result, a second step was not necessary and there is no significant exposure of goodwill impairment for sensitivities in the underlying assumptions.
| Life insurance | Non-life insurance | |||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Deferred acquisition costs – Opening balance | 1,361 | 1,316 | 42 | 37 | 1,403 | 1,353 |
| Capitalised | 360 | 371 | 224 | 230 | 584 | 601 |
| Amortisation and unlocking | -315 | -317 | -221 | -225 | -536 | -542 |
| Changes in the composition of the group and other changes | -1 | 0 | -1 | |||
| Exchange rate differences | 80 | -8 | 80 | -8 | ||
| Deferred acquisition costs – Closing balance | 1,486 | 1,361 | 45 | 42 | 1,531 | 1,403 |
| 2015 | 2014 | |
|---|---|---|
| Insurance and reinsurance receivables | 391 | 531 |
| Deferred tax assets | 44 | 30 |
| Property obtained from foreclosures | 4 | 4 |
| Income tax receivable | 58 | 56 |
| Accrued interest and rents | 1,620 | 1,894 |
| Other accrued assets | 542 | 573 |
| Other | 433 | 374 |
| Other assets | 3,092 | 3,462 |
Disclosures in respect of Deferred tax assets are provided in Note 34 'Taxation'.
| 2015 | 2014 | |
|---|---|---|
| Receivables on account of direct insurance from: | ||
| − policyholders | 240 | 389 |
| − intermediaries | 40 | 50 |
| Reinsurance receivables | 111 | 92 |
| Insurance and reinsurance receivables | 391 | 531 |
The allowance for uncollectable insurance and reinsurance receivables amounts to EUR 33 million as at 31 December 2015 (2014: EUR 43 million). The receivable is presented net of this allowance.
| 2015 | 2014 | |
|---|---|---|
| Share capital | 40 | 42 |
| Share premium | 12,153 | 12,098 |
| Revaluation reserve | 8,321 | 9,103 |
| Currency translation reserve | -24 | -198 |
| Net defined benefit asset/liability remeasurement reserve | -90 | -118 |
| Other reserves | 69 | -572 |
| Shareholders' equity (parent) | 20,469 | 20,355 |
| Minority interests | 9 | 76 |
| Undated subordinated notes | 986 | 986 |
| Total equity | 21,464 | 21,417 |
| Share premium |
Reserves | Total shareholders' equity (parent) |
||
|---|---|---|---|---|
| Equity – Opening balance | 42 | 12,098 | 8,215 | 20,355 |
| Net result for the period | 1,565 | 1,565 | ||
| Total amount recognised directly in equity (Other comprehensive income) | -622 | -622 | ||
| Changes in share capital | -2 | -2 | 4 | 0 |
| Capital contribution | 57 | 57 | ||
| Dividend | -251 | -251 | ||
| Purchase/sale of treasury shares | -597 | -597 | ||
| Employee stock option and share plans | 5 | 5 | ||
| Coupon on undated subordinated notes | -34 | -34 | ||
| Changes in the composition of the group and other changes | -9 | -9 | ||
| Equity – Closing balance | 40 | 12,153 | 8,276 | 20,469 |
| Share capital |
Share premium |
Reserves | Total shareholders' equity (parent) |
|
|---|---|---|---|---|
| Equity – Opening balance | 11,605 | 2,457 | 14,062 | |
| Net result for the period | 588 | 588 | ||
| Total amount recognised directly in equity (Other comprehensive income) | 5,087 | 5,087 | ||
| Changes in share capital | 42 | -42 | 0 | |
| Capital contribution | 850 | 850 | ||
| Dividend | -315 | -315 | ||
| Employee stock option and share plans | 12 | 12 | ||
| Changes in the composition of the group and other changes | 71 | 71 | ||
| Equity – Closing balance | 42 | 12,098 | 8,215 | 20,355 |
NN Group's ordinary shares started trading on 2 July 2014 on Euronext Amsterdam under the symbol 'NN' after its Initial Public Offering (IPO).
| Ordinary shares | ||||
|---|---|---|---|---|
| Shares (in number) | Amounts in millions of euros | |||
| 2015 | 2014 | 2015 | 2014 | |
| Authorised share capital | 700,000,000 | 700,000,000 | 84 | 84 |
| Unissued share capital | 366,447,128 | 349,982,846 | 44 | 42 |
| Issued share capital | 333,552,872 | 350,017,154 | 40 | 42 |
Annual accounts
The authorised ordinary share capital consists of 700,000,000 ordinary shares with a par value of EUR 0.12 per share. The issued and fully paid ordinary share capital consists of 333,552,872 ordinary shares with a par value of EUR 0.12 per share.
On 21 May 2015, NN Group issued 2.2 million ordinary shares at a price of EUR 26.16 per share to ING Groep N.V. The proceeds of EUR 57 million were used by NN Group to increase the common equity Tier 1 capital of NN Bank by the same amount. In addition, ING Bank provided a facility to NN Bank under which NN Bank has the unconditional right to receive additional Tier 1 capital up to an amount of EUR 63 million until 31 December 2018 at prevailing market terms. With these transactions, ING Group fulfilled its commitments to the EC pertaining to the capitalisation of NN Bank.
In order to neutralise the dilutive effect of the stock dividend for 2014 and interim stock dividend for 2015, NN Group repurchased from ING Groep N.V. on 30 June 2015 2.1 million ordinary shares at the volume weighted average share price of EUR 24.95 per share for an aggregate amount of EUR 53 million and on 7 September 2015 1.7 million ordinary shares at the volume weighted average share price of EUR 26.78 per share for an aggregate amount of EUR 45 million. The repurchased shares are held by NN Group and the amount is deducted from Other reserves ('Purchase/sale of treasury shares').
In the context of ING Group's reduction of its interest in NN Group, NN Group repurchased on 17 February 2015 8.3 million ordinary shares from ING Groep N.V. at a price of EUR 24.00 per share for an aggregate amount of EUR 200 million, on 26 May 2015 5.9 million ordinary shares at a price of EUR 25.46 per share for an aggregate amount of EUR 150 million and on 30 September 2015 6.0 million ordinary shares at a price of EUR 25.00 per share for an aggregate amount of EUR 150 million. The repurchased shares are held by NN Group and the amount is deducted from Other reserves ('Purchase/sale of treasury shares').
During 2015, the ownership of ING Groep N.V. in NN Group reduced from 68.1% to 25.8% of shares outstanding (net of treasury shares) at 31 December 2015. As a result, NN Group is no longer consolidated by ING Groep N.V. and the restrictions from the EC decision of November 2012 no longer apply. In 2016, ING Groep N.V. further reduced its remaining stake in NN Group from 25.8% to 14.1% as at 22 March 2016.
The undated subordinated notes have an optional annual coupon payment on 15 July. Following the payment of dividend and repurchase of ordinary shares in the first half of 2015, the payment of the first annual coupon on 15 July 2015 became mandatory. As a result, EUR 34 million (net of tax) was deducted from equity.
At the Annual General Meeting of 28 May 2015, authorisation was obtained to cancel treasury shares up to a maximum of 20% of the issued share capital of NN Group. In September and December 2015, 15,339,119 respectively 7,674,470 NN Group treasury shares were cancelled. These treasury shares were acquired as part of the repurchase from ING Group.
As at 31 December 2015, 956,295 treasury shares have been retained for purposes of employee share plan settlements.
NN Group N.V. is subject to legal restrictions regarding the amount of dividends it can pay to its shareholders. The Dutch Civil Code contains the restriction that dividends can only be paid up to an amount equal to total shareholders' equity less the issued and outstanding capital and less the reserves required by law. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts.
In addition, NN Group's ability to pay dividends is dependent on the dividend payment ability of its subsidiaries, associates and joint ventures. NN Group is legally required to create a non-distributable reserve insofar profits of its subsidiaries, associates and joint ventures are subject to dividend payment restrictions. Such restrictions may, among others, be of a similar nature as the restrictions which apply to NN Group.
Legally distributable reserves, determined in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code, from NN Group's subsidiaries, associates and joint ventures are as follows:
| 2015 | 2015 | 2014 | 2014 | |
|---|---|---|---|---|
| Total shareholders' equity | 20,469 | 20,355 | ||
| − share capital | 40 | 42 | ||
| − revaluation reserve | 8,321 | 9,103 | ||
| − currency translation reserve | n.a. | n.a. | ||
| − net defined benefit asset/liability remeasurement reserve | n.a. | n.a. | ||
| − other non-distributable reserves | 339 | 221 | ||
| Total non-distributable part of shareholders' equity | 8,700 | 9,366 | ||
| Distributable reserves based on the Dutch Civil Code | 11,769 | 10,989 |
The Dutch supervisory rules and regulations stemming from the Dutch Financial Supervision Act (Wet op het financieel toezicht) provide a second restriction on the possibility to distribute dividends. Total freely distributable reserves is the minimum of Freely distributable capital on the basis of solvency requirements and Freely distributable capital on the basis of capital protection.
| 2015 | 2015 | 2014 | 2014 | |
|---|---|---|---|---|
| Solvency requirement under the Financial Supervision Act | 4,663 | 4,686 | ||
| Reserves available for financial supervision purposes | 14,914 | 14,078 | ||
| Total freely distributable reserves on the basis of solvency requirements | 10,251 | 9,392 | ||
| Total freely distributable reserves on the basis of the Dutch Civil Code | 11,769 | 10,989 | ||
| Total freely distributable reserves (lowest of the above values) | 10,251 | 9,392 |
Reference is made to Note 51 'Capital and liquidity management' for more information on solvency requirements.
There are other restrictions to the ability of subsidiaries, associates and joint ventures to distribute reserves to NN Group as a result of minimum capital requirements that are imposed by industry regulators in the countries in which the group companies operate. Reference is made to Note 51 'Capital and liquidity management' for the minimum capital requirements.
In addition to the legal and regulatory restrictions on distributing dividends from subsidiaries, associates and joint ventures to NN Group there are various other considerations and limitations that are taken into account in determining the appropriate levels of equity in the Group's subsidiaries, associates and joint ventures. These considerations and limitations include, but are not restricted to, rating agency and regulatory views, which can change over time; it is not possible to disclose a reliable quantification of these limitations.
Without prejudice to the authority of the Executive Board to allocate profits to reserves and to the fact that the ordinary shares are the most junior securities issued by NN Group, no specific dividend payment restrictions with respect to ordinary shares exist.
Furthermore, NN Group is subject to legal restrictions with respect to repayment of capital to holders of ordinary shares. Capital may be repaid to the holders of ordinary shares pursuant to an amendment of NN Group's Articles of Association whereby the ordinary shares are written down. Pursuant to the Dutch Civil Code, capital may only be repaid if none of NN Group's creditors opposes such a repayment within two months following the announcement of a resolution to that effect.
As at 31 December 2015, none of the preference shares have been issued. The authorised preference share capital is 700,000,000.
In 2014, NN Group issued warrants to ING Group that will be exercisable for 34,965,000 ordinary shares of NN Group. The initial exercise price of the warrants is equal to 200% of the EUR 20.00 offer price at the time of the IPO. The warrants are exercisable from 7 July 2015 and expire on 7 July 2024. ING Group has committed to not exercise its warrants before 7 July 2017. Furthermore, the warrants are not subject to transfer restrictions, however, the warrant holders have no voting rights or rights to receive dividends.
These warrants are potentially dilutive instruments for purpose of the earnings per share calculations from 7 July 2014 until they are converted into ordinary shares. The issue of these warrants had no impact on Shareholders' equity.
| 2015 | 2014 | |
|---|---|---|
| Share premium – Opening balance | 12,098 | 11,605 |
| Change in share capital | -2 | -42 |
| Capital contribution | 57 | 850 |
| Dividend | -315 | |
| Share premium – Closing balance | 12,153 | 12,098 |
In 2015, ING Groep N.V. contributed EUR 57 million of share premium (2014: EUR 850 million).
| Property revaluation |
Available for-sale |
Cash flow hedge |
||
|---|---|---|---|---|
| reserve | reserve | reserve | Total | |
| Revaluation reserve – Opening balance | 7 | 4,632 | 4,464 | 9,103 |
| Unrealised revaluations | -3 | -643 | -646 | |
| Realised gains/losses transferred to the profit and loss account | -345 | -345 | ||
| Changes in cash flow hedge reserve | -435 | -435 | ||
| Deferred interest credited to policyholders | 644 | 644 | ||
| Revaluation reserve – Closing balance | 4 | 4,288 | 4,029 | 8,321 |
| Property revaluation reserve |
Available for-sale reserve |
Cash flow hedge reserve |
Total | |
|---|---|---|---|---|
| Revaluation reserve – Opening balance | 6 | 1,217 | 2,726 | 3,949 |
| Unrealised revaluations | 1 | 6,364 | 6,365 | |
| Realised gains/losses transferred to the profit and loss account | 1 | 1 | ||
| Changes in cash flow hedge reserve | 1,738 | 1,738 | ||
| Deferred interest credited to policyholders | -2,950 | -2,950 | ||
| Revaluation reserve – Closing balance | 7 | 4,632 | 4,464 | 9,103 |
Deferred interest credited to policyholders reflects the change in the deferred profit sharing liabilities (net of deferred tax). Reference is made to Note 16 'Insurance and investment contracts, reinsurance contracts'.
| 2015 | 2014 | |
|---|---|---|
| Currency translation reserve – Opening balance | -198 | -252 |
| Unrealised revaluations after taxation | -14 | -63 |
| Exchange rate differences | 188 | 117 |
| Currency translation reserve – Closing balance | -24 | -198 |
Unrealised revaluations relate to changes in the value of hedging instruments that are designated as net investment hedges.
| Retained earnings |
Share of associates reserve |
Total | |
|---|---|---|---|
| Other reserves – Opening balance | -794 | 222 | -572 |
| Net result for the period | 1,565 | 1,565 | |
| Transfers to/from Share of associates reserve | -91 | 91 | 0 |
| Dividend | -251 | -251 | |
| Purchase/sale of treasury shares | -597 | -597 | |
| Employee stock option and share plans | 5 | 5 | |
| Coupon on subordinated notes | -34 | -34 | |
| Changes in the composition of the group and other changes | -47 | -47 | |
| Other reserves – Closing balance | -244 | 313 | 69 |
| Retained earnings |
Share of associates reserve |
Total | |
|---|---|---|---|
| Other reserves – Opening balance | -656 | 458 | -198 |
| Net result for the period | 588 | 588 | |
| Transfers to/from Share of associates reserve | 236 | -236 | 0 |
| Transfer to/from Net defined benefit asset/liability remeasurement reserve | -1,045 | -1,045 | |
| Employee stock option and share plans | 12 | 12 | |
| Changes in the composition of the group and other changes | 71 | 71 | |
| Other reserves – Closing balance | -794 | 222 | -572 |
| 2015 | 2014 | |
|---|---|---|
| Dividend distributed from Share premium: | ||
| Dividend paid in cash | 176 | |
| Dividend in kind (transfer of Sul América S.A.) | 139 | |
| Dividend distributed from Other reserves: | ||
| Dividend paid in cash (interim 2015) | 111 | |
| Dividend paid in cash (final 2014) | 140 | |
| Stock dividend: | ||
| Stock dividend (interim 2015) | 45 | |
| Stock dividend (final 2014) | 53 | |
| Total dividend | 349 | 315 |
On 28 May 2015, the General Meeting of Shareholders approved the proposed dividend for 2014 of EUR 0.57 per ordinary share, which reflects a total amount of EUR 193 million. This dividend was paid on 30 June 2015 either in cash or in ordinary shares at the election of the shareholders. As a result, an amount of EUR 140 million was distributed out of Other reserves (cash dividend) and 2.1 million ordinary shares, with a par value of EUR 0.12 per share and a volume weighted average share price of EUR 24.95 were issued (stock dividend).
In September 2015 NN Group paid a 2015 interim dividend of EUR 0.46 per ordinary share, which reflects a total amount of EUR 156 million. The 2015 interim dividend was paid on 7 September 2015 either in cash or in ordinary shares at the election of the shareholders. As a result, an amount of EUR 111 million was distributed out of Other reserves (cash dividend) and 1.7 million ordinary shares, with a par value of EUR 0.12 per share and a volume weighted average share price of EUR 26.78 were issued (stock dividend).
To neutralise the dilutive effect of the newly issued shares for the stock dividend on earnings per ordinary share, NN Group has repurchased ordinary shares from ING Group equal to the number of shares that NN Group has issued as stock dividend at a price similar to the price used to calculate the stock fraction for the stock dividend.
Annual accounts
Reference is made to the Proposed appropriation of result in the 'Other information' section.
In July 2014, NN Group N.V. issued Fixed to Floating Rate Undated subordinated notes with a par value of EUR 1 billion. The notes are undated, but are callable after 11.5 years and every quarter thereafter (subject to regulatory approval). The coupon is fixed at 4.50% per annum for the first 11.5 years and will be floating thereafter. As these notes are undated and include optional deferral of interest at the discretion of NN Group, these are classified under IFRS-EU as equity. Coupon payments are distributed out of equity if and when paid or contractually due. The discount to the par value and certain issue costs were deducted from equity at issue, resulting in a balance sheet value equal to the net proceeds of EUR 986 million.
| Subordinated debt | ||||||||
|---|---|---|---|---|---|---|---|---|
| Interest rate | Year of issue | Due date | First call date | Notional amount | Balance Sheet Value | |||
| 2015 | 2014 | 2015 | 2014 | |||||
| 4.625% | 2014 | 8-Apr-44 | 8-Apr-24 | 1,000 | 1,000 | 986 | 985 | |
| Variable | 2007 | Perpetual | 15-Jan-16 | 506 | 506 | 506 | 506 | |
| Variable | 2005 | Perpetual | 8-Mar-16 | 169 | 169 | 169 | 171 | |
| Variable | 2005 | Perpetual | 15-Jan-16 | 148 | 148 | 148 | 148 | |
| 6.375% | 2002 | 7-May-27 | 7-May-17 | 476 | 476 | 481 | 487 | |
| Subordinated debt | 2,290 | 2,297 |
The above subordinated debt instruments have been issued to raise hybrid capital. Under IFRS-EU these debt instruments are classified as liabilities. EUR 823 million (2014: EUR 825 million) has been issued to ING Group.
All Subordinated debt is euro denominated.
In 2014 NN Group repaid Subordinated debt to ING Group with a notional amount of EUR 1,571 million.
In March 2015, NN Group issued EUR 600 million senior unsecured notes with a fixed rate coupon of 1% per annum and a maturity of seven years. The notes are issued under the Debt Issuance Programme, for which the base prospectus was issued on 2 March 2015. The net proceeds of this transaction of EUR 597 million were primarily used to repay a EUR 400 million senior loan to ING Group.
| 2015 | 2014 | |
|---|---|---|
| Credit institutions | 3,787 | 4,752 |
| Other | 2,998 | 1,115 |
| Other borrowed funds | 6,785 | 5,867 |
For the change in Other borrowed funds-Other, reference is made to Note 16 'Insurance and investment contracts, reinsurance contracts- Changes in Investment contracts'.
Other borrowed funds includes collateral received on derivatives and the funding of the consolidated securitisation programmes as disclosed in Note 46 'Structured entities'.
| Liabilities net of reinsurance | Reinsurance contracts | Insurance and investment contracts |
||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Non-participating life policy liabilities | 19,155 | 17,464 | 19 | 27 | 19,174 | 17,491 |
| Participating life policy liabilities | 49,705 | 47,661 | 95 | 87 | 49,800 | 47,748 |
| Liabilities for (deferred) profit sharing and rebates | 6,853 | 7,712 | 6,853 | 7,712 | ||
| Life insurance liabilities excluding liabilities for risk of policyholders |
75,713 | 72,837 | 114 | 114 | 75,827 | 72,951 |
| Liabilities for life insurance for risk of policyholders | 33,580 | 39,671 | 47 | 46 | 33,627 | 39,717 |
| Life insurance liabilities | 109,293 | 112,508 | 161 | 160 | 109,454 | 112,668 |
| Liabilities for unearned premiums and unexpired risks | 263 | 264 | 2 | 3 | 265 | 267 |
| Reported claims liabilities | 2,539 | 2,583 | 69 | 77 | 2,608 | 2,660 |
| Claims incurred but not reported (IBNR) | 632 | 612 | 4 | 1 | 636 | 613 |
| Claims liabilities | 3,171 | 3,195 | 73 | 78 | 3,244 | 3,273 |
| Insurance liabilities | 112,727 | 115,967 | 236 | 241 | 112,963 | 116,208 |
| Investment contracts for risk of company | 1,436 | 1,460 | 1,436 | 1,460 | ||
| Investment contracts for risk of policyholders | 1,585 | 1,569 | 1,585 | 1,569 | ||
| Investment contracts liabilities | 3,021 | 3,029 | 0 | 0 | 3,021 | 3,029 |
| Insurance and investment contracts, reinsurance contracts |
115,748 | 118,996 | 236 | 241 | 115,984 | 119,237 |
The 'Liabilities for insurance and investment contracts' is presented gross in the balance sheet as 'Insurance and investment contracts'. The related reinsurance is presented as 'Reinsurance contracts' under Assets in the balance sheet.
The deferred profit sharing amount on unrealised revaluation is included in the Liabilities for (deferred) profit sharing and rebates and amounts to EUR 6,560 million as at 31 December 2015 (2014: EUR 7,431 million).
| Net life insurance liabilities1 |
Net liabilities for risk of policyholders2 |
Reinsurance contracts |
Life insurance liabilities |
|
|---|---|---|---|---|
| Life insurance liabilities – Opening balance | 72,837 | 39,671 | 160 | 112,668 |
| Change in deferred profit sharing liabilities | -873 | -873 | ||
| Current year liabilities | 4,685 | 1,118 | 11 | 5,814 |
| Prior years liabilities: | ||||
| − benefit payments to policyholders | -6,437 | -7,548 | -12 | -13,997 |
| − interest accrual and changes in fair value of liabilities | 2,778 | 1 | 2,779 | |
| − valuation changes for risk of policyholders | 1,090 | 1,090 | ||
| − effect of changes in discount rate assumptions | -22 | -22 | ||
| − effect of changes in other assumptions | 14 | -19 | -2 | -7 |
| Changes in the composition of the group and other changes | 1,705 | -2,042 | 1 | -336 |
| Exchange rate differences | 1,026 | 1,310 | 2 | 2,338 |
| Life insurance liabilities – Closing balance | 75,713 | 33,580 | 161 | 109,454 |
1 Net of reinsurance and liabilities for risk of policyholders.
2 Net of reinsurance.
| Changes in Life insurance liabilities (2014) | ||||
|---|---|---|---|---|
| Net life insurance liabilities1 |
Net liabilities for risk of policyholders2 |
Reinsurance contracts |
Life insurance liabilities |
|
| Life insurance liabilities – Opening balance | 66,930 | 38,038 | 171 | 105,139 |
| Change in deferred profit sharing liabilities | 3,946 | 3,946 | ||
| Current year liabilities | 3,941 | 1,279 | 10 | 5,230 |
| Prior years liabilities: | ||||
| − benefit payments to policyholders | -6,435 | -4,292 | -17 | -10,744 |
| − interest accrual and changes in fair value of liabilities | 2,500 | 1 | 2,501 | |
| − valuation changes for risk of policyholders | 5,864 | 5,864 | ||
| − effect of changes in other assumptions | 2 | -4 | -2 | -4 |
| Changes in the composition of the group and other changes | 2,049 | -1,124 | -3 | 922 |
| Exchange rate differences | -96 | -90 | -186 | |
| Life insurance liabilities – Closing balance | 72,837 | 39,671 | 160 | 112,668 |
1 Net of reinsurance and liabilities for risk of policyholders.
2 Net of reinsurance.
Where discounting is used in the calculation of life insurance liabilities, the rate is within the range of 1.4% to 3.6% (2014: 2.0% to 3.7%).
To the extent that the assuming reinsurers are unable to meet their obligations, NN Group is liable to its policyholders for the portion reinsured. Consequently, provisions are made for receivables on reinsurance contracts if and when they are deemed uncollectable.
As at 31 December 2015, the total Reinsurance exposure including Reinsurance contracts and Receivables from reinsurers (presented in Other assets) amounts to EUR 347 million (2014: EUR 333 million).
Changes in the composition of the group and other changes includes insurance contracts for risk of policyholders with guarantees that were extended as general account contracts, and the transfer of certain insurance contracts. Furthermore, in 2014, Changes in the composition of the group and other changes includes EUR 1.3 billion related to a change in presentation of certain insurance liabilities for risk of policyholders that were previously presented net under Investments for risk of policyholders.
| Liabilities net of reinsurance Reinsurance contracts |
Liabilities for unearned premiums and unexpired risk |
|||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Liabilities for unearned premiums and unexpired risks – Opening balance |
264 | 266 | 3 | 3 | 267 | 269 |
| Premiums written | 1,590 | 1,632 | 33 | 37 | 1,623 | 1,669 |
| Premiums earned during the year | -1,592 | -1,630 | -33 | -37 | -1,625 | -1,667 |
| Changes in the composition of the group and other changes |
1 | -4 | -1 | 0 | -4 | |
| Liabilities for unearned premiums and unexpired risks – Closing balance |
263 | 264 | 2 | 3 | 265 | 267 |
| Liabilities net of reinsurance | Reinsurance contracts | Claims liabilities | ||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Claims liabilities – Opening balance | 3,195 | 3,238 | 78 | 78 | 3,273 | 3,316 |
| Additions: | ||||||
| – for the current year | 1,109 | 1,111 | 2 | 4 | 1,111 | 1,115 |
| – for prior years | -89 | -88 | -1 | 4 | -90 | -84 |
| – interest accrual of liabilities | 65 | 66 | 65 | 66 | ||
| Additions | 1,085 | 1,089 | 1 | 8 | 1,086 | 1,097 |
| Claim settlements and claim settlement costs: | ||||||
| – for the current year | -457 | -455 | -1 | -457 | -456 | |
| – for prior years | -649 | -673 | -6 | -8 | -655 | -681 |
| Claim settlements and claim settlement cost | -1,106 | -1,128 | -6 | -9 | -1,112 | -1,137 |
| Changes in the composition of the group and other changes | -6 | -8 | 1 | -6 | -7 | |
| Exchange rate differences | 3 | 4 | 3 | 4 | ||
| Claims liabilities – Closing balance | 3,171 | 3,195 | 73 | 78 | 3,244 | 3,273 |
Where discounting is used in the calculation of the Claims liabilities the rate is within the range of 2.0% to 4.0% (2014: 2.3% to 4.0%).
| 2015 | 2014 | |
|---|---|---|
| Investment contracts – Opening balance | 3,029 | 3,046 |
| Current year liabilities | 192 | 201 |
| Prior years liabilities: | ||
| – payments to contract holders | -320 | -360 |
| – interest accrual | 1 | |
| – valuation changes investments | 40 | 89 |
| Changes in the composition of the group and other changes | -31 | |
| Exchange rate differences | 80 | 83 |
| Investment contracts – Closing balance | 3,021 | 3,029 |
In 2015, NN Group entered into a retrocession agreement for an existing investment contract. The liability for this contract and the comparative amount for 2014, was reclassified from 'Insurance liabilities' to 'Investment contracts liabilities'. As a result of the retrocession agreement, a retrocession asset has been recognised in Loans – Other. Under the terms of the agreement, certain Available-for-sale investments have been transferred to the counterparty of the retrocession agreement but are not derecognised from the balance sheet; therefore a related liability is recognised in Other borrowed funds.
| Accident year | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Total | |
| Estimate of cumulative claims: | |||||||||||
| At the end of accident year | 1,105 | 1,023 | 1,075 | 1,164 | 1,165 | 1,201 | 1,232 | 1,217 | 1,168 | 1,177 | |
| 1 year later | 1,060 | 925 | 1,059 | 1,176 | 1,195 | 1,244 | 1,182 | 1,230 | 1,191 | ||
| 2 years later | 981 | 861 | 1,031 | 1,118 | 1,159 | 1,191 | 1,164 | 1,203 | |||
| 3 years later | 967 | 863 | 1,031 | 1,134 | 1,157 | 1,187 | 1,147 | ||||
| 4 years later | 975 | 843 | 1,024 | 1,118 | 1,145 | 1,167 | |||||
| 5 years later | 961 | 837 | 1,041 | 1,111 | 1,134 | ||||||
| 6 years later | 965 | 849 | 1,033 | 1,101 | |||||||
| 7 years later | 970 | 839 | 1,023 | ||||||||
| 8 years later | 962 | 831 | |||||||||
| 9 years later | 948 | ||||||||||
| Estimate of cumulative claims | 948 | 831 | 1,023 | 1,101 | 1,134 | 1,167 | 1,147 | 1,203 | 1,191 | 1,177 | 10,922 |
| Cumulative payments | -867 | -713 | -875 | -919 | -933 | -889 | -835 | -807 | -697 | -456 | -7,991 |
| 81 | 118 | 148 | 182 | 201 | 278 | 312 | 396 | 494 | 721 | 2,931 | |
| Effect of discounting | -10 | -15 | -19 | -22 | -28 | -39 | -47 | -48 | -48 | -41 | -317 |
| Liabilities recognised | 71 | 103 | 129 | 160 | 173 | 239 | 265 | 348 | 446 | 680 | 2,614 |
| Liabilities relating to accident years prior to 2006 |
630 | ||||||||||
| Gross claims | 3,244 |
| Saving accounts | 2015 8,034 |
2014 6,981 |
|---|---|---|
| Customer deposits and other funds on deposit | 8,034 | 6,981 |
Financial liabilities at fair value through profit or loss includes only non-trading derivatives.
| 2015 | 2014 | |
|---|---|---|
| Derivatives used in: | ||
| – fair value hedges | 107 | 116 |
| – cash flow hedges | 115 | 109 |
| – hedges of net investments in foreign operations | 3 | 23 |
| Other non-trading derivatives | 1,476 | 2,894 |
| Non-trading derivatives | 1,701 | 3,142 |
Other non-trading derivatives includes derivatives for which no hedge accounting is applied.
| 2015 | 2014 | |
|---|---|---|
| Deferred tax liabilities | 2,101 | 2,274 |
| Income tax payable | 11 | 9 |
| Net defined benefit liability | 96 | 124 |
| Other post-employment benefits | 36 | 39 |
| Other staff-related liabilities | 140 | 150 |
| Other taxation and social security contributions | 144 | 173 |
| Deposits from reinsurers | 102 | 107 |
| Accrued interest | 519 | 740 |
| Costs payable | 187 | 176 |
| Amounts payable to policyholders | 564 | 983 |
| Reorganisation provisions | 67 | 94 |
| Other provisions | 56 | 104 |
| Amounts to be settled | 813 | 986 |
| Other | 461 | 581 |
| Other liabilities | 5,297 | 6,540 |
| 2015 | 2014 | |
|---|---|---|
| Fair value of plan assets | 9 | 9 |
| Defined benefit obligation | 105 | 133 |
| Net defined benefit asset/liability recognised in the balance sheet (Funded status) | 96 | 124 |
| Presented as: | ||
| – Other liabilities | 96 | 124 |
| Net defined benefit asset/liability | 96 | 124 |
Disclosures in respect of Deferred tax liabilities are provided in Note 34 'Taxation'.
Other staff-related liabilities include vacation leave provisions, variable compensation provisions, jubilee provisions and disability/illness provisions.
Other mainly relates to year-end accruals in the normal course of business.
| 2015 | 2014 | |
|---|---|---|
| Reorganisation provisions – Opening balance | 94 | 155 |
| Additions | 49 | 29 |
| Releases | -4 | -3 |
| Charges | -72 | -85 |
| Changes in the composition of the group and other changes | -2 | |
| Reorganisation provisions – Closing balance | 67 | 94 |
In 2012 and 2013 reorganisation provisions were recognised for the insurance operations in the Netherlands following the initiative to accelerate the transformation programme in preparation for the stand-alone future of NN Group. In response to changing customer preferences and market dynamics, NN Group undertook actions to regain customer trust, diversify distribution channels, implement a new product range and increase efficiency. In 2015 EUR 49 million was added to the reorganisation provision, due to additional initiatives announced during 2015 (2014: EUR 27 million).
During 2015 EUR 72 million was charged to the provision for the cost of workforce reductions (2014: EUR 85 million). The remaining provision at the balance sheet date represents the best estimate of the expected future redundancy costs and is expected to be sufficient to cover the remaining costs of the restructuring programme.
| Litigation | Other | ||||||
|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||
| Other provisions – Opening balance | 39 | 3 | 65 | 65 | 104 | 68 | |
| Additions | 37 | 6 | 20 | 6 | 57 | ||
| Releases | -3 | -7 | -6 | -10 | -6 | ||
| Charges | -30 | -16 | -17 | -46 | -17 | ||
| Changes in the composition of the group and other changes |
2 | 0 | 2 | ||||
| Exchange rate differences | -1 | 2 | 1 | 2 | 0 | ||
| Other provisions – Closing balance | 6 | 39 | 50 | 65 | 56 | 104 |
| 2015 | 2014 | |
|---|---|---|
| Gross premium income from life insurance policies | 7,582 | 7,671 |
| Gross premium income from non-life insurance policies | 1,623 | 1,669 |
| Gross premium income | 9,205 | 9,340 |
Gross premium income is presented before deduction of reinsurance and retrocession premiums. Gross premium income excludes premium received for investment contracts, for which deposit accounting is applied.
| Life | Non-life | Total | ||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Direct gross premiums written | 7,566 | 7,658 | 1,615 | 1,645 | 9,181 | 9,303 |
| Reinsurance assumed gross premiums written | 16 | 13 | 8 | 24 | 24 | 37 |
| Gross premiums written | 7,582 | 7,671 | 1,623 | 1,669 | 9,205 | 9,340 |
| Reinsurance ceded | -123 | -106 | -33 | -37 | -156 | -143 |
| Premiums written – net of reinsurance | 7,459 | 7,565 | 1,590 | 1,632 | 9,049 | 9,197 |
| 2015 | 2014 | |
|---|---|---|
| Direct gross premiums earned | 1,617 | 1,643 |
| Reinsurance assumed gross premiums earned | 8 | 24 |
| Gross premiums earned | 1,625 | 1,667 |
| Reinsurance ceded | -33 | -37 |
| Non-life premiums earned – net of reinsurance | 1,592 | 1,630 |
| 2015 | 2014 | |
|---|---|---|
| Interest income from investments in debt securities | 1,737 | 1,776 |
| Interest income from loans: | ||
| − unsecured loans | 132 | 175 |
| − mortgage loans | 918 | 784 |
| − policy loans | 8 | 7 |
| − other | 100 | 21 |
| Interest income from investments in debt securities and loans | 2,895 | 2,763 |
| Realised gains/losses on disposal of Available-for-sale debt securities | 171 | 43 |
| Reversal of impairments of Available-for-sale debt securities | 3 | |
| Realised gains/losses and impairments of Available-for-sale debt securities | 171 | 46 |
| Realised gains/losses on disposal of Available-for-sale equity securities | 376 | 61 |
| Impairments of Available-for-sale equity securities | -170 | -120 |
| Realised gains/losses and impairments of Available-for-sale equity securities | 206 | -59 |
| Interest income on non-trading derivatives | 516 | 557 |
| Increase in loan loss provisions | -39 | -18 |
| Income from real estate investments | 79 | 51 |
| Dividend income | 205 | 177 |
| Change in fair value of real estate investments | 25 | -7 |
| Investment income | 4,058 | 3,510 |
| Impairments | Reversals of impairments | ||||
|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | ||
| Netherlands Life | -145 | -105 | |||
| Netherlands Non-life | -3 | -7 | |||
| Insurance Europe | -8 | -7 | 3 | ||
| Japan Life | -11 | ||||
| Other | -3 | -1 | |||
| Impairments and Reversals of impairments on investments | -170 | -120 | 0 | 3 |
| 2015 | 2014 | |
|---|---|---|
| Asset management fees | 774 | 751 |
| Insurance brokerage and advisory fees | 86 | 89 |
| Other | 155 | 199 |
| Gross fee and commission income | 1,015 | 1,039 |
| Trailer fees | 257 | 229 |
| Asset management fees | 30 | 26 |
| Commission expenses and other | 84 | 84 |
| Fee and commission expenses | 371 | 339 |
| Net fee and commission income | 644 | 700 |
| 2015 | 2014 | |
|---|---|---|
| Change in fair value of derivatives relating to: | ||
| − fair value hedges | 11 | -112 |
| − cash flow hedges (ineffective portion) | -25 | -36 |
| − other non-trading derivatives | -303 | -502 |
| Net result on non-trading derivatives | -317 | -650 |
| Change in fair value of assets and liabilities (hedged items) | -6 | 115 |
| Valuation results on assets and liabilities designated as at fair value through profit or loss (excluding trading) | 10 | 7 |
| Valuation results on non-trading derivatives | -313 | -528 |
Included in Valuation results on non-trading derivatives are the fair value movements on derivatives used to economically hedge exposures, but for which no hedge accounting is applied. These derivatives hedge exposures in insurance contract liabilities. The fair value movements on the derivatives are influenced by changes in the market conditions, such as share prices, interest rates and currency exchange rates. The change in fair value of the derivatives is largely offset by changes in insurance contract liabilities, which are included in Underwriting expenditure. Reference is made to Note 25 'Underwriting expenditure'.
Valuation results on non-trading derivatives are reflected in the Consolidated statement of cash flows in the section 'Result before tax', in the line item 'Adjusted for: other'.
Reference is made to Note 37 'Derivatives and hedge accounting'.
| 2015 | 2014 | |
|---|---|---|
| Foreign currency results | -88 | 149 |
| Net trading income | 208 | 128 |
| Foreign currency results and net trading income | 120 | 277 |
Net trading income mainly relates to private equity investments at fair value through profit or loss.
| 2015 | 2014 | |
|---|---|---|
| Gross underwriting expenditure: | ||
| − before effect of investment result for risk of policyholders | 9,744 | 9,912 |
| − effect of investment result for risk of policyholders | 1,099 | 5,949 |
| Gross underwriting expenditure | 10,843 | 15,861 |
| Investment result for risk of policyholders | -1,099 | -5,949 |
| Reinsurance recoveries | -81 | -90 |
| Underwriting expenditure | 9,663 | 9,822 |
The investment income and valuation results regarding investments for risk of policyholders is EUR 1,099 million (2014: EUR 5,949 million). This amount is recognised in 'Underwriting expenditure'. As a result it is shown together with the equal amount of related change in insurance liabilities for risk of policyholders.
| Underwriting expenditure by class | ||
|---|---|---|
| 2015 | 2014 | |
| Expenditure from life underwriting: | ||
| − reinsurance and retrocession premiums | 123 | 106 |
| − gross benefits | 13,102 | 10,843 |
| − reinsurance recoveries | -59 | -69 |
| − change in life insurance liabilities | -5,464 | -3,048 |
| − costs of acquiring insurance business | 466 | 469 |
| − other underwriting expenditure | 82 | 86 |
| − profit sharing and rebates | 40 | 51 |
| Expenditure from life underwriting | 8,290 | 8,438 |
| Expenditure from non-life underwriting: | ||
| − reinsurance and retrocession premiums | 33 | 37 |
| − gross claims | 1,123 | 1,139 |
| − reinsurance recoveries | -22 | -21 |
| − changes in the liabilities for unearned premiums | -2 | 2 |
| − changes in claims liabilities | -16 | -38 |
| − costs of acquiring insurance business | 256 | 263 |
| Expenditure from non-life underwriting | 1,372 | 1,382 |
| Expenditure from investment contracts: | ||
| − costs of acquiring investment contracts | 1 | 1 |
| − other changes in investment contract liabilities | 1 | |
| Expenditure from investment contracts | 1 | 2 |
| Underwriting expenditure | 9,663 | 9,822 |
| Profit sharing and rebates | ||
| 2015 | 2014 |
| Distributions on account of interest or underwriting results | -40 | -12 |
|---|---|---|
| Bonuses added to policies | 80 | 63 |
| Profit sharing and rebates | 40 | 51 |
The total Costs of acquiring insurance business (life and non-life) and investment contracts amounted to EUR 723 million (2014: EUR 733 million). This includes amortisation and unlocking of DAC of EUR 536 million (2014: EUR 542 million) and the net amount of commissions paid of EUR 770 million (2014: EUR 791 million) and commissions capitalised in DAC of EUR 584 million (2014: EUR 601 million).
The total amount of commission paid and commission payable amounted to EUR 846 million (2014: EUR 866 million). This includes the commissions recognised in Costs of acquiring insurance business of EUR 770 million (2014: EUR 791 million) referred to above and commissions recognised in Other underwriting expenditure of EUR 76 million (2014: EUR 75 million). Other underwriting expenditure also includes reinsurance commissions received of EUR 16 million (2014: EUR 14 million).
As set out in the section 'Accounting policies for specific items – Insurance and investment contracts, reinsurance contracts', NN Group applies, for certain specific products or components thereof, the option in IFRS 4 to measure (components of) the liabilities for insurance contracts using market-consistent interest rates and other current estimates and assumptions. This relates mainly to certain guarantees embedded in insurance contracts in Japan. The impact of these market-consistent assumptions is reflected in Underwriting expenditure – Change in life insurance liabilities.
This impact is largely offset by the impact of related hedging derivatives. As disclosed in Note 23 'Valuation results on non-trading derivatives', the valuation results on non-trading derivatives include the fair value movements on derivatives used to economically hedge exposures, but for which no hedge accounting is applied. For insurance operations, these derivatives hedge exposures in Insurance contract liabilities. The fair value movements on the derivatives are influenced by changes in the market conditions, such as stock prices, interest rates and currency exchange rates. The change in fair value of the derivatives is largely offset by changes in Insurance contract liabilities, which are included in Underwriting expenditure.
| 2015 | 2014 | |
|---|---|---|
| Property and equipment | 2 | |
| Other intangible assets | 8 | |
| Other impairments and reversals of other impairments | 2 | 8 |
| Amortisation of other intangible assets | 7 | 7 |
| Intangible amortisation and other impairments | 9 | 15 |
Impairment on debt securities, equity securities and loans are presented under Investment income.
| 2015 | 2014 | |
|---|---|---|
| Fixed salaries | 640 | 632 |
| Variable salaries | 71 | 82 |
| Pension costs | 101 | 636 |
| Social security costs | 94 | 100 |
| Share-based compensation arrangements | 19 | 13 |
| External staff costs | 202 | 213 |
| Education | 13 | 13 |
| Other staff costs | 32 | 47 |
| Staff expenses | 1,172 | 1,736 |
| 2015 | 2014 | |
|---|---|---|
| Current service cost | 4 | 5 |
| Past service cost | -1 | -9 |
| Net interest cost | -1 | 2 |
| Effect of curtailment or settlement | 539 | |
| Other | 3 | |
| Defined benefit plans | 2 | 540 |
| Defined contribution plans | 99 | 96 |
| Pension costs | 101 | 636 |
In February 2014, ING Group reached an agreement with the various stakeholders to transfer all future funding and indexation obligations under the defined benefit plan in the Netherlands to the Dutch ING DB Pension Fund. The agreement made the Dutch ING DB Pension Fund financially independent. In 2014, EUR 1,045 million was recognised in Transfer to Other reserves (pension settlement), and a charge of EUR 541 million was recognised in profit or loss related to the Dutch defined benefit pension plan settlement.
Certain group companies sponsor defined contribution pension plans. The assets of all NN Group's defined contribution plans are held in independently administered funds. Contributions are generally determined as a percentage of pay. These plans do not give rise to balance sheet provisions, other than relating to short-term timing differences included in other assets/liabilities.
Reference is made to Note 33 'Principal subsidiaries and geographical information' for information on the number of employees.
Reference is made to Note 48 'Key management personnel compensation'.
Annual accounts
NN Group has granted shares to a number of senior executives (members of the Management Board, general managers and other officers nominated by the Management Board) and to a considerable number of employees. The purpose of the share schemes, is to attract, retain and motivate senior executives and staff.
Share awards comprise Upfront Shares, Deferred Shares and (until March 2014) Performance Shares. The entitlement to the Deferred Shares and Performance Shares is granted conditionally. If the participant remains in employment for an uninterrupted period between the grant date and the vesting date, the entitlement becomes unconditional. In addition to the employment condition, the performance shares contain a performance condition. A retention period applies from the moment of grant respectively vesting of these awards (5 years for Management Board, and 1 year for Identified Staff).
Per the date of settlement of the IPO in 2014, all outstanding share awards on ING Groep N.V. shares, NN Group's ultimate parent company in 2014, were converted into awards on NN Group N.V. shares (for employees in active employment with NN Group on the IPO date). The outstanding option awards on ING Groep N.V. shares which are all fully vested, remained unchanged.
| Share awards (in number) | Weighted average grant date fair value (in EUR) |
|||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| Share awards outstanding – Opening balance | 1,611,655 | 14.41 | ||
| Converted from share awards on ING Group shares | 1,489,780 | 14.29 | ||
| Granted | 594,191 | 18,802 | 26.00 | 23.70 |
| Performance effect | 103,989 | 138,332 | 16.43 | 14.29 |
| Vested | -1,088,956 | -18,661 | 15.00 | 14.29 |
| Forfeited | -56,171 | -16,598 | 14.96 | 14.29 |
| Share awards outstanding – Closing balance | 1,164,708 | 1,611,655 | 19.54 | 14.41 |
In 2015, 68,218 share awards on NN Group shares (2014: 12,993) were granted to the members of the Executive and Management Board. To senior management and other employees 525,973 share awards on NN Group shares (2014: 5,809) were granted.
As at 31 December 2015 the share awards on NN Group shares consist of 1,151,364 (2014: 1,595,832) share awards relating to equity-settled share-based payment arrangements and 13,344 (2014: 15,823) share awards relating to cash-settled share-based payment arrangements.
The fair value of share awards granted is allocated over the vesting period of the share awards as an expense under staff expenses.
As at 31 December 2015 total unrecognised compensation costs related to share awards amount to EUR 9 million (2014: EUR 10 million). These costs are expected to be recognised over a weighted average period of 1.4 years (2014: 1.7 years).
In 2014, 81,267 share awards on ING Group shares were granted to the members of the Executive and Management Board and 1,472,039 share awards on ING Group shares were granted to senior management and other employees. In July 2014 all outstanding share awards on ING Group shares were converted into share awards on NN Group shares. The conversion was performed at an exchange factor such that the fair value of the outstanding share awards remained unchanged. As a result, 2,826,907 share awards on ING Group shares (with a weighted average grant date fair value of EUR 7.53) were converted into 1,489,780 share awards on NN Group shares (with a weighted average grant date fair value of EUR 14.29).
In August 2014, NN Group introduced a 'Sharesave' plan which is open to all employees. Under the plan, from August 2014 eligible employees can save a fixed monthly amount of between EUR 25 and EUR 250 for a period of three years. At the end of the three-year period, employees will receive their savings together with a gross gain, if at the end of the three-year period the NN Group share price exceeds the initial trading price of NN Group shares on the Amsterdam Stock Exchange on 7 July 2014. The gross gain is limited to a 100% increase in the share price and is paid in cash. If an employee leaves the plan before the end of the 3-year plan period, or if the share price at the end of the plan period is equal to or less than the initial trading price, the amount contributed by the employee is repaid (without addition of any gross gain).
At the start, 3,526 employees participated in the Sharesave plan. The number of participants is 3,186 as at 31 December 2015.
The plan is accounted for as a cash-settled share-based payment plan. The liability in the balance sheet as at 31 December 2015 is EUR 11 million (2014: EUR 4 million), of which EUR 8 million (2014: EUR 2 million) was contributed by the participating employees. The liability is included in Other staff-related liabilities in Other liabilities. Reference is made to Note 19 'Other liabilities'.
| 2015 | 2014 | |
|---|---|---|
| Interest expenses on non-trading derivatives | 281 | 290 |
| Other interest expenses | 333 | 146 |
| Interest expenses | 614 | 436 |
In 2015, total interest income and total interest expenses for items not valued at fair value through profit or loss were EUR 2,895 million and EUR 333 million respectively (2014: EUR 2,763 million and EUR 146 million respectively).
Interest income and expenses are included in the following profit and loss account lines:
| 2015 | 2014 | |
|---|---|---|
| Investment income | 3,411 | 3,302 |
| Interest expenses on non-trading derivatives | -281 | -290 |
| Other interest expenses | -333 | -146 |
| Total net interest income | 2,797 | 2,866 |
| 2015 | 2014 | |
|---|---|---|
| Depreciation of property and equipment | 23 | 30 |
| Amortisation of software | 19 | 56 |
| Computer costs | 204 | 238 |
| Office expenses | 114 | 130 |
| Travel and accommodation expenses | 16 | 16 |
| Advertising and public relations | 112 | 55 |
| External advisory fees | 111 | 109 |
| Addition/(releases) of provisions for reorganisation and relocations | 45 | 26 |
| Other | 132 | 114 |
| Other operating expenses | 776 | 774 |
Other operating expenses includes lease and sublease payments for office buildings of EUR 52 million (2014: EUR 60 million) and lease and sublease payments for cars and other equipment of EUR 10 million (2014: EUR 11 million). These expenses are in respect of operating leases in which NN Group is the lessee.
For Addition/releases of provision for reorganisation and relocations reference is made to the disclosure on the reorganisation provisions in Note 19 'Other liabilities'.
| 2015 | 2014 | |
|---|---|---|
| Audit fees | 15 | 12 |
| Audit related fees | 1 | 2 |
| Tax fees | ||
| All other fees | ||
| Fees of auditors | 16 | 14 |
Fees as disclosed above relate to the network of the NN Group's auditors and are the amounts related to the respective years, i.e. on an accrual basis.
Earnings per ordinary share shows earnings per share amounts for profit or loss attributable to shareholders of the parent. Earnings per ordinary share is calculated on the basis of the weighted average number of ordinary shares outstanding. In calculating the weighted average number of ordinary shares outstanding, own shares held by group companies are deducted from the total number of ordinary shares in issue.
Changes in the number of ordinary shares outstanding without a corresponding change in resources are taken into account, including if these changes occurred after the reporting date but before the annual accounts are authorised for issue.
| Amount (in millions of euros) |
Weighted average number of ordinary shares (in millions) |
Per ordinary share (in euros) |
||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Net result from continuing and discontinued operations | 1,565 | 588 | ||||
| Coupon on undated subordinated notes | -34 | -17 | ||||
| Basic earnings per ordinary share | 1,531 | 571 | 339.6 | 350.0 | 4.51 | 1.63 |
| Dilutive instruments: | ||||||
| Warrants | 0.0 | 0.0 | ||||
| Share plans | 1.2 | 1.6 | ||||
| 1.2 | 1.6 | |||||
| Diluted earnings per ordinary share | 1,531 | 571 | 340.8 | 351.6 | 4.49 | 1.62 |
Diluted earnings per share is calculated as if the share plans and warrants outstanding at the end of the period had been exercised at the beginning of the period and assuming that the cash received from exercised share plans and warrants was used to buy own shares against the average market price during the period. The net increase in the number of shares resulting from exercising share plans and warrants is added to the average number of shares used for the calculation of diluted earnings per share.
| Amount (in millions of euros) |
Weighted average number of ordinary shares (in millions) |
Per ordinary share (in euros) |
||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Basic earnings per ordinary share | 1,531 | 571 | ||||
| Less: Net result from discontinued operations | -16 | |||||
| Basic earnings per ordinary share from continuing operations |
1,531 | 587 | 339.6 | 350.0 | 4.51 | 1.68 |
| Dilutive instruments: | ||||||
| Warrants | 0.0 | 0.0 | ||||
| Share plans | 1.2 | 1.6 | ||||
| 1.2 | 1.6 | |||||
| Diluted earnings per ordinary share from continuing operations |
1,531 | 587 | 340.8 | 351.6 | 4.49 | 1.67 |
| Amount (in millions of euros) |
Weighted average number of ordinary shares (in millions) |
Per ordinary share (in euros) |
||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Net result from discontinued operations | 10 | |||||
| Net result from disposal of discontinued operations | -26 | |||||
| Net result from discontinued operations | 0 | -16 | ||||
| Basic earnings per ordinary share from discontinued operations |
0 | -16 | 339.6 | 350.0 | 0.00 | -0.05 |
| Dilutive instruments: | ||||||
| Warrants | 0.0 | 0.0 | ||||
| Share plans | 1.2 | 1.6 | ||||
| 1.2 | 1.6 | |||||
| Diluted earnings per ordinary share from discontinued operations |
0 | -16 | 340.8 | 351.6 | 0.00 | -0.05 |
31 Interest and dividend included in net cash flow
| 2015 | 2014 | |
|---|---|---|
| Interest received | 3,576 | 3,513 |
| Interest paid | -611 | -434 |
| Dividend received | 254 | 217 |
| Dividend paid | -271 | -187 |
Interest received, interest paid and dividend received are included in operating activities in the Consolidated statement of cash flows. Dividend paid is included in financing activities in the Consolidated statement of cash flows.
Annual accounts
The reporting segments for NN Group, based on the internal reporting structure, are as follows:
The Executive Board and the Management Board set the performance targets and approve and monitor the budgets prepared by the reporting segments. The segments formulate strategic, commercial and financial policies in conformity with the strategy and performance targets set by the Executive Board and the Management Board.
The accounting policies of the segments are the same as those described in Note 1 'Accounting policies'. Transfer prices for inter-segment transactions are set at arm's length. Corporate expenses are allocated to segments based on time spent by head office personnel, the relative number of staff, or on the basis of income and/or assets of the segment. Intercompany loans that qualify as equity instruments under IFRS-EU are presented in the segment reporting as debt; related coupon payments are presented as income and expenses in the respective segments.
Operating result (before tax) is used by NN Group to evaluate the financial performance of its segments. Each segment's operating result is calculated by adjusting the reported result before tax for the following items:
The operating result for the life insurance business is analysed through a margin analysis, which includes the investment margin, fees and premium-based revenues and the technical margin. Disclosures on comparative years also reflect the impact of current year's divestments. Operating result as presented below is a non-GAAP financial measure and is not a measure of financial performance under IFRS-EU. Because it is not determined in accordance with IFRS-EU, operating result as presented by NN Group may not be comparable to other similarly titled measures of performance of other companies.
| Segments (2015) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Netherlands Life |
Netherlands Non-life |
Insurance Europe |
Japan Life |
Asset Management |
Other | Japan Closed Block VA |
Total | |
| Investment margin | 825 | 80 | -15 | -1 | 889 | |||
| Fees and premium-based revenues |
354 | 536 | 503 | 496 | 95 | 1,983 | ||
| Technical margin | 207 | 194 | -15 | 386 | ||||
| Operating income non modelled life business |
4 | 4 | ||||||
| Operating income | 1,385 | 0 | 814 | 473 | 496 | 0 | 94 | 3,262 |
| Administrative expenses | 431 | 306 | 107 | 367 | 19 | 1,230 | ||
| DAC amortisation and trail commissions |
48 | 315 | 206 | 10 | 580 | |||
| Expenses | 479 | 0 | 621 | 313 | 367 | 0 | 29 | 1,809 |
| Non-life operating result | 122 | 4 | 125 | |||||
| Operating result Other | -79 | -79 | ||||||
| Operating result | 906 | 122 | 197 | 160 | 129 | -79 | 64 | 1,499 |
| Non-operating items: | ||||||||
| − gains/losses and impairments |
280 | 19 | 17 | 6 | 35 | 356 | ||
| − revaluations | 130 | 3 | 5 | -14 | 122 | |||
| − market & other impacts | -85 | -44 | -129 | |||||
| Special items before tax | -11 | -6 | -50 | -10 | -23 | -100 | ||
| Result on divestments | 2 | 11 | 14 | |||||
| Result before tax | 1,222 | 138 | 168 | 141 | 106 | -33 | 20 | 1,761 |
| Taxation | 112 | 16 | 19 | 26 | 24 | -20 | -11 | 166 |
| Minority interests Net result |
27 1,083 |
122 | 3 146 |
116 | 82 | -13 | 31 | 30 1,565 |
Special items in 2015 reflect expenses related to the rebranding and to the restructuring programme.
The insurance liabilities are adequate at both the 90% and 50% confidence levels, both in aggregate for NN Group and for each of the segments. The insurance liabilities in the segments Netherlands Life and Japan Closed Block VA are approximately at the 90% confidence level.
Reference is made to Note 1 'Accounting policies', section 'Accounting policies for specific items – Adequacy test'.
| Segments (2014) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Netherlands Life |
Netherlands Non-life |
Insurance Europe |
Japan Life |
Asset Management |
Other | Japan Closed Block VA |
Total | |
| Investment margin | 630 | 90 | -2 | 718 | ||||
| Fees and premium-based | ||||||||
| revenues | 404 | 518 | 437 | 486 | 117 | 1,962 | ||
| Technical margin | 102 | 194 | -13 | 283 | ||||
| Operating income non modelled life business |
4 | 4 | ||||||
| Operating income | 1,136 | 0 | 806 | 422 | 486 | 0 | 117 | 2,967 |
| Administrative expenses | 457 | 310 | 97 | 328 | 21 | 1,213 | ||
| DAC amortisation and trail | ||||||||
| commissions | 64 | 322 | 185 | 12 | 583 | |||
| Expenses | 521 | 0 | 632 | 282 | 328 | 0 | 33 | 1,796 |
| Non-life operating result | 128 | 1 | 129 | |||||
| Operating result Other | -130 | -130 | ||||||
| Operating result | 615 | 128 | 176 | 140 | 158 | -130 | 84 | 1,170 |
| Non-operating items: | ||||||||
| − gains/losses and | ||||||||
| impairments | -62 | -3 | 21 | 3 | 14 | -28 | ||
| − revaluations | 139 | 14 | 1 | -2 | -8 | 143 | ||
| − market & other impacts | 38 | 44 | 24 | 107 | ||||
| Special items before tax | -352 | -97 | -32 | -2 | -124 | -80 | -687 | |
| Result on divestments | -2 | -2 | 62 | 57 | ||||
| Result before tax | 377 | 41 | 207 | 139 | 31 | -142 | 109 | 762 |
| Taxation | 41 | 4 | 46 | 48 | 5 | -18 | 8 | 135 |
| Minority interests | 9 | 14 | 23 | |||||
| Net result from continuing | ||||||||
| operations | 327 | 38 | 146 | 91 | 26 | -124 | 101 | 604 |
| Total net result from | ||||||||
| discontinued operations | -24 | 8 | -16 | |||||
| Net result | 327 | 38 | 146 | 91 | 2 | -116 | 101 | 588 |
Special items in 2014 related to the agreement to make ING Group's closed defined benefit pension plan in the Netherlands financially independent and to the restructuring programme.
Result on divestments mainly reflects the divestment result of EUR 56 million on Sul América S.A. as disclosed in Note 6 'Associates and joint ventures'. NN Group's interest in Sul América S.A. was reduced and the remaining interest was transferred to ING Groep N.V. The divestment result of Sul América S.A. in 2014 is included in Other in the table above.
| Netherlands Life |
Netherlands Non-life |
Insurance Europe |
Japan Life |
Asset Management |
Other and eliminations |
Japan Closed Block VA |
Total | |
|---|---|---|---|---|---|---|---|---|
| Interest income | 2,044 | 134 | 443 | 138 | 351 | 301 | 3,411 | |
| Interest expenses | -171 | -2 | -1 | -2 | -160 | -278 | -614 | |
| Interest income and interest expenses |
1,873 | 132 | 442 | 136 | 0 | 191 | 23 | 2,797 |
| Netherlands Life |
Netherlands Non-life |
Insurance Europe |
Japan Life |
Asset Management |
Other and eliminations |
Japan Closed Block VA |
Total | |
|---|---|---|---|---|---|---|---|---|
| Interest income | 2,260 | 112 | 498 | 144 | 1 | -27 | 314 | 3,302 |
| Interest expenses | -275 | -1 | -2 | -2 | 133 | -289 | -436 | |
| Interest income and interest expenses |
1,985 | 111 | 496 | 142 | 1 | 106 | 25 | 2,866 |
| Total assets Total liabilities | Total assets Total liabilities | |||
|---|---|---|---|---|
| 2015 | 2015 | 2014 | 2014 | |
| Netherlands Life | 92,263 | 77,874 | 94,563 | 79,867 |
| Netherlands Non-life | 4,368 | 3,621 | 4,454 | 3,694 |
| Insurance Europe | 21,065 | 19,175 | 22,217 | 20,181 |
| Japan Life | 13,318 | 11,401 | 10,910 | 9,284 |
| Asset Management | 580 | 189 | 571 | 185 |
| Other | 45,950 | 24,343 | 47,242 | 25,767 |
| Japan Closed Block VA | 13,297 | 12,351 | 17,030 | 16,019 |
| Total segments | 190,841 | 148,954 | 196,987 | 154,997 |
| Eliminations | -28,689 | -8,266 | -31,506 | -10,933 |
| Total assets and Total liabilities | 162,152 | 140,688 | 165,481 | 144,064 |
The table below provides additional information on principal subsidiaries, the nature of the main activities and employees by country.
| Average number of |
Result | |||||
|---|---|---|---|---|---|---|
| Country/Name of principal subsidiaries 1 | Main activity | employees2 | Total income 3 | Total assets 3 | before tax | Taxation 4 |
| Nationale-Nederlanden Levensverzekering Maatschappij N.V. |
Life insurance | |||||
| Nationale-Nederlanden Bank N.V. | Banking | |||||
| NN Investment Partners Holdings N.V. | Asset management | |||||
| REI Investment I B.V. | Real estate | |||||
| Nationale-Nederlanden Schadeverzekering | ||||||
| Maatschappij N.V. | General insurance | |||||
| NN Re (Netherlands) N.V. | Reinsurance | |||||
| Movir N.V. | General insurance | |||||
| Private Equity Investments II B.V. | Private equity | |||||
| The Netherlands | 6,463 | 7,859 | 115,384 | 1,321 | 108 | |
| NN Life Insurance Company, Ltd. | Life insurance | |||||
| NN Investment Partners (Japan) Co., Ltd. | Asset management | |||||
| Japan | 757 | 2,782 | 25,702 | 176 | 19 | |
| NN Insurance Belgium N.V. | Life insurance | |||||
| NN Investment Partners Belgium S.A. | Asset management | |||||
| NN Insurance Services Belgium N.V. | General insurance | |||||
| Belgium | 382 | 708 | 6,649 | 54 | 13 | |
| Nationale Nederlanden Vida, Compania de Seguros y Reaseguros. S.A. |
Life insurance | |||||
| Nationale Nederlanden Generales, Compania de Seguros y Reaseguros, S.A. |
General insurance | |||||
| Spain | 451 | 588 | 4,386 | 19 | 3 | |
| NN Life Luxembourg S.A. | Life insurance | |||||
| NN Investment Partners Luxembourg S.A. | Asset management | |||||
| Luxembourg | 101 | 384 | 2,622 | 39 | 2 | |
| Nationale-Nederlanden Towarzystwo Ubezpieczeń na Życie S.A. |
Life insurance | |||||
| Nationale-Nederlanden Powszechne Towarzystwo Emerytalne S.A. |
Pensions | |||||
| Poland | 778 | 468 | 2,060 | 96 | 19 | |
| NN Biztosító Zártkörûen Mûködõ Részvénytársaság | Life insurance | |||||
| Hungary | 369 | 280 | 1,268 | 8 | 3 | |
| NN Hellenic Life Insurance Co. S.A. | Life insurance | |||||
| Greece | 421 | 374 | 1,259 | 0 | -16 | |
| NN Pojistovna, a.s. | Life insurance | |||||
| Czech Republic | 481 | 214 | 1,254 | 32 | 5 | |
| NN Asigurari de Viata S.A. | Life insurance | |||||
| Romania | 471 | 174 | 787 | 15 | 3 | |
| NN Životná poist'ovna, a.s. | Life insurance | |||||
| Slovak Republic | 252 | 98 | 542 | 9 | 3 | |
| NN Hayat ve Emeklilik A.S. | Life insurance | |||||
| Turkey | 415 | 38 | 138 | -24 | -1 | |
| NN Pensionno-Osigritelno Druzestvo EAD | Pensions | |||||
| Bulgaria | 128 | 20 | 56 | 0 | 0 | |
| Other | 92 | 8 | 45 | 16 | 5 | |
| Total | 11,561 | 13,995 | 162,152 | 1,761 | 166 |
1 All subsidiaries listed in this table are 100% owned.
2 The average number of employees is on a full-time equivalent basis.
3 Total income and Total assets excluding intercompany amounts.
4 Taxation is the taxation amount charged to the profit and loss account.
| Average | ||||||
|---|---|---|---|---|---|---|
| Country/Name of principal subsidiaries1 | Main activity | number of employees2 |
Total income3 | Total assets3 | Result before tax |
Taxation4 |
| Nationale-Nederlanden Levensverzekering Maatschappij N.V. |
Life insurance | |||||
| Nationale-Nederlanden Bank N.V. | Banking | |||||
| NN Investment Partners Holdings N.V. | Asset management | |||||
| REI Investment I B.V. | Real estate | |||||
| Nationale-Nederlanden Schadeverzekering | ||||||
| Maatschappij N.V. | General insurance | |||||
| NN Re (Netherlands) N.V. | Reinsurance | |||||
| Movir N.V. | General insurance | |||||
| Parcom Capital B.V. | Private equity | |||||
| Nationale-Nederlanden Services N.V. | Life insurance | |||||
| The Netherlands | 6,851 | 7,934 | 116,162 | 194 | 3 | |
| NN Life Insurance Company, Ltd. | Life insurance | |||||
| NN Investment Partners (Japan) Co., Ltd. | Asset management | |||||
| Japan | 765 | 2,055 | 26,994 | 265 | 61 | |
| NN Insurance Belgium N.V. | Life insurance | |||||
| NN Investment Partners Belgium S.A. | Asset management | |||||
| NN Insurance Services Belgium N.V. | General insurance | |||||
| Belgium | 382 | 892 | 7,518 | 43 | 14 | |
| Nationale Nederlanden Vida, Compania de Seguros y Reaseguros. S.A. |
Life insurance | |||||
| Nationale Nederlanden Generales, Compania de Seguros y Reaseguros, S.A. |
General insurance | |||||
| Spain | 484 | 633 | 4,439 | 33 | 13 | |
| NN Life Luxembourg S.A. | Life insurance | |||||
| NN Investment Partners Luxembourg S.A. | Asset management | |||||
| Luxembourg | 93 | 393 | 2,731 | 44 | 8 | |
| Nationale-Nederlanden Towarzystwo Ubezpieczeń na Życie S.A. |
Life insurance | |||||
| Nationale-Nederlanden Powszechne Towarzystwo Emerytalne S.A. |
Pensions | |||||
| Poland | 789 | 552 | 2,307 | 145 | 25 | |
| NN Biztosító Zártkörûen Mûködõ Részvénytársaság | Life insurance | |||||
| Hungary | 393 | 276 | 1,280 | 8 | 0 | |
| NN Hellenic Life Insurance Co. S.A. | Life insurance | |||||
| Greece | 408 | 293 | 1,219 | 10 | 4 | |
| NN pojistovna, a.s. | Life insurance | |||||
| Czech Republic | 487 | 225 | 1,309 | 17 | 2 | |
| NN Asigurari de Viata S.A. | Life insurance | |||||
| Romania | 365 | 167 | 746 | 17 | 3 | |
| NN Životná poist'ovna, a.s. | Life insurance | |||||
| Slovak Republic | 258 | 101 | 539 | 12 | 2 | |
| NN Hayat ve Emeklilik A.S. | Life insurance | |||||
| Turkey | 416 | 27 | 134 | -32 | 0 | |
| NN Pensionno-Osigritelno Druzestvo EAD | Pensions | |||||
| Bulgaria | 128 | 16 | 46 | -1 | 0 | |
| Other | 91 | -19 | 57 | 7 | 0 | |
| Total | 11,910 | 13,545 | 165,481 | 762 | 135 |
1 All subsidiaries listed in this table are 100% owned.
2 The average number of employees is on a full-time equivalent basis. In 2014 576 FTE's were employed by entities designated as Discontinued operations.
3 Total income and Total assets excluding intercompany amounts.
4 Taxation is the taxation amount charged to the profit and loss account.
| Net liability 20141 |
Changes through equity |
Changes through net result |
Changes in the composition of the group and other changes |
Exchange rate differences |
Net liability 20151 |
|
|---|---|---|---|---|---|---|
| Investments | 3,214 | -459 | -15 | 21 | 2,761 | |
| Real estate investments | 91 | 40 | 7 | 138 | ||
| Financial assets and liabilities at fair value through profit or loss |
29 | -16 | 1 | 14 | ||
| Deferred acquisition costs and VOBA | 330 | 19 | -16 | 24 | 357 | |
| Depreciation | -5 | -5 | ||||
| Insurance liabilities | -2,321 | 228 | 66 | -11 | 1 | -2,037 |
| Cash flow hedges | 1,494 | -147 | 1,347 | |||
| Pension and post-employment benefits | 8 | 9 | 1 | 1 | -2 | 17 |
| Other provisions | -16 | 6 | -13 | 2 | -21 | |
| Receivables | -30 | 3 | 1 | -26 | ||
| Loans | -12 | -13 | -2 | -27 | ||
| Unused tax losses carried forward | -512 | -15 | -19 | -546 | ||
| Other | -26 | -3 | 32 | 87 | -5 | 85 |
| Deferred tax | 2,244 | -372 | 123 | 19 | 43 | 2,057 |
Presented in the balance sheet as:
| 2,244 | 2,057 |
|---|---|
| -30 | -44 |
| 2,274 | 2,101 |
1 Positive amounts are liabilities, negative amounts are assets.
| Net liability 20131 |
Changes through equity |
Changes through net result |
Changes in the composition of the group and other changes |
Exchange rate differences |
Net liability 20141 |
|
|---|---|---|---|---|---|---|
| Investments | 937 | 2,109 | -7 | 179 | -4 | 3,214 |
| Real estate investments | 283 | 5 | -197 | 91 | ||
| Financial assets and liabilities at fair value through profit or loss |
-17 | 3 | 43 | 29 | ||
| Deferred acquisition costs and VOBA | 312 | 20 | -2 | 330 | ||
| Depreciation | -5 | -5 | ||||
| Insurance liabilities | -1,369 | -994 | 46 | -4 | -2,321 | |
| Cash flow hedges | 919 | 575 | 1,494 | |||
| Pension and post-employment benefits | 125 | -41 | -76 | 8 | ||
| Other provisions | 42 | 10 | -68 | -16 | ||
| Receivables | -30 | -30 | ||||
| Loans | 1 | -14 | 1 | -12 | ||
| Unused tax losses carried forward | -535 | -14 | 37 | -512 | ||
| Other | -66 | -13 | 76 | -25 | 2 | -26 |
| Deferred tax | 597 | 1,636 | 49 | -34 | -4 | 2,244 |
Presented in the balance sheet as:
| Deferred tax | 597 | 2,244 |
|---|---|---|
| − deferred tax assets | -51 | -30 |
| − deferred tax liabilities | 648 | 2,274 |
1 Positive amounts are liabilities, negative amounts are assets.
| 2015 | 2014 | |
|---|---|---|
| Total unused tax losses carried forward | 2,370 | 2,341 |
| Unused tax losses carried forward not recognised as a deferred tax asset | -227 | -327 |
| Unused tax losses carried forward recognised as a deferred tax asset | 2,143 | 2,014 |
| Average tax rate | 25.5% | 25.5% |
| Deferred tax asset | 546 | 512 |
Tax losses carried forward will expire as follows as at 31 December:
| No deferred tax asset recognised |
Deferred tax asset recognised |
||||
|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | ||
| Within 1 year | 16 | 33 | 42 | 24 | |
| More than 1 year but less than 5 years | 104 | 139 | 107 | 132 | |
| More than 5 years but less than 10 years | 34 | 88 | 1,342 | 1,342 | |
| More than 10 years but less than 20 years | 40 | ||||
| Unlimited | 73 | 67 | 652 | 476 | |
| Total unused tax losses carried forward | 227 | 327 | 2,143 | 2,014 |
Deferred tax assets are recognised for temporary deductible differences, for tax losses carried forward and unused tax credits only to the extent that realisation of the related tax benefit is probable.
As at 31 December 2015 and 31 December 2014, NN Group had no significant temporary differences associated with the parent company's investments in subsidiaries, branches and associates and interest in joint ventures as any economic benefit from those investments will not be taxable at parent company level.
Reference is made to Note 33 'Principal subsidiaries and geographical information' for more information on the taxation per country.
| 2015 | 2014 | |
|---|---|---|
| Current tax | 43 | 86 |
| Deferred tax | 123 | 49 |
| Taxation on result from continuing operations | 166 | 135 |
The 2015 taxation changed by EUR 31 million to EUR 166 million from EUR 135 million in the previous year. This increase was mainly caused by a higher result before tax compared with 2014.
NN Group N.V., together with certain of its subsidiaries, is part of a fiscal unity for Dutch income tax purposes. The members of the fiscal unity are jointly and severally liable for any income taxes payable by the Dutch fiscal unity.
| 2015 | 2014 | |
|---|---|---|
| Result before tax from continuing operations | 1,761 | 762 |
| Weighted average statutory tax rate | 25.2% | 24.4% |
| Weighted average statutory tax amount | 444 | 186 |
| Associates exemption | -208 | -67 |
| Other income not subject to tax | -23 | -18 |
| Expenses not deductible for tax purposes | 7 | 9 |
| Impact on deferred tax from change in tax rates | -18 | 5 |
| Deferred tax benefit from previously unrecognised amounts | -33 | -6 |
| Current tax benefit from previously unrecognised amounts | -3 | |
| Write-off/reversal of deferred tax assets | 4 | 4 |
| Adjustments to prior periods | -7 | 25 |
| Effective tax amount | 166 | 135 |
| Effective tax rate | 9.4% | 17.7% |
The weighted average statutory tax rate for 2015 increased slightly from the weighted average statutory tax rate for 2014. This is mainly a result of changes in the composition of the result before tax as well as minor changes in the statutory income tax rates.
The effective tax rate in 2015 of 9.4% was significantly lower than the weighted average statutory tax rate of 25.2% and the effective tax rate in 2014 of 17.7%. This is mainly a result of (higher) non-taxable income (mainly the tax exempt income on results from associates) as well as the recognition in 2015 of certain deferred tax assets on unused tax losses carried forward that were previously not recognised.
| 2015 | 2014 | |
|---|---|---|
| Unrealised revaluations Available-for-sale investments and other | 412 | -2,076 |
| Realised gains/losses transferred to the profit and loss account | 32 | -12 |
| Changes in cash flow hedge reserve | 147 | -575 |
| Deferred interest credited to policyholders | -228 | 993 |
| Remeasurement of the net defined benefit asset/liability | -9 | 42 |
| Exchange rate differences and other changes | -11 | |
| Income tax | 354 | -1,639 |
The following table presents the estimated fair value of NN Group's financial assets and liabilities. Certain balance sheet items are not included in the table, as they do not meet the definition of a financial asset or liability. The aggregation of the fair value presented below does not represent, and should not be construed as representing, the underlying value of NN Group.
| Estimated fair value | Balance sheet value | |||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| Financial assets | ||||
| Cash and cash equivalents | 7,436 | 7,530 | 7,436 | 7,530 |
| Financial assets at fair value through profit or loss: | ||||
| − trading assets | 628 | 628 | ||
| − investments for risk of policyholders | 35,154 | 41,222 | 35,154 | 41,222 |
| − non-trading derivatives | 4,656 | 7,207 | 4,656 | 7,207 |
| − designated as at fair value through profit or loss | 443 | 492 | 443 | 492 |
| Available-for-sale investments | 74,393 | 72,277 | 74,393 | 72,277 |
| Loans | 33,787 | 29,694 | 31,013 | 27,802 |
| Other assets1 | 2,986 | 3,372 | 2,986 | 3,372 |
| Financial assets | 158,855 | 162,422 | 156,081 | 160,530 |
| Financial liabilities | ||||
| Subordinated debt | 2,383 | 2,419 | 2,290 | 2,297 |
| Debt securities issued | 589 | 597 | ||
| Other borrowed funds | 6,793 | 5,904 | 6,785 | 5,867 |
| Investment contracts for risk of company | 1,757 | 1,782 | 1,436 | 1,460 |
| Investment contracts for risk of policyholders | 1,585 | 1,569 | 1,585 | 1,569 |
| Customer deposits and other funds on deposit | 8,469 | 7,164 | 8,034 | 6,981 |
| Financial liabilities at fair value through profit or loss: | ||||
| − non-trading derivatives | 1,701 | 3,142 | 1,701 | 3,142 |
| Other liabilities2 | 2,646 | 3,574 | 2,646 | 3,574 |
| Financial liabilities | 25,923 | 25,554 | 25,074 | 24,890 |
1 Other assets does not include (deferred) tax assets, net defined benefit assets and property obtained from foreclosures.
2 Other liabilities does not include (deferred) tax liabilities, net defined benefit liabilities, insurance liabilities, other provisions and other taxation and social security contributions.
The estimated fair value represents the price at which an orderly transaction to sell the financial asset or to transfer the financial liability would take place between market participants at the balance sheet date ('exit price'). The fair value of financial assets and liabilities is based on unadjusted quoted market prices, where available. Such quoted market prices are primarily obtained from exchange prices for listed instruments. Where an exchange price is not available market prices are obtained from independent market vendors, brokers or market makers. Because substantial trading markets do not exist for all financial instruments, various techniques have been developed to estimate the approximate fair value of financial assets and liabilities that are not actively traded. The fair value presented may not be indicative of the net realisable value. In addition, the calculation of the estimated fair value is based on market conditions at a specific point in time and may not be indicative of the future fair value.
Annual accounts
The following methods and assumptions were used by NN Group to estimate the fair value of the financial instruments:
Cash and cash equivalents are recognised at their nominal value which approximates the fair value.
Derivative contracts can either be exchange-traded or over the counter (OTC). The fair value of exchange-traded derivatives is determined using quoted market prices in an active market and those derivatives are classified in Level 1 of the fair value hierarchy. For those instruments that are not actively traded, the fair value is estimated based on valuation techniques. OTC derivatives and derivatives trading in an inactive market are valued using valuation techniques because quoted market prices in an active market are not available for such instruments. The valuation techniques and inputs depend on the type of derivative and the nature of the underlying instruments. The principal techniques used to value these instruments are based on discounted cash flows, Black-Scholes option models and Monte Carlo simulation. These valuation models calculate the present value of expected future cash flows, based on 'no arbitrage' principles. These models are commonly used in the financial industry. Inputs to valuation models are determined from observable market data where possible. Certain inputs may not be observable in the market directly, but can be determined from observable prices via valuation model calibration procedures. The inputs used include prices available from exchanges, dealers, brokers or providers of pricing, yield curves, credit spreads, default rates, recovery rates, dividend rates, volatility of underlying interest rates, equity prices and foreign currency exchange rates. These inputs are determined with reference to quoted prices, recently executed trades, independent market quotes and consensus data, where available.
The fair value of publicly traded equity securities is determined using quoted market prices when available. Where no quoted market prices are available, fair value is determined based on quoted prices for similar securities or other valuation techniques. The fair value of private equity is based on quoted market prices, if available. In the absence of quoted prices in an active market, fair value is estimated on the basis of an analysis of the investee's financial position and results, risk profile, prospects, price, earnings comparisons and revenue multiples and by reference to market valuations for similar entities quoted in an active market.
The fair value for debt securities is based on quoted market prices, where available. Quoted market prices may be obtained from an exchange, dealer, broker, industry group, pricing service or regulatory service. If quoted prices in an active market are not available, fair value is based on an analysis of available market inputs, which may include values obtained from one or more pricing services or by a valuation technique that discounts expected future cash flows using market interest rate curves, referenced credit spreads, maturity of the investment and estimated prepayment rates where applicable.
For loans and advances that are repriced frequently and have had no significant changes in credit risk, carrying values represent a reasonable estimate of the fair value. The fair value of other loans is estimated by discounting expected future cash flows using a discount rate that reflects credit risk, liquidity and other current market conditions. The fair value of mortgage loans is estimated by taking into account prepayment behaviour. Loans with similar characteristics are aggregated for calculation purposes.
Other assets are stated at their carrying value which is not significantly different from their fair value.
The fair value of the Subordinated debt is estimated using discounted cash flows based on interest rates and credit spreads that apply to similar instruments.
The fair value of Other borrowed funds is generally based on quoted market prices or, if not available, on estimated prices by discounting expected future cash flows using a current market interest rate and credit spreads applicable to the yield, credit quality and maturity.
For investment contracts for risk of the company the fair value has been estimated using a discounted cash flow approach based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. For investment contracts for risk of policyholders the fair value generally equals the fair value of the underlying assets. For other investmenttype contracts, the fair value is estimated based on the cash surrender values.
The carrying values of Customer deposits and other funds on deposit with no stated maturity approximate their fair value. The fair values of deposits with stated maturities have been estimated based on discounting future cash flows using a discount rate that reflects credit risk, liquidity and other current market conditions.
Annual accounts
Other liabilities are stated at their carrying value which is not significantly different from their fair value.
The fair value of the financial instruments carried at fair value was determined as follows:
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| Financial assets | ||||
| Investments for risk of policyholders | 31,644 | 2,697 | 813 | 35,154 |
| Non-trading derivatives | 234 | 4,214 | 208 | 4,656 |
| Financial assets designated as at fair value through profit or loss | 169 | 272 | 2 | 443 |
| Available-for-sale investments | 52,075 | 20,731 | 1,587 | 74,393 |
| Financial assets | 84,122 | 27,914 | 2,610 | 114,646 |
| Financial liabilities | ||||
| Investment contracts (for contracts at fair value) | 1,551 | 34 | 1,585 | |
| Non-trading derivatives | 8 | 1,486 | 207 | 1,701 |
| Financial liabilities | 1,559 | 1,520 | 207 | 3,286 |
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| Financial assets | ||||
| Trading assets | 10 | 14 | 604 | 628 |
| Investments for risk of policyholders | 36,997 | 3,985 | 240 | 41,222 |
| Non-trading derivatives | 152 | 7,055 | 7,207 | |
| Financial assets designated as at fair value through profit or loss | 454 | 38 | 492 | |
| Available-for-sale investments | 51,445 | 18,981 | 1,851 | 72,277 |
| Financial assets | 89,058 | 30,073 | 2,695 | 121,826 |
| Financial liabilities | ||||
| Investment contracts (for contracts at fair value) | 1,515 | 54 | 1,569 | |
| Non-trading derivatives | 30 | 3,112 | 3,142 | |
| Financial liabilities | 1,545 | 3,166 | 0 | 4,711 |
NN Group has categorised its financial instruments that are either measured in the balance sheet at fair value or for which the fair value is disclosed, into a three level hierarchy based on the priority of the inputs to the valuation. The fair value hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to valuation techniques supported by unobservable inputs. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide reliable pricing information on an ongoing basis.
The fair value hierarchy consists of three levels, depending on whether the fair value is determined based on (unadjusted) quoted prices in an active market (Level 1), valuation techniques with observable inputs (Level 2) or valuation techniques that incorporate inputs which are unobservable and which have a more than insignificant impact on the fair value of the instrument (Level 3). Financial assets in Level 3 include, for example, illiquid debt securities, complex OTC and credit derivatives, certain complex loans (for which current market information about similar assets to use as observable, corroborated data for all significant inputs into a valuation model is not available), mortgage loans and consumer lending, private equity instruments and investments in real estate funds.
Observable inputs reflect market data obtained from independent sources. Unobservable inputs are inputs which are based on NN Group's own assumptions about the factors that market participants would use in pricing an asset or liability, developed based on the best information available in the circumstances. Unobservable inputs may include volatility, correlation, spreads to discount rates, default rates and recovery rates, prepayment rates and certain credit spreads. Transfers into and transfers out of levels in the fair value hierarchy are recognised on the date of the event or change of circumstances that caused the transfer.
Annual accounts
This category includes financial instruments whose fair value is determined directly by reference to published quotes in an active market that NN Group can access. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions with sufficient frequency and volume to provide reliable pricing information on an ongoing basis.
This category includes financial instruments whose fair value is determined using a valuation technique (e.g. a model), where inputs in the model are taken from an active market or are observable. If certain inputs in the model are unobservable the instrument is still classified in this category, provided that the impact of those unobservable inputs elements on the overall valuation is insignificant. Included in this category are items whose value is derived from quoted prices of similar instruments, but for which the prices are modified based on other market observable external data and items whose value is derived from quoted prices but for which there was insufficient evidence of an active market.
This category includes financial instruments whose fair value is determined using a valuation technique (e.g. a model) for which more than an insignificant part of the inputs in terms of the overall valuation are not market observable. This category also includes financial assets and liabilities whose fair value is determined by reference to price quotes but for which the market is considered inactive. An instrument is classified in its entirety as Level 3 if a significant portion of the instrument's fair value is driven by unobservable inputs. Unobservable in this context means that there is little or no current market data available from which the price at which an orderly transaction would likely occur can be derived.
| Trading assets |
Investments for risk of policyholders |
Non-trading derivatives |
Financial assets designated as at fair value through profit or loss |
Available for-sale investments |
Total | |
|---|---|---|---|---|---|---|
| Level 3 Financial assets – Opening balance | 604 | 240 | 1,851 | 2,695 | ||
| Amounts recognised in the profit and loss account during the year |
-22 | -7 | -3 | 11 | -21 | |
| Revaluations recognised in Other comprehensive income (equity) during the year |
57 | 57 | ||||
| Purchase of assets | 17 | 70 | 168 | 293 | 548 | |
| Sale of assets | -165 | -241 | -353 | -759 | ||
| Maturity/settlement | -64 | -64 | ||||
| Reclassification | -2 | 2 | 0 | |||
| Transfers into Level 3 | 14 | 747 | 43 | 804 | ||
| Transfers out of Level 3 | -177 | -177 | ||||
| Changes in the composition of the group and other changes | -446 | -39 | -485 | |||
| Exchange rate differences | 4 | 8 | 12 | |||
| Level 3 Financial assets – Closing balance | 0 | 813 | 208 | 2 | 1,587 | 2,610 |
Annual accounts
The transfers into Level 3 mainly reflect an improved fair value measurement of certain investments for risk of policyholders, resulting in classification as Level 3 instead of Level 2. The (changes in) fair value of these investments have no net impact on profit or loss or shareholders' equity as these are offset by (changes in) liabilities for Insurance and investment contracts.
| Trading assets |
Investments for risk of policyholders |
Non-trading derivatives |
Financial assets designated as at fair value through profit or loss |
Available for-sale investments |
Total | |
|---|---|---|---|---|---|---|
| Level 3 Financial assets – Opening balance | 720 | 248 | 2,109 | 3,077 | ||
| Amounts recognised in the profit and loss account during the year |
100 | -1 | -76 | 23 | ||
| Revaluations recognised in Other comprehensive income (equity) during the year |
122 | 122 | ||||
| Purchase of assets | 34 | 229 | 263 | |||
| Sale of assets | -115 | -201 | -316 | |||
| Maturity/settlement | -35 | -35 | ||||
| Reclassification | -18 | -1 | -19 | |||
| Transfers into Level 3 | 2 | 2 | 4 | |||
| Transfers out of Level 3 | -119 | -312 | -431 | |||
| Changes in the composition of the group and other changes | 1 | 1 | ||||
| Exchange rate differences | -7 | 13 | 6 | |||
| Level 3 Financial assets – Closing balance | 604 | 240 | 0 | 0 | 1,851 | 2,695 |
| Non-trading derivatives |
|
|---|---|
| Level 3 Financial liabilities – Opening balance | |
| Purchase of assets | 167 |
| Transfers into Level 3 | 40 |
| Level 3 Financial liabilities – Closing balance | 207 |
There are no Level 3 Financial liabilities in 2014.
| Held at balance sheet date |
Derecognised during the year |
Total | |
|---|---|---|---|
| Financial assets | |||
| Trading assets | -22 | -22 | |
| Investments for risk of policyholders | -7 | -7 | |
| Non-trading derivatives | -3 | -3 | |
| Available-for-sale investments | -7 | 18 | 11 |
| Level 3 Amounts recognised in the profit and loss account during the year | -17 | -4 | -21 |
| Held at balance sheet date |
Derecognised during the year |
Total | |
|---|---|---|---|
| Financial assets | |||
| Trading assets | 78 | 22 | 100 |
| Investments for risk of policyholders | -1 | -1 | |
| Available-for-sale investments | -76 | -76 | |
| Level 3 Amounts recognised in the profit and loss account during the year | 1 | 22 | 23 |
Level 3 Financial assets at fair value
Financial assets measured at fair value in the balance sheet as at 31 December 2015 of EUR 115 billion (2014: EUR 122 billion) include an amount of EUR 2.6 billion (2.3%) that is classified as Level 3 (2014: EUR 2.7 billion (2.2%)). Changes in Level 3 are disclosed above in the table 'Level 3 Financial assets'.
Financial assets in Level 3 include both assets for which the fair value was determined using valuation techniques that incorporate unobservable inputs and assets for which the fair value was determined using quoted prices, but for which the market was not actively trading at or around the balance sheet date. Unobservable inputs are inputs which are based on NN Group's own assumptions about the factors that market participants would use in pricing an asset, developed based on the best information available in the circumstances. Unobservable inputs may include volatility, correlation, spreads to discount rates, default rates and recovery rates, prepayment rates and certain credit spreads. Fair values that are determined using valuation techniques using unobservable inputs are sensitive to the inputs used. Fair values that are determined using quoted prices are not sensitive to unobservable inputs, as the valuation is based on unadjusted external price quotes. These are classified in Level 3 as a result of the illiquidity in the relevant market, but are not significantly sensitive to NN Group's own unobservable inputs.
Unrealised gains and losses that relate to Level 3 financial assets are included in the profit and loss account as follows:
Unrealised gains and losses that relate to Available-for-sale investments are recognised in Other comprehensive income (equity) and included in Reserves in the line Unrealised revaluations Available-for-sale investments and other.
Investments for risk of policyholders classified as Level 3 Financial assets amounted EUR 813 million as at 31 December 2015 (2014: EUR 240 million). Net result is unaffected when reasonable possible alternative assumptions would have been used in measuring these investments.
Non-trading derivatives classified as Level 3 financial assets are mainly used to hedge the fair value risk of the mortgage loan portfolio at NN Bank. These derivatives classified as Level 3 amounted EUR 208 million as at 31 December 2015.
The Available-for-sale investments of EUR 1,587 million classified as Level 3 Financial assets as at 31 December 2015 (2014: EUR 1,851 million) mainly consists of investments in debt securities and shares in real estate investment funds and private equity investment funds of which the fair value is determined using (unadjusted) quoted prices in inactive markets for the securities or quoted prices obtained from the asset managers of the funds. It is estimated that a 10% change in valuation of these investments would have no significant impact on Net result but would increase or reduce Shareholders' equity by EUR 160 million (2014: EUR 190 million), being approximately 0.8% (before tax) (2014: 0.9% (before tax)), of total equity.
The total amount of financial liabilities classified as Level 3 at 31 December 2015 of EUR 207 million relates to non-trading derivative positions. These derivatives are used to hedge the interest rate risk associated with the funding position of NN Bank.
Annual accounts
The fair value of the financial instruments carried at amortised cost in the balance sheet (where fair value are disclosed) was determined as follows:
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| Financial assets | ||||
| Cash and cash equivalents | 7,436 | 7,436 | ||
| Loans | 171 | 4,009 | 29,607 | 33,787 |
| Financial assets | 7,607 | 4,009 | 29,607 | 41,223 |
| Financial liabilities | ||||
| Subordinated debt | 1,553 | 830 | 2,383 | |
| Debt securities issued | 589 | 589 | ||
| Other borrowed funds | 3,413 | 3,380 | 6,793 | |
| Investment contracts for risk of company | 23 | 1,734 | 1,757 | |
| Customer deposits and other funds on deposit | 4,513 | 3,956 | 8,469 | |
| Financial liabilities | 6,678 | 8,199 | 5,114 | 19,991 |
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| Financial assets | ||||
| Cash and cash equivalents | 7,530 | 7,530 | ||
| Loans | 186 | 3,203 | 26,305 | 29,694 |
| Financial assets | 7,716 | 3,203 | 26,305 | 37,224 |
| Financial liabilities | ||||
| Subordinated debt | 1,233 | 1,186 | 2,419 | |
| Other borrowed funds | 4,750 | 1,154 | 5,904 | |
| Investment contracts for risk of company | 28 | 1,754 | 1,782 | |
| Customer deposits and other funds on deposit | 4,471 | 2,693 | 7,164 | |
| Financial liabilities | 5,732 | 8,629 | 2,908 | 17,269 |
The following table presents the estimated fair value of NN Group's non-financial assets and liabilities that are measured at fair value in the balance sheet. Reference is made to Note 1 'Accounting policies' in the sections 'Real estate investments' and 'Property and equipment' for the methods and assumptions used by NN Group to estimate the fair value of the non-financial assets.
| Estimated fair value | Balance sheet value | ||||
|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | ||
| Real estate investments | 1,564 | 1,104 | 1,564 | 1,104 | |
| Property in own use | 42 | 88 | 42 | 88 | |
| Fair value of non-financial assets | 1,606 | 1,192 | 1,606 | 1,192 |
The fair value of the non-financial assets were determined as follows:
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| Real estate investments | 1,564 | 1,564 | ||
| Property in own use | 42 | 42 | ||
| Fair value of non-financial assets | 0 | 0 | 1,606 | 1,606 |
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| Real estate investments | 1,104 | 1,104 | ||
| Property in own use | 88 | 88 | ||
| Fair value of non-financial assets | 0 | 0 | 1,192 | 1,192 |
| Real estate investments |
Property in own use |
|
|---|---|---|
| Level 3 Non-financial assets – Opening balance | 1,104 | 88 |
| Amounts recognised in the profit and loss account during the year | 25 | -4 |
| Revaluation recognised in equity during the year | -4 | |
| Purchase of assets | 369 | 25 |
| Changes in the composition of the group and other changes | 66 | -63 |
| Level 3 Non-financial assets – Closing balance | 1,564 | 42 |
| Real estate investments |
Property in own use |
|
|---|---|---|
| Level 3 Non-financial assets – Opening balance | 721 | 100 |
| Amounts recognised in the profit and loss account during the year | -7 | -11 |
| Purchase of assets | 397 | 2 |
| Sale of assets | -10 | |
| Changes in the composition of the group and other changes | 3 | -3 |
| Level 3 Non-financial assets – Closing balance | 1,104 | 88 |
| Held at balance sheet date |
Derecognised during the year |
Total | |
|---|---|---|---|
| Real estate investments | 25 | 25 | |
| Property in own use | -4 | -4 | |
| Level 3 Amounts recognised in the profit and loss account during the year on non-financial assets | 21 | 0 | 21 |
| Held at balance sheet date |
Derecognised during the year |
Total | |
|---|---|---|---|
| Real estate investments | 3 | -10 | -7 |
| Property in own use | -11 | -11 | |
| Level 3 Amounts recognised in the profit and loss account during the year on non-financial assets | -8 | -10 | -18 |
Annual accounts
The fair value of real estate is based on regular appraisals by independent, qualified valuers. The fair value is established using valuation methods that take into account recent comparable market transactions, capitalisation of income methods and/or discounted cash flow calculations. As volumes of actual transactions have been lower in recent years, more emphasis has been placed on discounted cash flow analysis and capitalisation of income method.
The underlying assumption used in the valuation is that the properties are let or sold to third parties based on the actual letting status. Future rental income is taken into account in accordance with the terms in existing leases, (expected) vacancies, estimations of the rental values for new leases when leases expire and incentives like rent-free periods. These estimated cash flows are discounted using marketbased discount rates that reflect appropriately the risk characteristics of the real estate investments.
Key assumptions in the valuation of real estate include the estimated current rental value per square metre, the estimated future rental value per square metre (ERV), the net initial yield and the vacancy rate. These assumptions were in the following ranges:
| Fair value | Valuation technique |
Current rent/m2 |
ERV/m2 | Net initial yield (%) |
Vacancy (%) |
Average lease term in years |
|
|---|---|---|---|---|---|---|---|
| The Netherlands | |||||||
| Industrial | 44 | DCF | 48–56 | 48–56 | 6.4–7.6 | 4.3 | |
| Income | |||||||
| Office | 72 | Capitalisation | 462 | 329 | 11 | 3.1 | |
| Germany | |||||||
| Industrial | 199 | Income Capitalisation |
42–118 | 43–102 | 5.5–7.8 | 10 | 5.6 |
| Retail | 154 | Income Capitalisation |
190–362 | 201–393 | 5.2 | 2 | 6.0 |
| 148 | DCF | 240 | 243 | 5.1 | 2 | 8.9 | |
| Office | 53 | Income Capitalisation |
260 | 256 | 4.8 | 3.1 | |
| France | |||||||
| Industrial | 119 | Income Capitalisation |
42–79 | 42–74 | 6.7–11.7 | 2 | 4.6 |
| Office | 135 | Income Capitalisation |
428–497 | 473–612 | 3.5–5.6 | 4.5 | |
| Spain | |||||||
| Retail | 250 | DCF | 184–271 | 188–284 | 5.8–6.0 | 8 | 7.4 |
| Italy | |||||||
| Retail | 148 | DCF | 508 | 490 | 6 | 1 | 3.0 |
| Office | 70 | DCF | -20–23 | 230 | -4.8–0.4 | 34 | 4.7 |
| Belgium | |||||||
| Industrial | 22 | DCF | 55 | 45 | 9 | 2.3 | |
| Retail | 124 | DCF | 107–268 | 125–282 | 4.8–6.4 | 2 | 5.0 |
| Denmark | |||||||
| Industrial | 16 | DCF | 148 | 125 | 6 | 14.2 | |
| Real estate under construction and other | 52 | ||||||
| Total Real estate | 1,606 | 4.6 | 5.5 |
Significant increases (decreases) in the estimated rental value and rent growth in isolation would result in a significantly higher (lower) fair value of the real estate investments. Significant increases (decreases) in the long-term vacancy rate and discount rate in isolation would result in a significantly lower (higher) fair value of the real estate investments.
Annual accounts
NN Group uses derivatives (principally interest rate swaps and cross currency interest rate swaps) for economic hedging purposes in the management of its asset and liability portfolios. The objective of economic hedging is to enter into positions with an opposite risk profile to an identified exposure to reduce that exposure.
The accounting treatment of hedge transactions varies according to the nature of the instrument hedged and whether the hedge qualifies under the IFRS-EU hedge accounting rules. Derivatives that qualify for hedge accounting under IFRS-EU are classified and reported in accordance with the nature of the instrument hedged and the type of IFRS-EU hedge model that is applicable. The three models applicable under IFRS-EU are: cash flow hedge accounting, fair value hedge accounting and net investment hedge accounting. The company's detailed accounting policies for these three hedge models are set out in Note 1 'Accounting policies' in the section on 'Accounting policies for specific items'.
To qualify for hedge accounting under IFRS-EU, strict criteria must be met. Certain hedges that are economically effective from a risk management perspective do not qualify for hedge accounting under IFRS-EU. The fair value changes of derivatives relating to such non-qualifying hedges are taken to the profit and loss account. However, in certain cases, NN Group mitigates the profit and loss account volatility by designating hedged assets and liabilities at fair value through profit or loss. If hedge accounting is applied under IFRS-EU, it is possible that during the hedge a hedge relationship no longer qualifies for hedge accounting and hedge accounting cannot be continued, even if the hedge remains economically effective. As a result, the volatility arising from undertaking economic hedging in the profit and loss account may be higher than would be expected from an economic point of view.
With respect to exchange rate and interest rate derivative contracts, the notional or contractual amount of these instruments is indicative of the nominal value of transactions outstanding at the balance sheet date; however they do not represent amounts at risk.
NN Group's hedge accounting consists mainly of cash flow hedge accounting. NN Group's cash flow hedges principally consist of (forward) interest rate swaps and cross-currency interest rate swaps that are used to protect against its exposure to variability in future interest cash flows on assets and liabilities that bear interest at variable rates or are expected to be refunded or reinvested in the future. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities, based on contractual terms and other relevant factors including estimates of prepayments and defaults.
Gains and losses on the effective portions of derivatives designated under cash flow hedge accounting are recognised in Shareholders' equity. Interest income and expenses on these derivatives are recognised in the profit and loss account consistent with the manner in which the forecast cash flows affect Net result. The gains and losses on ineffective portions of such derivatives are recognised immediately in the profit and loss account.
For the year ended 31 December 2015, NN Group recognised EUR -435 million (2014: EUR 1,738 million) in equity as effective fair value changes on derivatives under cash flow hedge accounting. The balance of the cash flow hedge reserve in equity as at 31 December 2015 is EUR 5,376 million (2014: EUR 5,958 million) gross and EUR 4,029 million (2014: EUR 4,464 million) after deferred tax. This cash flow hedge reserve will fluctuate with the fair value of the underlying derivatives and will be reflected in the profit and loss account under Interest income/expenses over the remaining term of the underlying hedged items. The cash flow hedge reserve relates to a large number of derivatives and hedged items with varying maturities up to 42 years with the largest concentrations in the range of 1 year to 8 years. Accounting ineffectiveness on derivatives designated under cash flow hedge accounting resulted in EUR -25 million expenses (2014: EUR -36 million income) which was recognised in the profit and loss account.
As at 31 December 2015, the fair value of outstanding derivatives designated under cash flow hedge accounting was EUR 2,641 million (2014: EUR 3,511 million), presented in the balance sheet as EUR 2,756 million (2014: EUR 3,620 million) positive fair value under assets and EUR 115 million (2014: EUR 109 million) negative fair value under liabilities.
As at 31 December 2015 and 2014, there were no non-derivatives designated as hedging instruments for cash flow hedge accounting purposes.
Included in Interest income and Interest expenses on non-trading derivatives is EUR 249 million (2014: EUR 276 million) and EUR 22 million (2014: EUR 37 million), respectively, relating to derivatives used in cash flow hedges.
Annual accounts
NN Group's fair value hedges principally consist of interest rate swaps and cross-currency interest rate swaps that are used to protect against changes in the fair value of fixed-rate instruments due to movements in market interest rates.
Gains and losses on derivatives designated under fair value hedge accounting are recognised in the profit and loss account. The effective portion of the fair value change on the hedged item is also recognised in the profit and loss account. As a result, only the net accounting ineffectiveness has an impact on the net result.
For the year ended 31 December 2015, NN Group recognised EUR 11 million (2014: EUR -112 million) of fair value changes on derivatives designated under fair value hedge accounting in the profit and loss account. This amount was offset by EUR -6 million (2014: EUR 115 million) fair value changes recognised on hedged items. This resulted in EUR 5 million (2014: EUR 3 million) net accounting ineffectiveness recognised in the profit and loss account. As at 31 December 2015, the fair value of outstanding derivatives designated under fair value hedge accounting was EUR -96 million (2014: EUR -68 million), presented in the balance sheet as EUR 11 million (2014: EUR 48 million) positive fair value under assets and EUR 107 million (2014: EUR 116 million) negative fair value under liabilities.
NN Group applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU 'carve out' of IFRS-EU. The EU 'carve-out' for macro hedging enables a group of derivatives (or proportions) to be viewed in combination and jointly designated as the hedging instrument and removes some of the limitations in fair value hedge accounting relating to hedging core deposits and underhedging strategies. Under the IFRS-EU 'carve-out', hedge accounting may be applied to core deposits and ineffectiveness only arises when the revised estimate of the amount of cash flows in scheduled time buckets falls below the designated amount of that bucket. NN Group applies the IFRS-EU 'carve-out' to its hedge the interest rate risk of mortgage loans. The hedging activities are designated under a portfolio fair value hedge on the mortgages, under IFRS-EU.
Amounts presented in these tables by contractual maturity are the amounts as presented in the balance sheet.
| Less than 1 month1 |
1–3 months | 3–12 months | 1–5 years | Over 5 years | Maturity not applicable |
Total | |
|---|---|---|---|---|---|---|---|
| Assets | |||||||
| Cash and cash equivalents | 6,320 | 1,116 | 7,436 | ||||
| Financial assets at fair value through profit or loss: |
|||||||
| − investments for risk of policyholders2 | 35,154 | 35,154 | |||||
| − non-trading derivatives | 30 | 48 | 103 | 1,045 | 3,430 | 4,656 | |
| − designated as at fair value through profit or loss |
101 | 193 | 5 | 13 | 3 | 128 | 443 |
| Available-for-sale investments | 382 | 751 | 2,007 | 12,338 | 51,969 | 6,946 | 74,393 |
| Loans | 318 | 292 | 886 | 4,323 | 25,024 | 170 | 31,013 |
| Reinsurance contracts | 9 | 27 | 28 | 8 | 71 | 93 | 236 |
| Intangible assets | 3 | 11 | 74 | 3 | 260 | 351 | |
| Deferred acquisition costs | 25 | 13 | 86 | 188 | 1,130 | 89 | 1,531 |
| Other assets | 777 | 486 | 671 | 566 | 564 | 28 | 3,092 |
| Remaining assets (for which maturities are not applicable)3 |
3,847 | 3,847 | |||||
| Total assets | 7,962 | 2,929 | 3,797 | 18,555 | 82,194 | 46,715 | 162,152 |
1 Includes assets on demand.
2 Investments for risk of policyholders are managed on behalf of policyholders on a fair value basis. Although individual instruments may (or may not) have a maturity depending on their nature, this does not impact the liquidity position of NN Group.
3 Included in remaining assets for which maturities are not applicable are Property and equipment, Real estate investments and Associates and joint ventures. Due to their nature remaining assets consist mainly of assets expected to be recovered after more than 12 months
| Less than 1 month1 |
1–3 months | 3–12 months | 1–5 years | Over 5 years | Maturity not applicable |
Total | |
|---|---|---|---|---|---|---|---|
| Assets | |||||||
| Cash and cash equivalents | 5,412 | 2,118 | 7,530 | ||||
| Financial assets at fair value through profit or loss: |
|||||||
| − trading assets | 628 | 628 | |||||
| − investments for risk of policyholders2 | 41,222 | 41,222 | |||||
| − non-trading derivatives | 5 | 51 | 79 | 1,210 | 5,858 | 4 | 7,207 |
| − designated as at fair value through profit or loss |
402 | 5 | 12 | 73 | 492 | ||
| Available-for-sale investments | 252 | 940 | 2,013 | 10,531 | 52,255 | 6,286 | 72,277 |
| Loans | 777 | 514 | 1,607 | 4,283 | 20,550 | 71 | 27,802 |
| Reinsurance contracts | 9 | 27 | 26 | 10 | 75 | 94 | 241 |
| Intangible assets | 1 | 2 | 11 | 67 | 11 | 265 | 357 |
| Deferred acquisition costs | 22 | 14 | 67 | 164 | 1,136 | 1,403 | |
| Other assets | 966 | 637 | 732 | 966 | 131 | 30 | 3,462 |
| Remaining assets (for which maturities are not applicable)3 |
2,860 | 2,860 | |||||
| Total assets | 7,846 | 4,303 | 4,540 | 17,243 | 80,016 | 51,533 | 165,481 |
1 Includes assets on demand.
2 Investments for risk of policyholders are managed on behalf of policyholders on a fair value basis. Although individual instruments may (or may not) have a maturity depending on their nature, this does not impact the liquidity position of NN Group.
3 Included in remaining assets for which maturities are not applicable are Property and equipment, Real estate investments and Associates and joint ventures. Due to their nature remaining assets consist mainly of assets expected to be recovered after more than 12 months.
The tables below include all financial liabilities by maturity based on contractual, undiscounted cash flows. Furthermore, the undiscounted future coupon interest on financial liabilities payable is included in a separate line and in the relevant maturity bucket. Derivative liabilities are included on a net basis if cash flows are settled net. For other derivative liabilities the contractual gross cash flow payable is included.
Non-financial liabilities, including insurance and investment contracts, are included based on a breakdown of the (discounted) balance sheet amounts by expected maturity. Reference is made to the Liquidity Risk paragraph in Note 50 'Risk management' for a description on how liquidity risk is managed.
| Less than 1 month |
1–3 months | 3–12 months | 1–5 years | Over 5 years | Maturity not applicable |
Adjustment1 | Total | |
|---|---|---|---|---|---|---|---|---|
| Liabilities | ||||||||
| Subordinated debt2 | 654 | 169 | 476 | 1,000 | -9 | 2,290 | ||
| Debt securities issued | 600 | -3 | 597 | |||||
| Other borrowed funds | 3,125 | 150 | 230 | 1,487 | 1,793 | 6,785 | ||
| Customer deposits and other funds on deposit |
5,576 | 48 | 190 | 775 | 1,445 | 8,034 | ||
| Financial liabilities at fair value through profit or loss: |
||||||||
| − non-trading derivatives | 17 | -10 | 43 | 210 | -43 | 1,484 | 1,701 | |
| Financial liabilities | 9,372 | 357 | 463 | 2,948 | 4,795 | 0 | 1,472 | 19,407 |
| Insurance and investment contracts |
680 | 909 | 3,747 | 16,584 | 58,872 | 35,192 | 115,984 | |
| Other liabilities | 1,081 | 646 | 442 | 222 | 2,661 | 245 | 5,297 | |
| Non-financial liabilities | 1,761 | 1,555 | 4,189 | 16,806 | 61,533 | 35,437 | 0 | 121,281 |
| Total liabilities | 11,133 | 1,912 | 4,652 | 19,754 | 66,328 | 35,437 | 1,472 | 140,688 |
| Coupon interest due on financial liabilities |
15 | 20 | 98 | 673 | 1,746 | 2,552 |
1 This column reconciles the contractual undiscounted cash flow on financial liabilities to the balance sheet values. The adjustments mainly relate to the impact of discounting and, for derivatives, to the fact that the contractual cash flows are presented on a gross basis (unless the cash flows are actually settled net).
2 Subordinated debt maturities are presented based on the first call date. For the legal date of maturity reference is made to Note 13 'Subordinated debt'.
| Less than | Maturity not | |||||||
|---|---|---|---|---|---|---|---|---|
| 1 month | 1–3 months | 3–12 months | 1–5 years | Over 5 years | applicable | Adjustment1 | Total | |
| Liabilities | ||||||||
| Subordinated debt2 | 654 | 169 | 476 | 1,000 | -2 | 2,297 | ||
| Other borrowed funds | 4,402 | 25 | 100 | 101 | 1,239 | 5,867 | ||
| Customer deposits and other funds on deposit |
5,629 | 29 | 125 | 563 | 635 | 6,981 | ||
| Financial liabilities at fair value through profit or loss: |
||||||||
| − non-trading derivatives | 182 | 194 | 170 | 853 | 3,430 | -1,687 | 3,142 | |
| Financial liabilities | 10,867 | 248 | 564 | 1,993 | 6,304 | 0 | -1,689 | 18,287 |
| Insurance and investment | ||||||||
| contracts | 876 | 1,173 | 5,731 | 17,244 | 52,968 | 41,245 | 119,237 | |
| Other liabilities | 1,875 | 532 | 546 | 239 | 3,019 | 329 | 6,540 | |
| Non-financial liabilities | 2,751 | 1,705 | 6,277 | 17,483 | 55,987 | 41,574 | 0 | 125,777 |
| Total liabilities | 13,618 | 1,953 | 6,841 | 19,476 | 62,291 | 41,574 | -1,689 | 144,064 |
| Coupon interest due on financial liabilities |
16 | 20 | 99 | 634 | 2,221 | 2,990 |
1 This column reconciles the contractual undiscounted cash flow on financial liabilities to the balance sheet values. The adjustments mainly relate to the impact of discounting and, for derivatives, to the fact that the contractual cash flows are presented on a gross basis (unless the cash flows are actually settled net).
2 Subordinated debt maturities are presented based on the first call date. For the legal date of maturity reference is made to Note 13 'Subordinated debt'.
Annual accounts
The assets not freely disposable of EUR 357 million (2014: EUR 146 million) relate primarily to investments provided as guarantees for certain contingent liabilities. There are no significant terms and conditions relating to the collateral represented by such guarantees.
Assets relating to securities lending are disclosed in Note 41 'Transferred, but not derecognised financial assets'. Assets in securitisation programmes originated by NN Bank are disclosed in Note 46 'Structured entities'.
The majority of NN Group's financial assets, that have been transferred, but do not qualify for derecognition are debt instruments used in securities lending. NN Group retains substantially all risks and rewards of those transferred assets. The assets are transferred in return for cash collateral or other financial assets. Non-cash collateral is not recognised in the balance sheet. Cash collateral is recognised as an asset and an offsetting liability is established for the same amount as NN Group is obligated to return this amount upon termination of the lending arrangement. Reference is made to Note 16 'Insurance and investment contracts, reinsurance contracts- Changes in Investment contracts'.
| 2015 | 2014 | |
|---|---|---|
| Transferred assets at carrying value: | ||
| Available-for-sale investments | 3,453 | 2,705 |
| Associated liabilities at carrying value: | ||
| Other borrowed funds | 880 | 348 |
The table above does not include assets transferred to consolidated securitisation entities, as these related assets are not transferred from a consolidated perspective. Reference is made to Note 46 'Structured entities'.
The following tables include information about rights to offset and the related arrangements. The amounts included consist of all recognised financial instruments that are presented net in the balance sheet under the IFRS-EU offsetting requirements (legal right to offset and intention to settle on a net basis) and amounts presented gross in the balance sheet but subject to enforceable master netting arrangements or similar arrangement.
| Related amounts not offset in the balance sheet |
|||||||
|---|---|---|---|---|---|---|---|
| Balance sheet line item | Financial instrument | Gross financial assets |
Gross financial liabilities offset in the balance sheet |
Net financial assets in the balance sheet |
Financial instruments |
Cash and financial instruments collateral |
Net amount |
| Non-trading derivatives | Derivatives | 4,216 | 4,216 | -1,189 | -2,991 | 36 | |
| Financial assets at fair value through profit or loss |
4,216 | 0 | 4,216 | -1,189 | -2,991 | 36 | |
| Available-for-sale investments |
Other | 50 | 50 | -37 | -10 | 3 | |
| Investments | 50 | 0 | 50 | -37 | -10 | 3 | |
| Other items where offsetting is applied in the balance sheet |
81 | 0 | 81 | 0 | -81 | 0 | |
| Total financial assets | 4,347 | 0 | 4,347 | -1,226 | -3,082 | 39 |
| Related amounts not offset in the balance sheet |
||||||||
|---|---|---|---|---|---|---|---|---|
| Balance sheet line item | Financial instrument | Gross financial assets |
Gross financial liabilities offset in the balance sheet |
Net financial assets in the balance sheet |
Financial instruments |
Cash and financial instruments collateral |
Net amount | |
| Non-trading derivatives | Derivatives | 5,470 | 5,470 | -1,534 | -3,833 | 103 | ||
| Financial assets at fair value through profit or loss |
5,470 | 0 | 5,470 | -1,534 | -3,833 | 103 | ||
| Available-for-sale investments |
Other | 94 | 94 | -94 | 0 | |||
| Investments | 94 | 0 | 94 | 0 | -94 | 0 | ||
| Total financial assets | 5,564 | 0 | 5,564 | -1,534 | -3,927 | 103 |
| Related amounts not offset in the balance sheet |
||||||||
|---|---|---|---|---|---|---|---|---|
| Balance sheet line item | Financial instrument | Gross financial liabilities |
Gross financial assets offset in the balance sheet |
Net financial liabilities in the balance sheet |
Financial instruments |
Cash and financial instruments collateral |
Net amount | |
| Non-trading derivatives | Derivatives | 1,366 | 1,366 | -1,185 | -143 | 38 | ||
| Financial liabilities designated as at fair value through profit or loss |
1,366 | 0 | 1,366 | -1,185 | -143 | 38 | ||
| Total financial liabilities | 1,366 | 0 | 1,366 | -1,185 | -143 | 38 |
| Related amounts not offset in the balance sheet |
||||||||
|---|---|---|---|---|---|---|---|---|
| Balance sheet line item | Financial instrument | Gross financial liabilities |
Gross financial assets offset in the balance sheet |
Net financial liabilities in the balance sheet |
Financial instruments |
Cash and financial instruments collateral |
Net amount | |
| Non-trading derivatives | Derivatives | 1,729 | 1,729 | -1,534 | -147 | 48 | ||
| Financial liabilities designated as at fair value through profit or loss |
1,729 | 0 | 1,729 | -1,534 | -147 | 48 | ||
| Total financial liabilities | 1,729 | 0 | 1,729 | -1,534 | -147 | 48 |
In the normal course of business NN Group is party to activities whose risks are not reflected in whole or in part in the Consolidated annual accounts. In response to the needs of its customers, NN Group offers financial products related to loans. These products include traditional off-balance sheet credit-related financial instruments.
| Less than 1 month |
1–3 months | 3–12 months | 1–5 years | Over 5 years | Maturity not applicable |
Total | |
|---|---|---|---|---|---|---|---|
| Commitments | 182 | 909 | 1,183 | 559 | 130 | 361 | 3,324 |
| Contingent liabilities and commitments | 182 | 909 | 1,183 | 559 | 130 | 361 | 3,324 |
| Less than 1 month |
1–3 months | 3–12 months | 1–5 years | Over 5 years | Maturity not applicable |
Total | |
|---|---|---|---|---|---|---|---|
| Commitments | 11 | 885 | 302 | 196 | 74 | 41 | 1,509 |
| Guarantees | 1 | 6 | 1 | 8 | |||
| Contingent liabilities and commitments | 11 | 886 | 302 | 202 | 75 | 41 | 1,517 |
In 2013 and 2014, NN Bank entered into a cooperation agreement with subsidiaries of ING Group. This agreement deals, amongst others, with the transfer of mortgage loans from Nationale Nederlanden Hypotheekbedrijf N.V., a subsidiary of ING Group, to NN Bank. The cooperation is expected to result in a transfer of mortgage loans of approximately EUR 5 billion in the years 2016 to 2020. The mortgage loans will be transferred to NN Bank if and when the relevant mortgage loan is renewed by the customer at the interest reset date.
NN Group has issued certain guarantees, other than those included in Insurance contracts, which are expected to expire without being drawn on and therefore do not necessarily represent future net cash outflows. In addition to the items included in contingent liabilities, NN Group has issued guarantees as a participant in collective arrangements of national industry bodies and as a participant in government required collective guarantee schemes which apply in different countries.
Furthermore, NN Group leases assets from third parties under operating leases as lessee. The future rental commitments to be paid under non-cancellable operating leases are as follows:
| 2015 | |
|---|---|
| 2016 | 42 |
| 2017 | 35 |
| 2018 | 31 |
| 2019 | 27 |
| 2020 | 24 |
| Years after 2020 | 67 |
NN Group is involved in litigation and arbitration proceedings in the Netherlands and in a number of foreign jurisdictions, involving claims by and against NN Group which arise in the ordinary course of its business, including in connection with its activities as insurer, lender, seller, broker-dealer, underwriter, issuer of securities and investor and its position as employer and taxpayer. In certain of such proceedings, very large or indeterminate amounts are sought, including punitive and other damages. While it is not feasible to predict or determine the ultimate outcome of all pending or threatened legal and regulatory proceedings, NN Group believes that some of the proceedings set out below may have, or have in the recent past had, a significant effect on the financial condition, profitability or reputation of NN Group.
Because of the geographic spread of its business, NN Group may be subject to tax audits in numerous jurisdictions at any point in time. Although NN Group believes that it has adequately provided for its tax positions, the ultimate outcome of these audits may result in liabilities that are different from the amounts recognised.
Since the end of 2006, unit-linked products (commonly referred to in Dutch as 'beleggingsverzekeringen') have received negative attention in the Dutch media, from the Dutch Parliament, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) and consumer protection organisations. Costs of unit-linked products sold in the past are perceived as too high and Dutch insurers are in general being accused of being less transparent in their offering of such unit-linked products. The criticism on unit-linked products led to the introduction of compensation schemes by Dutch insurance companies that have offered unit-linked products. In 2008, NN Group's Dutch insurance subsidiaries reached an outline agreement with two main consumer protection organisations to offer compensation to their unit-linked policyholders where individual unit-linked policies had a cost charge in excess of an agreed maximum and to offer similar compensation for certain hybrid insurance products. At 31 December 2008, costs of the settlements were valued at EUR 365 million for which adequate provisions have been established and of which a substantial portion has been paid out. The remaining unpaid part of the provision as per 31 December 2015 is solely available to cover costs relating to the settlements agreed in 2008. A full agreement on implementation was reached in 2010 with one of the two main consumer protection organisations, with the second main consumer protection organisation signing its agreement in June 2012. In addition, NN Group's Dutch insurance subsidiaries announced additional measures (flankerend beleid) that comply with the 'Best in Class' criteria as formulated on 24 November 2011 by the Dutch Minister of Finance. In December 2011 this resulted in an additional agreement on these measures with the two main consumer protection organisations. In 2012 almost all unit-linked policyholders were informed about the compensation.
Annual accounts
The agreements with the two consumer protection organisations are not binding to policyholders. Consequently, neither the implementation of the compensation schemes nor the additional measures offered by NN Group prevent individual policyholders from initiating legal proceedings against NN Group's Dutch insurance subsidiaries and making claims for damages.
In November 2013, the so-called 'Vereniging Woekerpolis.nl', an association representing the interests of policyholders, initiated a so-called 'collective action', requesting the District Court in Rotterdam to declare that NN Group's Dutch insurance subsidiaries sold products in the market, which are defective in various respects (e.g. on transparency regarding cost charges and other product characteristics, and included risks for which the insurer failed to warn, such as considerable stock depreciations, the inability to realise the projected final policy value, unrealistic capital projections due to difference in geometric versus arithmetic returns). These claims have been rejected by NN and it defends itself in these proceedings.
Apart from the aforementioned 'collective action', several other claim organisations and initiatives were established on behalf of policyholders, such as the organisation Wakkerpolis. This organisation primarily concentrates on the recovery of initial costs for policyholders, based on an interim ruling of the KiFiD issued on 13 May 2013 in an individual case. In this case, the KiFiD concluded that there is no contractual basis for charging initial costs (which are costs charged to the policy during a limited period of time). Apart from the initial costs, it can be derived from the interim ruling – in accordance with past rulings of the KiFiD – that an insurer is obliged to warn against the leverage and capital consumption effect (which is the effect caused by the dependency of life insurance premium on the value of the policy; the lower the value of the policy, the higher the life insurance premium). NN Group believes that this interim ruling is incorrect on several legal grounds.
In proceedings that were pending before the District Court in Rotterdam, the Court, upon request of the parties, including NN Group, submitted preliminary questions to the European Court of Justice to obtain clarity on principal legal questions with respect to cost transparency related to unit-linked policies. On 29 April 2015 the European Court of Justice issued its ruling on these preliminary questions submitted in relation to unit-linked products. The main preliminary question considered by the European Court of Justice was whether European law permits the application of information requirements based on general principles of Dutch law that extend beyond information requirements as explicitly prescribed by laws and regulations in force at the time the policy was written. The European Court of Justice ruled that the information requirements prescribed by the applicable European directive may be extended by additional information requirements included in national law, provided that these requirements are necessary for a policyholder to understand the essential characteristics of the commitment and are clear, accurate and foreseeable. Although the European Court does not decide on the applicable standards in specific cases and solely provides clarification on the interpretation of the applicable European directive, the ruling of the European Court of Justice has given clarification on this question of legal principle which is also the subject of other legal proceedings in the Netherlands. Dutch courts will need to take the interpretation of the European Court of Justice into account in relevant proceedings. In legal proceedings in the Netherlands which were suspended pending the outcome of the European procedure, rulings in first instance can be expected in the first half of 2016.
NN Group's Dutch insurance subsidiaries have issued, sold or advised on approximately one million individual unit-linked policies. There has been for some time and there continues to be political, regulatory and public attention focused on the unit-linked issue in general. Elements of unit-linked policies are being challenged or may be challenged on multiple legal grounds in current and future legal proceedings. There is a risk that one or more of those legal challenges will succeed.
Customers of NN Group's Dutch insurance subsidiaries have claimed, among others, that (a) the investment risk, costs charged or the risk premium was not, or not sufficiently, made clear to the customer, (b) the product costs charged on initial sale and on an ongoing basis were so high that the expected return on investment was not realistically achievable, (c) the product sold to the customer contained specific risks that were not, or not sufficiently, made clear to the customer (such as the leverage capital consumption risk) or was not suited to the customer's personal circumstances, (d) NN owed the customer a duty of care which NN has breached, or (e) the insurer failed to warn of the risk of not realising the projected policy values. These claims may be based on general standards of contract or securities law, such as reasonableness and fairness, error, duty of care, or standards for proper customer treatment or due diligence, such as relating to the fairness of terms in consumer contracts and may be made by customers, or on behalf of customers, holding active policies or whose policies have lapsed, matured or been surrendered. There is no assurance that further proceedings for damages based on aforementioned legal grounds or other grounds will not be brought. The timing of reaching any finality on these legal claims and proceedings is uncertain and such uncertainty is likely to continue for some time.
Rulings or announcements made by courts, including the European Court of Justice and advisory opinions issued by the Attorney General to such Court on questions being considered by such Court, or decision-making bodies or actions taken by regulators or governmental authorities against NN or other Dutch insurance companies in respect of unit-linked products, or settlements or any other actions to the benefit of customers (including product improvements or repairs) by other Dutch insurance companies towards consumers, consumer protection organisations, regulatory or governmental authorities or other decision making bodies in respect of the unit-linked products, may affect the (legal) position of NN and may force NN to take (financial) measures that could have a substantial impact on the financial condition, results of operations, solvency or reputation of NN Group. As a result of the public and political attention the unit-linked issue has received, it is also possible that sector-wide measures may be imposed by governmental authorities or regulators in relation to unit-linked products in the Netherlands. The impact on NN of rulings made by courts or decision-making bodies, actions taken by regulators or governmental bodies against other Dutch insurance companies in respect of unit-linked products, or settlements or any other actions to the benefit of customers (including product improvements or repairs), may be determined not only by market share but also by product features, portfolio composition and other factors. Adverse decisions or the occurrence of any of the developments as described above could result in outcomes materially different than if NN or its products had been judged or negotiated solely on their own merits.
Annual accounts
The book of policies of NN Group's Dutch insurance subsidiaries dates back many years, and in some cases several decades. Over time, the regulatory requirements and expectations of various stakeholders, including customers, regulators and the public at large, as well as standards and market practice, have developed and changed, increasing customer protection. As a result, policyholders and consumer protection organisations have initiated and may in the future initiate proceedings against NN Group's Dutch insurance subsidiaries alleging that products sold in the past fail to meet current requirements and expectations. In any such proceedings, it cannot be excluded that the relevant court, regulator, governmental authority or other decision-making body will apply current norms, requirements, expectations, standards and market practices on laws and regulations to products sold, issued or advised on by NN Group's Dutch insurance subsidiaries.
Although the financial consequences of any of these factors or a combination thereof could be substantial for the Dutch insurance business of NN Group and, as a result, may have a material adverse effect on NN Group's business, reputation, revenues, results of operations, solvency, financial condition and prospects, it is not possible to reliably estimate or quantify NN Group's exposures at this time.
In July 2011, a number of individual retired Dutch General Managers of (subsidiaries of) NN Group and ING Bank together with the Interest Group ING General Managers' Pensions (Belangenvereniging ING Directiepensioenen), instituted legal proceedings against the decision not to provide funding for indexing Dutch General Managers' pensions directly insured with Nationale-Nederlanden in 2010 and 2011. This claim was rejected by the District Court of Amsterdam on 22 October 2012. Appeal against this court decision was rejected by the Amsterdam Court of Appeal on 28 July 2015 which became final on 28 October 2015.
In July 2013, the asset management business in South Korea was agreed to be sold to Macquarie Group. The transaction closed on 2 December 2013. In the fourth quarter of 2014, a provision was recognised following a claim letter that NN Group received from Macquarie Group under the share purchase agreement. On 11 August 2015, parties entered into a settlement agreement regarding the claim.
Arbitration proceedings that were initiated in 2014 by the purchaser of NN Group's former insurance subsidiary in South Korea alleging that the financial condition of this subsidiary was not accurately depicted, are ongoing. At this stage the financial impact of these proceedings, if any, remains uncertain.
During the first half of 2015, NN Group reached an agreement with ING Bank Slaski to acquire the remaining 20% stake in the Polish pension fund, NN Powszechne Towarzystwo Emerytalne S.A. (NN PTE) in which NN Group held 80% of the shares. In July 2015 NN Group completed the acquisition of the remaining stake for a consideration of PLN 128 million (approximately EUR 31 million). The consideration reflects a purchase price of PLN 210 million adjusted by a PLN 82 million dividend paid by NN PTE to ING Bank Slaski prior to completion. NN PTE manages the second pillar open-ended pension fund and the open-ended third-pillar voluntary pension fund.
In December 2015, NN Group completed the sale of its wholly owned private equity management company, Parcom Capital Management. The divestment result on the sale of Parcom Capital Management is included in 'Results on disposals of group companies'. As a consequence of the sale of the asset management company, NN Group no longer has control over its investments in private equity funds, which are managed by Parcom Capital Management. These private equity funds were previously consolidated and the underlying investments were included in the Consolidated balance sheet in Trading assets and Available-for-sale investments. As a consequence of the divestment of Parcom Capital Management, these underlying investments were derecognised and the investments in the private equity funds are now included in the balance sheet under Associates and Joint ventures.
In January 2014, an agreement was reached to sell ING Investment Management (IM) Taiwan, the Taiwanese asset management business, to Japan-based Nomura Asset Management Co. Ltd, in partnership with a group of investors. The transaction did not have a significant impact on Net result. The transaction closed in April 2014.
In July 2013, the 50% interest in the Chinese insurance joint venture ING-BOB Life Insurance Company was agreed to be sold to BNP Paribas Cardif, the insurance arm of BNP Paribas. The transaction did not have a significant impact on Net result. This transaction closed in December 2014.
Annual accounts
NN Group's activities involve transactions with structured entities in the normal course of business. A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. NN Group's involvement in these entities varies and includes both debt financing and equity financing of these entities as well as other relationships. Based on its accounting policies, as disclosed in Note 1 'Accounting policies', NN Group establishes whether these involvements result in no significant influence, significant influence, joint control or control over the structured entity.
The structured entities over which NN Group can exercise control are consolidated. NN Group may provide support to these consolidated structured entities as and when appropriate, however this is fully reflected in the Consolidated annual accounts of NN Group as all assets and liabilities of these entities are included in the Consolidated balance sheet and off-balance sheet commitments are disclosed.
NN Group's activities involving structured entities are explained below in the following categories:
In 2015, NN Bank, a subsidiary of NN Group, closed two public residential mortgage backed securitisation transactions (RMBS), raising a total amount of EUR 1.3 billion of funding from institutional investors. These transactions, Hypenn RMBS III and Hypenn RMBS IV, are NN Bank's third and fourth RMBS transactions. Earlier transactions were closed in 2013 for an amount of approximately EUR 2.1 billion and in 2014 for an amount of approximately EUR 0.5 billion. The related structured entities (Hypenn RMBS I B.V., Hypenn RMBS II B.V., Hypenn RMBS III B.V. and Hypenn RMBS IV B.V.) are consolidated by NN Bank. The related mortgage loans continue to be recognised in the balance sheet. As at 31 December 2015 these structured entities hold EUR 3.6 billion mortgage loans (2014: EUR 2.3 billion). These are partly funded through the issue of Residential Mortgage Backed Securities to ING Bank of EUR 394 million (2014: EUR 394 million) and to other third parties of EUR 1.5 billion (2014: EUR 316 million).
NN Group originates investment funds. NN Group may hold investments in these funds for its own account through the general account investment portfolio of the insurance operations. Other investments in these funds may be held for risk of policyholders or by third parties. For the majority of these funds, NN Group also acts as the fund manager. NN Group considers both NN Group's financial interests for own risk and its role as asset manager to establish whether control exists and whether the fund is consolidated. In general, NN Group maintains a minority interest in these funds and NN Group receives a fixed fee over assets under management, at arm's length basis, for its asset management activities. These funds are generally not consolidated by NN Group. Financial interests for risk of policyholders are not taken into account when the policyholders decide on the investment allocations of their insurance policies (i.e. the policyholder has the 'power') and assume all risks and benefits on these investments (i.e. the policyholder assumes the variable returns).
Reference is made to Note 4 'Available-for-sale investments' in which investments in equity securities are specified by NN Group managed investment funds and Third-party managed investment funds. The maximum exposure to loss for NN Group is equal to the reported carrying value of the investment recognised in the balance sheet of NN Group.
As part of its investment activities, NN Group invests both in debt and equity instruments of structured entities originated by third parties.
Most of the investments in debt instruments of structured entities relate to asset-backed securities (ABS), classified as loans. Reference is made to Note 4 'Available-for-sale investments' where the ABS portfolio is disclosed.
The majority of the investments in equity instruments of structured entities relate to interests in investment funds that are not originated or managed by NN Group. Reference is made to Note 4 'Available-for-sale investments' in which investments in equity securities are specified by NN Group managed investment funds and Third-party managed investment funds.
NN Group has significant influence for some of its real estate investment funds as disclosed in Note 6 'Associates and joint ventures'.
The maximum exposure to loss for NN Group is equal to the reported carrying value of the investment recognised in the balance sheet of NN Group.
Annual accounts
In the normal course of business, NN Group enters into various transactions with related parties. Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. Related parties of NN Group include, among others, associates, joint ventures, key management personnel and the defined benefit and defined contribution plans. Transactions between related parties have taken place on an arm's length basis, and include distribution agreements, sourcing and procurement agreements, human resources-related arrangements, and rendering and receiving of services. There are no significant provisions for doubtful debts or individually significant bad debt expenses recognised on outstanding balances with related parties.
For the post-employment benefit plans see Note 27 'Staff expenses'.
| 2015 | 2014 | |
|---|---|---|
| Assets | 11 | 15 |
| ING Groep N.V. | ING Bank N.V. | ||||
|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | ||
| Assets | 21 | 17 | 1,284 | 1,679 | |
| Liabilities | 823 | 1,223 | 892 | 749 | |
| Income received | 29 | 46 | |||
| Expenses paid | 25 | 57 | 87 | 11 |
Liabilities to ING Groep N.V. mainly include long-term funding. In 2015, NN Group purchased commercial real estate loans from ING Bank N.V for a total amount of EUR 383 million.
Dutch mortgages for a total amount of EUR 1.6 billion were transferred from WestlandUtrecht Bank to NN Group during 2015 (2014: EUR 1.2 billion). The transfers have been made at an arm's length price.
In 2012, ING Groep N.V., Voya Financial Inc. (formerly ING U.S., Inc.) and NN Insurance Eurasia N.V. (100% subsidiary of NN Group N.V.) entered into a master claim agreement to (a) allocate existing claims between these three parties, and (b) agree on criteria for how to allocate future claims between the three parties. The master claim agreement contains further details on claim handling, conduct of litigation and dispute resolution.
ING Groep N.V. and NN Group N.V. have entered into an indemnification and allocation agreement, in which ING Group has agreed to indemnify NN Group for certain liabilities that relate to the business of or control over certain (former) U.S. and Latin American subsidiaries of NN Group in the period until 30 September 2013 or, if the relevant subsidiary was divested by NN Group after 30 September 2013, such later date of divestment. These liabilities mainly include contingent liabilities that may arise as a result of the initial public offering of ING U.S. (such as prospectus liability) and the sales of the Latin American businesses (such as claims under warranties and other buyer protection clauses), and the liabilities for the claims concerning the performance of certain interest-sensitive products that were sold by a former subsidiary of NN Group in Mexico.
In connection with the initial public offering of NN Group N.V., ING Groep N.V. and NN Group N.V. entered into a Relationship Agreement. The Relationship Agreement contains certain arrangements regarding the continuing relationship between ING Groep N.V. and NN Group N.V. The Relationship Agreement, with the exception of certain specific provisions, terminated on 2 February 2016, the date on which ING Groep N.V.'s holding of ordinary shares in the share capital of NN Group N.V. fell below 15% of the issued and outstanding ordinary shares.
The full text of the Relationship Agreement is available on the website of the Company.
In addition, in connection with the initial public offering of NN Group N.V., ING Groep N.V. entered into several other agreements with NN Group N.V. in 2014, such as a transitional intellectual property license agreement, a cooperation agreement, a joinder agreement, an equity administration agreement and a warrant agreement. And in 2015, NN Group N.V. and ING Groep N.V. entered into an agreement providing, among others, for allocation between them of insurance payments under the public offering securities insurance taken out by ING Groep N.V. with respect to the IPO of NN Group N.V. and a share repurchase agreement pursuant to which NN Group N.V. may from time to time repurchase NN Group N.V. shares from ING Groep N.V. in order to neutralise the dilutive effect of stock dividend issued by NN Group N.V.
Transactions with key management personnel (Executive Board, Management Board and Supervisory Board) are transactions with related parties. These transactions are disclosed in more detail as required by Part 9 Book 2 of the Dutch Civil Code in the remuneration report in the annual report. The relevant sections of the remuneration report therefore are part of the annual accounts.
| Amounts in thousands of euros | Executive Board |
Management Board |
Total |
|---|---|---|---|
| Fixed compensation: | |||
| − base salary (cash) | 1,764 | 3,055 | 4,819 |
| − base salary (fixed shares) | 441 | 441 | |
| − pension costs1 | 50 | 128 | 178 |
| − individual savings allowance1 | 548 | 697 | 1,245 |
| Variable compensation: | |||
| − upfront cash | 80 | 336 | 416 |
| − upfront shares | 80 | 336 | 416 |
| − deferred cash | 120 | 376 | 496 |
| − deferred shares | 120 | 504 | 624 |
| − other2 | 128 | 128 | |
| Fixed and variable compensation | 3,203 | 5,560 | 8,763 |
| Other benefits | 504 | ||
| 9,267 |
1 As per 1 January 2015, the pension scheme for the members of the Executive Board and Management Board changed as a result of new pension legislation (Witteveen kader 2015). The pension costs consist of an amount of employer contribution (EUR 178 thousand) and an individual savings allowance (EUR 1,245 thousand which is 27.3% of the amount of base salary above EUR 100 thousand).
2 For the NN Investment Partners business, 50% of deferred awards are made in a deferred investment in funds managed by the business instead of awarding deferred cash. In this way, alignment of interests is achieved between staff working in the NN Investment Partners business and the clients who invest in funds managed by that business.
In the table above, 'Executive Board' refers to the two members of the Executive Board as at 31 December 2015. The two members of the Executive Board are also members of the Management Board. In the table above, 'Management Board' refers to five members of the Management Board as at 31 December 2015, i.e. those members that are not also member of the Executive Board. In the table above 'Total' refers to all members of the Management Board during 2015.
Remuneration of the members of the Executive Board and the Management Board is recognised in the profit and loss account in Staff expenses as part of Total expenses. The total remuneration as disclosed in the table above (for 2015: EUR 9.3 million) includes all variable remuneration related to the performance year 2015. Under IFRS-EU, certain components of variable remuneration are not recognised in the profit and loss account directly, but are allocated over the vesting period of the award. The comparable amount recognised in Staff expenses in 2015 and therefore included in Total expenses in 2015, relating to the fixed expenses of 2015 and the vesting of variable remuneration of 2015 and earlier performance years, is EUR 9.6 million.
As at 31 December 2015, members of the Executive and Management Board held 66,401 NN Group N.V. shares.
No options on NN Group N.V. shares were held by members of the Executive and Management Board in 2015.
In 2015, 68,218 share awards on NN Group N.V. were granted to the Executive Board and Management Board.
| Amounts in thousands of euros | |
|---|---|
| Fixed fees | 695 |
| Expense allowances | 48 |
| International attendance fees | 26 |
| Compensation Supervisory Board | 769 |
The above mentioned amounts include VAT of EUR 119 thousand for 2015. NN Group does not provide for any pension arrangement, termination arrangements (including termination or retirement benefits) or variable remuneration, for members of the Supervisory Board.
As at 31 December 2015, members of the Supervisory Board did not own any NN Group N.V. shares.
As at 31 December 2015, members of the Supervisory Board held no options on NN Group N.V. shares.
| Amount | |||
|---|---|---|---|
| outstanding | Average | ||
| Amounts in thousands of euros | 31 December | interest rate | Repayments |
| Loans and advances | 743 | 4.64% | 83 |
The loans and advances provided to members of the Management Board consist of mortgage loans.
As at 31 December 2015, no loans and advances were provided to members of the Executive and Supervisory Board.
| Amounts in thousands of euros | Executive Board |
Management Board1 |
Total |
|---|---|---|---|
| Fixed compensation: | |||
| − base salary | 1,550 | 1,980 | 3,530 |
| − pension costs | 321 | 413 | 734 |
| Variable compensation: | |||
| − upfront cash | 310 | 247 | 557 |
| − upfront shares | 310 | 247 | 557 |
| − deferred cash | 465 | 258 | 723 |
| − deferred shares | 465 | 370 | 835 |
| − other2 | 113 | 113 | |
| Fixed and variable compensation | 3,421 | 3,628 | 7,049 |
| Other benefits | 438 | ||
| Charges by ING Group for members employed by ING Group | 836 |
1 Besides the compensation in the capacity as a Board member, one new Management Board member received a 'sign-on/buy-out award' which is awarded fully in shares with a total value of EUR 275,000 with a three-year tiered vesting schedule and a retention period of five years from the date of award.
2 For the NN Investment Partners business, 50% of deferred awards are made in a deferred investment in funds managed by the business instead of awarding deferred cash. In this way, alignment of interests is achieved between staff working in the NN Investment Partners business and the clients who invest in funds managed by that business.
Remuneration of the members of the Executive Board and the Management Board is recognised in the profit and loss account in Staff expenses as part of Total expenses. The total remuneration as disclosed in the table above (for 2014: EUR 8.3 million) includes all variable remuneration related to the performance year 2014. Under IFRS-EU, certain components of variable remuneration are not recognised in the profit and loss account directly, but are allocated over the vesting period of the award. The comparable amount recognised in Staff expenses in 2014, and therefore included in Total expenses in 2014, relating to the fixed expenses of 2014 and the vesting of variable remuneration of 2014 and earlier performance years, was EUR 6.3 million.
As at 31 December 2014, members of the Executive and Management Board held 21,571 NN Group N.V. shares.
The total number of stock options in ING Groep N.V. shares held by Executive and Management Board amounted to 351,944 as at 31 December 2014. No options on NN Group N.V. shares were held.
In 2014, 81,267 share awards on ING Groep N.V. were granted to the Executive and Management Board. In 2014, 12,993 share awards on NN Group N.V. were granted to the Executive and Management Board.
8,323
| Amounts in thousands of euros | |
|---|---|
| Fixed fees | 236 |
| Expense allowances | 13 |
| International attendance fees | 9 |
| Charges by ING Group | 285 |
| Compensation Supervisory Board | 543 |
The table above shows the fixed fees, expense allowances and international attendance fees for the Supervisory Board for the second half of 2014. The remuneration for the period from 1 January 2014 up to and including June 2014 was paid by ING Groep N.V. and the related charge from ING Group to NN Group is included in 'Charges by ING Group'.
The above mentioned amounts include VAT of EUR 33 thousand for the second half of 2014. NN Group does not provide for any pension arrangement, termination arrangements (including termination or retirement benefits) or variable remuneration, for the Supervisory Board.
As at 31 December 2014, members of the Supervisory Board did not own any NN Group N.V. shares and held 285,189 ING Groep N.V. shares.
As at 31 December 2014, members of the Supervisory Board held 165,506 stock options on ING Groep N.V. shares. No options on NN Group N.V. shares were held.
| Amount | ||||
|---|---|---|---|---|
| outstanding | Average | |||
| Amounts in thousands of euros | 31 December | interest rate | Repayments | |
| Loans and advances | 825 | 4.43% | 0 |
As at 31 December 2014, no loans and advances were provided to members of the Executive and Supervisory Board.
In January 2016, NN Group repurchased 8 million ordinary shares from ING Groep N.V. at a price of EUR 31.00 per share for an aggregate amount of EUR 250 million.
Risk taking is integral to the business model for insurance, investment management, and banking organisations such as NN Group. NN Group has developed and implemented a risk management structure that is designed to identify, assess, control and monitor the risks associated with its business. By working within this structure, NN Group aims to meet its obligations to policyholders and other customers and creditors, manage its capital efficiently, and comply with applicable laws and regulations.
NN Group's approach to risk management is based on the following components:
Executive Board and its (sub) committees
The Executive Board is responsible for defining, installing, and monitoring the risk management organisation in order to ensure its control systems are effective.
The Executive Board, or its (sub) committees, approves all risk management policies as well as the quantitative and qualitative elements of NN Group's risk appetite. The Executive Board reports and discusses these topics with the Risk and Finance Committee, a committee of the Supervisory Board, on a quarterly basis.
While the Executive Board retains responsibility for NN Group's risk management, it has entrusted the day-to-day management and the overall strategic direction of the Company, including the structure and operation of NN Group's risk management and control systems, to the Management Board, and has entrusted certain other responsibilities to the Risk and Finance Committee. The sub-committees of the Risk and Finance Committee are the Non-Financial Risk Committee, the Product Risk Committee, the Model Committee, the Finance Committee, and the Group Investment Committee.
The chief executive officer (the CEO), the chair of the Executive Board, bears responsibility for NN's risk management, including the following tasks:
The CEO is also primarily responsible for the communication of risk-related topics to the Supervisory Board and the Risk and Finance Committee.
The Executive Board designates a chief risk officer (the CRO) from among the members of the Management Board, who is entrusted with the day-to-day execution of these tasks. Each business unit also has its own chief risk officer, who reports (directly or indirectly) to the CRO.
The Supervisory Board is responsible for supervising the Executive Board and the general affairs of the Company and its business and providing advice to the Executive Board. For risk management purposes the Supervisory Board is assisted by two committees:
The three lines of defence model, on which NN Group's risk management structure and governance is based, defines three risk management levels, each with distinct roles, decision authorities, execution responsibilities, and oversight responsibilities. This framework ensures that risk is managed in line with the risk appetite as defined by the Executive Board, ratified by the Supervisory Board, and cascaded throughout NN Group.
• First line of defence: the CEOs of the business units of NN Group and the other Management Board members of the business units that have primary accountability for the performance of the business, operations, compliance and effective control of risks affecting their businesses. They underwrite the insurance products that reflect local needs and thus know their customers and are well-positioned to act in both the customers' and NN Group's best interests.
Annual accounts
NN Group's risk management framework comprises a series of sequential steps through which NN Group seeks to identify, measure and manage the risks to which it is exposed. The diagram below sets out these steps.
Annual accounts
NN Group has implemented a comprehensive set of risk management policies, standards and processes. These policies, standards and processes are regularly updated to align with industry practices and changes in NN Group's business profile, and to comply with applicable laws and regulations. Key areas of risk management for which NN Group has established policies, standards and processes are set out below.
NN Group's risk appetite framework determines which risks NN Group takes, avoids, retains and/or removes. The risk appetite framework consists of qualitative and quantitative statements pertaining to risk preferences, risk tolerances, risk limits and risk controls. In 2015, the risk appetite framework was based on quantitative measures that:
In addition to the key quantitative measures, qualitative statements form part of the risk appetite framework. Together they serve to guide risk taking conduct in the areas of underwriting, Asset and Liability management (ALM), investing and operations. These statements support NN Group's strategy, diminish unwanted or excessive risk taking, and further optimise the use of capital. The qualitative risk appetite statements are organised under the following categories:
The quantitative risk appetite statements are translated into quantitative risk limits for the business units which for the year 2015 pertained to Basic Own Funds (Solvency II capital), IFRS earnings (net result) and – where necessary – additional interest rate risk limits. The business units report regularly on their risk profile compared to applicable risk appetite and risk limits.
NN Group's risk policy framework ensures that all risks are managed consistently and that NN Group as a whole operates within its risk tolerances. The policies/minimum standards focus on risk measurement, risk management and risk governance. To ensure that policies are efficient and effective they are governed by the risk committee structure. Potential waivers to the policies have to be approved through the respective risk committees.
The product approval and review process (PARP) has been developed to enable effective design, underwriting, and pricing of all products as well as to ensure that they can be managed throughout their lifetime. This process establishes requirements as to the product risk profile features to ensure that products are aligned with NN Group's strategy. The PARP takes into account customer benefits and product suitability, expected sales volumes, value-oriented pricing metrics and relevant policies. It includes requirements and standards to assess risks as per the risk categories, as well as the assessment of the administration and accounting aspects of the product.
Annual accounts
NN Group maintains a new investment class approval and review process (NICARP) for approving new investment classes of assets. At the holding level, NN Group establishes a global list of asset classes in which the business units may invest. Each business unit also maintains a local asset list that is a subset of the global asset list. The local asset list includes asset allocation parameters, which prescribe the relative proportions in which the relevant business unit may invest in different asset classes, as well as asset, industry, regional, and credit concentration limits.
Operational, compliance, legal and related second order reputation risks are monitored in their mutual relationship as 'Non-Financial Risk' (NFR). As non-financial risks are diverse in nature, NN Group has a framework in place governing the process of identifying, assessing, mitigating, monitoring and reporting non-financial risks. Important elements in this framework are NFR risk assessments, action tracking, key risk indicators, key control registers, incident reporting, NFR Committee and NFR Dashboard.
NN Group (and each of its regulated insurance subsidiaries) prepares an 'own risk and solvency assessment' (ORSA) at least once a year. In the ORSA, NN Group articulates its strategy and risk appetite; describes its key risks and how they are managed; analyses whether or not its risks and capital are appropriately modelled; and evaluates how susceptible the capital position is to shocks through stress and scenario testing. Stress testing examines the effect of exceptional but plausible scenarios on the capital position of NN Group. Stress testing can also be initiated outside ORSA, either internally or by external parties such as The Dutch Central Bank (DNB) and European Insurance and Occupational Pensions Authority (EIOPA). The ORSA includes a forward looking overall assessment of NN Group's solvency position in light of the risks it holds.
At least once a year, NN Group's banking and investment management operations run an internal capital adequacy assessment process (ICAAP) in conformity with Basel II requirements. ICAAP tests whether current capital positions are adequate for the financial risks that the relevant NN Group entities bear.
NN Group's model governance and validation function seeks to ensure that NN Group's models are fit for their intended purpose. Models and their disclosed metrics are approved by the Model Committee. The findings of the model validation function are also regularly reported to the Model Committee. This committee is responsible for modelling policies, processes, methodologies, and parameters which are applied within NN Group. Furthermore, the model validation function carries out validations of risk and valuation models particular those related to Solvency II. Any changes to models that affect Group risk figures above a certain materiality threshold are presented to the Risk and Finance Committee.
NN Group has determined a set of measures for early detection of and potential response to a financial or non-financial crisis, should it occur. These include monitoring indicators which are expected to provide early-warning of emerging crises, advance preparation of options to raise or release capital, allocation of roles and responsibilities in case of a crisis, and other practical arrangements that may be required depending on the type of crisis.
As described under the Risk Appetite section, NN Group manages the level of risk exposures by measuring and limiting the impact of a 1-in-20 year adverse scenario on the Solvency II Own Funds. The loss of Own Funds in a 1-in-20 year scenario is referred to as Own Funds at Risk (OFaR), the metric used to describe the risk profile throughout the remaining section.
NN Group uses an internal model to measure OFaR across the Solvency II entities. The underlying model used to calculate OFaR is based on the (Partial) internal model (PIM) approved by the DNB, but with several key differences:
Annual accounts
OFaR sensitivities provide management with information as to how Own Funds could be impacted under less severe shocks than the 1-in-200 shocks required for Solvency Capital Requirement purposes, but under more likely stress scenarios for which management is more likely to need to respond. Where necessary, such as interest rate risk at certain units or hedging of separate account guarantees, additional limits are applied to align with the goal of hedging on a more granular economic basis.
Within this section, OFaR is used to elaborate on the risk profile of NN Group. The table below provides an overview of OFaR per major risk category.
| 2015 | 2014 | |
|---|---|---|
| Insurance Risk | 1,484 | 1,456 |
| Business Risk | 854 | 882 |
| Market and credit Risk: | 1,194 | 1,183 |
| − own account | 1,115 | 1,033 |
| − separate account | 252 | 409 |
| − diversification between Own account and Separate account | -173 | -259 |
| Diversification between modelled risks | -1,118 | -1,081 |
| Modelled OFaR | 2,414 | 2,440 |
| Operational Risk | 172 | 168 |
| Non-Solvency II entities | 594 | 504 |
| Loss-absorbing capacity of Deferred Taxes | -539 | -542 |
| Total OFaR | 2,641 | 2,570 |
OFaR for Operational risk of Solvency II entities is based on the Solvency II standard formula calculation. To be relevant, however, for a 1-in-20 year event (or 95% level of confidence), the 95% figure is derived from the 99.5% SCR using an assumed underlying distribution.
In line with NN Group's Solvency II Own Funds calculation, Japan is treated as 'equivalent' under OFaR. The Solvency II concept of Equivalence is granted to capital frameworks that are deemed to have similarity with the Solvency II framework and/or principles and as such can be relied-upon to assess capital requirements. Accordingly, should a 1-in-20 event occur in Japan, NN Group's Own Funds will be impacted to the extent the local regulatory capital is impacted. Hence regulatory capital at risk, related to local Japanese accounting and capital requirements, (under a 1-in-20 adverse event) is used for Japan. 1-in-20 shocks are also applied to non-insurance entities (such as NN Bank, NN IP and non-regulated Pension Funds) and included in the NN Group OFaR – also by summing up and assuming no diversification.
In line with Solvency II, a loss-absorbing capacity of deferred taxes (or LACDT) is recognised. NN Group's total loss in a 1-in-20 adverse event would be partially offset by tax recoveries, and these are recognised to the extent to be expected to be recoverable.
In past years, Economic Capital has been disclosed to demonstrate the risk profile of NN Group businesses. With the introduction of Solvency II, NN Group has de-emphasised Economic Capital as a management metric due to the significant overlap with the Solvency Capital Requirement (SCR) of Solvency II. However, the SCR for NN Group is based on a partial internal model with various units or risks on an internal model in line with our Economic Capital model and other units or risks on the Standard Formula as defined within Solvency II. Further, there is an increased management focus on managing the risks to regulatory capital which under Solvency II are much more closely aligned to economic risks and economic capital than under Solvency I. Based on this analysis and in order to provide a consistent basis across insurance businesses, other than Japan Life, NN Group places greater emphasis on Own Funds at Risk.
Annual accounts
The following principal types of risk are associated with NN Group's business:
Insurance risks are the risks related to the events insured by NN Group and comprise actuarial and underwriting risks such as mortality, longevity, morbidity, and non-life insurance risks, which result from the pricing and acceptance of insurance contracts.
Mortality risk occurs when claims are higher due to higher mortality experience (for instance in relation to term insurance). Longevity risk is the risk that insured persons live longer than expected due to mortality improvements. While NN Group is exposed to both longevity and mortality risks, these risks do not fully offset one another as the impact of the longevity risks in the pension business in the Netherlands is significantly larger than the mortality risk in the other businesses, not only due to the size of the business but also due to the current low interest rate environment. Changes in mortality tables impact the future expected benefits to be paid and the present value of these future impacts is reflected directly in measures like Own Funds in the Netherlands. Longevity risk exposes NN Group primarily to mortality improvements and the present value impact is larger when interest rates are low.
NN Group's morbidity risk lies in health insurance which pays out a fixed amount, reimburses losses (e.g. loss of income), or pays for expenses of medical treatment related to certain illness or disability events. The main exposures to morbidity risks within NN Group are the disability insurance policies underwritten in Netherlands Non-life, the health and accidental death covers within the Corporate Owned Life Insurance (COLI) business in Japan Life, and the healthcare insurance business in Greece.
The Netherlands Non-life portfolio also includes Property & Casualty (P&C) products covering risks such as fire damage, car accidents, personal and professional liability, windstorms, hail, and third party liabilities.
Report of the Supervisory Board Corporate governance
Annual accounts
Proper pricing, underwriting, claims management, and diversification are the main risk mitigating actions for insurance risks.
By expanding insurance liabilities to cover multiple geographies, product benefits, lengths of contract, and both life and non-life risk, NN Group reduces the likelihood that a single risk event will have a material impact on NN Group's financial condition.
Management of the insurance risks is done by ensuring that the terms and conditions of the insurance policies that NN Group underwrites are correctly aligned with the intended policyholder benefits to mitigate the risk that unintended benefits are covered. This is achieved through NN Group's underwriting standards, product design requirements, and product approval and review processes – as referred to under Risk Management Policies; Standards and Processes.
Insurance risks are diversified between business units. Risk not sufficiently mitigated by diversification is managed through concentration and exposure limits and through reinsurance:
The table below sets out NN Group's OFaR for insurance risk as at 2015 and 2014, respectively.
| 2015 | 2014 | |
|---|---|---|
| Mortality (including longevity) | 1,445 | 1,413 |
| Morbidity | 203 | 208 |
| P&C | 218 | 225 |
| Diversification benefit | -382 | -390 |
| Total | 1,484 | 1,456 |
The OFaR for insurance risks is mostly mortality risk, in particular longevity risk (or negative mortality) in the Netherlands pension business.
Given the long-term nature of the longevity portfolio, the underlying risks are sensitive to interest rates due to the discounting impact. At the end of 2015, interest rates were only slightly higher than at year-end 2014 and had little impact in discounting insurance risks – this is seen in the relatively stable OFaR for insurance risk in the table above. Note that NN Group's businesses calculate insurance risks locally at a 99.5% level. The OFaR figure (on a 95% confidence level) is derived from the 99.5% level using an assumed underlying distribution.
Portfolio developments during the course of 2015, such as buyouts, transfers from the separate account and growth of individual annuities, generally increased the mortality (longevity) risk capital. The OFaR amount for all insurance risks remained quite stable during 2015.
The P&C risk is primarily underwritten by Netherlands Non-Life and catastrophic losses are partially reinsured to external reinsurers through NN Re.
Business risks are the risks related to the management and development of the insurance portfolio but exclude risks directly connected to insured events. Business risk includes policyholder behaviour risks and expense risks. Business risks can occur because of internal, industry, or wider market factors.
Policyholder behaviour risk is the risk that policyholders use options available in the insurance contracts in a way that is different from that expected by NN Group. Depending on the terms and conditions of the insurance policy, and the laws and regulations applicable to the policy, policyholders could have the option to surrender, change premiums, change investment fund selections, extend their contracts, take out policy loans and make choices about how to continue their annuity and pension savings contracts after the accumulation phase, or even change contract details. Policyholder behaviour therefore affects the profitability of the insurance contracts. The risk that policyholders maintain their contracts longer than NN Group has assumed is specific to the variable annuity business when guarantees are higher than the value of the underlying policyholder funds, the pension business in the Netherlands, and the older, higher interest rate guaranteed savings business in Europe. The risk that policyholders hold their contracts for a shorter period than NN Group has assumed relates to the life business in Japan and the unit-linked businesses in Central and Eastern Europe.
Annual accounts
Changes in tax laws and regulations can affect policyholder behaviour, particularly when the tax treatment of their products affects the attractiveness of these products for customers. For instance, changes in tax treatment may affect the tax efficiency of the products of the Japan Life COLI business.
The OFaR calculations for policyholder behaviour risk take into account the present value impact of changes in policyholder behaviour assumptions.
Total administrative expenses for NN Group in 2015 amounted to EUR 1,758 million. Parts of these expenses are variable, depending on the size of the business and sales volumes, and parts are fixed and cannot immediately be adjusted to reflect changes in the size of the business. Expense risk relates primarily to the fixed part of NN Group's expenses, and is the risk that future actual expenses per policy exceed the expenses assumed per policy. A significant portion of the fixed expense risk is incurred in the closed block operations of Netherlands Life, where NN Group is exposed to the risk that the overheads relating to IT administration systems will remain constant, or even increase, while the number of policies in the in-force book gradually decreases, leading to a per policy expense increase. Furthermore, the valuation of the Group pension business in the Netherlands includes long-term best estimate expense assumptions, discounted over a long period of time. Changes in these assumptions will affect NN Group's expense risk.
Policyholder behaviour risks – such as persistency and premium risk – are managed through the product development, product approval and review processes and by ensuring that appropriate advice is given to the customer, not only at the point of sale but also during the lifetime of the product. The policyholder behaviour experience of in-force policies is assessed at least annually.
As part of its strategy, NN Group has put several programmes in place to own and improve the customer experience. These programmes improve the match between customer needs and the benefits and options provided by NN Group's products. Over time, NN Group's understanding and anticipation of the choices policyholders are likely to make, will improve, thereby decreasing the risk of a mismatch between actual and assumed policyholder behaviour.
Ongoing initiatives are in place to manage expense risk throughout NN Group, especially in the Netherlands where company targets are in place to reduce expenses, thus, lowering expense risk going forward. These initiatives seek to variables' expenses to the underlying contracts in place. This is particularly relevant for the Dutch individual life closed-block business that can only reduce in number of contracts.
The table below sets out NN Group's OFaR for business risk as at 2015 and 2014, respectively.
| 2015 | 2014 | |
|---|---|---|
| Persistency | 318 | 309 |
| Premium | 8 | 11 |
| Expense | 743 | 774 |
| Diversification benefit | -215 | -212 |
| Total | 854 | 882 |
1 Note that NN Group's businesses calculate business risks locally at a 99.5% level. The OFaR figure (on a 95% confidence level) is derived from the 99.5% level using scaling with an assumed underlying distribution.
The main contributors to policyholder behaviour risk are Netherlands Life, the unit-linked business in Central and Eastern Europe, and Japan Closed Block VA.
The majority of the expense risk capital is driven by expense inflation risk in Netherlands Life. The OFaR amount related to expense risk, in particular for Netherlands Life, is marginally lower in 2015 due to higher interest rates in 2015 for the relevant part of the curve and lower expense assumptions for unit costs and overlay costs.
Persistency risk increases due to new business and assumption updates in the European business.
The diversification in business risk is driven by the fact that policyholder behaviour and expense risk are largely uncorrelated and therefore receive a benefit given the low likelihood that relatively severe stresses from both will occur concurrently.
Annual accounts
Market and credit risks are the risks related to the impact of financial markets on NN Group's balance sheet. NN Group distinguishes between market and credit risks on NN Group's own investment asset portfolio (Own account) and portfolios or businesses where the majority of such risks are primarily borne by policyholders (separate account).
This section refers to the market and credit risks of the Own account in which NN Group and its shareholders take on market and credit risks in pursuit of returns. These returns are used to fulfil policyholder obligations with any surplus return benefitting the Group and its shareholders. Accordingly, optimisation within the risk appetite is paramount to generating returns for both policyholder and shareholder.
The table below sets out NN Group's OFaR for the Own account assets and liabilities as at 2015 and 2014, respectively.
| 2014 | |
|---|---|
| 1,135 | 1,085 |
| 303 | 283 |
| 857 | 935 |
| 1,273 | 1,074 |
| 168 | 166 |
| 36 | 44 |
| 113 | 171 |
| -2,770 | -2,725 |
| 1,115 | 1,033 |
| 2015 |
Within NN Group's Own account, market risks are driven by the fixed income portfolio that generates spread risk and interest rate risk for duration mismatches. While it constitutes a smaller asset allocation, equity investments also generate risks as these risks cannot be directly offset by the liabilities. By the end of 2015, the total market and credit risk of NN Group's Own account had increased along with the increases in spread and equity risk.
The OFaR for the fixed income bonds is calculated within spread risk and OFaR for the fixed income loans including mortgages within counterparty default risk. OFaR for non-fixed income assets such as equity and real estate are addressed in the respective risk categories.
The table below sets out NN Group's asset class values as at 31 December 2015 and 2014. The values in these tables may differ from those included in the consolidated IFRS balance sheet as derivatives are excluded and due to classification and valuation differences to reflect a risk management view.
| Market value | % of total | Market value | % of total | |
|---|---|---|---|---|
| 2015 | 2015 | 2014 | 2014 | |
| Fixed income | 97,635 | 83.3% | 91,524 | 83.0% |
| Government bonds | 54,351 | 46.3% | 52,919 | 48.0% |
| Government loans | 719 | 0.6% | 667 | 0.6% |
| Financial bonds | 3,363 | 2.9% | 3,825 | 3.5% |
| Financial loans | 802 | 0.7% | 641 | 0.6% |
| Corporate bonds | 8,568 | 7.3% | 7,731 | 7.0% |
| Corporate loans | 3,344 | 2.9% | 2,828 | 2.6% |
| Asset Backed Securities | 3,810 | 3.3% | 5,950 | 5.4% |
| Residential Mortgage Loans 1 | 22,340 | 19.0% | 16,683 | 15.0% |
| Other Retail Loans | 338 | 0.3% | 280 | 0.3% |
| Non-Fixed income | 11,835 | 10.1% | 11,238 | 9.5% |
| Common & Preferred Stock | 3,350 | 2.9% | 3,000 | 2.7% |
| Private Equity | 865 | 0.7% | 919 | 0.8% |
| Real Estate | 5,080 | 4.3% | 4,908 | 3.8% |
| Mutual Funds | 2,540 | 2.2% | 2,411 | 2.2% |
Money Market Instruments 2 7,735 6.6% 8,234 7.5% Total Investments 117,205 100.0% 110,996 100.0%
1 Mortgages are on book value.
2 Money market mutual funds are included in Money Market Instruments.
Annual accounts
As presented in the table, whilst allocation to government bonds remains fairly stable, several shifts in the portfolio have occurred over the course of 2015. In particular:
As shown in the asset tables above, equity plays a role in the Own account by providing diversification and up-side return potential. This does present a risk which is measured as the impact of changes in prices of directly held equities and equity derivatives such as futures and options.
The table below sets out the market value of NN Group's equity assets as at 2015 and 2014, respectively.
| 2015 | 2014 | |
|---|---|---|
| Common & Preferred Stock | 3,350 | 3,000 |
| Private Equity | 865 | 919 |
| Equity Mutual Funds | 2,540 | 2,411 |
| Total | 6,755 | 6,330 |
Within the Own account, NN Group is mostly exposed to public listed equity, but also invests in private equity funds and equity exposures through mutual funds. Note that mutual funds are classified as equity in the table above, but include predominantly fixed income funds.
As shown in the market and credit risk table – and depicted in the investments listed above – equity risk increased over the course of 2015. This was primarily due to equity market appreciation and a move to higher yielding assets in line with the strategic asset allocation of NN Group's businesses.
Exposure to equities provides for additional diversification and up-side return potential in the asset portfolio of an insurance company with long-term illiquid liabilities. The concentration risk on individual issuers is mitigated under relevant investment mandates. As mentioned, there is no natural hedge for equity risk on the liability side of the balance sheet, but from time to time NN Group protects the downside risk of the equity portfolio by buying put options and other hedge instruments.
With the long-term nature of the liabilities of NN Group's Own account, illiquid assets such as real estate can play an important role in the strategic allocation. Real estate risk is the risk of loss of market value of real estate assets. Market values are driven by a change in rental prices, required investor yield, and/or other factors.
NN Group's real estate exposure increased from EUR 4,908 million at 31 December 2014 to EUR 5,080 million as at 31 December 2015. The real estate exposure is mainly present in Netherlands Life and Netherlands Non-life. NN Group has two different categories of real estate: (i) investments in real estate funds or real estate directly owned, and (ii) investments in buildings occupied by NN Group. Several of the real estate funds owned by NN Group include leverage, and therefore the actual real estate exposure is larger than NN Group's actual real estate assets.
The real estate portfolio is held for the long-term and is illiquid. Furthermore there are no hedge instruments available in the market to effectively reduce the impact of market volatility.
The table below sets out NN Group's real estate exposure by sector type excluding leverage as at 31 December 2015 and 2014, respectively. Real estate is valued at fair value in the OFaR model in the Netherlands. Fair value revaluations for 68% of the real estate portfolio directly affect the IFRS result before tax.
| Revalued through P&L |
Not revalued through P&L |
Revalued through P&L |
Not revalued through P&L |
|
|---|---|---|---|---|
| 2015 | 2015 | 2014 | 2014 | |
| Residential | 0% | 7% | 2% | 14% |
| Office | 16% | 2% | 16% | 2% |
| Retail | 38% | 12% | 35% | 10% |
| Industrial | 13% | 4% | 14% | 0% |
| Other | 1% | 7% | 1% | 6% |
| Total | 68% | 32% | 68% | 32% |
Exposure to real estate provides for additional diversification for the asset portfolio. The concentration risk on individual issuers is mitigated under relevant investment mandates.
Along with the increase in exposure to real estate assets, OFaR for real estate risk increased from EUR 283 million at the end of 2014 to EUR 303 million at the end of 2015.
Interest rate risk is the impact of interest rate changes on Own Funds as a result of the associated change in the value of the assets and liabilities.
The table below provides an overview of NN Group's insurance business' undiscounted best estimate policyholder liability cash flows (net of expenses and commissions) by maturity.
| Liabilities originated in | ||||||
|---|---|---|---|---|---|---|
| Eurozone EUR | Japan JPY2 | Other Currencies2 | ||||
| Maturities | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 |
| 0–1 | -2,793 | -3,364 | 365 | 301 | -339 | -309 |
| 1–2 | -4,363 | -4,391 | -67 | -48 | -138 | -169 |
| 2–3 | -5,512 | -6,040 | -383 | -311 | -142 | -161 |
| 3–5 | -7,800 | -7,663 | -1,261 | -1,015 | -344 | -348 |
| 5–10 | -16,085 | -15,332 | -3,790 | -2,892 | -827 | -789 |
| 10–20 | -25,010 | -23,632 | -3,168 | -2,596 | -1,011 | -1,024 |
| 20–30 | -15,678 | -14,887 | -1,128 | -940 | -400 | -434 |
| 30+ | -15,218 | -13,726 | -684 | -600 | -86 | -103 |
| Total | -92,459 | -89,035 | -10,116 | -8,101 | -3,287 | -3,337 |
1 The 'minus' sign in the table means cash outflow from NN Group to the policyholders, agents, intermediaries, and other expense related outflow.
2 Japan and Other Currencies are presented at constant FX of 31 December 2015. Other includes CZK, HUF, PLN, RON and USD.
As can be seen in the table, the EUR denominated liabilities have a significant amount of long-term liability cash flows (about one third beyond the point at which extrapolation to the UFR begins), which related primarily to the pension business in the Netherlands.
Report of the Supervisory Board
Corporate governance Annual accounts
NN Group hedges its economic interest rate exposure by investing in long-term bonds and swaps matching liability maturities. The remaining interest rate gap may be, from time to time, further reduced through purchases of receiver swaps and swaptions. Interest rate risk management focuses on matching asset and liability cash flows as much as possible.
For purposes of discounting liabilities under Solvency II – therefore relevant for OFaR, NN Group uses a swap curve less credit risk adjustment plus Volatility Adjustment. The Volatility Adjustment is treated as part of the credit spread risk. In line with Solvency II, NN Group extrapolates the EUR swap curve from the 20 year point onwards to the Ultimate Forward Rate (UFR) – as defined under Solvency II. The OFaR for interest rate risk primarily depends on the level of cash flow matching between assets and liabilities up to the 20 year point, and the difference between the swap curve and the curve extrapolated to the UFR for longer cash flows.
NN Group's Own Funds are more at risk (higher OFaR) when the Volatility Adjustment increases and when rates are low. Both these elements pose a distortion to the economic curve (leading to different liability valuation than asset valuation) and thereby increase risk to Own Funds. At end of 2015, interest rates were slightly higher than at the end of 2014; the difference between the Solvency II curve and the curve used for interest rate risk matching was reduced, accordingly exhibiting a lower risk to Own Funds. Changes in the underlying portfolio matching also play a role – but matching has remained stable on an economic basis during the year.
OFaR does not currently include the change in value of the risk margin due to interest rate shocks. This is deemed to be conservative as the risk margin has the effect of lowering the risk for NN Group under the Solvency II curve with the UFR.
Credit spread risk reflects the impact of credit spreads widening (or narrowing) due to changes in expectation of default, illiquidity and any other risk premiums priced into the market value of bonds. Credit spread risk takes into account both the impact on the asset side as well as the corresponding interaction with the Volatility Adjustment on the liabilities. To the extent that the asset portfolio has a different asset mix than the reference portfolio for the Solvency II Volatility Adjustment, or to the extent that the duration of the liabilities is different than the assets or the assumptions in the Volatility Adjustment there is volatility in the Own Funds and this is captured as such in the OFaR calculation.
The table below sets out the market value of NN Group's fixed-income bonds which are subject to credit spread risk OFaR by type of issuer at 31 December 2015 and 2014, respectively.
| Percentage | ||||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| Government Bonds | 54,351 | 52,919 | 78% | 76% |
| Asset-Backed Securities | 3,810 | 5,950 | 5% | 8% |
| Financial Institutions | 3,363 | 3,825 | 5% | 5% |
| Utilities | 1,372 | 1,713 | 2% | 2% |
| Telecom | 1,152 | 1,186 | 2% | 2% |
| Transportation & Logistics | 1,081 | 1,061 | 2% | 2% |
| Food, Beverages & Personal Care | 104 | 781 | 0% | 1% |
| Natural Resources | 342 | 731 | 0% | 1% |
| Other1 | 4,517 | 2,259 | 6% | 3% |
| Total | 70,092 | 70,425 | 100% | 100% |
1 'Other' is comprised of General Industries, Automotive, Retail, Builders and Contractors.
The table below sets out the market value of NN Group's assets invested in government bonds by country and maturity.
| Market value of government bond 2015 by number of years to maturity | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Rating1 | Domestic exposure2 |
0–1 | 1–2 | 2–3 | 3–5 | 5–10 | 10–20 | 20–30 | 30+ | Total 2015 |
|
| Germany | AAA | 0% | 115 | 163 | 209 | 136 | 1,236 | 3,750 | 3,629 | 9,238 | |
| Netherlands | AAA | 99% | 76 | 56 | 65 | 186 | 1,192 | 1,614 | 4,337 | 351 | 7,877 |
| France | AA | 0% | 67 | 108 | 89 | 186 | 166 | 1,536 | 2,047 | 3,456 | 7,655 |
| Japan | A+ | 95% | 424 | 203 | 220 | 602 | 2,738 | 2,574 | 1,059 | 407 | 8,227 |
| Belgium | AA | 32% | 213 | 573 | 237 | 810 | 863 | 1,937 | 1,590 | 6,223 | |
| Austria | AA | 0% | 90 | 86 | 86 | 415 | 618 | 1,616 | 1,285 | 576 | 4,772 |
| Italy | BBB | 0% | 20 | 38 | 28 | 114 | 111 | 1,237 | 37 | 6 | 1,591 |
| European Union3 | AAA | 100% | 130 | 37 | 24 | 140 | 270 | 303 | 599 | 1,503 | |
| Spain | BBB | 50% | 14 | 47 | 11 | 0 | 197 | 582 | 873 | 1,724 | |
| Finland | AAA | 0% | 13 | 46 | 8 | 292 | 405 | 64 | 571 | 1,399 | |
| Poland | A | 63% | 57 | 49 | 8 | 98 | 199 | 341 | 30 | 782 | |
| Others | 0% | 330 | 270 | 229 | 394 | 1,037 | 767 | 333 | 3,360 | ||
| Total | 1,549 | 1,676 | 1,214 | 3,373 | 9,032 | 16,321 | 16,390 | 4,796 | 54,351 |
1 NN Group uses the second best rating of Fitch, Moody's and S&P to determine the credit rating label of its bonds.
2 Percentage of the bonds held in the local unit, e.g. percentage of Dutch bonds held by entities registered in the Netherlands.
3 Includes EIB, ECB, EFSF, EU and ESM.
| Market value of government bond 2014 by number of years to maturity | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Rating1 | Domestic exposure2 |
0–1 | 1–2 | 2–3 | 3–5 | 5–10 | 10–20 | 20–30 | 30+ | Total 2014 |
|
| Germany | AAA | 0% | 73 | 118 | 120 | 316 | 1,302 | 3,956 | 4,232 | 10,117 | |
| Netherlands | AAA | 98% | 133 | 79 | 51 | 197 | 1,231 | 1,728 | 4,487 | 113 | 8,019 |
| France | AA | 0% | 99 | 44 | 83 | 146 | 244 | 373 | 3,182 | 3,187 | 7,358 |
| Japan | A+ | 97% | 191 | 145 | 149 | 460 | 1,995 | 2,057 | 940 | 363 | 6,300 |
| Belgium | AA | 35% | 230 | 206 | 592 | 678 | 1,240 | 1,158 | 1,955 | 149 | 6,208 |
| Austria | AAA | 0% | 42 | 82 | 87 | 292 | 854 | 1,673 | 1,287 | 541 | 4,858 |
| Italy | BBB | 0% | 104 | 21 | 38 | 57 | 180 | 1,189 | 38 | 6 | 1,633 |
| European Union3 | AAA | 100% | 42 | 131 | 36 | 94 | 271 | 311 | 538 | 1,423 | |
| Spain | BBB | 64% | 24 | 14 | 49 | 12 | 93 | 629 | 560 | 1,381 | |
| Finland | AAA | 0% | 16 | 13 | 47 | 117 | 255 | 412 | 443 | 1,303 | |
| Poland | A | 64% | 40 | 67 | 51 | 49 | 226 | 63 | 319 | 815 | |
| Others | 46% | 712 | 305 | 259 | 425 | 805 | 671 | 327 | 3,504 | ||
| Total | 1,706 | 1,225 | 1,562 | 2,843 | 8,696 | 14,220 | 18,308 | 4,359 | 52,919 |
1 NN Group uses the second best rating of Fitch, Moody's and S&P to determine the credit rating label of its bonds.
2 Percentage of the bonds held in the local unit, e.g. percentage of Dutch bonds held by entities registered in the Netherlands.
3 Includes EIB, ECB, EFSF, EU and ESM.
Exposures to Dutch, German and French government bonds are primarily held by Netherlands Life. Of the EUR 17 billion German and Dutch government bonds held by NN Group, almost half will mature after year 20; more than 70% of the EUR 8 billion of French government bonds held by NN Group will mature after year 20. These long-term government bonds are sensitive to sovereign credit spread movements versus EUR swap rates. With regards to Central and Eastern Europe, government bond exposures in Poland, Czech Republic, Hungary, The Slovak Republic, Romania, and Turkey are mainly domestically held. The EUR 110 million Greek government bonds (also bucketed under 'Others') are all held by the Greek business unit, and 50% of the Spanish government bonds are held by NN Group's Spanish business unit. In the OFaR model, all government bonds contribute to credit spread risk including those rated AAA.
The table below sets out the market value of non-government fixed-income securities (excluding mortgages and derivatives) by rating and maturity. The AAA securities are primarily asset-backed securities.
Financial developments
| Market value of non-government bond securities 2015 by number of years to maturity | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 0–1 | 1–2 | 2–3 | 3–5 | 5–10 | 10–20 | 20–30 | 30+ | Total 2015 |
|
| AAA | 107 | 84 | 336 | 305 | 945 | 543 | 1,081 | 1,729 | 5,130 |
| AA | 278 | 209 | 280 | 601 | 648 | 681 | 394 | 55 | 3,146 |
| A | 695 | 724 | 685 | 923 | 1,718 | 490 | 409 | 367 | 6,011 |
| BBB | 422 | 408 | 323 | 1,052 | 1,768 | 344 | 36 | 138 | 4,491 |
| BB | 25 | 58 | 41 | 141 | 134 | 11 | 100 | 510 | |
| B | 3 | 4 | 103 | 138 | 8 | 256 | |||
| CCC | 5 | 12 | 1 | 18 | |||||
| Total | 1,527 | 1,486 | 1,674 | 3,137 | 5,352 | 2,069 | 1,920 | 2,397 | 19,562 |
| 0–1 | 1–2 | 2–3 | 3–5 | 5–10 | 10–20 | 20–30 | 30+ | Total 2014 |
|
|---|---|---|---|---|---|---|---|---|---|
| AAA | 142 | 182 | 249 | 632 | 1,274 | 848 | 1,395 | 2,087 | 6,809 |
| AA | 130 | 295 | 141 | 288 | 1,154 | 607 | 282 | 115 | 3,012 |
| A | 700 | 761 | 556 | 1,113 | 1,689 | 745 | 677 | 102 | 6,343 |
| BBB | 240 | 405 | 378 | 765 | 1,217 | 340 | 51 | 373 | 3,769 |
| BB | 36 | 26 | 79 | 63 | 99 | 31 | 44 | 291 | 669 |
| B | 16 | 31 | 3 | 13 | 63 | ||||
| CCC | 299 | 1 | 10 | 310 | |||||
| Total | 1,547 | 1,669 | 1,403 | 2,877 | 5,465 | 2,581 | 2,452 | 2,981 | 20,975 |
The table below sets out NN Group's holdings of asset-backed securities by market value of asset type and the percentage of NN Group's total asset-backed securities portfolio as at 31 December 2015 and 2014, respectively.
| Market value | % of total | Market value | % of total | |
|---|---|---|---|---|
| 2015 | 2015 | 2014 | 2014 | |
| RMBS | 2,806 | 73% | 3,825 | 64% |
| Car loans | 407 | 11% | 963 | 16% |
| Credit cards | 210 | 6% | 368 | 6% |
| CMBS | 3 | 333 | 6% | |
| Student loans | 219 | 6% | 242 | 4% |
| Equipment loans | 90 | 2% | ||
| Consumer loans | 133 | 3% | 78 | 1% |
| SME loans | 22 | 1% | 40 | 1% |
| Other | 10 | 11 | ||
| Total | 3,810 | 100% | 5,950 | 100% |
NN Group aims to maintain a low-risk, well diversified fixed income portfolio. NN Group has a policy of maintaining a high quality investment grade portfolio while avoiding large risk concentrations. In order to reduce the credit spread risk, NN Group has increased its investments in non-listed and own-originated assets. The concentration risk on individual issuers is managed using rating-based issuer limits on one (group of related) single name(s), effectively managing the default risk of the issuers.
The OFaR for credit spread risk reflects, with 95% level of confidence, the risk of Own Funds to spread movements – impacting fixed income assets held in the Own account and the liabilities in the Own account due to the Solvency II Volatility Adjustment. Fixed income assets are shocked with severity linked to a 1-in-20 year event (or 95% level of confidence) and depending on the credit class, rating and duration. Given that the Own account liabilities are valued using the Solvency II Volatility Adjustment, shocks are applied to the reference portfolio to determine the level at which the liabilities will be valued under a 1-in-20 scenario. This has a positive impact on Own Funds, offsetting the impact on the asset-side. In this regard, the OFaR spread model identifies mismatches (basis difference) between the Own account assets and the reference portfolio and seeks the worst case loss within the desired level of confidence – in this case 95%.
Annual accounts
Note that the spread model used for OFaR assesses the impact on Own Funds under adversity and follows the dynamics of the balance sheet valuation. The spread model under the PIM used for determining capital requirements (described in the capital management section) includes a simpler and less volatile offset due to the liability illiquidity.
The table below sets out NN Group's OFaR for credit spread risk.
| 2015 | 2014 | |
|---|---|---|
| Credit spread risk assets | 4,080 | 3,982 |
| Credit spread risk liabilities: Effective capital offset from the Volatility Adjustment | -2,807 | -2,908 |
| Total Credit Spread risk net of Volatility Adjustment | 1,273 | 1,074 |
Despite a decrease in securitisations and non-government debt, spread risk on the assets increased slightly – largely driven by the downgrade of Austria and fewer high-rated government bonds (such as Germany and the Netherlands).
With changes in asset allocation during the year – increased exposure to equity, mortgages and cash – the basis difference (between own account assets and the Volatility Adjustment reference portfolio assets) has increased – thereby leading to a lower effective offset to asset-side spread risk.
Counterparty default risk is the risk of loss of investments due to unexpected default, or deterioration in the credit standing, of the counterparties and debtors (including reinsurers) of NN Group. The OFaR for counterparty default risk is primarily based on the associated issuer's probability of default (PD) and the estimated loss-given-default (LGD) on each individual asset combined with diversification across assets.
The Counterparty Default Risk module covers any credit exposures which are not covered in the spread risk sub-module. For each counterparty, the Counterparty Default Risk module takes account of the overall counterparty risk exposure pertaining to that counterparty.
The Counterparty Default Risk Exposure is split in Type I and Type II exposures. The class of Type I exposures covers the exposures which may not be diversified and where the counterparty is likely to be (externally) rated, e.g. reinsurance contracts, derivatives and money market exposures. The class of Type II exposures attempts to cover the exposures which are usually diversified and where the counterparty is likely to be unrated, predominantly residential mortgages, but also other forms of term lending not covered in Type I. These two classes form the basis for the respective capital treatment in the Counterparty Default Risk module.
Counterparty Default Risk is dominated by Type II assets, accounting for around two-thirds in terms of OFaR. The largest Type II exposure is mortgages (mortgages in NN Bank included in the table are out of scope for CPD as they follow Basel II capital requirements). Type I assets account for around one-third in terms of OFaR. Other sources of Counterparty Default Risk include other loans, reinsurance and the claims on counterparties from over-the-counter derivatives.
| 2015 | 2014 | |
|---|---|---|
| Type I1 | ||
| − Cash (including Money Market Mutual Funds) | 7,735 | 8,234 |
| − Reinsurance | 1,205 | 324 |
| Type II | ||
| − Mortgages | 22,340 | 16,683 |
| − All Other Loans2 | 5,203 | 4,416 |
1 Derivatives exposure is also included in the CPD type I calculation. Given Collateral agreements in place, a conservative estimate of 20% of the exposure is included in the Counterparty Default Risk module.
2 All Other Loans consists of government, financial, corporate, policy, and consumer loans.
Annual accounts
NN Group has increased its exposure to Dutch residential mortgages during the course of 2015, both at NN Bank as well as Netherlands Life. The decrease in Cash exposure is mainly at Corporate Level with less cash collateral on derivatives portfolio. The increase in All Other Loans is primarily due to an increase in corporate loan exposure.
NN Group uses different credit risk mitigation techniques. For retail lending portfolios, pledges of insurance policies, or retaining the investment accounts of clients are all important elements of credit risk mitigation. For OTC derivatives, the use of International Swaps and Derivatives Associations master agreements accompanied with credit support annexes is an important example of risk mitigation. Other forms of credit risk mitigation include reinsurance collateral. For cash and money market funds, limits per counterparty are put in place.
The Loan-to-Value (LTV) for residential mortgages, which is based on the net average loan to indexed value, at Netherlands Life, NN Bank and Netherlands Non-Life stands at 87%, 84% and 91% respectively, due to the high proportion of interest-only mortgages. With the change in the Dutch tax regime in 2014 with regards to mortgage interest deductibility, a shift from essentially interest-only mortgages to annuity and linear payment type mortgages is being observed. The inherent credit risk is compensated primarily by means of the underlying property, but also through the inclusion of mortgages guaranteed by the Nationale Hypotheek Garantie (NHG) and other secondary covers like savings, investments and life insurance policies. Mortgages with NHG accounted for 20%, 26% and 25% at Netherlands Life, NN Bank and Netherlands Non-Life respectively at 31 December 2015.
The credit portfolio is under regular review to ensure troubled assets are identified early and managed properly. The loan is categorised as a non-performing loan (NPL) if the arrear still exists after 90 days. A loan is re-categorised as a performing loan again when the amount past due has been paid. The increase in non-performing loans is due to portfolio developments and a delayed effect of the economic recession on mortgage paying ability of households. All loans not classified at initial recognition as being either (1) assets at market value through profit-and-loss, (2) assets held for trading, or (3) assets available-for-sale are measured against amortised cost and are subject to impairment review.
| Netherlands Life | NN Bank | NN Non-Life | ||||
|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Performing mortgage loans | 10,376 | 8,551 | 10,391 | 7,837 | 294 | |
| Non-performing mortgage loans | 170 | 166 | 128 | 125 | 1 | |
| Total | 10,546 | 8,717 | 10,519 | 7,962 | 295 | 0 |
1 Risk figures and – parameters do not include third party originated mortgages and collateralised mortgages although they are on the balance sheet of NN Group. The total also does not include EUR 4 million of mortgages held in Spain and Greece – not split/represented in table due to materiality.
| Netherlands Life | NN Bank | NN Non-Life | |||||
|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||
| Past due for 1–30 days | 47 | 133 | 51 | 100 | 1 | ||
| Past due for 31–60 days | 109 | 36 | 99 | 30 | 2 | ||
| Past due for 61–90 days | 42 | 16 | 54 | 14 | |||
| Past due for > 90 days | 137 | 84 | 92 | 52 | |||
| Total | 335 | 269 | 296 | 196 | 3 | 0 |
| Netherlands Life | NN Bank | NN Non-Life | |||||
|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||
| Balance amount | 10,546 | 8,717 | 10,519 | 7,962 | 295 | ||
| Secondary cover value | 557 | 733 | 802 | 656 | |||
| NHG cover value | 1,809 | 1,560 | 2,475 | 1,701 | 71 | ||
| Primary cover indexed market value (topped at LTV 100%) | 7,767 | 6,032 | 6,798 | 5,317 | 224 | ||
| Remaining exposure at risk | 413 | 392 | 444 | 288 | 0 | 0 |
The Counterparty Default module comprises two sub-modules:
The capital charges for CDR Type I and CDR Type II exposures are calculated separately and aggregated using a diversification effect.
Note that fixed income bonds are also subject to counterparty default risk, but this risk is included in credit spread risk.
Despite a significant increase in exposure to mortgages over the course of 2015, OFaR for counterparty default risk decreased from EUR 171 million at year-end 2014 to EUR 113 million at year-end 2015. This decrease is mainly due to an improvement in the data source during 2015. With increased granularity and a different approach on property value assumptions, this data is more representative of actual exposures and has led to an increase in property values – reducing the credit exposure and loss given default.
Foreign exchange (FX) risk measures the impact of losses related to changes in currency exchange rates.
FX transaction risk can occur on a local entity level, while FX translation risk can occur when non-Euro entities are consolidated at the level of NN Group and show a risk in regards to NN Group's reporting currency, the Euro.
The FX risk at the local entity level is mitigated by limiting investment to the local currency assets. The exceptions are Japan Life, where USD and EUR assets are held to diversify the portfolio and the FX risk is managed through rolling FX forward contracts, and in the large Own account portfolio of Netherlands Life. The FX translation risk at the holding level is managed using FX forward contracts.
No material change in the level of FX translation risk as OFaR for foreign exchange inched EUR 2 million higher to EUR 168 million at year-end 2015.
The separate account businesses are those in which the policyholder bears the majority of the market and credit risk. NN Group's earnings from the separate account businesses are primarily driven by fee income. However, in the case of variable annuities and the guaranteed separate account pension business in the Netherlands, NN Group retains risk associated with the guarantees provided to its policyholders. Businesses in this separate account category are (i) the variable annuities (VA) portfolio; (ii) the group pension business in the Netherlands for which guarantees are provided; and (iii) other separate account business, primarily the unit-linked business. This section refers to separate account business only.
From a risk management perspective, NN Group distinguishes three blocks of variable annuities:
| Number of policies |
Account value1 |
Net amount at risk2 |
IFRS provision for guarantees3 |
Average remaining years |
|
|---|---|---|---|---|---|
| Variable Annuity Japan GMAB | 175,733 | 7,711 | 142 | 355 | 1.9 |
| Variable Annuity Japan GMDB3 | 26,459 | 2,317 | 61 | 160 | 5.3 |
| Variable Annuity Europe | 42,691 | 1,394 | 24 | 42 | 8.3 |
1 The Account value is the value of the underlying funds which belong to the policyholder.
2 The Net amount at risk is the difference between the guaranteed minimum value and the Account value, for those policies where the guaranteed value exceeds
the Account value. 3 Excludes other provision adjustments.
| Number of policies |
Account value1 |
Net amount at risk2 |
IFRS provision for guarantees3 |
Average remaining years |
|
|---|---|---|---|---|---|
| Variable Annuity Japan GMAB | 259,969 | 10,651 | 65 | 376 | 2.2 |
| Variable Annuity Japan GMDB3 | 34,294 | 2,597 | 68 | 179 | 5.5 |
| Variable Annuity Europe | 42,461 | 1,364 | 18 | 48 | 7.1 |
1 The Account value is the value of the underlying funds which belong to the policyholder.
2 The Net amount at risk is the difference between the guaranteed minimum value and the Account value, for those policies where the guaranteed value exceeds
the Account value. 3 The GMDB reserve reflects the move towards fair value accounting as of 1 January 2015.
NN Group has hedging programmes in place for the Japan Closed Block VA business and the European VA business. These hedging programmes target equity, interest rate, and FX risks. The market risks that remain for the Japan Closed Block VA business are increases to market volatility, both implied and realised, and basis risk. Basis risk is the difference in market movements between the benchmarks used for hedging and the underlying funds. The table below sets out the estimated changes in the value of these options and guarantees, and the corresponding estimated changes in the value of the assets hedging this portfolio for the years ended 31 December 2011 through 2015 with regard to the Japan Closed Block VA.
| 2015 | 2014 | 2013 | 2012 | 2011 | |
|---|---|---|---|---|---|
| Change in Value of Policyholder Guarantee | 300 | 745 | 2,411 | 1,652 | -748 |
| Change in Value of Hedge Assets | -334 | -724 | -2,367 | -1,482 | 582 |
| Economic Hedge Result | -34 | 21 | 44 | 170 | -166 |
Separate account guaranteed group pension business in the Netherlands
| 2015 | 2014 | |
|---|---|---|
| Account value | 8,630 | 10,695 |
| Additional IFRS provision for guarantee | 584 | 723 |
In the Dutch separate account pension portfolio, investments are held in separate accounts on behalf of the sponsor employer who concluded their contract with NN Group. Regardless of actual returns on these investments, NN Group guarantees pension benefits for the beneficiaries under the contract. Contracts are typically re-negotiated every five years, but the guarantee obligations to the beneficiaries survive termination of the contract with the sponsor employer unless otherwise agreed.
In principle, the sponsor employer selects the investments based on a basket of equity, fixed income, and real estate instruments and pays a fee for the guarantee. The value of the guarantee that NN Group provides is sensitive to interest rates, movements in the underlying funds and the volatility of those funds.
Over the course of 2015, EUR 1.7 billion in account value of the Netherlands Pension business has been transferred from the separate account to the own account. Furthermore, increasing interest rates decreased the value of the fixed income assets as well.
Annual accounts
NN Group currently hedges the value of the guarantees it provided under group pension contracts in the Netherlands. For the purpose of hedging, the exposure under such guarantees is discounted at the swap curve without the extrapolation to the UFR. The hedge programme includes equity basket options, swaps and equity futures. Upon contract renewal, NN Group offers policyholders defined contribution products with investments in portfolios that NN Group can more easily hedge, thus reducing the risk to NN Group.
The other separate account business primarily consists of unit-linked insurance policies, which provide policyholders with fund selection combined with an insurance cover. In a unit-linked policy, the investment risk is borne by the policyholder, although there are some unitlinked products where NN Group has provided guarantees on the performance of specific underlying funds. Unit-linked products without guarantees do not expose NN Group to market risk, except to the extent that the present value of future fees is affected by market movements of the underlying policyholder funds.
The market risks of the unit-linked and other separate account business are managed at the design of the product. Currently NN Group does not hedge the market risks related to the present value of future fee income derived from this business.
NN Group determines OFaR for the market and credit risks of the separate account business through modelling the risks of the fee income and the guarantees including the impact of the hedge programmes.
The table below sets out the OFaR for the market and credit risk of the separate account businesses as at 2015 and 2014, respectively.
| 2015 | 2014 | |
|---|---|---|
| Variable annuity | 217 | 356 |
| Separate account guaranteed group pension business in the Netherlands | 285 | 491 |
| Other separate account business (unit-linked) | 94 | 101 |
| Diversification benefit | -344 | -539 |
| Total | 252 | 409 |
The risk associated with the variable annuity stems mostly from the Japan VA business. Over the course of 2015, the hedge effectiveness ratio gradually increased – effectively reducing the associated risks as depicted in the decrease shown in the table. The guaranteed group pension business in the Netherlands – referred to as GB – also exhibits a decrease in risk due to additional hedging put in place on 31 December in anticipation of equity risks to be incurred in January 2016.
Liquidity risk is the risk that one of NN Group's entities does not have sufficient liquid assets to meet its financial obligations when they become due and payable, at reasonable cost and in a timely manner. Liquidity in this context is the availability of funds, or certainty that funds will be available without significant losses, to honour all commitments when due. NN Group manages liquidity risk via a liquidity risk framework: ensuring that – even after shock – NN Group's businesses can meet immediate obligations.
NN Group identifies two related liquidity risks: funding liquidity risks and market liquidity risks. Funding liquidity risk is risk that a company will not have the funds to meet its financial obligations when due. This risk is in particular relevant for NN Bank. Market liquidity risk is the risk that an asset cannot be sold without significant losses. The connection between market and funding liquidity stems from the fact that when payments are due, and not enough cash is available, investment positions need to be converted into cash. When market liquidity is low, this would lead to a loss.
NN Liquidity Management Principles include the following:
Annual accounts
NN Group defines three levels of Liquidity Management:
Two types of liquidity crisis events can be distinguished: a market event and an NN Group specific event. These events can be short-term or long-term and can both occur on a local, regional or global scale. The Treasury function at NN Group is responsible for Liquidity Management.
Liquidity limits are in place at various levels of the NN Group and its entities.
Liquidity risk is measured through several metrics including ratios and cash flow scenario analysis, in the base case and under several stressed scenarios. The liquidity risk metrics indicate that liquidity resources would be sufficient to meet expected liquidity uses under the scenarios tested. NN Group manages liquidity risk via a liquidity risk framework ensuring that – even after shock – NN Group's businesses can meet immediate obligations. Accordingly, NN Group does not calculate a specific OFaR for liquidity risk as liquidity is sufficiently available in the insurance business units.
Operational risk is a non-financial risk that includes direct or indirect losses resulting from inadequate or failed internal processes (including as a result of fraud and other misconduct), systems failure (including information technology and communications systems), human error, and certain external events.
The operational risk management areas can be defined as given below:
For operational risk NN Group has developed a framework governing the process of identifying, assessing, mitigating, monitoring and reporting operational risks.
Operational risk assessments are done based on historic data as well as on a forward looking basis in order to capture future risks. Once mitigating measures have been implemented and proven to be effective through monitoring and testing, the residual risk becomes the managed risk.
Mitigation of operational risks can be preventive in nature (e.g. training and education of employees, preventive controls, etc.) or can be implemented upon discovery of a risk (e.g. enforcement of controls, disciplinary measures against employees). Risk mitigating actions or controls are based on a balance between the expected cost of implementation and the expected benefits.
NN Group conducts regular operational risk and control monitoring to measure and evaluate the effectiveness of key controls. It determines whether the risks are within the norms for risk appetite and in line with the ambition levels and policies and standards. Operational risks are monitored through the Non-Financial Risk Dashboard (NFRD) process at all levels in the organisation. The NFRD is one tool which provides management at all organisational levels with information about key operational, compliance and legal risks and incidents. The exposure of NN Group to non-financial risks is regularly assessed through risk assessments and monitoring. After identification of the risks, each risk is assessed as to its likelihood of occurrence as well its potential impact, should it occur. Actions required to mitigate the risks are identified and tracked until the risk is either reduced, if such a reduction is possible, or accepted as a residual risk if the risk cannot be mitigated.
The business process owners are responsible for the actual execution of the controls and for assessing the adequacy of their internal controls. Operational risk management, as part of the second line of defence, is responsible for providing management with an objective assessment of the effectiveness and efficiency of NN Group risks and controls.
NN Group's OFaR for operational risk was EUR 172 million and EUR 168 million as at 31 December 2015 and 2014, respectively. The OFaR is calculated based on the standard formula for Solvency II. As it is additive to the modelled OFaR, it should be considered as net of diversification with other NN Group risks.
Annual accounts
Through NN Group's retirement services, insurance, investments and banking products, NN Group is committed to helping our customers secure their financial future. To fulfil this purpose, we base our work on three core values: care, clear, commit. Our Values set the standard for conduct and provide a compass for decision making. Further, NN Group is committed to the preservation of its reputation and integrity through compliance with applicable laws, regulations and ethical standards in each of the markets in which it operates ('Compliance Risk'). All employees are expected to adhere to these laws, regulations and ethical standards, and management is responsible for embedding the compliance related rules. Compliance is therefore an essential ingredient of good corporate governance. NN Group continuously enhances its compliance risk management programme to ensure that NN Group complies with international standards and laws.
NN Group separates compliance risk into four risk areas: client conduct, personal conduct, organisational conduct and financial services conduct. In addition to effective reporting systems, NN Group has also a whistle blower procedure which protects and encourages staff to 'speak up' if they know of or suspect a breach of external regulations, internal policies or our values. NN Group also has policies and procedures regarding anti-money laundering, sanctions and anti-terrorist financing, gifts and entertainment, anti-bribery, customer suitability, conflicts of interest, and confidential and inside information, as well as a code of conduct for its personnel. Furthermore, NN Group designates specific countries as 'ultra-high risk' and prohibits client engagements and transactions (including payments or facilitation) involving those countries.
NN Group performs a product review process when developing products and continuously invests in the maintenance of risk management, legal and compliance procedures to monitor current sales practices. Customer protection regulations as well as changes in interpretation and perception of acceptable market practices by both the public at large and governmental authorities might influence customer expectations. The risk of potential reputational and financial impact from products and sales practices exists because of the market situation, customer expectations, and regulatory activity. The compliance function and the business work closely together with the aim to anticipate changing customers' needs.
There is no specific compliance risk capital calculated for OFaR, however, it is considered to be part of the Operational Risk OFaR.
Following the risk appetite described above, NN Group also calculates sensitivities of IFRS net result. These risk sensitivities are designed to estimate a 1-in-20 year risk for the various risk factors. The following table sets out the shocks to parameters used to assess the sensitivities.
| Interest rate risk | Measured by non-parallel and asymmetric upward and downward 1-in-20 shocks in interest rates. Under IFRS-EU, NN Group values its policyholder liabilities using a discount rate that is set when the policies are sold, and subjects them to a reserve adequacy test using current interest rates. As a result, changes in interest rates do not affect IFRS net result through liability valuations, unless the adequacy of the insurance liabilities of a segment falls below the 50th percentile level. Apart from a few exceptions, interest rate movements do not impact IFRS result before tax as investment income for fixed income assets is recorded at amortised cost. A few derivative instruments not subject to hedge accounting could cause volatility in IFRS result before tax due to interest rates. |
|---|---|
| Equity risk | Measured by the maximum loss between a 31% upward and downward shock in equity prices. Equity shocks can impact IFRS net results due to (among others): impairment losses, fair value accounting, and fee income in unit-link accounts. |
| FX risk | Measured by the impact of the worse of a 20% upward or downward movement in all currencies compared to the Euro. IFRS net result can be impacted by FX movements in coupons, positions classified as Trading, or the amortised cost part of Assets classified as Available For Sale. |
| Credit spread risk | Determined using 1-in-20 Value at Risk shocks for marked-to-market individual assets. AAA government bonds are shocked for this sensitivity calculation. IFRS net result can be impacted by changes in spreads in impaired assets, positions classified as Trading, guarantees and/or fees on unit linked/variable annuity. |
| Counterparty default risk | Determined using 1-in-20 shocks for (i) fixed income assets at book value (that do not fall under spread risk) and (ii) for derivatives, reinsurance, money market, and Loans, including residential mortgages. |
| Real estate price risk | This is measured by the impact of an 8% drop in real estate prices only for the minority holdings and for all real estate re-valued through P&L. Other holdings will be included in case of possible impairments caused by a drop in prices. |
| Variable Annuity risk | Where fair value accounting is used, sensitivities to IFRS net result is based on changes in market value in a 1-in-20 year scenario with loss-absorption of taxes based on IFRS. |
| Mortality (Including Longevity) | |
| Morbidity | IFRS net result can be impacted by 1-in-20 year insurance risk shocks to the extent that they are within a one-year horizon. |
| P&C |
Annual accounts
The table below sets out various market and insurance risk impacts of one year 1-in-20 year sensitivities for IFRS net result.
| 2015 | 2014 | ||
|---|---|---|---|
| Interest Rate Upward Shock | -102 | -4 | |
| Interest Rate Downward Shock | 63 | 0 | |
| Equity –31% | -383 | -447 | |
| Equity +31% | 82 | 192 | |
| Market risk and credit risk | Real estate –8% | -232 | -249 |
| FX –20% | -107 | -32 | |
| Counterparty default | -118 | -96 | |
| Variable annuity (Europe and Japan) | -129 | -194 | |
| Mortality (including longevity) | -30 | -37 | |
| Insurance risk | Morbidity | -110 | -100 |
| P&C | -118 | -111 |
As at 31 December 2015, the equity risk primarily relates to the Own account equity holdings in the Netherlands and Belgium, the hedging of the separate account pension business in the Netherlands and fee income from NN Group's investment management business. Real estate IFRS net result sensitivities reflect investments in real estate funds and direct real estate assets. Market movements in real estate are reflected in the IFRS net result.
Due to the differences between IFRS and Solvency II accounting, the IFRS net result has different sensitivities under a 1-in-20 than the Solvency II Own Funds (as measured by OFaR). In general:
Another source of difference, including volatility in IFRS sensitivities, comes from the hedging programmes for the guaranteed separate account pension business in the Netherlands as the economic risk of the guarantee is the basis for hedging while the IFRS liability has a different valuation. Given the impact of these hedges on IFRS net result and sensitivities, the changes in these sensitivities between 2014 and 2015 are largely driven by the guaranteed separate account pension business in the Netherlands.
The goal is to adequately capitalise NN Group and its operating entities at all times to meet the interests of our stakeholders, including our customers and shareholders. The balance sheet is managed in line with the capital management framework which is based on regulatory, economic and rating agency requirements. NN Group closely monitors and manages the following metrics: Own Funds/SCR, IGD Solvency I ratio, cash capital at the holding company, financial leverage, fixed cost coverage, capital generation and liquidity.
The NN Group Corporate Finance department consists of Capital Management and Corporate Treasury. Activities of both departments are executed on the basis of established policies, guidelines and procedures.
Capital Management is responsible for the sufficient capitalisation of NN Group entities, which involves the management, planning and allocation of capital within NN Group. Corporate Treasury is responsible for management and execution of debt capital market transactions, term (capital) funding, cash management and risk management transactions.
Annual accounts
The capital framework takes into account regulatory, economic and rating agency requirements.
Capital positions of operating units are closely monitored and, if necessary, measures are taken to ensure capital adequacy. At the end of 2015, all business units were capitalised above their local regulatory requirements.
Because of the transition to a Solvency II regulatory environment per 1 January 2016 for applicable units, capital has been managed during the year with a focus on both the local statutory and Solvency I IGD capital frameworks as well as the Solvency II framework.
NN Group monitors and manages its liquidity risk based on certain severe stress scenarios, thereby following a bottom-up approach. Liquidity ratios are periodically reported and monitored both on an individual entity and on a consolidated basis.
Liquidity ratios indicate whether an entity can withstand a 12-month period of severe liquidity stress without external or NN Group support. Ratios are calculated as: (i) the liquid assets – in some cases subject to a haircut – of an entity divided by (ii) the outflows that it can expect, which includes lapses and market volatility in a severe stress scenario. Liquidity ratios of entities must be sufficient on a stand-alone entity basis. At year-end 2015, all entities report ratios higher than 100%.
Significant events of 2015 are listed below in chronological order.
In February 2015, ING Group sold 52 million shares of NN Group at a price of EUR 24.00 per share. As part of this transaction, NN Group repurchased approximately 8.3 million shares from ING Group for an aggregate amount of EUR 200 million.
In February 2015, Standard & Poor's raised its rating on NN Group by one notch to A- with a stable outlook. Moody's affirmed its Baa2 rating on NN Group and changed the outlook from negative to stable.
In March 2015, NN Group issued EUR 600 million senior unsecured notes with a fixed rate coupon of 1% per annum and a maturity of seven years. The net proceeds were used to repay a EUR 400 million senior loan to ING Group and EUR 200 million was on-lent to NN Bank by way of operational leverage to cover its funding needs.
In May 2015, ING Group sold 45 million shares of NN Group at a price of EUR 25.46 per share. As part of this transaction, NN Group repurchased approximately 5.9 million shares from ING Group for an aggregate amount of EUR 150 million.
In June 2015, NN Group paid a final dividend related to the second half year of 2014 of EUR 0.57 per ordinary share. To neutralise the dilutive effect of the stock dividend on earnings per share, NN Group repurchased 2,114,271 ordinary shares from ING Group.
In July 2015, NN Group completed the acquisition of the remaining 20% stake in the Polish Pension fund from ING Bank Slaski for an amount of EUR 31 million. Reference is made to Note 45 'Companies and businesses acquired and divested' for more information.
On 7 September 2015, NN Group paid an interim dividend of EUR 0.46 per ordinary share. NN Group repurchased 1,674,470 ordinary shares from ING Group to neutralise the dilutive effect of the stock dividend on earnings per share.
On 30 September 2015, ING Group announced the sale of 40 million shares of NN Group at a price of EUR 25.00 per share which settled on 5 October 2015. As part of this transaction, NN Group repurchased 6 million shares from ING Group for an aggregate amount of EUR 150 million.
Annual accounts
Solvency II is the regulatory framework for (re-)insurance undertakings and groups domiciled in the EU and replaced the former regulatory regime which was based on the EU Solvency I directive as of 1 January 2016.
Under the Solvency II regime, required capital (Solvency Capital Requirement) is risk-based and calculated as the post-tax value-at-risk at the confidence interval of 99.5% on a one-year horizon. Available capital (Own Funds) is determined as the excess of assets over liabilities, both being based on economic valuations, plus qualifying subordinated debt. The EU Solvency II directive requires that (re-)insurance undertakings and groups hold Eligible Own Funds covering the Solvency Capital Requirement.
Regulated entities which from local regulatory perspective are not subject to Solvency II regime (e.g. pension funds, NN Bank, NN Investment Partners and Japan Life) are included in Own Funds based on their local available capital and in SCR based on local required capital.
In December 2015, NN Group received approval from the Dutch regulator (DNB) to use its Partial Internal Model (PIM) under Solvency II for NN Group and its insurance subsidiaries in the Netherlands. The Solvency II capital ratios are still subject to final interpretations of Solvency II regulations including the treatment of tax in the SCR. The Solvency II capital ratios of NN Group and NN Life do not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by NN Group's Dutch insurance subsidiaries in the past, as this potential liability cannot be reliably estimated or quantified at this point.
NN Group was adequately capitalised at year-end 2015 with a Solvency II ratio of 239% based on the Partial Internal Model.
| 2015 | |
|---|---|
| Shareholders' equity | 20,469 |
| Elimination of deferred acquisition costs and other intangible assets | -1,000 |
| Valuation differences on assets | 1,955 |
| Valuation differences on liabilities, including insurance and investment contracts | -10,689 |
| Deferred tax effect on valuation differences | 2,379 |
| Difference in treatment of non-solvency II regulated entities | -870 |
| Excess assets/liabilities | 12,244 |
| Qualifying subordinated debt | 2,921 |
| Foreseeable dividends and distributions | -356 |
| Basic Own Funds | 14,809 |
| Non-available Own Funds | 1,271 |
| Non-eligible Own Funds | 197 |
| Eligible Own Funds (a) | 13,341 |
| − of which Tier 1 unrestricted | 8,484 |
| − of which Tier 1 restricted | 1,844 |
| − of which Tier 2 | 1,061 |
| − of which Tier 3 | 735 |
| − of which non-solvency II regulated entities | 1,217 |
| Solvency Capital Requirements (b) | 5,587 |
| − of which non-solvency II regulated entities | 684 |
| NN Group Solvency II ratio (a/b) 1 | 239% |
NN Life Solvency II ratio 1,2 216%
1 The Solvency ratios are not final until filed with the regulators. SII ratios are based on the partial internal model.
2 The NN Life SII ratio reflects the merger of Nationale-Nederlanden Levensverzekeringen Maatschappij N.V. and Nationale-Nederlanden Services N.V. as well as a dividend of EUR 150 million paid to NN Group in March 2016.
Annual accounts
Solvency II capital requirements for NN Group are based on the approved partial Internal Model. The group capital model is named as such due to the fact that an Internal Model is used to calculate the capital requirements for the Dutch insurance businesses while the Standard Formula is used to calculate capital requirements for operational risk (across the group) and capital requirements for the international businesses that fall under Solvency II, with Japan incorporated based on local capital rules under equivalence.
The choice for a partial internal model is based on the conviction that an Internal Model better reflects the risk profile of the Dutch insurance entities and have additional benefits for risk management purposes, whilst the Standard Formula adequately captures the risk profile of the international businesses:
The following table shows the NN Group capital requirements at year-end 2015:
| 2015 | |
|---|---|
| − market risk (including basis risk and counterparty default risk) | 3,988 |
| − non-market risk | 3,687 |
| − market / non-market risk diversification | -2,105 |
| BSCR: | 5,570 |
| Operational risk | 436 |
| NN Re VA Japan Model add-on | 57 |
| Loss absorbing capacity of technical provisions | -39 |
| Loss absorbing capacity of deferred taxes | -1,210 |
| Non-modelled Solvency II entities | 89 |
| Solvency II entities | 4,903 |
| Non-solvency II entities | 684 |
| NN Group PIM SCR | 5,587 |
The Basic Solvency Capital Requirements (BSCR) of the Solvency II entities, totalling EUR 5,570 million, include both the Internal Model business' BSCR (EUR 4,908 million) and the Standard Formula business' BSCR (EUR 845 million). Together, these figures reflect the diversification benefits between the Dutch and International businesses.
At the NN Group level, capital adequacy is reflected by the Insurance Group Directive (IGD). This is a regulatory concept defined as the IFRS-EU shareholders' equity, plus qualifying subordinated debt, adjusted for prudential filters. The Dutch Financial Supervision Act (Wet op het financieel toezicht), in which the IGD Solvency I ratio is implemented under the Dutch law, uses the term 'adjusted solvency'. In this method, the solvency margin is calculated on the basis of the consolidated accounts; it is the difference between:
When using this method, any solvency deficit is taken into account, as well as any necessary regulatory adjustments for Dutch insurance subsidiaries (as based on the Dutch Financial Supervision Act).
Solvency I was applied until the end of 2015 and has been replaced by Solvency II as of 1 January 2016 for all applicable units.
| 2015 | 2014 | |
|---|---|---|
| Shareholders' equity | 20,469 | 20,355 |
| Qualifying undated subordinated debt2 | 1,823 | 1,823 |
| Qualifying dated subordinated debt2 | 1,000 | 1,000 |
| Required regulatory adjustments | -8,378 | -9,100 |
| Total capital base (a) | 14,914 | 14,078 |
| EU required capital (b) | 4,663 | 4,686 |
| NN Group IGD Solvency I ratio (a/b)1 | 320% | 300% |
| NN Life Solvency I ratio1 | 294% | 257% |
1 The solvency ratios are not final until filed with the regulators. The NN Life Solvency I ratio reflects the merger of Nationale-Nederlanden Levensverzekeringen Maatschappij N.V. and Nationale-Nederlanden Services N.V. The comparative figures have been restated accordingly. The Solvency I ratio of NN Life at the end of 2015 reflects a dividend of EUR 150 million paid to NN Group in March 2016.
2 Subordinated debt included at notional value in the IGD calculation.
The NN Group IGD Solvency I ratio increased from 300% to 320% in 2015 largely due to the net result of EUR 1,565 million offset by capital flows to shareholders of EUR 940 million comprising EUR 500 million share buybacks, a EUR 57 million capital injection by ING Group to fulfil a commitment to the European Commission pertaining the capitalisation of NN Bank, the 2015 interim dividend of EUR 156 million and the proposed 2015 final dividend of EUR 341 million. The final dividend of 2014 was already reflected in the NN Group IGD Solvency I ratio at the end of 2014.
In 2015, the Solvency I ratio of NN Life improved from 257% to 294%, supported mainly by positive revaluations on equity and real estate investments, tightening of credit spreads and operating performance offset by dividends of EUR 565 million, including a dividend of EUR 150 million paid to NN Group in March 2016. The EUR 350 million dividend paid by NN Life in February 2015 was already reflected in its Solvency I ratio at the end of 2014.
Capital generation for subsidiaries is defined as the change of available capital over minimum required capital during the period, excluding capital flows, according to local regulatory capital frameworks applicable in 2015. The available capital and minimum required capital are reflected according to applicable local regulatory capital frameworks.
| 2015 | 2014 | Change 2015 | |||||
|---|---|---|---|---|---|---|---|
| Available Capital |
Available over Minimum Required Capital |
Available Capital |
Available over Minimum Required Capital |
Change 2015 | Of which capital flows 1 |
Capital Generation |
|
| Total of subsidiaries | 13,988 | 9,090 | 13,480 | 8,668 | 422 | -1,376 | 1,798 |
| of which NN Life 2 | 8,848 | 5,886 | 8,164 | 5,127 | 759 | -805 | 1,564 |
Note: Figures are not final until filed with the regulators.
1 Capital flows reflect capital injections (including subordinated loans) net of dividends (including interest on subordinated loans) for all subsidiaries.
2 The Solvency I ratio of NN Life reflects the merger of Nationale-Nederlanden Levensverzekeringen Maatschappij N.V. and Nationale-Nederlanden Services N.V. The comparative figure from 31 December 2014 has been restated accordingly and the available capital at 31 December 2014 is before the deduction of the EUR 350 million dividend paid by NN Life to NN Group in February 2015. The available capital at 31 December 2015 is before
the deduction of the EUR 150 million dividend paid by NN Life to NN Group in March 2016.
Over the full-year 2015 the capital generated by subsidiaries was EUR 1,798 million mainly supported by positive revaluations of equity and real estate investments as well as tightening of credit spreads in combination with positive operating performance offset by investment in new business.
Annual accounts
NN Group holds a cash capital position in the holding company to cover stress events and to fund holding company expenses and interest expenses. Another important related metric is the free cash flow at the holding which is defined as the change in the cash capital position at the holding company over the period, excluding acquisitions and capital transactions with shareholders and debtholders.
| 2015 | ||
|---|---|---|
| Cash capital position at the holding company – Opening balance | 1,413 | |
| − cash divestment proceeds | 1 | |
| − dividends from subsidiaries1 | 1,548 | |
| − capital injections into subsidiaries2 | -143 | |
| − other3 | -40 | |
| Free cash flow at the holding:4 | 1,366 | |
| Acquisitions | -31 | |
| Capital flows from/to shareholders | -792 | |
| Increase/decrease in debt and loans | -3 | |
| Cash capital position at the holding company – Closing balance | 1,953 |
Note: cash capital is defined as net current assets available at the holding company.
1 Includes interest on subordinated loans provided to subsidiaries by the holding company.
2 Includes the change of subordinated loans provided to subsidiaries by the holding company.
3 Includes interest on subordinated loans and debt, holding company expenses and other cash flows.
4 Free cash flow to the holding company is defined as the change in cash capital position of the holding company over the period,
excluding acquisitions and capital transactions with shareholders and debtholders.
The cash capital position at the holding company increased to EUR 1,953 million from EUR 1,413 million at the beginning of the year. The increase reflects free cash flow to the holding of EUR 1,366 million driven by dividends from all business segments, partly offset by EUR 792 million of net capital flows to shareholders primarily comprising ordinary dividend payments of EUR 349 million and share buy-backs of EUR 500 million.
Cash capital is held at the holding company to cover stress events and to fund holding costs. It is NN Group's aim for the cash capital position at the holding company to be in a target range between EUR 0.5 billion and EUR 1.5 billion. Taking into account the share buyback of EUR 250 million executed in January 2016 and the proposed final 2015 dividend of EUR 341 million, the cash capital position at the end of 2015 would be EUR 1,363 million on a pro-forma basis.
The financial leverage and fixed-cost coverage ratio are managed in accordance with a single A financial strength rating.
| 2015 | 2014 | |
|---|---|---|
| Shareholders' equity | 20,469 | 20,355 |
| Revaluation reserve debt securities | -7,792 | -9,044 |
| Revaluation reserve crediting to life policyholders | 4,885 | 5,529 |
| Revaluation reserve cash flow hedge | -4,029 | -4,464 |
| Goodwill | -260 | -265 |
| Minority interests | 9 | 76 |
| Capital base for financial leverage (a) | 13,283 | 12,187 |
| − undated subordinated notes1 | 986 | 986 |
| − subordinated debt | 2,290 | 2,297 |
| Total subordinated debt: | 3,276 | 3,282 |
| Debt securities issued (financial leverage) | 398 | 400 |
| Financial leverage (b) | 3,674 | 3,682 |
| Debt securities issued (operational leverage) | 199 | |
| Total debt | 3,873 | 3,682 |
| Financial leverage ratio (b/(a+b)) | 21.7% | 23.2% |
| Fixed-cost coverage ratio1, 2 | 13.1x | 9.9x |
1 The undated subordinated notes classified as equity are considered financial leverage in the calculation of the financial leverage ratio.
The related interest is 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 on financial leverage.
Annual accounts
The financial leverage ratio of NN Group improved to 21.7% at year-end 2015. The capital base for financial leverage increased by EUR 1,096 million, largely driven by the 2015 net result of EUR 1,565 million partly offset by capital flows with shareholders of EUR 792 million.
The fixed-cost coverage ratio improved to 13.1x at the end of 2015 versus 9.9x at the end of 2014, mainly due to increased result before tax.
At the Annual General Meeting on 2 June 2016, a final dividend will be proposed of EUR 1.05 per ordinary share, or approximately EUR 341 million in total based on the current number of outstanding shares (net of treasury shares). Together with the 2015 interim dividend of EUR 0.46 per ordinary share paid in September 2015, NN Group's total dividend over 2015 will be EUR 1.51 per ordinary share which is equivalent to a dividend pay-out ratio of around 41% of NN Group's full-year 2015 net operating result of the ongoing business. 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 through the repurchase of ordinary shares, which may include a repurchase of part of ING Group's shareholding in NN Group. If the proposed dividend is approved by the shareholders, NN Group ordinary shares will be quoted ex-dividend on 7 June 2016. The record date for the dividend will be 8 June 2016. The election period will run from 7 June up to and including 21 June 2016. The stock fraction for the stock dividend will be based on the volume weighted average price of NN Group ordinary shares on Euronext Amsterdam for the five trading days from 15 June through 21 June 2016. The dividend will be payable on 28 June 2016.
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.
On 30 December 2015, 7,674,470 NN Group treasury shares were cancelled which were acquired as part of the sale of NN Group shares by ING Group announced in September 2015 and the neutralisation of the dilutive effect of the stock dividend relating to the 2015 interim dividend in September 2015.
On 22 March 2016, the total number of NN Group shares outstanding (net of treasury shares) was 324,533,380.
On 30 September 2015, Standard & Poor's affirmed its A- rating on NN Group with a stable outlook. Moody's affirmed its Baa2 rating on NN Group with a stable outlook on 17 December 2015.
| Rating | Outlook | |
|---|---|---|
| Standard & Poor's | A- | Stable |
| Moody's | Baa2 | Stable |
Annual accounts
The Consolidated annual accounts of NN Group N.V. for the year ended 31 December 2015 were authorised for issue in accordance with a resolution of the Executive Board on 22 March 2016. The Executive Board may decide to amend the Consolidated annual accounts as long as these are not adopted by the General Meeting.
The General Meeting may decide not to adopt the Consolidated annual accounts, but may not amend these during the meeting. The General Meeting can decide not to adopt the Consolidated accounts, propose amendments and then adopt the Consolidated annual accounts after a normal due process.
The Hague, 22 March 2016
The Supervisory Board
J.H. (Jan) Holsboer, chair D.H. (Dick) Harryvan, vice-chair H.J.G. (Heijo) Hauser R.W. (Robert) Jenkins Y.C.M.T. (Yvonne) van Rooij J.W. (Hans) Schoen H.M. (Hélène) Vletter-van Dort
The Executive Board
E. (Lard) Friese, CEO, chair D. (Delfin) Rueda, CFO, vice-chair
Parent company balance sheet
As at 31 December before appropriation of result
| notes | 2015 | 2014 | |
|---|---|---|---|
| Assets | |||
| Investments in group companies | 2 | 20,882 | 21,170 |
| Other assets | 3 | 4,774 | 4,345 |
| Total assets | 25,656 | 25,515 | |
| Equity | 4 | ||
| Share capital | 40 | 42 | |
| Share premium | 12,153 | 12,098 | |
| Share of associates reserve | 8,546 | 9,008 | |
| Retained earnings | -1,835 | -1,381 | |
| Unappropriated result | 1,565 | 588 | |
| Shareholders' equity | 20,469 | 20,355 | |
| Undated subordinated notes | 4 | 986 | 986 |
| Total equity | 21,455 | 21,341 | |
| Liabilities | |||
| Subordinated debt | 5 | 2,290 | 2,297 |
| Other liabilities | 6 | 1,911 | 1,877 |
| Total liabilities | 4,201 | 4,174 | |
| Total equity and liabilities | 25,656 | 25,515 |
References relate to the notes starting on page 153. These form an integral part of the Parent company annual accounts.
| 2015 | 2014 | |
|---|---|---|
| Result of group companies | 1,669 | 754 |
| Other results after tax | -104 | -166 |
| Net result | 1,565 | 588 |
| Share | Share | Share of associate |
Other | Shareholders' | Undated subordinated |
||
|---|---|---|---|---|---|---|---|
| capital | premium | reserve | reserves1 | equity | notes | Total equity | |
| Balance as at 1 January 2015 | 42 | 12,098 | 9,008 | -793 | 20,355 | 986 | 21,341 |
| Unrealised revaluations Available-for-sale investments and other |
-639 | -69 | -708 | -708 | |||
| Realised gains/losses transferred to the profit and loss account |
-345 | -345 | -345 | ||||
| Changes in cash flow hedge reserve | -435 | -435 | -435 | ||||
| Deferred interest credited to policyholders | 644 | 644 | 644 | ||||
| Share of other comprehensive income of associates and joint ventures |
9 | 9 | 9 | ||||
| Exchange rate differences | 188 | 188 | 188 | ||||
| Remeasurement of the net defined benefit asset/liability |
28 | 28 | 28 | ||||
| Unrealised revaluations property in own use | -3 | -3 | -3 | ||||
| Total amount recognised directly in equity (Other comprehensive income) |
0 | 0 | -553 | -69 | -622 | 0 | -622 |
| Net result for the period | 1,565 | 1,565 | 1,565 | ||||
| Total comprehensive income | 0 | 0 | -553 | 1,496 | 943 | 0 | 943 |
| Changes in share capital | -2 | -2 | 4 | 0 | 0 | ||
| Transfers to/from associates | 91 | -91 | 0 | 0 | |||
| Capital contribution | 57 | 57 | 57 | ||||
| Dividend | -251 | -251 | -251 | ||||
| Purchase/sale of treasury shares | -597 | -597 | -597 | ||||
| Employee stock option and share plans | 5 | 5 | 5 | ||||
| Coupon on undated subordinated notes | -34 | -34 | -34 | ||||
| Changes in composition of the group and other changes |
-9 | -9 | -9 | ||||
| Balance as at 31 December 2015 | 40 | 12,153 | 8,546 | -270 | 20,469 | 986 | 21,455 |
1 Other reserves includes Retained earnings and Unappropriated result.
| Share capital |
Share premium |
Share of associate reserve |
Other reserves1 |
Shareholders' equity |
Undated subordinated notes |
Total equity | |
|---|---|---|---|---|---|---|---|
| Balance as at 1 January 2014 | 0 | 11,605 | 3,068 | -611 | 14,062 | 0 | 14,062 |
| Unrealised revaluations Available-for-sale investments and other |
6,302 | -44 | 6,258 | 6,258 | |||
| Realised gains/losses transferred to the profit and loss account |
1 | 1 | 1 | ||||
| Changes in cash flow hedge reserve | 1,738 | 1,738 | 1,738 | ||||
| Deferred interest credited to policyholders | -2,950 | -2,950 | -2,950 | ||||
| Share of other comprehensive income of associates and joint ventures |
43 | 43 | 43 | ||||
| Exchange rate differences | 117 | 117 | 117 | ||||
| Remeasurement of the net defined benefit asset/liability |
-121 | -121 | -121 | ||||
| Unrealised revaluations property in own use | 1 | 1 | 1 | ||||
| Total amount recognised directly in equity (Other comprehensive income) |
0 | 0 | 5,131 | -44 | 5,087 | 0 | 5,087 |
| Net result for the period | 588 | 588 | 588 | ||||
| Total comprehensive income | 0 | 0 | 5,131 | 544 | 5,675 | 0 | 5,675 |
| Issuance of undated subordinated notes | 0 | 986 | 986 | ||||
| Changes in share capital | 42 | -42 | 0 | 0 | |||
| Transfers to/from associates | 809 | -809 | 0 | 0 | |||
| Capital contribution | 850 | 850 | 850 | ||||
| Dividend | -315 | -315 | -315 | ||||
| Employee stock option and share plans | 12 | 12 | 12 | ||||
| Changes in composition of the group and other changes |
71 | 71 | 71 | ||||
| Balance as at 31 December 2014 | 42 | 12,098 | 9,008 | -793 | 20,355 | 986 | 21,341 |
1 Other reserves includes Retained earnings and Unappropriated result.
The parent company accounts of NN Group N.V. are prepared in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code. The accounting policies applicable to presentation and disclosures are in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code. The principles of valuation and determination of results stated in connection with the Consolidated balance sheet and profit and loss account are also applicable to the parent company balance sheet and profit and loss account with the exception of investments in group companies and Associates and joint ventures which are recognised at net asset value with goodwill, if any, recorded under intangible assets.
The profit and loss account is drawn up in accordance with Article 402, Book 2 of the Dutch Civil Code.
A list containing the information referred to in Article 379 (1), Book 2 of the Dutch Civil Code has been filed with the Commercial Register of the Chamber of Commerce in Amsterdam in accordance with Article 379 (5), Book 2 of the Dutch Civil Code.
Changes in balance sheet values due to changes in the Revaluation reserves of associates are reflected in the Share of associates reserve, which forms part of Shareholders' equity. Changes in balance sheet values due to the results of these associates, accounted for in accordance with NN Group accounting policies, are included in the profit and loss account. Other changes in the balance sheet value of these associates, other than those due to changes in share capital, are included in the Share of associates reserve.
A legal reserve is carried at an amount equal to the share in the results of associates since their first inclusion at net asset value less the amount of profit distributions to which rights have accrued in the interim. Profit distributions which can be repatriated to the Netherlands without restriction are likewise deducted from the Share of associates reserve.
| Balance sheet Interest held value |
Interest held | Balance sheet value |
||
|---|---|---|---|---|
| 2015 | 2015 | 2014 | 2014 | |
| NN Insurance Eurasia N.V. | 100% | 20,731 | 100% | 21,041 |
| NN Insurance International B.V. | 100% | 136 | 100% | 113 |
| Other | 100% | 15 | 100% | 16 |
| Investments in group companies | 20,882 | 21,170 |
| 2015 | 2014 | |
|---|---|---|
| Changes in investments in group companies – Opening balance | 21,170 | 18,393 |
| Revaluations | -589 | 5,185 |
| Result of group companies | 1,669 | 754 |
| Capital contribution | 77 | 29 |
| Dividend | -1,445 | -3,191 |
| Changes in investments in group companies – Closing balance | 20,882 | 21,170 |
| 2015 | 2014 | |
|---|---|---|
| Receivables from group companies | 1,557 | 2,029 |
| Cash and other receivables | 3,217 | 2,316 |
| Other assets | 4,774 | 4,345 |
As at 31 December 2015, an amount of EUR 1,719 million (2014: EUR 1,489 million) is expected to be settled after more than one year from the balance sheet date.
Ordinary shares
| 2015 | 2014 | |
|---|---|---|
| Share capital | 40 | 42 |
| Share premium | 12,153 | 12,098 |
| Share of associates reserve | 8,546 | 9,008 |
| Retained earnings and unappropriated result | -270 | -793 |
| Shareholders' equity | 20,469 | 20,355 |
| Undated subordinated notes | 986 | 986 |
| Total equity | 21,455 | 21,341 |
As at 31 December 2015, share premium includes an amount of EUR 6,085 million (2014: EUR 6,085 million) exempt from Dutch withholding tax.
For details on the changes in share capital, share premium and warrants, reference is made to Note 12 'Equity' in the Consolidated annual accounts.
| Retained Unappropriated |
|||
|---|---|---|---|
| earnings | result | Total | |
| Retained earnings and unappropriated result – Opening balance | -1,381 | 588 | -793 |
| Net result for the period | 1,565 | 1,565 | |
| Unrealised revaluations | -69 | -69 | |
| Transfers to/from share of associates reserve | -91 | -91 | |
| Transfers to/from retained earnings | 588 | -588 | 0 |
| Dividend | -251 | -251 | |
| Purchase/sale of treasury shares | -597 | -597 | |
| Employee stock option and share plans | 5 | 5 | |
| Coupon on undated subordinated notes | -34 | -34 | |
| Changes in the composition of the group and other changes | -5 | -5 | |
| Retained earnings and unappropriated result – Closing balance | -1,835 | 1,565 | -270 |
| Retained Unappropriated |
|||
|---|---|---|---|
| earnings | result | Total | |
| Retained earnings and unappropriated result – Opening balance | -933 | 322 | -611 |
| Net result for the period | 588 | 588 | |
| Unrealised revaluations | -44 | -44 | |
| Transfer to Share of associates reserve | -809 | -809 | |
| Transfer to Retained earnings | 322 | -322 | 0 |
| Employee stock option and share plans | 12 | 12 | |
| Changes in the composition of the group and other changes | 71 | 71 | |
| Retained earnings and unappropriated result – Closing balance | -1,381 | 588 | -793 |
The total amount of Equity in the Parent company annual accounts equals Shareholders' equity (parent) in the Consolidated annual accounts. Certain components within equity are different, as a result of the following presentation differences between the Parent company accounts and Consolidated accounts:
| 2015 | 2014 | |
|---|---|---|
| Unrealised revaluations within consolidated group companies | 8,321 | 9,103 |
| Currency translation reserve | -24 | -198 |
| Net defined benefit asset/liability remeasurement reserve | -90 | -118 |
| Reserve for non-distributable retained earnings of associates | 313 | 221 |
| Revaluations on investment property and certain participations recognised in income | 26 | |
| Share of associates reserve | 8,546 | 9,008 |
Positive components of the Share of associate reserve of EUR 8,660 million (2014: EUR 9,324 million) cannot be freely distributed. The reserve for cash flow hedges is included in the Share of associates reserve on a net basis. Retained earnings can be freely distributed, except for an amount equal to the negative balance in each of the components in the Share of associates reserve.
NN Group N.V. is subject to legal restrictions regarding the amount of dividends it can pay to its shareholders. The Dutch Civil Code contains the restriction that dividends can only be paid up to an amount equal to total shareholders' equity less the issued and outstanding capital and less the reserves required by law. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts.
In addition, NN Group's ability to pay dividends is dependent on the dividend payment ability of its subsidiaries, associates and joint ventures. NN Group is legally required to create a non-distributable reserve insofar profits of its subsidiaries, associates and joint ventures are subject to dividend payment restrictions. Such restrictions may, among others, be of a similar nature as the restrictions which apply to NN Group.
Legally distributable reserves, determined in accordance with the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code, from NN Group's subsidiaries, associates and joint ventures are as follows:
| 2015 | 2015 | 2014 | 2014 | |
|---|---|---|---|---|
| Total shareholders' equity | 20,469 | 20,355 | ||
| Share capital | 40 | 42 | ||
| Positive components of Share of associates reserve | 8,660 | 9,324 | ||
| Total non-distributable part of shareholders' equity | 8,700 | 9,366 | ||
| Distributable reserves based on the Dutch Civil Code | 11,769 | 10,989 |
The Dutch supervisory rules and regulations stemming from the Dutch Financial Supervision Act (Wet op het financieel toezicht) provide a second restriction on the possibility to distribute dividends. Total freely distributable reserves is the minimum of Freely distributable capital on the basis of solvency requirements and Freely distributable capital on the basis of capital protection.
| 2015 | 2015 | 2014 | 2014 | |
|---|---|---|---|---|
| Solvency requirement under the Financial Supervision Act | 4,663 | 4,686 | ||
| Reserves available for financial supervision purposes | 14,914 | 14,078 | ||
| Total freely distributable reserves on the basis of solvency requirements | 10,251 | 9,392 | ||
| Total freely distributable reserves on the basis of the Dutch Civil Code | 11,769 | 10,989 | ||
| Total freely distributable reserves (lowest of the above values) | 10,251 | 9,392 |
Reference is made to Note 51 'Capital and liquidity management' for more information on solvency requirements.
There are other restrictions to the ability of subsidiaries, associates and joint ventures to distribute reserves to NN Group as a result of minimum capital requirements that are imposed by industry regulators in the countries in which the group companies operate. Reference is made to Note 51 'Capital and liquidity management' in the Consolidated Annual Accounts for the minimum capital requirements.
In addition to the legal and regulatory restrictions on distributing dividends from subsidiaries, associates and joint ventures to NN Group there are various other considerations and limitations that are taken into account in determining the appropriate levels of equity in the Group's subsidiaries, associates and joint ventures. These considerations and limitations include, but are not restricted to, rating agency and regulatory views, which can change over time; it is not possible to disclose a reliable quantification of these limitations.
Without prejudice to the authority of the Executive Board to allocate profits to reserves and to the fact that the ordinary shares are the most junior securities issued by NN Group, no specific dividend payment restrictions with respect to ordinary shares exist.
Furthermore, NN Group is subject to legal restrictions with respect to repayment of capital to holders of ordinary shares. Capital may be repaid to the holders of ordinary shares pursuant to an amendment of NN Group's Articles of Association whereby the ordinary shares are written down. Pursuant to the Dutch Civil Code, capital may only be repaid if none of NN Group's creditors opposes such a repayment within two months following the announcement of a resolution to that effect.
In July 2014, NN Group N.V. issued Fixed to Floating Rate Undated subordinated notes with a par value of EUR 1 billion. The notes are undated, but are callable after 11.5 years and every quarter thereafter (subject to regulatory approval). The coupon is fixed at 4.50% per annum for the first 11.5 years and will be floating thereafter. As these notes are undated and include optional deferral of interest at the discretion of NN Group, these are classified under IFRS as equity. Coupon payments are deducted from equity if and when paid or contractually due. The discount to the par value and certain issue costs were deducted from equity at issue, resulting in a balance sheet value equal to the net proceeds of EUR 986 million.
| Interest rate | Year of issue | Due date | First call date | Notional amount | Balance sheet value | ||
|---|---|---|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | ||||
| 4.625% | 2014 | 8-Apr-44 | 8-Apr-24 | 1,000 | 1,000 | 986 | 985 |
| Variable | 2007 | Perpetual | 15-Jan-16 | 506 | 506 | 506 | 506 |
| Variable | 2005 | Perpetual | 8-Mar-16 | 169 | 169 | 169 | 171 |
| Variable | 2005 | Perpetual | 15-Jan-16 | 148 | 148 | 148 | 148 |
| 6.375% | 2002 | 7-May-27 | 7-May-17 | 476 | 476 | 481 | 487 |
| Subordinated debt | 2,290 | 2,297 |
All Subordinated debt is euro denominated.
| 2015 | 2014 | |
|---|---|---|
| Debt securities issued | 597 | |
| Amounts owed to group and parent companies | 1,238 | 1,800 |
| Other amounts owed and accrued liabilities | 76 | 77 |
| Other liabilities | 1,911 | 1,877 |
| 2015 | 2014 | |
|---|---|---|
| Within 1 year | 1,238 | 1,800 |
| Amounts owed to group and parent companies | 1,238 | 1,800 |
NN Group N.V. has issued statements of liability in connection with Article 403, Book 2 of the Dutch Civil Code and other guarantees (mainly funding and redemption guarantees) for group companies.
Reference is made to the Consolidated annual accounts for the number of employees, audit fees and remuneration of the Executive Board, the Management Board and the Supervisory Board.
Annual accounts
The Parent company annual accounts of NN Group N.V. for the year ended 31 December 2015 were authorised for issue in accordance with a resolution of the Executive Board on 22 March 2016. The Executive Board may decide to amend the Parent company annual accounts as long as these are not adopted by the General Meeting.
The General Meeting may decide not to adopt the Parent company annual accounts, but may not amend these during the meeting. The General Meeting can decide not to adopt the Parent company accounts, propose amendments and then adopt the Parent company annual accounts after a normal due process.
The Hague, 22 March 2016
The Supervisory Board
J.H. (Jan) Holsboer, chair D.H. (Dick) Harryvan, vice-chair H.J.G. (Heijo) Hauser R.W. (Robert) Jenkins Y.C.M.T. (Yvonne) van Rooij J.W. (Hans) Schoen H.M. (Hélène) Vletter-van Dort
The Executive Board
E. (Lard) Friese, CEO, chair D. (Delfin) Rueda, CFO, vice-chair
We have audited the accompanying 2015 annual accounts of NN Group N.V., based in Amsterdam ('NN Group' or 'the Company') as set out on pages 37 to 158. The annual accounts include the consolidated annual accounts and the parent company annual accounts.
In our opinion:
The consolidated annual accounts comprise:
The parent company annual accounts comprise:
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the Our responsibilities for the audit of the annual accounts section of our report.
We are independent of NN Group in accordance with the 'Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten' (ViO) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the 'Verordening gedrags- en beroepsregels accountants' (VGBA).
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
| Planning Materiality | €120 million |
|---|---|
| Benchmark used | 1% of NN Group's Shareholders' equity, excluding revaluation reserves |
| Rationale for the benchmark applied | NN Group's equity and solvency, and the ability to pay dividends and meet policyholder liabilities, are key indicators for the users of its financial statements. As such, we have based materiality on NN Group's Shareholders' equity, adjusted for the revaluation reserve. The revaluation reserve can fluctuate significantly based on changes in interest rates and spreads; it has therefore been excluded. |
We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the annual accounts for qualitative reasons.
We agreed with the Audit Committee of the Supervisory Board that misstatements in excess of EUR 6 million, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Report of the Supervisory Board Corporate governance
Annual accounts
NN Group is at the head of a group of entities, and these entities are structured into seven segments: Netherlands Life, Netherlands Non-life, Insurance Europe, Japan Life, Investment Management, Other and Japan Closed Block VA, each comprising of multiple reporting units. The financial information of this group is included in the consolidated annual accounts of NN Group.
We are responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for the reporting units based on their size and or the risk profile.
Following our assessment of the risk of material misstatement to NN Group's annual accounts, we have selected 18 reporting units among the seven segments which represent the principal business units within NN Group's reportable segments and account for approximately 95% of NN Group's total assets, approximately 95% of equity and approximately 85% of NN Group's profit before tax.
In total, 7 reporting units required an audit of the complete financial information, either due to their overall size or risk profile. Specific audit procedures on certain balances and transactions were performed for 11 reporting units. We have used the work of other EY auditors when auditing these reporting units in and outside the Netherlands.
The NN Group audit team provided detailed instructions to each component team to serve as the basis for audit procedures to be performed, which included areas of audit emphasis. We also executed oversight visits to select component teams and engaged in regular communication that has been designed to confirm that the audit progress and findings for each of the in-scope locations were discussed between the NN Group audit team and the component team. By performing the procedures mentioned above at group entities, together with additional procedures at NN Group level, we have been able to obtain sufficient and appropriate audit evidence regarding NN Group's financial information as a whole to provide a basis for our opinion on the consolidated annual accounts.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.
These matters were addressed in the context of our audit of the annual accounts as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Estimates used in calculation of insurance contract liabilities and Reserve Adequacy Test (RAT)
NN Group has insurance and investment contract liabilities of €116 billion representing 82% of its total liabilities, of which €113 billion relates to insurance contracts. The measurement of insurance contract liabilities involves judgement over uncertain future outcomes, mainly the ultimate total settlement value of long-term liabilities, including those for guarantees provided to policyholders. Various economic and non-economic assumptions are being used to estimate these long-term liabilities, both in the insurance contract liabilities as reported in the balance sheet and in the reserve adequacy tests. The insurance liabilities of NN Group's reporting units are calculated based on a prudent prospective actuarial method. The specific methodologies applied may differ between reporting units. For traditional business, assumptions are initially set at the policy issue date. For other investment type products, assumptions are based on management's best estimate at the reporting date.
The Group's IFRS reserve adequacy test is performed in order to confirm that insurance contract liabilities, net of deferred acquisition cost, are adequate in the context of expected future cash outflows.
The Netherlands Life reserve adequacy test in respect of the individual life and group pension business requires the application of significant judgement in the setting of the longevity, expense and reinvestment rate assumptions. Further, the valuation of guarantees in the Japan Closed Block Variable Annuity business involves exercising judgement on policyholder behaviour and expense assumptions in response to developments in financial markets, and the run off of the portfolio.
NN Group invests in various asset classes, of which 98% is carried at fair value in the balance sheet. Fair value measurement can be subjective, and more so for areas of the market reliant on model based valuation or with weak liquidity. Valuation techniques for real estate, private equity investments and for non-listed bonds, equities and derivatives involve setting various assumptions regarding pricing factors. The use of different valuation techniques and assumptions could produce significantly different estimates of fair value. Associated risk management disclosure is complex and dependent on high quality data. Specific areas of focus include the valuation of fair value Level 2 assets, and Level 3 assets where valuation techniques are applied in which unobservable inputs are used.
In the Capital and liquidity management section of the annual accounts included in note 51, NN Group provides disclosures on its capital position in accordance with Solvency I, which was effective as at 31 December 2015, and the new supervisory regime Solvency II, which has come into force on 1 January 2016.
The Solvency II calculations are based on NN Group's partial internal model, which was approved by supervisor DNB in December 2015. As disclosed in the Capital and liquidity management paragraph in section Solvency II, there are uncertainties in the final interpretation of the Solvency II requirements, most notably with respect to the loss absorbing capacity of deferred taxes in the calculation of the Solvency Capital Requirement. Further, in the calculation of the Solvency II ratio, NN has not provided for the contingent liability in respect of the unit-linked issue in the Netherlands as no reliable estimate can be made of the outcome at this moment. Changes to the interpretation of the Solvency II requirements of the loss absorbing capacity of deferred taxes and the accounting for contingent liability for the unit linked issue can materially impact the Solvency II ratio disclosed.
We involved internal actuarial specialists in performing the audit procedures in this area, which included among others:
Further key audit procedures included assessing the Group's methodology for calculating the insurance liabilities, assessing the changes in the company's approach to reserve adequacy testing and an assessment of internal controls in this respect, including the analyses of the movements in insurance contracts liabilities and reserve adequacy surplus per segment during the year. We assessed whether the movements are in line with the changes in assumptions adopted by NN Group, our understanding of developments in the business and our expectations derived from market experience.
We considered whether NN Group's disclosures in the annual accounts in relation to insurance contract liabilities in note 16 and liability adequacy test results in note 32 comply with the relevant accounting requirements.
We assessed and tested the design and operating effectiveness of the controls over valuation, independent price verification and model approval. We performed additional procedures for areas of higher risk and estimation, involving our valuation specialists. This included, where relevant, comparison of judgements made to current and emerging market practice and re-performance of valuations on a sample basis. We also assessed the impact of other sources of fair value information including gains or losses on disposal. Finally, we assessed and tested the design and operating effectiveness of the controls over related disclosures including the disclosures in notes 35 and 36.
We involved internal regulatory, tax and actuarial specialists in performing our audit procedures in this area, which included among others consideration of the methodology applied and assessment of the models used, the scenarios and economic and non-economic assumptions applied, risk margins added and the diversification benefits calculated.
As part of our audit procedures, we have assessed the design and operating effectiveness of the internal controls over the solvency calculations, including NN Group's methodology, model and assumption approval processes and management review controls. Also, where relevant, comparison of judgements was made to current and emerging market practice and re-performance of calculations on a sample basis.
We considered whether NN Group's disclosures in note 51 comply with the relevant accounting requirements.
Reliability and continuity of electronic data processing
NN Group is highly dependent on its IT infrastructure for the continuity of the operations. NN Group continues to invest in its IT infrastructure and processes to meet clients' needs and business requirements. The Group is continuously improving the efficiency and effectiveness of its IT infrastructure and the reliability and continuity of the electronic data processing, including its defence against cyber-attacks. An area of attention is the ongoing development of IT systems and processes to meet regulatory reporting requirements under Solvency II.
Holders of the NN Group unit-linked products sold in the Netherlands (where the customer bears all or part of the investment risk), or consumer protection organisations on their behalf, have filed claims or initiated proceedings against the Group and may continue to do so. A negative outcome of such claims and proceedings in respect of unit-linked products, settlements or any other actions for the benefit of customers by other insurers and sector-wide measures could result in substantial losses for the Group relating to compensation. The financial consequences of these legal proceedings cannot be reliably estimated or quantified at this point. Refer to note 44 of the annual accounts.
As part of our audit procedures we have assessed the changes in the IT infrastructure and have tested the reliability and continuity of electronic data processing within the scope of the audit of the annual accounts. For that purpose we have included IT auditors in our team. Our procedures included testing of controls with regards to IT systems and processes relevant for financial reporting.
We involved our own specialists in performing the audit procedures in this area, which included:
We also considered whether the Group's disclosure in respect of this legal exposure is compliant with the relevant accounting requirements. We focused on the adequacy of disclosure of the related risks and assumptions in note 44 to the annual accounts.
The Executive Board is responsible for the preparation and fair presentation of the annual accounts in accordance with IFRS-EU and Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the management board report in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Executive Board is responsible for such internal control as management determines is necessary to enable the preparation of the annual accounts that are free from material misstatement, whether due to fraud or error.
As part of the preparation of the annual accounts, the Executive Board is responsible for assessing the company's ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Executive Board should prepare the annual accounts using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. The Executive Board should disclose events and circumstances that may cast significant doubt on the company's ability to continue as a going concern in the annual accounts.
The Supervisory Board is responsible for overseeing the company's financial reporting process.
Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all errors and fraud.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
We have exercised professional judgment and have maintained professional scepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included, among others:
Report of the Supervisory Board Corporate governance
Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities. Decisive were the size and/or the risk profile of the group entities or operations. On this basis, we selected group entities for which an audit or review had to be carried out on the complete set of financial information or specific items.
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit.
We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Supervisory Board, we determine those matters that were of most significance in the audit of the annual accounts of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.
Pursuant to legal requirements of Part 9 of Book 2 of the Dutch Civil Code (concerning our obligation to report about the Report of the Executive Board and other information):
We have been the external auditor of NN Group and its predecessors for many years, and were reappointed as external auditor of the 2015 annual accounts at the NN Group N.V. General Meeting held on 28 May 2015. We will mandatorily rotate off of the NN Group audit for purpose of the 2016 annual accounts in accordance with Dutch law.
Amsterdam, 22 March 2016 Ernst & Young Accountants LLP
Signed by J.G. Kolsters
The result is appropriated pursuant to Article 34 of the Articles of Association of NN Group N.V., the relevant stipulations of which state that the appropriation of result shall be determined by the General Meeting of Shareholders, having heard the advice of the Executive Board. It is proposed to add the 2015 net result of EUR 1,565 million minus the (interim and final) cash dividends to the Retained earnings.
In September 2015 NN Group paid a 2015 interim dividend of EUR 0.46 per ordinary share, which reflects a total amount of EUR 156 million. The 2015 interim dividend was paid on 7 September 2015 either in cash or in ordinary shares at the election of the shareholders. As a result, an amount of EUR 111 million was distributed out of Other reserves (cash dividend) and 1.7 million ordinary shares, with a par value of EUR 0.12 per share and a volume weighted average share price of EUR 26.78 were issued (stock dividend).
In addition to the interim dividend paid in September 2015, NN Group proposes a final dividend of EUR 1.05 per ordinary share, or EUR 341 million in total based on the number of outstanding shares at the date of this Financial Report (net of treasury shares). The proposal is to pay the final dividend either in cash or in ordinary shares at the election of the shareholders. The cash dividend will be distributed out of Other reserves.
In 2015, Coupon payments on the undated subordinated notes of EUR 34 million have been distributed out of Other reserves.
Report of the Supervisory Board Corporate governance Annual accounts
In January 2016, NN Group repurchased 8 million ordinary shares from ING Groep N.V. at a price of EUR 31.00 per share for an aggregate amount of EUR 250 million.
Annual accounts
This report is available as a pdf file on www.nn-group.com/annual-report
NN Group Corporate Communications and Affairs
Addison Group www.addison-group.net
NN Group N.V. Schenkkade 65 2595 AS Den Haag P.O. Box 93604, 2509 AV Den Haag The Netherlands www.nn-group.com
Commercial register of Amsterdam, no. 52387534
For further information on NN Group's strategy, policies and performance, visit www.nn-group.com
We welcome input from our stakeholders. If you would like to provide us with feedback, please feel free to contact us via [email protected]
NN Group's 2015 Annual Report consists of three documents: the 2015 Annual Review, the 2015 Financial Report and the 2015 Sustainability Supplement.
Certain of the statements in this 2015 Annual Report are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation: (1) changes in general economic conditions, in particular economic conditions in NN Group's core markets, (2) changes in performance of financial markets, including developing markets, (3) consequences of a potential (partial) break-up of the euro, (4) the implementation of the EC Restructuring Plan, (5) changes in the availability of, and costs associated with, sources of liquidity as well as conditions in the credit markets generally, (6) the frequency and severity of insured loss events, (7) changes affecting mortality and morbidity levels and trends, (8) changes affecting persistency levels, (9) changes affecting interest rate levels, (10) changes affecting currency exchange rates, (11) changes in investor, customer and policyholder behaviour, (12) changes in general competitive factors, (13) changes in laws and regulations, (14) changes in the policies of governments and/or regulatory authorities, (15) conclusions with regard to accounting assumptions and methodologies, (16) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, (17) changes in credit and financial strength ratings, (18) NN Group's ability to achieve projected operational synergies and (19) the other risks and uncertainties detailed in the Risk Factors section contained in recent public disclosures made by NN Group and/or related to NN Group.
Any forward-looking statements made by or on behalf of NN Group in this Annual Report speak only as of the date they are made, and, NN Group assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities.
NN Group's 2015 Sustainability Supplement provides additional information with regards to our strategy, objectives and achievements related to the social, ethical and environmental aspects of our businesses. It is especially aimed at shareholders, rating agencies and NGOs. Nothing in this document is intended to extend or amend NN Group's existing obligations to our clients, shareholders or other stakeholders. All NN Group policies, procedures, guidelines, statements or anything similar that have been mentioned in the Sustainability Supplement are intended for internal guidance purposes only and are not intended to be relied upon by any third party.
© 2016 NN Group N.V.
Accelerating change
Report
2015 Sustainability Supplement
The 2015 Annual Report provides an integrated review of the performance of our company. It is in accordance with applicable Dutch law and the International Financial Reporting Standards (IFRS), which were endorsed by the European Union, as well as with the Global Reporting Initiative's G4 guidelines (GRI). It aligns relevant information about our strategy, governance systems, performance and future prospects in a way that reflects the economic, environmental and social contexts in which we operate.
at all NN Group stakeholders. It is a concise, integrated review that provides information about our dynamic operating environment and key material trends, our strategy, how we create value, the financial and non-financial performance of our business and the statement of our CEO.
developments and annual accounts, the report of our Supervisory Board and our approach to risk management, capital management and corporate governance. Target audiences are shareholders, rating agencies and other stakeholders interested in the financials and governance of NN Group.
This supplement provides additional information with regard to our strategy, objectives and achievements related to the social, ethical and environmental aspects of our businesses. It is especially aimed at shareholders, rating agencies and NGOs.
www.nn-group.com/annual-report
| At a glance | 03 | |
|---|---|---|
| − 2015 highlights | 03 | |
| − How we are structured | 05 | |
| About NN Group | 07 | |
| − Our brand | 07 | |
| − Our values | 09 | |
| − CEO statement | 11 | |
| Strategy and value creation | 13 | |
| − What matters to us | 13 | |
| − Our operating environment | 14 | |
| − Our strategy | 18 | |
| − How we create value | 21 | |
| − Active Risk management | 23 | |
| Delivering on our strategy | 24 | |
| − Creating value as an insurer | ||
| and asset manager | 24 | |
| − Creating value as an investor | 28 | |
| − Creating value as a listed company | 30 | |
| − Creating value as an employer | 32 | |
| − Creating value as a corporate citizen 34 | ||
| Governance | 36 | |
| − Governance and compliance | 36 | |
| − Our Management Board | 37 | |
| Additional information | 38 | |
| − Facts and figures | 38 | |
| − Glossary | 41 | |
| Contact and legal information | 44 | |
| Financial Report | |
|---|---|
| Financial developments − NN Group − Netherlands Life − Netherlands Non-life − Insurance Europe − Japan Life − Asset Management − Other − Japan Closed Block VA |
03 03 05 06 06 07 08 08 09 |
| Report of the Supervisory Board | 10 |
| Corporate governance | 18 |
| Remuneration Report | 29 |
| Works councils | 34 |
| Report of the Executive Board on internal control over financial reporting |
35 |
| Conformity statement | 36 |
| Consolidated annual accounts − Consolidated balance sheet − Consolidated profit and loss account 39 − Consolidated statement of comprehensive income − Consolidated statement of cash flows 42 − Consolidated statement of changes in equity − Notes to the Consolidated annual accounts − Risk management (Note 50) − Capital and liquidity management (Note 51) − Authorisation of Consolidated annual accounts |
37 38 41 44 46 119 141 148 |
| Parent company annual accounts − Parent company balance sheet |
149 149 |
| − Parent company profit and loss account − Parent company statement |
150 |
| of changes in equity − Notes to the Parent company |
151 |
| annual accounts − Authorisation of Parent company annual accounts |
153 158 |
| Other information | 159 |
| − Independent auditor's report − Proposed appropriation of result − Subsequent events |
159 164 165 |
| Contact and legal information | 166 |
| sustainability at NN Group | 03 |
|---|---|
| − Our approach | 03 |
| − Our objectives | 04 |
| − Governance | 05 |
| − Stakeholder engagement | 06 |
| Improving financial well-being | 07 |
| − Customer empowerment | 07 |
| − Financial inclusion | 07 |
| − Community investment | 08 |
| Responsibly managing our assets | 09 |
| − Engagement topics in 2015 | 09 |
| − Sustainability of our real estate | |
| portfolio | 10 |
| − Specialised SRI funds and | |
| responsible investment solutions | 11 |
| − External assessments | |
| and benchmarks | 11 |
| − Governance, advice | |
| and implementation | 11 |
| Managing our | |
| environmental footprint | 12 |
| − Energy and business travel efficiency | 12 |
| − Carbon neutrality in 2015 | 12 |
| Performance data | 13 |
| Reporting approach | 16 |
| − About this Sustainability | |
| Supplement | 16 |
| − Assurance report | |
| of the independent auditor | 17 |
| − Progress report Principles for | 18 |
| Sustainable Insurance | |
| − Progress report UN Global Compact | 19 |
At NN Group, we aim to help people and businesses manage and protect their assets and income. We believe that our role as a company goes beyond delivering monetary returns for our shareholders. We aim to use our resources, expertise and reach to help society achieve long-term sustainable prosperity.
By understanding the global trends society is facing, and the impact that these developments might have on our customers and on our businesses, we can contribute to a healthy economy as well as a stable society. In doing so, we create value for NN Group and our stakeholders, and will contribute to improving lives for people today and generations to come.
More information on how we create value for our stakeholders, can be found in the Annual Review, pages 21–22. In developing our simplified model of how we create value we used the framework of the International Integrated Reporting Council (IIRC) that is based on, amongst others, financial, intellectual, human, and social and relational capital.
NN Group's relationship with our stakeholders is based on our values: we care, we are clear, we commit. Throughout NN Group these values drive the behaviour that is needed to realise our company's purpose: to help people secure their financial futures.
The values are published under the title NN statement of Living our Values, which explains what NN Group stands for, both for internal and external stakeholders. In 2015, our focus was on creating awareness and encouraging behavioural change, embedding our values in regular processes and programmes, and on monitoring the effectiveness of the implementation.
For more information on our values, refer to the Annual Review, pages 9–10. For the full text of the statement visit our corporate website www.nn-group.com.
Our corporate citizenship strategy is built upon our company's purpose and values. In 2015, our Management Board reconfirmed our approach, including the focus on two main areas:
These areas are directly related to the nature of our core business, and are indicated by our stakeholders as important to our organisation (see table below). For information on our materiality assessment, refer to the Annual Review, page 13. The focus areas interrelate with the different pillars we use to communicate about our non-financial performance. By focusing on these areas, we feel NN Group can make the biggest impact.
This document is structured along the two focus areas of our strategic direction for corporate citizenship. It serves as a supplement to the Annual Review and provides more detailed information and data on all pillars of our approach.
| 1. | Offer transparent products and services | AR: pages 17–18, 24–27 |
|---|---|---|
| 2. Maintain a strong balance sheet | AR: pages 11, 15, 18, 23; FR: pages 119–141 | |
| 3. Create products with social added value | AR: pages 24–26; SS: pages 7, 10 | |
| 4. Promote responsible investment | AR: pages 21–22, 28–29; SS: pages 3–7, 9–11, 13 | |
| 5. Offer guidance and financial education to customers | AR: pages 11–12, 18–20, 24–27; SS: pages 7–8 | |
| 6. Stimulate employees to develop themselves | AR: pages 12, 21–22, 32–33 | |
| 7. | Reduce costs through efficient operations | AR: pages 11–12, 18–20, 27 |
| 8. Reduce environmental footprint | AR: page 34; SS: pages 4, 12, 15 | |
| 9. Ensure fair remuneration | AR: pages 32–33; FR: pages 29–33 | |
| 10. Support local communities | AR: pages 12, 21–22, 34–35; SS: pages 3–4, 7–8, 14 |
AR = 2015 Annual Review
FR = 2015 Financial Report
SS = 2015 Sustainability Supplement
Optimising customer experience by creating transparent, easy to understand products and services and supporting people to build and protect their assets and cover their risks
| • Provide tools and knowledge to our customers to improve their financial decision-making • Increase research into consumer financial behaviour and translate findings into product and service offerings • Create products and services with social value added • Be recognised as the 'You matter' company |
• 13 countries offer online guidance and education tools • All our insurance countries use Net Promoter Score • Research on feeling and being in control of one's financial future conducted in 14 European countries • 7 countries provide products that offer social value added • In 7 of our insurance countries a growing number of people recognise us as the 'You matter' company |
|---|---|
| Creating positive change in communities by supporting people in our markets to improve their financial well-being | |
| • Roll out NN Future Matters programme in all our countries • Gradually target 70% of total charitable giving towards NN Future Matters related areas* • Engage at least 25% of total employees in NN Future Matters programme • Continue company-wide effort to provide scholarships • Reach out to at least 100,000 youngsters |
• NN Future Matters programme rolled out in our main markets • 58% of our total charitable donations (EUR 1.5m) towards NN Future Matters target areas** • 7.3% of employees actively engaged in volunteering, an increase of 85% compared to 2014 • 7 NN Future Matters scholarships provided • 9,069 youngsters reached through NN Future Matters programme |
| Investing responsibly by integrating environmental, social and governance (ESG) factors into our investment processes | |
| • Further develop NN Responsible Investment Policy Framework • Strengthen ESG integration across all asset classes • Continue to grow sustainable assets under management and product offering • Extend measurement of carbon footprint for our portfolios (new) |
• Revised and published NN Defence policy • Study conducted in partnership with the European Centre for Corporate Engagement on the materiality of ESG factors for equity securities • EUR 4.5bn sustainable assets under management, an increase of 11.3% compared to 2014 • Formalised sustainability approach for NN's own real estate portfolio, including reporting on environmental performance |
| Empowering our people by fostering an open, safe, inclusive and stimulating working environment in a values-driven organisation | |
| • Continue to strengthen employee engagement • Stimulate our employees to develop and grow • Continue to invest in the diversity of our organisation • Further embed our values through global awareness programmes and integration in performance management |
• 73% engagement score, an increase of 7 points compared to 2014 • EUR 13m spent on training and development • 53/47 male/female ratio • 'Living our Values' programme implemented Group-wide; at least 85% of our employees in the Netherlands signed the Financial Sector oath or promise |
| Managing our environmental footprint by reducing the use of natural resources, seeking green alternatives and ultimately compensating the remainder of our CO2 footprint |
|
| • Reduce CO2 emissions with 30% in 2020 compared to 2005 (Dutch operations) • Increase purchase of renewable electricity |
• 13% increase of CO2 emissions (in kilotonnes) compared to 2014 • 61% of electricity purchased from renewable sources |
• Further strengthen engagement with suppliers
* Through time and charitable donations.
** In 2015, we calculated financial (cash) donations only.
At NN Group, corporate citizenship, including our sustainability approach, is part of the portfolio of the Chief Change and Organisation (CCO) within the Management Board. Additionally, all members of the Management Board have a responsibility for integrating sustainability in their respective businesses and functions.
NN Group strives to structurally embed sustainability in our policies, processes and activities. To drive our strategy and the implementation of our processes, we have a dedicated team in place; the Corporate Citizenship team within the Corporate Communications & Affairs department. This team works closely together with the different businesses and functions to steer and advise on the implementation of the overall strategy.
Within NN IP, our asset management business, we have a specialised Responsible Investing team. Additionally, there are experts within specific departments, such as Risk management, Legal and Compliance, that include ESG related activities in their respective roles.
For more information about our Corporate Governance, refer to the Financial Report, pages 18–28, and our corporate website.
After being part of ING Group for many years, in 2015 NN Group became a standalone member of various international organisations, such as the United Nations Environment Programme Finance Institutions and the UN Global Compact.
2015 was an important year for sustainable development, with amongst others the launch of the Sustainable Developments Goals and the UN Conference on Climate Change (COP21) in Paris. Prior to COP21, we endorsed both the Climate Risk Statement of the Geneva Association and the Global Investors Statement on Climate Change. To demonstrate leadership, commitment and solidarity to the agreement reached, NN Group signed the Paris Pledge to Action in December 2015.
To underline our ambitions, NN Group and/or our respective businesses have endorsed various international standards and initiatives:
We are also a member of (inter)national organisations, including:
For an overview of all endorsements and memberships visit our website www.nn-group.com/In-society.htm
To earn trust and support, NN Group maintains an open and continuous dialogue with various stakeholders about our products and services, our business performance, our role in society and other topics. We do this at all levels in the organisation, and both at group and business level.
NN Group considers customers,
shareholders, employees, business partners and society at large (including regulators and societal organisations) as important stakeholders. We seek feedback from them on different topics in order to learn which issues are important to them. This input is used in both defining our strategy and our decision-making processes, and tells us how we can best align the interests of our businesses with the needs and expectations of our various stakeholder groups.
The instruments to conduct this dialogue include regular interactions and feedback sessions for customers on our products and services; roundtable sessions with policymakers, academics and peers; works council meetings with employee representatives and continued dialogue with our employees; frequent bilateral contact with regulatory and government authorities and societal organisations (including non-governmental organisations, labour unions and industry associations); briefing sessions and roadshows for journalists, analysts and investors.
In 2015, we were confronted with various developments, issues and challenges. These were brought to our attention by, or discussed with, different stakeholders. In the table below, we provide a snapshot of the key issues.
| Stakeholder and topic | Our response and engagement |
|---|---|
| NGO – Fair Insurance Guide (NL) Investments in companies that make available weapons and military goods to controversial regimes and countries |
Our response: NN Group has a defence policy in place that restricts investments in companies that demonstrably have activities in the trade of arms to countries that are sanctioned by a UN, EU or US arms embargo. Companies that develop, produce, maintain or trade 'controversial weapons' are also part of our exclusion list. The investments found by the Fair Insurance Guide are not restricted under our defence policy. We communicate transparently about our policy, and publish it on our website. |
| NGO – Reprieve (UK) Investments in a pharmaceutical company producing medicine to be used in lethal injections in the United States |
Our response: We expressed our concerns towards the company for not taking measures to prevent the medicine to be used in lethal injections; amongst others referring to the reputational risk this may impose on the company. After earlier unsuccessful attempts to engage in a dialogue, we raised our concerns with the board of directors ahead of the company's AGM, as did several other institutional investors. Management responded to the investors' concerns by committing to implement adequate distribution controls. |
| NGO – Friends of the Earth (NL) Sustainability of real estate investments |
Our engagement: In developing NN Group's responsible investment real estate guidelines, we engaged with Friends of the Earth, representing the Fair Insurance Guide, to exchange views and knowledge on embedding ESG factors in our investment process and decision-making. Whilst we share the goal to improve the sustainability of real estate, we are concerned about the overly detailed policy statements that are requested, which do not align with the way we integrate ESG factors in our portfolio. |
| Regulators – Dutch Central Bank (NL) The role and responsibilities of financial institutions regarding sustainability, responsible business and finance |
Our engagement: Our Chief Change and Organisation, member of the Management Board, participated in a roundtable on these topics. ESG integration is at the core of our approach to responsible investment, as we believe it contributes to better informed investment decisions and the optimisation of the risk/return profile of our investment portfolio. It supports a gradual transition towards a sustainable economy and society, and fits in our current balancing of risks and interests of our stakeholders. |
| Investor association – Dutch Association of Investors for Sustainable Development (NL) Transparency on tax policy |
Our engagement: In 2015, the Dutch Association of Investors for Sustainable Development (VBDO) published a new study ranking Dutch multinational companies on transparency on tax policy and disclosure. In our view, NN Group's performance on this topic required further attention. As a response, we worked on improving our transparency, amongst others by publishing our tax guidelines (see also Annual Review, pages 34–35). To understand societal expectations and to explain our tax strategy, we entered in a constructive dialogue with the VBDO. |
| Employees – Labour unions, Central Works Council (NL) Implementation of our values and Corporate Citizenship approach |
Our engagement: Early 2015, we updated representatives of labour unions on our 'Living our Values' programme, and our corporate citizenship approach including the NN Future Matters programme and topics related to being a responsible employer. Furthermore, we discussed the NN 2014 Sustainability Report with our Central Works Council. |
This chapter describes our approach and performance related to our focus area 'Improving financial wellbeing'. It is a supplement to the chapters 'Creating value as an insurer and asset manager' and 'Creating value as a corporate citizen' in the Annual Review, and provides additional information on the following topics:
At NN Group, we aim to be a positive force in the lives of our customers by helping them secure their financial futures. We want to empower people to make sound financial decisions, maximise their potential to create income and cover their risks – now and later – and build financial resilience so they can overcome adversity. We do not only concentrate our efforts on our customers, as many more people can benefit from better financial knowledge and skills.
A key aspect of delivering a great customer experience is the ability to empower people to improve their financial decision-making. We feel this will help them achieve their financial ambitions, and protect and accumulate their wealth. Therefore, we invest in educating people about finance, raise their awareness through campaigns and provide them with tools to enhance their decision-making capabilities.
In the Netherlands, we organised the 'Girls just wanna have funds' event in partnership with How 2 Spend It, where we challenged 150 women to think about their financial future. Via an online questionnaire, we raised awareness of pension planning among readers of Dutch magazines VIVA and Ouders van NU. Throughout 2015 we researched people's thoughts on feeling and being in control of one's financial future. This research was done in 14 countries where NN is present, in cooperation with the University of Tilburg. With the insights gained we are able to further improve our communications and product offer. For example in Luxembourg the research outcome shows a clear need for financial education in terms of retirement.
We reach out to people who may not have access to insurance and can benefit from additional support. We aim to provide an inclusive and positive experience for many different groups of people anticipating their specific needs.
Through our health insurance business we provide products and services aimed at people's individual situations, for example, critical illnesses.
In Poland, we have introduced a mobile app which encourages early detection of breast cancer as part of our cancer cover campaign. In Slovakia, we provide a package for children including coverage for life, critical illness, and permanent disability in case of an accident, hospitalisation and surgery. In the Czech Republic, the For You insurance product offers women insurance coverage in case of breast cancer. The product is offered with assistance services on a dedicated website, and supported with cancer prevention and healthy lifestyle advice. In Hungary, we provide modular protection and health insurance which offers financial support in the form of monetary benefits, but also advice and medical assistance services such as a 24/7 medical hotline and a second opinion.
For entrepreneurs, we launched a new individual disability insurance product via income insurer Movir in the Netherlands. In Spain, we introduced Contigo Autónomo, which has been especially designed to cover specific needs around health for entrepreneurs. NN Group participated in the establishment of the Netherlands Investment Institution (NLII). The NLII wants to increase long-term investment opportunities in the Netherlands by matching supply and demand. This allows entrepreneurs and SMEs to benefit from additional financing opportunities, whilst giving institutional investors the opportunity to invest directly in the Dutch economy. Furthermore, through a partnership of the Dutch Association of Insurers with microfinance organisation Qredits, we offer microfinance loans to both starting and experienced entrepreneurs who are not able to get a regular loan from a bank.
Financial inclusion also implies that we aim to help our customers improve their well-being when they are experiencing adversity. In the Netherlands, NN Bank has redefined its policies to help home owners in financial distress by enabling them to stay in their homes as long as possible. We provide grace periods, interest holidays, budget coaching and the use of early warnings to mortgage clients in financial distress. In Bulgaria, insurance customers in financial distress can suspend paying instalments for up to 12 months while keeping their policy in place.
In addition to helping our customers improve their financial well-being, we support the broader society and especially people in our local communities to achieve this objective.
This ambition is reflected in our community investment programme 'Future Matters', launched in 2014 and now fully implemented in our main markets. This led to a substantial increase both in cash donations and employee volunteering in 2015. The goal is to gradually target our charitable giving more towards this common goal. In 2015, already 58% of our total charitable donations of EUR 1.5 million went to NN Future Matters and its related target areas. More details on our goals for 2020 and the progress we made, can be found in our objectives table on page 4 of this Sustainability Supplement.
NN Future Matters' goal to improve people's financial well-being in our markets is achieved through focusing our efforts on three complementary target areas: promoting financial empowerment, creating economic opportunities and alleviating financial distress.
Promoting financial empowerment By giving people confidence to take care of their finances, NN Group wants to contribute to building a society that as a whole is more financially aware and capable. Responsible financial behaviour is developed at an early age, so many of our initiatives are focused on youngsters. During the 2015 Money Week in the Netherlands, NN employees gave in total 81 guest lectures in primary schools, teaching 1,863 children about money and risks.
Creating economic opportunities By supporting youngsters in preparing for the future, NN Group believes we can add value in helping them to find better opportunities in the labour market. NN Group would like to help young people to find a job that suits them, and offers them the opportunity to obtain job experience within our company.
Our colleagues provide job training to youngsters who may lack specific skills or role models. This is in cooperation with JINC, a Dutch not-for-profit organisation focused on helping youngsters become better prepared for the labour market. With a donation given at our IPO, we supported JINC to start their work at schools in The Hague in 2015.
Another way of creating economic opportunities is by encouraging entrepreneurship. In 2015, the Social Innovation Relay took place as a flagship programme of the NN Group and Junior Achievement Europe partnership; Spain, Romania, Bulgaria and the Netherlands were the first NN countries to participate in the launch of the Social Innovation Relay. In Japan, NN Life started a partnership with the Social Entrepreneurship School – ETIC. Two young entrepreneurs grew their business by receiving mentoring and advice from various (NN) experts and senior social entrepreneurs.
Alleviating financial distress NN Group wants to help people who are not getting by financially, and supports them in overcoming adversity.
* Includes cash donations to charitable causes, corporate foundations and partnerships. ** Cultural partnerships and sponsorships are not included. Refer to the In society section on www.nn-group.com for more information on how we support arts and culture.
To maximise our impact, we partner with several local charities that support families with children living in challenging financial circumstances.
For example in the Netherlands, we partner with the LINDA.foundation, a charity that helps families in financial distress. In 2015, we organised several initiatives, such as a flea market, a Christmas fair and volunteers have helped assemble packages with gift vouchers for the families concerned. Our customers are also involved in the LINDA. foundation through our special credit card that donates ten eurocents for each transaction to the LINDA.foundation.
As part of the promotion of the NN Rotterdam Marathon event, we partner with the Jeugdsportfonds, a charity that helps children from families without the financial means to become members of a sports association of their choice.
To celebrate the first anniversary of NN Future Matters, in 2015 we made extra donations that totalled EUR 100,000 to local charities in ten of the markets where we operate.
In addition to the global community investment target areas under the NN Future Matters umbrella, our businesses and foundations support a broad scope of other local initiatives, such as health and environmental care. With these activities, we connect with our employees, customers and business partners, and aim to address societal needs together.
NN Group has set up corporate foundations in several countries to enable employees to support causes close to their hearts that cover a wide variety of themes. For the amounts invested through these foundations, refer to page 14 of this Sustainability Supplement.
This chapter describes our approach and performance related to our focus area 'Responsibly managing our assets'. It is a supplement to the 'Creating value as an investor' chapter in the Annual Review and provides additional information on the following topics:
NN Group is a long-term global institutional investor with a duty to act in the best interest of our policyholders, clients, shareholders and other stakeholders. To fulfil this duty, we acknowledge the importance of structurally integrating environmental, social and governance (ESG) factors into our investment and active ownership processes.
The primary focus of our formal engagement efforts is on companies that act in breach of the UN Global Compact Principles and on companies for which we identify material ESG-related risks, based on in-house research and information from external research providers. We also participate in thematic engagements, in cases where a certain issue is of importance to an entire industry or wider range of companies. Finally, we engage with policymakers on sustainability topics and corporate governance issues that may impact the companies we are invested in or our position as a shareholder.
As an active investor, we initiate dialogue with companies on environmental issues, including environmental damage and climate change. In the past year, for instance, we have addressed multiple issues, ranging from stranded asset risks and carbon pricing to spills, with oil and gas companies. We also continued our dialogue with companies that have substantial exposure to oil sands. Because these projects are more Greenhouse Gas (GHG) intensive than conventional projects, it is important that ambitious targets are set for GHG emission reductions. We also started an engagement with the utility sector focusing on ways that they can increase power generation from renewable energy sources and reduce their carbon footprint (see box on page 10 of this Sustainability Supplement).
NN Investment Partners (NN IP) signed the 'Investor Expectations on Corporate Climate Lobbying' statement. This public statement addresses corporate lobbying practices which may be inconsistent with the interest of long-term investors. It calls upon companies to improve their practice and transparency regarding processes for climate policy engagement and bring them in line with the universally accepted goal of limiting global temperature rises to two degrees Celsius.
NN IP has published a white paper on green bonds, that we believe contains strong proposals for making a positive and measurable impact on the environment. NN IP wants to contribute to the steps needed to develop the green bond market further. That is why we are a member of the Green Bond Principles and have voiced the opinion that more guidance and standardisation is needed for reporting on green bonds. NN IP also signed the Paris Green Bonds Statement, which calls on governments to develop policies that support the growth of the green bond market.
We engaged with companies on social topics through collaborative initiatives coordinated by the Principles for Responsible Investment (PRI). As a member of the Bribery and Corruption working group, NN IP continued to lead in the dialogue with a large pharmaceutical company. The main focus of the working group is to enhance the transparency and disclosure of anti-corruption strategies, policies and management systems. This two-year engagement has concluded after successful dialogue with a range of companies across regions and sectors. The outcomes will be published in a joint PRI-UNGC publication to be released in the summer of 2016.
We also joined a new PRI working group on 'human rights in the extractive industry'. This engagement intends to improve disclosure on, and implementation of, the UN Guiding Principles on Business and Human Rights. The institutional investors that participate in this initiative have scheduled engagements with global extractive companies to get a better understanding of their commitment to human rights, how human rights-related risks are being assessed, and how the company engages with local communities. Many extractive companies have operations in sensitive areas, which makes it even more important to thoroughly embed respect for local communities and human rights in the business processes. NN IP leads the dialogue with a large company in the oil and gas industry and a company specialised in the production and trading of commodities.
Corporate governance
One of the key corporate governance issues that we regularly discuss with companies is the board nomination and election process. In 2015, NN IP joined a working group of the PRI that looked at best practices to optimise the director nomination process. The working group will actively approach a group of French and American companies where we identified points of improvement for the director nomination and election process.
NN IP actively contributed to a paper by the International Corporate Governance Network (ICGN) identifying concerns over recent legislation in Italy and France. These legislations seek to encourage the granting of double voting rights or loyalty dividends to promote long-term investment. Whilst the ICGN is supportive of promoting longer-term thinking and behaviours by investors, at the same time, it is concerned that such rights not only have the potential to hurt minority investors, but also the long-term performance of a company.
We also joined other international investors in early 2015 in voicing these concerns to the Italian, French and EU authorities. In the case of Italy, the investor voice was heard, and the government abandoned plans earlier this year. In France, legislation is a reality. Therefore, NN IP has sent letters to French companies with the request to introduce our preferred 'one share, one vote' principle in their statutes. Many of these companies responded positively and added the amendment of the statutes to their AGM agendas.
Integrated reporting helps investors apply relevant ESG factors efficiently and effectively. NN IP frequently discusses with companies the benefits of this way of reporting that combines financial and ESG information in a clear, consistent and uniform matter. In 2015, NN IP also took part in a pilot programme conducted by the International Integrated Reporting Council (IIRC), the world's leading proponent of integrated reporting. By sharing our views on company reports, we aim to further stimulate the journey towards integrated reporting.
NN Group uses the GRESB Real Estate Assessment to evaluate the sustainability of our EUR 4.1 billion (proprietary) real estate portfolio. In October 2015, the results of the annual assessment were revealed; 96% of our portfolio was included in GRESB and our portfolio did well. On average, our (valueweighted) portfolio score was 66 on a scale of 100, while the benchmark average (282 entities) was 55. This represented a strong relative improvement to the benchmark compared to 2014 when our score was 50, similar to the benchmark.
We calculated separate scores for our direct and indirect portfolios (i.e. we invest in underlying European properties directly and indirectly via private real estate funds). Our portfolio of direct investments had a score of 63, meaning it achieved top quadrant performance in GRESB's scoring matrix (similar to a Green Star qualification used for funds).
The score of our indirect portfolio was 67, whilst 74% (or 14 out of 19) of our funds are Green Stars.
GRESB also tells us about the energy performance of our real estate portfolio. In the year under assessment (2014), our portfolio achieved a 6% like-for-like reduction in energy consumption. The associated reduction in greenhouse gas emissions was 5%, which is on aggregate the equivalent of 4,143 passenger vehicles off the road, based on data provided by 52% of participants.
Going forward, NN Group intends to extend the analysis of the carbon footprint of its investment portfolio to other asset categories too.
At NN, we believe that engagement with companies is essential in the transition towards a low carbon world.
Over the next two years, NN Investment Partners will engage with companies in the power utility sector on their climate policies and CO2 reduction targets. This sector is one of the largest contributors of CO2 emissions to mainstream investment portfolios. At the same time, power utilities also have opportunities to adapt and prosper in a carbon constrained economy.
Our engagement, supported by provider GES, will target a selection of 20 large companies worldwide. We hold these companies' shares or bonds on behalf of our own assets and/or client assets. The engagement will focus on improving carbon risk management and addressing aspects related to governance, policymaker interaction, transparency, reduction targets and action plans, and climate change risks and mitigation strategies.
The overarching goal is to support these companies in achieving a carbon risk exposure reduction from a long-term perspective and improved competitiveness in a carbon constrained economy.
To explore the potential of impact investments for our clients as well as our own assets, NN Group was amongst the partners in the VBDO study 'Impact Investing, from niche to mainstream'. In this capacity, we contributed to several joint learning sessions. The central question of the study was how impact investing in the Dutch institutional investor market can professionalise and grow.
The outcome of the study was presented during the 'Investing with impact' event in February 2016, and the publication can be found on the website www.vbdo.nl.
We are meeting the growing demand for products that generate solid financial returns and are good for society and the environment through specialised funds and mandates. Assets under management in these sustainable equity and fixed income products have grown with 11.3% to EUR 4,509 million by year-end 2015.
NN IP offers clients the possibility to set up mandates according to their specific preferences with respect to best-in-class and exclusionary criteria. In addition, we provide investment advice to institutional investors who wish to adopt a responsible investment policy or evaluate and refine one that is already in place.
Within NN IP, Altis is responsible for the external fund manager selection for both institutional and retail clients. Altis is fully owned by NN IP but operates at arm's length, using its proprietary software platform to analyse external investment strategies on holdings level.
Responsible investment is embedded into its manager selection and monitoring process, through a dedicated ESG scorecard. This scorecard covers a variety of subjects, ranging from the active ownership efforts of a manager to their environmental and social policies. Clients can also use holdings-based analysis, which shows how the individual holdings of a portfolio scores on ESG factors.
The Sustainable Equity funds have been awarded recognised ESG labels from independent research institutions in various countries. They demonstrate the quality of the incorporation of ESG considerations throughout the investment process.
NN IP has signed up to the UN Principles for Responsible Investment (PRI) in 2008. Its latest assessment of our responsible investment approach once again shows that we have above-average scores on overall ESG integration, promoting responsible investing and taking into account ESG aspects in external manager selection. For ESG integration in equities, NN IP has received the highest possible score.
The Dutch Association for Sustainable Investment, VBDO, published its '2015 Benchmark Responsible Investment by Insurance Companies'. This benchmark investigates the responsible investment activities of insurers by looking at governance, policies, implementation and transparency. Thirty Dutch insurance companies participated in the benchmark and, out of these, NN Group ranked fifth, compared to the seventh position in 2014. Our absolute score slightly declined, reflecting new questions added, however we improved our 'implementation' score, which is weighted most heavily in the benchmark.
Within NN Group, the Management Board holds ultimate accountability for the ESG aspects of our businesses. Besides the Management Board, several committees with board member leadership play an important role in our internal decisionmaking processes.
NN Group has a Responsible Investment Working Committee. It steers the implementation of the RI Policy Framework from the perspective of an asset owner, and monitors ESG aspects for all proprietary assets. Our NN Group Chief Investment Officer chairs this committee, combining responsibility for the insurance business with the areas of expertise of NN Investment Partners and involved NN staff functions.
NN Investment Partners has an ESG Board, chaired by its Chief Investment Officer. It consists of senior managers and ESG specialists. The ESG Board gives advice to NN Investment Partners' executive team about its positioning on responsible investments. The ESG Board has a mandatory advisory role on NN Group responsible investment-related policies and restricted list(s). It also steers the implementation of the framework in the investment processes of NN IP.
| Total Fixed Income mandates 1,548 |
4,509 |
|---|---|
| Fixed income mandates Fixed Income funds 556 |
1,548 |
| Fixed income funds Equity mandates 1,032 |
556 |
| Equity mandates Equity funds 1,373 |
1,032 |
| Equity funds | 1,373 |
This section is a supplement to the 'Creating value as a corporate citizen' chapter in the Annual Review and provides additional information on our approach and performance to minimise our direct environmental footprint.
In 2015, we continued to effectively manage our direct footprint by efficient use of natural resources, identifying and implementing green alternatives and ultimately compensating for the remainder of our carbon footprint. Our sustainability initiatives continue to focus on energy and business travel efficiency and paper use reduction. We also encourage the recycling of materials inside our office buildings.
NN Group's facility management teams are continuously working to improve the energy efficiency of our buildings, especially in countries where renewable energy is difficult to purchase. Furthermore, we implemented a better system to monitor energy consumption.
Many of the buildings in which NN Group's business units are housed, have maintained our green labels, such as BREAAM or LEED. Together with our local partners, we are aiming for all NN Group local head office buildings to have a green label by 2020.
In 2015, NN Group renewed our partnership agreements on business travel with the aim of further monitoring and optimising the frequency and intensity of air travel. Besides generating financial benefits, this renewed partnership aims to have a positive influence on our environmental footprint.
NN Group encouraged our staff to drive cleaner by introducing more electric cars in the NN car pool, and installing additional charging stations at our offices in the Netherlands. This approach aims to decrease our CO2 emissions in the coming years.
We continue to offset the remainder of our CO2 emissions through the purchase of Voluntary Carbon Units (VCUs), Gold standard. As a result, we achieved 100% carbon neutrality over 2015.
The carbon credits that we acquired come from a windmill park in Manisa, Turkey. The park exists of 23 modern wind turbines with a total capacity of 57.5 MW. The park provides renewable electricity to around 20,000 households. The project ensures that less greenhouse gas emissions will be emitted as fossil fuels are replaced by wind energy. A contribution to the reduction of climate change is made, in combination with other social, economic and environmental benefits of the project.
| 2015 | 2014 | Change | 2013 | |
|---|---|---|---|---|
| Operating result ongoing business | 1,435 | 1,086 | 32% | 905 |
| Net result (after attribution minority interest) | 1,565 | 588 | 166% | 322 |
| Net operating ROE | 10.8% | 8.6% | 8.9% | |
| IGD Solvency I ratio1 | 320% | 300% | ||
| Solvency II ratio1 | 239% | |||
| Value of new business | 202 | 178 | 13.1% | |
| Assets under Management (end of period, in EUR billion)2 | 187 | 195 | -4.2% | 174 |
| Dividend proposal (per ordinary share, in EUR) | 1.51 | 0.57 | n.a. | |
| NN Group share price (COB 31 December 2015, in EUR) | 32.55 | 24.85 | n.a. |
| 2015 | 2014 | Change | 2013 | |
|---|---|---|---|---|
| Total claims and benefits paid | 14,225 | 11,982 | 19% | 12,653 |
| New sales life insurance (APE) | 1,295 | 1,315 | -2% | 1,227 |
| Gross premium income | 9,205 | 9,340 | -1% | 9,530 |
| Customer satisfaction and loyalty | ||||
| Insurance business units using NPS | 100% | 85% | 85% | |
| Insurance business units scoring on/above market average | 95% | 70% | n.a. | |
| Countries offering tools improving financial decision-making (#) | 13 | 13 | 12 |
| 2015 | 2014 | Change | 2013 | |
|---|---|---|---|---|
| Sustainable Assets under Management (end of period) | 4,509 | 4,052 | 11.3% | 3,442 |
| as part of total Assets under Management | 2.4% | 2.2% | 2.0% | |
| SRI funds | ||||
| NN Duurzaam Aandelen Fonds | 682 | 539 | 26.5% | 201 |
| NN (L) Invest Europe Sustainable Equity Fund | 148 | 128 | 15.4% | 41 |
| NN (L) Invest Sustainable Equity Fund | 544 | 268 | 103.0% | 178 |
| NN (L) Renta Fund Euro Credit Sustainable | 471 | 457 | 3.0% | 479 |
| NN (L) Renta Fund Euro Credit Sustainable (including financials) | 85 | 31 | 175.4% | |
| Subtotal | 1,930 | 1,423 | 35.6% | 899 |
| Mandates | ||||
| Sustainable Fixed Income Mandates | 1,548 | 1,706 | -9.3% | 1,768 |
| European Sustainable Equity Mandates | 333 | 286 | 16.5% | 240 |
| Global Sustainable Equity Mandates | 699 | 637 | 9.7% | 535 |
| Subtotal | 2,580 | 2,629 | -1.9% | 2,543 |
| Shareholders meetings voted at (#) | 2,013 | 1,699 | 18.5% | 1,315 |
| Agenda items on which voted (#) | 26,580 | 20,005 | 32.9% | 15,426 |
1 The solvency ratios are not final until filed with the regulators. Solvency II ratio is based on the partial internal model.
2 Assets under Management include the mortgage portfolio managed on behalf of NN Life and NN Non-life since 2Q14. The comparative figures have been restated accordingly.
| Human capital indicators | ||||
|---|---|---|---|---|
| 2015 | 2014 | Change | 2013 | |
| Workforce (end of year)1 | ||||
| Total full-time equivalents (FTEs) | 11,643 | 11,890 | -2.1% | n.a. |
| Total number of employees (headcount) | 12,105 | 12,420 | -2.6% | 14,666 |
| Netherlands Life Netherlands Non-life |
2,183 901 |
2,222 918 |
-1.8% -1.9% |
5,595 |
| Insurance Europe | 4,228 | 4,242 | -0.3% | 4,401 |
| Japan | 697 | 706 | -1.3% | 787 |
| Asset Management | 1,191 | 1,188 | 0.3% | 1,516 |
| Korea (2013 only) | 1,030 | |||
| Other1 | 2,905 | 3,144 | -7.6% | 1,337 |
| Part-time employees | 16.1% | 17.2% | 26.7% | |
| Temporary employees | 5.8% | 5.2% | 3.9% | |
| Male/female ratio (%) | 52.7/47.3 | 53.5/46.5 | 51.5/48.5 | |
| Male/female ratio Top 50 (%) | 82/18 | 80/20 | 75/25 | |
| Well-being and engagement | ||||
| Sick leave2 | 2.8% | 2.6% | 2.8% | |
| Engagement score | 73% | 66% | 67% | |
| Participation in engagement survey | 84% | 62% | 82% | |
| Employee participation | ||||
| Employees covered by a collective labour agreement (CLA) | 71% | 71% | n.a. | |
| Complaints | ||||
| Grievances on labour practices2 | 5 | 7 | -28.6% | 12 |
| Talent development | ||||
| Total spending on training and education (in EUR million) | 13.0 | 13.6 | -4.4% | 14.0 |
| Spending/average FTE (in EUR) | 1,094 | 1,047 | 4.5% | 954 |
| Employees with completed standard performance process (2014/2015) | 87% | 90% | n.a. | |
| Employee compensation | ||||
| Total employee wages and benefits (in EUR million)3 | 1,159 | 1,100 | 5.4% | 1,111 |
| Community investment indicators | ||||
| 2015 | 2014 | Change | 2013 | |
| Total donations to charitable organisations (x EUR 1,000)4 | 1,500 | 1,072 | 39.9% | 1,172 |
| Of which donations from corporate foundations (country/name): | ||||
| Hungary/NN Foundation for Children's Health | 33 | 26 | 26.9% | n.a. |
| Spain/Aprocor | 37 | 35 | 5.7% | n.a. |
| Romania/Foundation for Life | 137 | 142 | -3.5% | n.a. |
| The Netherlands/Together for Society | 293 | 264 | 11.1% | n.a. |
| Total hours of volunteering work | 7,433 | 4,018 | 85.0% | 3,350 |
| Total number of employees participating in volunteering work | 881 | 533 | 65.3% | 430 |
| Total number of youngsters reached through NN Future Matters programme5 | 9,069 | – | – |
1 The data on our workforce differ from the total number of FTE stated in the Annual Review. This is due to a difference in our finance and human resources systems, where only the latter provides the details as stated above. The percentage part-time employees for 2014 was amended according to new sources. This amend also impacted the 2014 number of employees (headcount) for Insurance Europe, Other and Total.
2 Data only available for the Netherlands (representing >50% of total number of employees).
3 Excluding pension costs. For more details on the composition of employee wages and benefits, refer to Note 27 of the Consolidated annual accounts.
4 Includes cash donations to charitable causes, corporate foundations and partnerships.
5 Numbers reached only include Social Innovation Relay and main Dutch programmes.
n.a. = not available
| Environmental indicators | |||||||
|---|---|---|---|---|---|---|---|
| 2015 | 2015/CO2 | 2014 | 2014/CO2 | Change | 2013 | 2013/CO2 | |
| Total CO2 emissions (kilotonne) | 21 | 21 | 18 | 18 | 13% | 29 | 29 |
| CO2 emissions/FTE (kilotonne) | 1.8 | 1.6 | 14% | 2.5 | |||
| Business travel – air travel (km x 1 million) | 25 | 6 | 23 | 4 | 8% | 25 | 4 |
| Business travel – car travel (km x 1 million) | 13 | 3 | 12 | 2 | 13% | 53 | 10 |
| Total energy consumption (MWH x 1,000)1 | 55 | 12 | 65 | 12 | -15% | 75 | 15 |
| Electricity | 12 | 6 | 11 | 6 | 16% | 15 | 8 |
| Renewable electricity | 19 | 24 | -22% | 27 | |||
| Natural gas | 13 | 3 | 18 | 4 | -28% | 18 | 4 |
| Fuel oil | |||||||
| District heating | 11 | 3 | 12 | 2 | -8% | 15 | 3 |
| Total paper use (kg) | 872,996 | 803,444 | |||||
| Sustainable paper (i.e. FSC) (kg) | 730,277 | 527,624 | |||||
| Total waste (kg) | 573,875 | 906,965 | |||||
| Recycled waste (kg) | 152,053 | 131,691 |
| 2015 | 2014 | Change | 2013 | |
|---|---|---|---|---|
| Sustainalytics rating (position/# insurance companies) | 13/149 | 11/93 | ||
| (Outperformer) | (Outperformer) | n.a. | ||
| Oekom rating | C (Prime) | n.a. | n.a. | |
| Carbon Disclosure Project | 95C | n.a. | n.a. | |
1 The 2014 environment data are adjusted according to new sources. As the amend concerns renewable electricity, it had no impact on the total 2014 CO2 emissions.
Focus areas Performance data
We take a holistic approach to corporate reporting. Our Annual Report consists of three components: Annual Review, Financial Report and (this) Sustainability Supplement.
In this year's Annual Report, we made a next step towards more integrated reporting. Therefore, elements such as our materiality matrix and a description of how our business model creates values for our stakeholders, are included in the Annual Review. The Sustainability Supplement contains additional information regarding our focus areas: Improving financial well-being, and Responsibly managing our assets. Furthermore, it contains additional performance data regarding responsible investment, human capital, community investment and environmental footprint.
We believe that this reporting strategy enables us to tailor our reporting for different stakeholders, many of whom require a different depth of information.
The online versions of the components of our report contain a number of links between the Sustainability Supplement and the other documents, more specifically the Annual Review and the Financial Report. Links to sources on the NN Group website are also included.
This is NN Group's second Sustainability Report, after having been part of ING Group for many years. We report annually, on a calendar year basis (1 January – 31 December).
Relevant topics were selected for the 2015 Annual Report, more specifically the Annual Review and the Sustainability Supplement, through a materiality assessment using internal and external research and other sources. In addition, a survey was held amongst external and internal stakeholders. For more information, refer to the Annual Review, page 13.
Information in this report is based on extensive reporting from our countries, businesses and functions. All information is reviewed by NN Group's Disclosure Committee and is subject to approval of our Executive Board and Supervisory Board before publication.
We aim to provide transparency and enhance the reliability of the reported content for our stakeholders. Therefore, the content has also been reviewed for limited assurance by our external auditor, Ernst & Young Accountants LLP. We provide evidence to our external auditor to support the statements we make in this report. Refer to their assurance report on page 17 of this Sustainability Supplement.
We define 'boundary' as the range of entities over which NN Group has management control. The scope for community investment and environmental data is all businesses with more than 100 FTE. The aforementioned applies to all material items as depicted in the materiality matrix in the Annual Review, unless otherwise stated.
NN Group used an online system, Credit360, for gathering the information and data for community investment and environmental footprint. We have tried to limit any uncertainties in the reported data through our internal validation process, which includes validation of data in Credit360. We have sourced the HR data directly from the HR data analytics department. The financial data reported in this supplement has been fully sourced and aligned with NN Group's 2015 Financial Report.
In the reporting year 2015, no significant changes occurred regarding our definitions and reported data. Also, no acquisitions or disinvestments occur, therefore no changes occurred regarding our reporting approach.
The NN Group Sustainability Supplement and related content in the Annual Review are in accordance with the G4 guidelines (Core) from the Global Reporting Initiative (GRI). It aims to make information available in a manner that is understandable and accessible to stakeholders using the report and reflects different aspects of the organisation's performance to enable a reasoned assessment of overall performance.
The GRI Index table states the indicators NN Group is reporting on, including where to find the respective information, either in this Sustainability Supplement, the Annual Review, Financial Report and/or the NN Group website. The index table can be found on www.nn-group.com/ annual-report.
Going forward, NN Group will continue to tailor our reporting to service different stakeholder groups. This includes further integration of financial and non-financial information and indicators to provide stakeholders with a complete picture of our company's performance.
We have reviewed the sustainability information in the chapters 'At a glance', 'About NN Group' (excluding the paragraph 'Our brand'), 'Strategy and value creation' (excluding the paragraphs 'Our operating environment' and 'Active Risk management'), 'Delivering on our strategy', 'Facts and figures' and the 'Sustainability Supplement' (except the paragraphs 'Progress report Principles for Sustainable Insurance' and 'Progress report UN Global Compact') of the Annual Report for the year 2015 (hereafter: the Report) of NN Group N.V., Amsterdam (hereafter: NN Group). The Report comprises a description of the policy, the activities, events and performance of NN Group relating to sustainable development during the reporting year 2015.
The Report contains prospective information, such as ambitions, strategy, targets, expectations and projections. Inherent to this information is that actual future results may be different from the prospective information and therefore may be uncertain. We do not provide any assurance on the assumptions and feasibility of this prospective information.
The GRI Index 2015 as published on www.nn-group.com is an integral part of the Report and is within our engagement scope. Other references in the Report (to www.nn-group.com, external websites and other documents) are outside the scope of our assurance engagement.
The Executive Board of NN Group is responsible for the preparation of the Report in accordance with the 'Sustainability Reporting Guidelines' G4 (option Core) of the Global Reporting Initiative (GRI) and the reporting criteria developed by NN Group as disclosed in the chapter 'About this Sustainability Supplement' of the Report, including the identification of the stakeholders and the determination of material issues. The disclosures made by management with respect to the scope of the Report are included in the chapter 'About this Sustainability Supplement' of the Report.
Furthermore the Executive Board is responsible for such internal control as it determines is necessary to enable the preparation of the Report that is free from material misstatement, whether due to fraud or error.
Our responsibility is to express a conclusion on the Report based on our review. We conducted our review in accordance with Dutch law, including the Dutch Standard 3810N 'Assurance engagements relating to sustainability reports'. This Standard is based on the International Standard on Assurance Engagements (ISAE) 3000 'Assurance engagements other than audits or reviews of historical financial information'. This requires that we comply with ethical requirements and that we plan and perform the review to obtain limited assurance about whether the Report is free from material misstatement.
A review is focused on obtaining limited assurance. The procedures performed in obtaining limited assurance are aimed at the plausibility of information which does not require exhaustive gathering of evidence as in engagements focused on reasonable assurance. The performed procedures consisted primarily of making inquiries of management and others within the entity, as appropriate, applying analytical procedures and evaluating the evidence obtained. Consequently a review engagement provides less assurance than an audit.
Our main procedures included the following:
Evaluating the in accordance option with the 'Sustainability Reporting Guidelines' G4 (option Core) of GRI
Evaluating the design and implementation of the systems and processes for data gathering and processing of information as presented in the Report
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.
Based on our procedures performed, and with due consideration of the limitations described in the paragraph 'Limitations in our scope', nothing has come to our attention that causes us to conclude that the sustainability information in the Report, in all material respects, does not provide a reliable and appropriate presentation of the policy of NN Group for sustainable development, or of the activities, events and performance of the organisation relating to sustainable development during 2015, in accordance with the 'Sustainability Reporting Guidelines' G4 (option Core) of the Global Reporting Initiative (GRI) and the reporting criteria developed by NN Group as disclosed in the chapter 'About this Sustainability Supplement' of the Report.
Amsterdam, 22 March 2016
Ernst & Young Accountants LLP
Signed by drs. R.J. Bleijs RA
Focus areas Performance data
| Progress report 2015 | In June 2012, we became a founding signatory of the UN Principles for Sustainable Insurance. We report on our progress in implementing the principles in our business operations throughout the NN Group Annual Report. |
The overview below provides a selection of examples from this progress, including references to the relevant pages in the report. (AR = Annual Review; SS = Sustainability Supplement) |
|---|---|---|
| Goals | Progress 2015 | |
| We will embed in our decision-making environmental, social |
Offer insight, tools and programmes to improve consumers' financial decision-making |
We developed online and offline platforms for knowledge sharing and supporting people in securing their financial futures (AR: pages 24–7; SS: pages 4, 7–8). |
| and governance issues, relevant to our business |
Maintain an up-to-date Environmental and Social Risk (ESR) policy framework |
We introduced an overarching Responsible Investment Policy Framework for NN Group, setting out our vision and approach on integrating ESG factors into our investment process (AR: pages 28–29; SS: pages 14–18). |
| Develop a set of ambitions, goals and performance indicators for our insurance and asset management business |
Our strategic approach to corporate citizenship has been approved by the Management Board, including focus areas and ambitions 2020 (SS: pages 3–4). |
|
| We will work together with clients and business partners to raise awareness |
Aim to increase our sustainable assets allocated |
Our sustainable assets under management increased by 11.3% to EUR 4.5 billion, compared to 2014 (AR: pages 28–29; SS: pages: 9–11, 13). |
| of environmental, social and governance issues, manage risk and develop solutions |
Manage our direct footprint and review our procurement process in order to create more sustainable practices |
The total extrapolated amount of carbon emissions from our business operations increased by 13% compared to 2014. NN Group strengthened the embedding of sustainability in the procurement policy and process (AR: page 34; SS: pages 12, 15). |
| We will work together with governments, regulators and other key stakeholders |
Engage with stakeholders on general developments or more specific issues |
We entered into dialogue with various stakeholders on different topics (SS: page 6). We also published reports on sustainability topics (www.nn-group.com; www.nnip.com). |
| to promote widespread action across society on environmental, social and governance issues |
Promote responsible insurance and asset management amongst key stakeholders |
We are an active member of various (inter) national networks (SS: page 5,). We aim to contribute to positive change as we support investee companies to seek improvement in ESG practices (AR: pages 28–29; SS: pages 9–11). |
| Strive to create positive change in communities and increase employee participation in our community investments initiatives |
Total funds raised in 2015 for charitable organisations was EUR 1.5 million. Roll out of NN Future Matters to our main markets (AR: page 35; SS: 7–8, 14). |
|
| We will demonstrate accountability and transparency in regularly disclosing publicly on our progress in implementing the principles |
Ensure public disclosure of our sustainability objectives, and the progress we make, in our annual reporting |
NN Group published our 2015 Annual Report, including an Annual Review, Financial Report and this Sustainability Supplement. This table serves as a cross-reference to the relevant sections in this report and our website. |
| UN Global Compact | NN Group commitment | Performance |
|---|---|---|
| Principle 1 Business should support and respect the protection of internationally proclaimed human rights |
The NN statement of Living our Values includes | NN statement of Living our Values |
| the commitment to respect human rights. Human rights are an integral part of NN Group's Responsible Investment Policy Framework and ING's ESR Framework and apply to all sectors that we conduct business with. |
NN Group Responsible Investment Policy Framework |
|
| ING's Environmental Social Risk Framework | ||
| Sustainable Procurement Policy | ||
| We ask our suppliers to agree to comply with the UNGC principles that promote human rights, fair labour practices, environmental protection, and anti-corruption. |
NN Group memberships | |
| NN Group is a member of various international networks and initiatives |
||
| Principle 2 Business should ensure that they are not complicit in human rights abuses |
The NN statement of Living our Values includes the commitment to respect human rights. |
NN statement of Living our Values NN Group Responsible Investment |
| Human rights are an integral part of NN Group's Responsible Investment Policy Framework and ING's ESR Framework and apply to all sectors that we conduct business with. |
Policy Framework | |
| ING's Environmental Social Risk Framework Sustainable Procurement Policy |
||
| We ask our suppliers to agree to comply with the UNGC principles that promote human rights, fair labour practices, environmental protection, and anti-corruption. |
NN Group memberships | |
| NN Group is a member of various international networks and initiatives |
||
| Principle 3/ILO Conventions 87 and 98 Business should uphold the freedom of association and the effective recognition of the right to collective bargaining |
The NN statement of Living our Values includes the commitment to respect human rights, advocate equal opportunities and encourage diversity of thinking. |
NN statement of Living our Values NN Group Responsible Investment Policy Framework |
| At NN Group, we uphold the freedom of association for all our employees and recognise the right to collective bargaining. |
HR Policies Sustainable Procurement Policy |
|
| We ask our suppliers to agree to comply with the UNGC principles that promote human rights, fair labour practices, environmental protection and anti-corruption. |
||
| Principle 4/ILO Conventions 29 and 105 Business should support the elimination of all forms of forced and compulsory labour |
The NN statement of Living our Values includes the commitment to respect human rights. |
NN statement of Living our Values NN Group Responsible Investment |
| Human rights are an integral part of NN Group's Responsible Investment Policy Framework and ING's ESR Framework and apply to all economic sectors that we conduct business with. |
Policy Framework ING's Environmental Social Risk Framework Sustainable Procurement Policy |
|
| We ask our suppliers to agree to comply with the UNGC principles that promote human rights, fair labour practices, environmental protection and anti-corruption. |
||
| Principle 5/ILO Conventions 138 and 182 Business should support the effective abolition of child labour |
The NN statement of Living our Values includes the commitment to respect human rights. |
NN statement of Living our Values |
| We ask our suppliers to agree to comply with the UNGC principles that promote human rights, fair labour practices, environmental protection and anti-corruption. |
NN Group Responsible Investment Policy Framework |
|
| ING's Environmental Social Risk Framework |
||
| Sustainable Procurement Policy |
| UN Global Compact | NN Group commitment | Performance |
|---|---|---|
| Principle 6/ILO Conventions 100 and 111 Business should support the elimination of discrimination in respect of employment and occupation |
The NN statement of Living our Values includes the commitment to respect human rights. At NN Group, we believe it is right for the composition of our workforce to reflect that of society and for our people to bring a diversity of talents, beliefs and perceptions |
NN statement of Living our Values NN Group Diversity and Inclusion policy |
| Principle 7 Business should support a precautionary approach to environmental challenges |
to their work. The NN statement of Living our Values includes the commitment to respect each other and the world we live in. NN Group's Responsible Investment Policy Framework and ING's ESR Framework aims to mitigate environmental and social risk of our business activities. NN Group's Procurement policy includes |
NN statement of Living our Values NN Group Responsible Investment Policy Framework ING's Environmental Social Risk Framework Sustainable Procurement Policy Managing our environmental footprint |
| environmental aspects. NN Group's environmental approach aims to minimise the environmental impact of our own operations. |
||
| Principle 8 Business should undertake initiatives to promote greater environmental responsibility |
The NN statement of Living our Values includes the commitment to respect each other and the world we live in. NN Group's Responsible Investment Policy Framework and ING's ESR Framework aims to mitigate environmental and social risk of our business activities. NN Group's Procurement policy includes environmental issues, this is to ensure environmental sustainability. |
NN statement of Living our Values NN Group Responsible Investment Policy Framework ING's Environmental Social Risk Framework Sustainable Procurement |
| Principle 9 Business should encourage the development and diffusion of environmentally friendly technologies |
Growth in the sustainable assets under management that represent business conducted with sustainability criteria. |
Responsible investment Sustainable assets under management 2015 |
| Principle 10 Business should work against corruption in all its forms, including extortion and bribery |
The NN statement of Living our Values includes the commitment to act with integrity. NN Group has zero tolerance towards bribery and corruption and has clear policies on this. NN Group implements a corporate policy on Financial Economic Crime (FEC). |
NN statement of Living our Values Governance and Compliance |
Focus areas Performance data
This report is available as a pdf file on www.nn-group.com/annual-report
NN Group Corporate Communications & Affairs
Addison Group www.addison-group.net
NN Group N.V. Schenkkade 65 2595 AS Den Haag P.O. Box 93604, 2509 AV Den Haag The Netherlands www.nn-group.com
Commercial register of Amsterdam, no. 52387534
For further information on NN Group's sustainability strategy, policies and performance, visit www.nn-group.com/In-society.htm
We welcome input from our stakeholders. If you would like to provide us with feedback, please feel free to contact us via [email protected]
NN Group's 2015 Annual Report consists of three documents: the 2015 Annual Review, the 2015 Financial Report and the 2015 Sustainability Supplement.
Certain of the statements in this 2015 Annual Report are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation: (1) changes in general economic conditions, in particular economic conditions in NN Group's core markets, (2) changes in performance of financial markets, including developing markets, (3) consequences of a potential (partial) break-up of the euro, (4) the implementation of the EC Restructuring Plan, (5) changes in the availability of, and costs associated with, sources of liquidity as well as conditions in the credit markets generally, (6) the frequency and severity of insured loss events, (7) changes affecting mortality and morbidity levels and trends, (8) changes affecting persistency levels, (9) changes affecting interest rate levels, (10) changes affecting currency exchange rates, (11) changes in investor, customer and policyholder behaviour, (12) changes in general competitive factors, (13) changes in laws and regulations, (14) changes in the policies of governments and/or regulatory authorities, (15) conclusions with regard to accounting assumptions and methodologies, (16) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, (17) changes in credit and financial strength ratings, (18) NN Group's ability to achieve projected operational synergies and (19) the other risks and uncertainties detailed in the Risk Factors section contained in recent public disclosures made by NN Group and/or related to NN Group.
Any forward-looking statements made by or on behalf of NN Group in this Annual Report speak only as of the date they are made, and, NN Group assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities.
NN Group's 2015 Sustainability Supplement provides additional information with regards to our strategy, objectives and achievements related to the social, ethical and environmental aspects of our businesses. It is especially aimed at shareholders, rating agencies and NGOs. Nothing in this document is intended to extend or amend NN Group's existing obligations to our clients, shareholders or other stakeholders. All NN Group policies, procedures, guidelines, statements or anything similar that have been mentioned in the Sustainability Supplement are intended for internal guidance purposes only and are not intended to be relied upon by any third party.
© 2016 NN Group N.V.
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