Financial & Solvency II update. 26 May 2016 Huub Arendse Leiden

Transcription

1 Financial & Solvency II update 26 May 2016 Huub Arendse Leiden

2 Key messages Net profit increased to 386 million with all insurance entities contributing to the positive result Positive developments in Pensions & Life and International activities and higher investment results Total cost savings of 300 million realised since the start of Acceleration & Innovation, with 132 million in 2015 Financial position remains strong with a solvency ratio of 199% under Solvency II PIM Partial Internal Model for Non-Life and Health SLT risks approved by regulator in December Capital base is resilient under several scenarios Strong positive impact of credit spread increase due to conservative profile investment portfolio Operational Free Capital Generation is at a solid level Expected Operational Free Capital Generation at approximately 260 million per year Total Free Capital Generation of approximately 65 million per year 2

3 Contents Financial overview Group & segment results Dutch healthcare system Results segment Health Solvency II overview Capital Generation 3

4 Net profit increases to 386 million 386 Net profit (in m) Operating expenses¹ (in m) Operational result (in m) Solvency II ratio (PIM) (in %) Gross written premiums (in m) 19, , Debt leverage ratio (in %) 25,5 24, Net profit increased to 386 million due to, among other things, cost savings Positive developments in Pensions and Life, International and Banking activities and higher investment results all contributed to an improved result 2014 results strongly influenced by goodwill writeoffs and restructuring costs Operational result negatively influenced by: Storms caused 120 million in damages for our customers Allocation of 481 million to limit increase in health insurance premiums in 2016 Stable development in written premiums confirms market leadership in health care and non-life insurances Total cost savings of 300 million realised since the start of Acceleration & Innovation. In 2015 costs decreased by 132 million (or 5%) Debt leverage ratio increased slightly to 25.5% (2014: 24.3%) due to capital market transactions Double leverage ratio² of 104.7% (2014: 105.8%) ¹ Operating expenses 2014 corrected for one-off costs including restructuring costs, ² The ratio between (a) the difference between the available capital and subordinated debt at holding company level and the equity of the investee companies and intangible fixed assets and (b) equity at holding company level. 4

5 All insurance entities contributed to the positive result Operational result (in m) Non-Life Health Structural result Incidental result Pensions and Life International activities Banking activities Other activities Total Non-life results significantly lower A number of major storms caused damages for our customers. Also additions to provisions for injury claims impacted results Health result lower Results for basic health insurance lower as a consequence of: higher health care costs in 2015 that were not compensated for by premiums the allocation of 481 million from the result to limit the increase in health premiums for 2016 Structural result for basic health insurance 26 million in 2015 Result for Pensions and Life increased Good investment result and higher technical result International activities result doubled Organic premium growth of 5% in existing markets Higher result partly due to one-time effects 5

6 Contents Financial overview Group & segment results Dutch healthcare system Results division Health Solvency II overview Capital Generation 6

7 Care Not an insurance market Cure Insurance market Health: Introduction to Dutch healthcare system (1) Dutch healthcare system consists of 4 components Description Compulsory basic insurance Public constraints: compulsory, mandatory acceptance & risk equalization Voluntary supplementary insurance Option to risk selection Compulsory Long Term Care (WLZ) Social Support act (WMO) Juvenile (Munic) Premium 50% income dependent 45% nominal 5% taxes 100% nominal 100% income dependent 100% taxes 100% taxes Size 45.9 billion 4.0 billion 19.9 billion 4.8 billion Coverages Hospital care Pharmaceuticals Specialists Home care & nursing General practitioners Dental care Supplementary cover Alternative medicine Vitality Long-term care Care for mentally and physically disabled Mental care Social care and support Domestic help Support, focusing on participation and guidance of people at home 1.9 billion Care for persons <18 years Cure Compulsory basic insurance with premium of 45.9 billion in 2016; the Dutch health insurance is the largest private insurance market with public safeguards in Europe Deductible payments ZVW are 3.2 billion in 2016 Care Annual costs are estimated at 27 billion Home care & nursing was transferred from care to cure (approximately 3.3 billion of annual premium) as of the 1st of January The remaining part of the care market is currently still non-insurance Private Public * Source: Vektis - Verzekerden in beweging 2015 and Ministerie VWS

8 Income compensation (Healthcare allowance) Health: Introduction to Dutch healthcare system (2) Employer/ Self-employed Government Multiple cash flows for basic insurance Income-related premium (50%) Government contribution (5%) Risk equalisation fund 55% Insurance company Insurance companies receive 55% of their GWP through the Risk Equalisation (RE) fund (government) Consumers pay annually about (nominal) premium to their health insurer (45% of the total income of an insurer). For children (18-) no premium has to be paid In addition, consumers pay a contribution for some treatments and they have a legally required deductible of 385 Consumer insured Healthcare provider 8

9 Risk Ex-post compensation Net result Cost Ex-ante budget Gross result Health: Introduction to Dutch healthcare system (3) Fixed costs 0.17 bn 0.4% Fixed amount per insured based on historical cost Reimbursement 100% 0% Macrobudget ZVW = 42.8 billion Variable costs 35.3 bn Nursing and care 3.5 bn GGZ¹ (18+) 3.6 bn LGGZ² (18+) 0.23 bn 82.5% 8.2% 8.4% 0.5% Physiotherapy t-1 Nursing & care t-1 Geriatric rehabilitation t-1 Generic somatic morbidity Medical devices cost group 100% Distribution based on normative risk profiles: Age Gender Source of income Pharmaceutical cost group Diagnostic cost group Real costs per insured Adjustment for number of insured ex-ante budget Safety net (75% reimbursement outside of bandwith +/ ) 25% in safety net 100% outside Safety net (75% reimbursement outside of bandwith +/- 17.5) 25% in safety net 100% outside Social economic status ZIP code Multiple-year high costs Single person household (L) GGZ t-1 Safety net (100% reimbursement outside of bandwith +/- 5.0) 0% in safety net 100% outside How it works The (ex-ante) budget from the RE-fund depends on the number of insured and their risk profile (expected claims level). Health status of the insured is included in the profile RE ex-post is necessary as long as RE ex-ante still has to be fine tuned. Application depending on budget category (that insurers can influence) ¹ GGZ = mental health care, ² LGGZ = long-term mental health care 9

10 Contents Financial overview Group & segment results Dutch healthcare system Results segment Health Solvency II overview Capital Generation 10

11 Health: allocation of 481 million to limit premium increase despite growth of health costs Incidental result for basic health insurance Previous underwriting years (in million) 99 Structural result for basic health insurance Underwriting year 2014/2015 (in million) Release of provisions = + = = (in million) Allocation of result to limit premiums (in million) Basic health insurance Structural result in 2015 falls significantly to 26 million. Increased health costs not fully compensated for by premiums In 2015 we allocated 481 million of the result to restrict increases of premiums for our customers. In 2014, we allocated 335 million of the result Higher incidental results through the release of provisions from previous years and incidental positive results from the risk equalisation and lower costs than had been estimated Supplemental health insurance The result for our supplemental health insurance was 39 million (2014: 99 million). The lower result was due to lower number of insured and lower cover. The result from previous years is lower Total health insurances Results for health insurances fell to 287 million, versus 442 million in

12 Contents Financial overview Solvency II overview Introduction to our approach on Solvency II Solvency II results 2015 Solvency II sensitivities Capital Generation 12

13 Introduction to our approach on Solvency II Legend SCR Adjustment (LAC DT & TP) BSCR Operational Market Risk Default Risk Health Risk Intangible Risk Life Risk Non-life Risk Equity Interest rate Property Spread Currency Concentration PIM (Since dec 2015) SLT Mortality Longevity Disability & morbidity Lapse Expense Revision Under Development Cat Risk Standard Formula NSLT Premium & Reserve Lapse Mortality Longevity Disability & Morbidity Lapse Expense Revision Cat Premium & reserve Lapse Cat Focus of approved partial internal model (PIM) Approved Non-life risk: PIM is calibrated on Achmea s historical experience reflecting the specifics of our Non-life business geared towards retail Health risk SLT: Dominant risks are incident and recovery risk which are not adequately reflected in the SF 10% of total BSCR (pre-diversification) is currently under internal model. With the addition of market risk, this increases to approximately 40% Under development Market Risk: pre-application 2016 Health risk NSLT: Used for internal purposes only. For now we have no ambition to apply for approval, as we need more historical data with respect to lump sums and contract ceilings 13

14 Solvency II: Capital adequacy policy still under development Green zone comfortable Yellow zone caution Legal entity Group 130% Green zone comfortable Yellow zone caution SII capital adequacy framework is based on the approved PIM The Solvency II zones at legal entity level are based on both the chance of default and the probability of reaching capital levels below SCR level Our formal risk appetite is set at 100% of SCR for the legal entities which translates into a SII ratio of 130% at group level. 100% Red zone no dividend Red zone no dividend 14

15 Contents Financial overview Solvency II overview Introduction to our approach on Solvency II Solvency II results 2015 Solvency II sensitivities Capital Generation 15

16 Solvency II ratio Achmea Group: a solid solvency level Partial internal model (approved) (in million) 9,151 Own funds Non-Life 148% 199%¹ 4,589 Required capital 9,198 Own funds 5,159 Required capital (restated) Solvency II PIM (Legal entities², 2015) Health 162% 178% Pensions & Life 129% 9,491 EOF PIM restatements (in million) 197% FY 2014 reported Removal CRD IV entities Methodological Δ DFZ Mkt Risk and UWR Health on SF Other SCR 9,198 FY 2014 restated 5, % , Methodological changes PIM (approved) In 2015 several methodological changes have altered the approach in which the EOF and SCR are calculated. For comparison purposes we have adjusted the 2014 figures: Based on the instructions of the Dutch supervisor the EOF and SCR are calculated without CRD IV entities The figures of De Friesland Zorgverzekeraar (DFZ) are now consolidated in accordance with the consolidated approach instead of the very conservative D&A method, which affects both EOF and SCR Standard formula for market risk and health (NSLT) risk instead of internal model increases the SCR Standard formula In 2015, the SII ratio based on the standard formula (SF) is 195% with EOF of 9,115 million and SCR of 4,677 million In 2014, the restated SII SF ratio is 177% with EOF of 9,162 million and SCR of 5,187 million ¹ Excluding CRD IV entities. SII PIM 2015 including CRD IV entities is 201% ² Refers to the Solvency II PIM ratio of Achmea Schadeverzekeringen NV (Non-Life), Achmea Zorgverzekeringen NV (Health) and Achmea Pensioen- en Levensverzekering NV (Pensions & Life). 16

17 Eligible Own Funds influenced by recalibration best estimate liability assumptions FY 2014 restated Methodological changes Direct movements within EOF Eligible Own Funds analysis of change (in million) Changes in restrictions Non-economic assumptions Economic assumptions DTA & DTL Other FY ¹ Next to the changes which are already included in the restated 2014 data a (for the group) small methodological change was recognized without restating 2014 data ,198 9, Impact of methodological changes¹ (- 158 million) Improved modeling within P&L lowered EOF by 183 million (increase best estimate) Pension schemes changes from DB to CDC increased the EOF by 25 million Direct movements within EOF (+ 276 million) Net capital issuance of 405 million (market value) and dividend & coupon payments of 78 million Net capital increase of banking entities reduced EOF further by 51million in 2015 Non-economic assumptions (- 1,028 million) The assumptions regarding expenses embedded in the best estimate of the life insurance liabilities were revised in relation to the creation of closed-book Pensions decreasing EOF by 751 million Increase in investment expenses UL contracts decreased EOF by 165 million Update of persistence and mortality assumptions lowered EOF by 86 million Economic assumptions (+ 326 million) Developments in interest rates and credit spreads DTA & DTL (+ 450 million) Impact on the deferred tax assets and liabilities 17

18 Required Capital (SCR) influenced by equity transitional and rising interest rates FY 2014 restated Credit spread risk Interest rate risk Equity risk Other Mkt risks (incl. divers.) CDR UW Risk Int. assets 2 Diversification Operational risk LAC DT and TP Other FY 2015 SCR analysis of change (in million) , Market risk 5, Market Risk (- 953 million) Spread risk decreased by 238 million due to substitution of bonds & loans for mortgages (included in CDR) Equity risk decreased by 596 million mainly due to the equity transitional rule (impact of 410 million before diversification) Interest rate risk decreased by 439 million due to higher interest rates¹ in 2015 CDR (+ 137 million) Increased mainly due to the increase in mortgages and elimination of the NHG guarantee benefit Underwriting Risk (- 126 million) Life UW Risk (- 150 million): rising interest rates, reduced Lapse Risk because of commercial migrations, and an increase in Life Expense Risk Health UWR (NSTL) (+ 58 million): due to increased Premium and Reserve Risk Non-Life UWR (- 34 million): lower Premium Risk because of lower expected claims and model changes and lower Cat Risk due to improved reinsurance cover Operational Risk (+ 25 million) Increased due to higher earned premium within Dutch Health insurance entities LAC DT and TP (+ 139 million) LAC DT: (+ 108 million): The mitigating effect of the LAC _DT decreased as a result of a lower recoverable amount due to the increase in the DTA ¹ The assets are discounted using the SWAP curve, whereas the insurance liabilities are discounted using the UFR curve, causing a mismatch. With rising interest rates the mismatch is reduced 18

19 Capital allocation: Commitment predominantly to underwriting risk in line with our risk appetite Partial Internal model 2015 (in million) Non life Underwriting Life Underwriting 61% 32% 6% 1% -36% Health Underwriting ,771 1,835 UW risk Market Risk CDR Intangible Asset Risk Diversification BSCR Operational Risk SCR non-insur. LAC DT & TP Other SCR 19

20 Capital allocation (2): Market Risk predominantly influenced by credit spread risk 1,281 Credit spread Including Equity transition Excluding Equity transition 609 Interest rate 408 Property Equity Risk (in million, undiversified) Market Risk (in million) Equity 181 FX Impact of equity transitional 676 1, Including Equity transition Excluding Equity transition 2,275 Diversification Market Risk Solvency II ratio (in %, including diversification) Equity transitional rule SII allows for application of transitional rule for calculation of equity market shock for specific (sub)sets of equities The transitional rule defines a smaller downward shock of 22% that migrates in the next seven years to the full downward shock of 39% or 49% for different classes of equities plus symmetric adjustment Transitional rule only applies to equities held <1 January 2016 Achmea is fully compliant with conditions that are set for application of this transitional measure and has defined the relevant eligible equity portfolios 20

21 Total Tier 1: 7,143 Eligible Own Funds: 78% is Tier 1 (including restricted Tier 1) Tiering & instruments SII limits Max capacity (in million) Capital composition (in million) Comments SCR: 4,544 1 EOF: 9,151 Core Tier 1 Total Tier 1 > 50% of SCR --- Current: 6,232 Restricted Tier 1 311m pref. 5,5% 600 m 6,0% Hybrids <20% of total Tier 1 1,429 Remaining: 518 Current: 911 Restricted Tier 1 instruments are subject to grandfathering rules The 600m perpetual can be called each year in November Tier 2 750m 4,25% 500 m sub. 6,0% Tier 2 + Tier 3 < 50% of SCR 1,590 Remaining: 263 Current: 1,327² The 750m perpetual can be called in 2025 The 500m subordinated debt (maturity: 2043) can be called in 2023 Tier 3 (Eligible) Tier 3 < 15% of SCR 682 Current: 682 On the level of the Group there is a relegation of tier 3 based on the sub limits (15% of the 4,544 million SCR) On the EBS an amount of 733 million is recognized as net DTA. Therefore, 51 million of Tier 3 capital is disregarded ¹ SCR based on the consolidated approach (excl. Ring fenced funds and other entities), which decreases the SCR used for tiering purposes by 46 million, ² Based on economic values 21

22 IFRS Equity to Own Funds IFRS Equity to Eligble Own Funds (in million) 90 10, , ,151 IFRS Equity Subordinated debt qualifying as EOF Market Value Tier 2 capital instruments Derecognition of Intangible assets Valuation of Technical Provisions Other valuation differences IFRS & EBS Participations in other fin. sectors Own funds restrictions Relegation of Tier 3 capital EOF (consolidated approach) EOF Other financial sectors EOF Group (PIM) 22

23 Contents Financial overview Solvency II overview Introduction to our approach on Solvency II Solvency II results 2015 Solvency II sensitivities Capital Generation 23

24 Resilient capital base under several scenarios, but strong impact credit spread increase due to conservative profile investment portfolio Interest rate Credit Spread Equity Property UFR Scenario Solvency II PIM sensitivities (FY2015, in million) Eligible own funds SCR SII PIM (in %) BASE 9,151 4, bps +100bps +100bps -20% -40% -20% 3.7% 3.2% 9,929 8,118 10,720 8,735 8,319 8,916 8,909 8,656 4,719 4,486 4,494 4,514 4,441 4,549 4,617 4, Δ SII PIM (in %-pt) Interest rate sensitivity Currently we do not hedge the UFR nor the risk margin, which exposes us to changes in the interest rates Credit spread sensitivity We make use of the volatility adjustment Our fixed income portfolio differs from the EIOPA reference portfolio, as we have less exposure to corporates, French government bonds and peripheral sovereigns (e.g. Italy & Spain), but more exposure to core sovereigns (e.g. Germany and The Netherlands) Equity sensitivity We do not make use of equity derivatives to reduce the impact of developments in equity prices. The impact of the shock is therefore linear UFR sensitivity Limited due to the business mix 24

25 Contents Financial overview Solvency II overview Capital Generation Free Capital Generation Holding Cash Position 25

26 Only Pension & Life Operational Free Capital Generation at approximately 260 million Description Free Capital Generation (in m, approximate) Key drivers Operational results Structural operational results of other legal entities (e.g. Non-Life, Health, Asset Management, Bank) 160 Competition Cost initiatives Cost overrun Pensions & Life -60 Investment margin Excess return on investments 155 Credit spreads Risk premiums Asset allocation Leverage Unwind UFR Unwind of risk margin Amortisation of UFR benefit -55 Interest rate levels Release of SII risk margin in technical provisions as value in-force runs off 85¹ Operational initiatives ALM initiatives Unwind SCR excl. equity transitional Release of SCR (excl. impact of equity transitional) as value in-force runs off 115 Operational initiatives ALM initiatives Operational FCG Achmea Group (excluding impact equity transitional) ~400 Unwind of SCR impact equity transtional Impact of equity transitional on the unwind of SCR -140 Equity portfolio changes Holding expenses Operational FCG Achmea Group (including impact equity transitional) ~260 Holding cost and financing expenses -195 Net FCG Achmea Group ~65 Cost initiatives Financing considerations ¹ Includes Time Value of Options and Guarantees (TVOG) of approximately 5 million 26

27 Free capital generation (2): Net Investment Margin Pensions & Life at approximately 155 million Free Capital Generation Investments (in million, approximate) ~ Fixed Income (excl. derivatives) Mortgages Equity Property Expected Tax (25%) Investment return Net expected investment return Exposure 2015 ( billion) Excess return¹ (bps) ¹ Based on the EIOPA curve for Fixed Income and mortgages. Effective yield for Equity and Property 27

28 Contents Financial overview Solvency II overview Capital Generation Free Capital Generation Holding Cash Position 28

29 Significant holding cash buffer Group Net Cash Position (2015, in million) Net opening position 2015 Remittance from business Divestments Capital injections Net funding Dividend payments Financing costs Holding expenses Net closing position

30 Key messages Net profit increased to 386 million with all insurance entities contributing to the positive result Positive developments in Pensions & Life and International activities and higher investment results Total cost savings of 300 million realised since the start of Acceleration & Innovation, with 132 million in 2015 Financial position remains strong with a solvency ratio of 199% under Solvency II PIM Partial Internal Model for Non-Life and Health SLT risks approved by regulator in December Capital base is resilient under several scenarios Strong positive impact of credit spread increase due to conservative profile investment portfolio Operational Free Capital Generation is at a solid level Expected Operational Free Capital Generation at approximately 260 million per year Total Free Capital Generation of approximately 65 million per year 30

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