NN Group Company Profile February 2017
Leading Dutch insurer with strong businesses in European insurance, asset management and Japan Some facts and figures History dating back to 1845 Strong business positions; market positions built organically Unified international culture with shared best practices 15 million customers Around 11,500 employees Successful IPO on 2 July 2014 Businesses rebranded to NN in 2015 ING s divestment of NN Group completed on 14 April 2016 Launch of tender offer for Delta Lloyd shares in February 2017 Shareholders equity of EUR 22.7bn at 31 December 2016 Credit ratings 1 : A+/CreditWatch negative (S&P), A+/stable (Fitch) Our brand promise You matter 1. Financial Strength Ratings 2
Diversified businesses in Europe and Japan International asset manager; EUR 195bn AuM at 4Q16 Offers a wide variety of actively managed investment products and advisory services; also manages the assets of NN s businesses Growth and operating leverage 19% market share in Dutch life Offers a range of group life and individual life insurance products in the Netherlands Top 3 player 2 in corporate-owned life insurance (COLI) products in Japan Top 3 player in CEE focused on life and voluntary pensions Large and diverse footprint, mainly built organically 10% market share in Dutch non-life Offers a broad range of non-life insurance products in the Netherlands income protection, fire, motor, transport, third-party liability and travel insurance Insurance Europe 16% Netherlands Life Life 56% 60% NN Group ongoing business operating result before tax, excl. Other (FY16)¹ Transformation in the Netherlands NN Group s activities also include: Japan Closed Block VA Closed-block of single premium variable annuity (SPVA) individual life insurance NN Bank Complementary product range, offering mortgages and savings in the Netherlands 1. Percentages based on operating result of EUR 1,257m [total operating result ongoing business (FY16) of EUR 1,227m, excluding segment Other EUR -30m] 2. By APE (2015), source: internal estimate NN Group 3
Committed and experienced management team Lard Friese (NL) Joined 2008 Chairman/CEO 27 years of experience in the financial services industry, most recently with NN Group, ING Insurance EurAsia Leadership positions at AEGON, VNU/ACNielsen, Ceska Pojistovna and Generali-PPF Holding Delfin Rueda (ESP) Joined 2012 Chief Financial Officer 23 years of experience in the financial services industry, most recently with Atradius Previously held leadership positions at J.P. Morgan, UBS and Andersen Consulting David Knibbe (NL) Joined 1997 Dorothee van Vredenburch (NL) Joined 2009 CEO, Netherlands Insurance Chief Change and Organisation 19 years of experience in the financial services industry, most recently with NN Group Leadership positions at ING s life insurance JV with Piraeus Bank in Greece, ING Bank and ING Investment Management 27 years of experience in the financial services industry, most recently with ING Group Previously held leadership positions at Citigate Europe and RedZebra Group Jan-Hendrik Erasmus (SA) Joined 2016 Chief Risk Officer More than 14 years of financial services experience across insurance, risk and investment management in the UK and internationally Previously Partner at Oliver Wyman Financial Services, Head of the UK Insurance Practice and member of the European Leadership Team Robin Spencer (UK) Joined 2014 Stan Beckers (B) Joined 2013 CEO, International Insurance CEO, Asset Management Over 20 years experience in the insurance industry across life, non-life and asset management in the UK and internationally Previously CEO Aviva UK & Ireland General Insurance, CEO and CFO Aviva Canada and from 2010 to 2012 Aviva Group Chief Risk Officer Over the past 26 years, he has also 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. Leadership positions at Barra, Kedge Capital, Alpha Management Group, Barclays Global Investors, several pension funds and KAS Bank 4
Our investment proposition Strong business positions and balance sheet Transformation in the Netherlands Profitable growth and operating leverage in other segments Focus on generating capital and improving earnings Committed management team focused on shareholder value Strong business positions Robust balance sheet and cash flow Large closed book of individual life Scale player with growth in pensions Continued focus on cost reductions Actions to restore non-life profitability Primarily fee and premium-based businesses Growth in Insurance Europe, Asset Management and Japan Life Drive operating leverage across segments Significant cumulative cash generation Ordinary dividend of 40-50% of net operating result ongoing business Base case of returning capital in excess of capital ambition to shareholders 1 M&A where NN will be the right owner and creates value 1. To be returned in the most efficient form. Capital generated in excess of the NN Group s capital ambition (which may change over time), is expected to be returned to Shareholders unless it can be used for any other appropriate corporate purpose, including investments in value creating corporate opportunities 5
Delivering on the financial targets Annual earnings 1 growth of 5-7% on average in the medium term (EURm) Target administrative expense base in the Netherlands 2 of EUR 685m by 2018 (EURm) Increase in ROE 3 in medium term (%) Generate free cash available to shareholders in a range around the net operating result of the ongoing business 4 (EURm) CAGR +11% 1,435 1,086 905 1,227 818-57 761 7.1 8.6 10.8 8.1 806 Result 6 450 FCF 1,165 1,366 941 1,349 FY13 FY14 FY15 FY16 3Q15 4Q16 FY13 5 FY14 FY15 FY16 2014 2015 2016 1. Operating result before tax ongoing business; 2. Administrative expenses of Netherlands Life, Netherlands Non-life and corporate/holding; Expense base calculated on a last 12-months basis; 3. Net operating ROE ongoing business; 4. Assuming normal markets and no material special items; 5. Pro-forma based on adjusted allocated equity including the impact of pre-ipo capital injection and pension plan transactions in 2014; 6. Net operating result of the ongoing business; 6
Disciplined capital management and commitment to return excess capital to shareholders Solvency II ratio 236% 241% 3Q16 4Q16 Fixed-cost coverage ratio 1 13.0x 12.8x Cash capital at holding 2,391 2,489 3Q16 4Q16 Financial leverage ratio 21.1% 21.1% Base case of returning capital to shareholders unless it can be used for value-creating corporate opportunities EUR 500m share buyback programme suspended following NN Group s offer for Delta Lloyd, at which time EUR 167m of the programme was completed; remaining outstanding amount of EUR 333m added back to Own Funds in 4Q16 Since IPO, EUR 2.1bn of capital returned to shareholders, including share buyback programme and proposed 2016 final dividend 3Q16 4Q16 3Q16 4Q16 Successful issue of EUR 500m of senior unsecured debt and EUR 850m of subordinated debt in January 2017; proceeds to be used to repay existing debt All numbers at end of period 1. Calculated on a last 12-months basis 7
Focus on efficiency to reduce the expense base Target administrative expense base in the Netherlands 1 of EUR 685m by 2018 (EURm) 1,019 214 332 472-201 818 84 297 281 436-57 ~15% 761 55 426 685 Holding NL Non-life NL Life 3Q15-3Q16 Cost savings 4Q16 Total 22 8 30 18-2 17 12-2 10 53 4 57 2013 Cumulative savings achieved Expense base 3Q15 2 Cumulative savings achieved Expense base 4Q16 2 Adjusted Target 2018 1. Netherlands Life, Netherlands Non-life and Corporate/Holding entities 2. Expense base calculated on a last 12-months basis 8
Netherlands Life: Focus on reducing expenses, shift to higher yielding assets and de-risking liabilities Pensions (Technical reserves FY16: EUR 47bn) Manage our investment margin Generate and upstream capital 19% General account Separate account 7% 61% Unit-linked 13% Individual pensions Individual Life Closed Block (Technical reserves FY16: EUR 25bn) 5% 21% 74% Traditional Funeral Unit-linked Prudent investment mix Ongoing opportunities to raise mortgage allocation while spreads are attractive Since the IPO, we have increased our exposure to higher-yielding assets Investment spread 1 of 116 bps in 4Q16 vs 104 bps in 2013 NN Life to generate cash and pay dividends to the holding Run-off of individual life closed block continues with approx. 50% of technical reserves expected to run off by 2025 Growth opportunities in pensions Target: Maintain operating result before tax broadly stable at 2013 levels over the medium term 1. Four-quarter rolling average 9
Netherlands Non-life: Focus on underwriting performance and cost reductions 20% Product mix (by GWP 2016) 1% 11% 22% 46% Distribution channel (by GWP 2016) 1 D&A2 Fire Motor Other P&C Transport 10% 6% Regular brokers 25% 59% Mandated brokers Bancassurance Direct channel Target: Combined ratio of 97% or below by 2018 More needed to reach COR target <97% by 2018 2016 2015 2014 2013 D&A 1 98% 98% 97% 102% Fire 102% 102% 98% 101% Motor 115% 109% 111% 105% Total 2 103% 102% 99% 101% Priority is to drive combined ratio to target level Initiatives to improve combined ratio: Better underwriting performance, including differentiated premium rate increases Further expense reductions Selective growth opportunities Combined ratio 2016 impacted by severe summer storms 1. D&A = Disability & Accident 2. Total includes D&A, Fire, Motor, Transport and Other P&C 10
Insurance Europe: Self-funded growth with operating leverage Product mix focused on life and voluntary pensions (by APE 2016) 23% 8% 3% 36% 30% Protection Unit-linked Traditional Life Voluntary pension Mandatory pension Leveraging distribution platform Distribution further diversified, mainly through bancassurance channel Driving efficiency through digitalisation and Tied Agency transformation Limited direct distribution across markets Operational improvement Customer satisfaction better than main competitors in majority of markets Focus on profitable business to improve VNB 1 Benefiting from operating leverage through disciplined cost management Self-funded growth and cash generative Target: Mid-single digit operating result before tax annual growth rate on average, over 2013-18 1. VNB = Value of New Business 11
Japan Life: Strong profitability and cash generation COLI segment is 23% 1 of Japanese Life market by APE Total market EUR 26bn 18% 16% 23% 43% Individual Savings and Protection COLI Individual Investment Individual Health Product development Broad range of products with track record of innovation Leading player in the COLI market 2 Focus on niche COLI market allows shorter time to market Shifting mix to protection products APE of EUR 656m in FY16, up 7% at constant currencies vs FY15 Operational improvement Operating leverage reflected in low cost income ratio Pressure on VNB from low rate environment mitigated by shift to higher margin products VNB 2016 up 8% on 2015 excluding currency effects Self-funded growth and cash generative Target: Low to mid-single digit operating result before tax annual growth rate on average, over 2013-18 1. Internal estimate; for the fiscal year 1 April 2015 31 March 2016 2. By APE (2015), source: internal estimate NN Group 12
Asset Management: Strategy to grow third party business and benefit from operating leverage Assets under Management (EURbn) Third-party strategy Operating leverage 195 195 187 174 99 121 118 122 75 74 69 73 2013 2014 2015 2016 Third party Affiliates 1 2 Focus Pure play asset management Effective distribution Simplify Rationalise product range Create scale in product offering Optimise Build on fixed income franchise and prioritise flagship spread products Leverage multi-asset capabilities and strengthen niche equity strategies Investments made in people, processes and products, e.g.: Repositioning flagship equity strategies Onboarding convertible bond capabilities Focus on sustainability solutions State-of-the-art platform highly scalable Target: Mid-single digit operating result before tax annual growth rate on average, over 2013-18 1. Third party retail and institutional customers 2. NN s general account and NN s other affiliated business 13
NN Bank: focus on building scale and improving profitability Steady growth in mortgages and savings (EURbn) 6.3 5.8 7.9 7.0 10.5 8.0 12.7 10.2 2013 2014 2015 2016 Mortgages Savings Complementary products to NN s insurance offering NN Bank facilitates the long-term savings need in the Netherlands Offers frequent points of contact with our customers and cross-selling opportunities Strong new production of bank annuity products Flexibility to grow in mortgages based on attractive yields and appetite, top 5 originator of mortgages in the Netherlands Continued investments in people and processes to support future growth ROE 10.0% in FY16 vs 6.9% in FY15 Target: Return on Equity of 7% by 2018 14
Japan Closed Block VA: Capital release from maturing portfolio ~90% expected to have matured by end 2019 Liabilities are actively managed and hedged (EURbn) 12 10 8 +56 (166) +170 +44 +21 (55) 0.5 0.5 0.7 0.6 (95) 6 4 2 0 4Q15 4Q16 4Q17 4Q18 4Q19 4Q20 4Q21 4Q22 4Q23 AuM in-force, (EUR bln) Portfolio reinsured to NN Re in the Netherlands Expected capital release plus or minus hedge results 2010 2011 2012 2013 2014 2015 2016-0.3-0.3-0.1 0.0 hedge result EURm -0.7-0.7-1.5-1.7-2.4-2.4 Assets Liabilities Hedge result is expected to remain volatile Quality of hedging and the team secured by successful migration from Japan to the Netherlands 15
Strong solvency and disciplined capital framework Operating units Cash capital at holding Financial leverage Manage operating units to commercial capital levels Surplus capital above commercial levels to be returned to holding subject to regulatory restrictions Hold cash capital in holding to cover stress events and to fund holding costs Over time aim for cash capital position within target range of EUR 0.5-1.5bn Maintain financial leverage and fixed-cost coverage ratio consistent with single A financial strength rating NN Life Solvency II ratio of 203% Cash capital at holding of EUR 2.5bn LTM fixed-cost coverage ratio 12.8x Leverage ratio 21.1% Financial leverage EUR 3.7bn Solvency II ratio of 241% All figures at 4Q16 end of period 16
Interest rate risk management focuses on closely matching liability cash flows NN Life asset and liability cash flows 1 Managing versus expected liability cash flows 2 2 Each bar represents a 2-year period NN Group manages interest rate risk by matching assets and best estimate liability cash flows We do not specifically hedge the UFR nor the risk margin Therefore if interest rates rise, our Solvency II Own Funds will decrease but our economic position will be largely unchanged However, the impact of interest rate changes on our Solvency ratio from the UFR is more than offset by the change in the SCR and risk margin A +50 basis point parallel move of the swap curve would increase the NN Group Solvency II ratio by 10%-points at 4Q16 1. Source: NN Group, DNB and Bloomberg. Swap rates at 4Q16 2. The discount rate used under Solvency II is the swap curve plus the UFR and is adjusted for the Volatility Adjustment and Credit Risk Adjustment 17
Free cash flow over time in a range around the net operating result of the ongoing business Segment Own Funds SCR development 1 Reduction of Remittances vs expected return 1 impact run-off ( ) surplus capital Net operating result new business growth (O) Netherlands Life Netherlands Non-life Insurance Europe Asset Management Japan Life Japan Closed Block VA Other (-) Holding interest expenses, (-) holding expenses, (+/-) FX movements, (+/-) other holding flows (-) NN Bank (investment in growth of NN Bank) Over time and assuming normal markets and no material special items, NN Group expects to generate free cash available to shareholders in a range around the Group s net operating result of the ongoing business O O 1. Available and required regulatory capital for Asset Management and Japan Life 18
Drivers of free cash flow Own Funds generation 1 SCR development 1 Reduction of surplus capital Solvency II entities Excess investment return over SII discount rate UFR unwind net of risk margin release New business contribution Inforce variances Earnings of Japan Life, Asset Management, pension funds Holding expenses and debt servicing costs Decrease driven by Run-off of closed blocks in the Netherlands and Japan VA Shift to capital light products Increase due to Shift to higher yielding assets New business growth Surplus capital impacted by market and regulatory developments Lower credit spreads on highly rated government bonds increases surplus capital, reduces Own Funds generation Lower UFR reduces surplus capital, increases Own Funds generation due to lower UFR unwind Over time and assuming normal markets and no material special items, NN Group expects to generate free cash available to shareholders in a range around the Group s net operating result of the ongoing business 1. Available and required regulatory capital for Japan Life, Asset Management and pension funds 19
Committed to our dividend policy Ordinary dividend In line with medium term financial performance Dividend pay-out ratio of 40-50% of IFRS net operating result ongoing business Excess capital Excess capital expected to be returned to shareholders unless it can be used for any other appropriate corporate purposes, including investments in value creating corporate opportunities Considerations When proposing a dividend, we will consider our capital position, leverage and liquidity position and strategic considerations as well as the expected developments thereof Interim dividend at 40% of prior year s full year dividend to achieve predictability and stable evolution of ordinary dividends 20
Generating value through deployment of capital Options Return to shareholders Organic business growth M&A Reduce leverage Considerations Priority is to deliver on our equity story: improve the businesses improve RoE generate cash and return it to shareholders All business segments self-funded Opportunities assessed based on strict financial criteria Opportunities assessed based on strict financial and non-financial criteria Better return for shareholders than cost of capital Also on the basis of whether we are the right owner of the business Balance sheet composition already consistent with single A rating Low leverage provides financial flexibility 21
We continue to assess our portfolio The Netherlands Leading positions in Life and Non-life 1 Japan Leading player in COLI 2 Top 3 positions in CEE 3 life insurance and pensions Netherlands: market leader with capacity to play a role in potential industry consolidation Europe: strongly positioned in most markets Japan: strong niche position, performing well Asset Management: looking to build additional scale Asset Management with international footprint New markets: no tangible plans as of today Capital deployment always compared to alternative of returning cash to shareholders 1. By GWP (2015), source: DNB 2. By APE (2015), source: internal estimate NN Group 3. By APE (2015); CEE includes Poland, Czech Republic, Bulgaria, Hungary, Romania, Slovakia, Turkey, Russia, Ukraine, the Baltics and the Balkans; Insurance Europe operates in all of these countries except for Russia, Ukraine, the Baltics and the Balkans, source: NN Group 22
Recommended offer for Delta Lloyd Public all-cash offer launched for all issued and outstanding shares in Delta Lloyd at EUR 5.40 (cum dividend) per share; total consideration of EUR 2.5bn Recommended by the Delta Lloyd Boards and providing attractive and certain cash value for Delta Lloyd shareholders Material increase in cash flow; double digit increase in dividend per share anticipated for 2018 and onwards Transaction significantly enhances Benelux position and accelerates investment proposition Offer period of 9 weeks to end on 7 April 2017, unless extended; expected to be completed in the second quarter of 2017 23
Over the medium term, NN Group expects to 1 Improve efficiency and profitability of all segments 2 Increase exposure to growth markets and fee business 3 Maintain a strong balance sheet and solvency position 4 Return excess capital to shareholders unless it can be used for other value creating opportunities 24
Appendices 25
Sensitivities of the NN Group Solvency II ratio to specified shocks Sensitivities to shocks 1 at 4Q16 Δ OF (in EURbn) Δ SCR (PIM) (in EURbn) Δ Solvency II ratio 2 (in %-points) Interest rate: Parallel shock +50bps -0.1-0.3 +10% Interest rate: Parallel shock -50bps +0.1 +0.3-12% Interest rate: 25bps steepening between 20y-30y -0.8 +0.0-16% Credit spread: Parallel shock for government bonds +50bps -1.9 +0.0-37% Credit spread: Parallel shock corporate bonds +50bps +0.5-0.1 +15% Equity: Downward shock -25% -1.2-0.2-12% Real estate: Downward shock -15% -0.8-0.0-14% UFR: Downward adjustment to 3.2% -1.3 +0.2-32% 1. Sensitivities are performed for Solvency II entities; 2. Shocks are assumed to take place over a quarter period 26
Breakdown NN Group asset portfolio (1) General account assets at 4Q16 (total EUR 129bn) 1 Fixed income portfolio at 4Q16 (total EUR 106bn) 2 2% 4% 2% 8% 4% 82% Fixed income Equity Real Estate Other Cash 3 3% 4% 24% 10% 53% Government bonds Financial bonds Corporate bonds Corporate loans ABS Mortgages Other Loans 4 4% 1. NN Group asset portfolio comprises own account assets (and therefore excludes investments for risk of policyholders and other tangible and intangible assets) and is based on risk management asset classifications and valuations 2. Fixed income portfolio consists of debt securities, mortgages and loans 3. Cash includes money market mutual funds 4. Other loans includes government loans, financial loans and other retail loans 27
Breakdown NN Group asset portfolio (2) Fixed income bonds 1 by type of issuer at 4Q16 (total EUR 74bn) 2% 2% 2% 0% 2% 5% 5% 6% 76% Government bonds 1 by rating at 4Q16 (total EUR 56bn) 19% 6% 7% 36% 32% Government bonds by country at 4Q16 (total EUR 56bn) 3% 3% 3% 1% 1% 8% 11% 7% 14% 17% 15% 17% Government Bonds Financial institutions Utilities Transportation Other Manufacturing ABS Information Mining, Oil, Gas AAA AA A BBB Other 2 Japan Germany France Netherlands Belgium Austria Spain Italy Finland Poland EU Other 1. Comprises government bonds, financial bonds, corporate bonds and ABS 2. Comprises government bonds of several countries with several ratings 28
Important legal information NN Group s Consolidated Annual Accounts are prepared in accordance with International Financial Reporting Standards as adopted by the European Union ( IFRS-EU ) and with Part 9 of Book 2 on the Dutch Civil Code. In preparing the financial information in this document, the same accounting principles are applied as in the NN Group N.V. condensed consolidated interim accounts for the period ended 30 September 2016. The Annual Accounts for 2016 are in progress and may be subject to adjustments from subsequent events. All figures in this document are unaudited. Small differences are possible in the tables due to rounding. Certain of the statements contained herein are not historical facts, including, without limitation, certain statements made of future expectations and other forward-looking statements that are based on management s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation: (1) changes in general economic conditions, in particular economic conditions in NN Group s core markets, (2) changes in performance of financial markets, including developing markets, (3) consequences of a potential (partial) break-up of the euro, (4) changes in the availability of, and costs associated with, sources of liquidity as well as conditions in the credit markets generally, (5) the frequency and severity of insured loss events, (6) changes affecting mortality and morbidity levels and trends, (7) changes affecting persistency levels, (8) changes affecting interest rate levels, (9) changes affecting currency exchange rates, (10) changes in investor, customer and policyholder behaviour, (11) changes in general competitive factors, (12) changes in laws and regulations, (13) changes in the policies of governments and/or regulatory authorities, (14) conclusions with regard to accounting assumptions and methodologies, (15) changes in ownership that could affect the future availability to us of net operating loss, net capital and built-in loss carry forwards, (16) changes in credit and financial strength ratings, (17) NN Group s ability to achieve projected operational synergies and (18) the other risks and uncertainties detailed in the Risk Factors section contained in recent public disclosures made by NN Group. Any forward-looking statements made by or on behalf of NN Group speak only as of the date they are made, and, NN Group assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities. 29