Capital Management at a.s.r.

Transcription

1 Capital Management at a.s.r. Solvency II is all about stock and flow Chris Figee, CFO 25 April 2018 DNB Insurance Conference

2 Topics Introduction Solvency II stock Solvency II flow Trade-off of stock and flow Assessing capital distribution capacity Wrap up 2

3 Evolution of insurance metrics EEV MCEV Δ MCEV 2 IFRS result 3 Operating result 12 Δ CSM? (IFRS 17) Customers anyone? 1 Dutch Gaap result 7 Solvency II 8 Δ Solvency II In/excl. transitionals 11 In/excl. UFR unwind Δ ECAP In/excl. book run-off 10 ECAP/PIM 9 Organic capital creation In/excl. normalized excess spreads 3

4 Solvency stock (SCR ratio) Dynamics of Solvency II: balancing stock and flow Hi Do we generate enough? Insurance Nirvana 1 Do we have enough? Lo 2 Solvency flow (capital generation) Hi 4

5 Quality of Capital: The next focus point Max 50% of SCR RT2 RT3 RT2 / RT3 headroom is effectively a function of required capital including market risk UT-1 Max 20% of T1 RT-1 a.s.r. (FY 2017) RT2 RT3 DTA s will consume RT3 space; eventually also reducing eligibility of RT2 capital Ineligibility not a problem in all is well scenario, but may become a serious issue in case of asset losses, interest rate increases etc. RT-1 77% UT-1 Upon decline of UT1, RT1 will move into RT2 category 5

6 Beware of the spiral accelerating effect; down is dangerous! Reduced capital requires de-risking, reducing future capital generation capacity Capital enables generation of flow that creates future capital Evaporation of vulnerable LACDT components Excess returns continue to be realized Sudden ineligibility of: RT1 / RT3 due to negative market developments RT2 / RT3 due to de-risking Invest in value enhancing opportunities 6

7 Indicators of positive/negative spiral potential Restricted Tier 2/3 capacity fully utilized LACDT dependent on current and future fiscal profits Headroom in Restricted Tier 2/3 capacity LACDT founded in tangible claims against tax authorities Underperformance BEL assumptions Market risk largest source of required capital Outperformance BEL assumptions Underwriting and counterparty risk largest source of required capital 7

8 Flow perspective: OCC & EOF accretion EOF 6,299 EOF accretion: 712 million OCC: 377 million , ,826 3, ,479 SCR 3, FY16 Operational capital generation Release of capital -RM - SCR Technical Market & FY2017 movements operational before SBB developments Restricted Tier 1 Proposed dividend SBB FY17 after SBB & dividend SCR ratio 189% +8% +6% -3% +2% 203% +9% -7% -7% 196% 8

9 How to positively impact flow Re-risk investment portfolio with focus on investment returns Increase investment portfolio Write profitable new business Increase capital light and/or fee-business Reduce financing and holding cost Improve operating and underwriting performance Non-Life a.s.r. EOF bridge ~ 0 Increase total investment return Outperform BEL assumptions (esp. Life) Realize cost and capital synergies Operational capital generation Risk Margin Technical movements Market and operational developments Total Δ EOF 9

10 What about the UFR? 10- and 30-yr swap curve since UFR As from 1/1/2018 the UFR is decreased with 15bps from 4.2% to 4.05% and further downwards thereafter in steps of 15bps Current target of 3.65%, to be realized in yr swap yr swap

11 Indifferent to UFR? Stock of SII* (in %) Additional annual OCC ( flow ) of SII from lower UFR unwind (in mln) * Excluding a.s.r. Bank. 11

12 Capital distribution capacity and UFR effect assessed via 3 perspectives How much room to distribute capital? Based on Headline SII ratio at nominal UFR Economic UFR, representing achieved investment results Available capital based on exit scenario vs what norm Capital management ladder Substantially above 100% norm (120% soft limit?) Capital level at exit value safely above zero Useful for Ordinary, across the cycle typical dividends All distributions to shareholders All distributions to shareholders Current a.s.r. practice Additional perspective 12

13 Dividend capacity according to perspective #1 Nominal UFR Solvency II management ladder (based on standard model and UFR of 4.2%) Across the cycle dividends 196% a.s.r. SII ratio FY UFR 4.2% Optimal range >160%: entrepreneurial level 185% a.s.r. SII ratio FY UFR 3.65% 160% >140% cash dividend payment level 140% 120% a.s.r. s risk appetite 120% 100% SCR 100% 13

14 Dividend capacity according to perspective #2 Economic UFR Solvency II ratio FY Economically, a UFR that is in line with long term investment results would be optimal way to measure capital base (and compare to >100% threshold) Typical current direct investment return a.s.r. portfolio >2.2% Internally and at current yields, a.s.r. increasingly monitors SCR at UFR of 2.2% as metric for long term financial health 14

15 Dividend capacity according to perspective #3 Exit scenario Economic assumption Immediate freeze De-risk business Protecting the rights of the policyholder Basic modelling assumptions Solvency II ratio ex. UFR Solvency II ratio ex. VA Solvency II ratio ex. DTA Capture small but relevant illiquidity premium / capped VA Current a.s.r. (w.i.p.) perspective on exit value scenario: Total EOF safely above 0 Enhanced modelling assumptions Soften risk margin charges (CoC) Immediate expense reduction Recoverability measures Synergies from arms-length transaction? 15

16 Summary: stock & flow, it s all about the trade-off H Tier 1 / 2 / 3 contribution Assumptions in BEL Sensitivities Standard formula vs. PIM Quality of capital STOCK STOCK Consistent capital & distribution strategy Contribution of capital generation FLOW Excess returns Underwriting results Managing of costs Other L FLOW H Realizing synergies 16

17 Afterthought themes for coming years Best estimate assumptions What assumptions in COR, cost level are embedded in your BEL? Especially in LT liabilities As time passes, are you meeting or matching these? Will you be able to outperform your BEL assumptions? Balance sheet metrics With IFRS 17 inevitable approaching, what metrics will you steer your balance sheet on going forward? Interest cover based on OCC? Financial leverage related to UFR-adjusted EOF? Tiering and capital eligibility Under what scenario s will you face ineligible capital (RT2, RT3)? What if rates go up, create DTA s and diminish RT3 and RT2 space? If you d take a Solvency II hit and have to de-risk, would that eliminate RT2 eligibility? EOF growth Will (sustainable) growth in EOF become the relevant next generation metric? How does UFR unwind relate to risk margin release? 17