The impact of COVID-19 on the operating result for the first half of 2020 was around EUR 30 million, mainly in the segments Japan Life, Asset Management, Other, Insurance Europe and Banking. The restrictions in place to halt the spread of the virus have also led to lower new sales in Europe and Japan in the current period. The lower new business volumes will impact results going forward, the group mentions.
- Operating result: EUR 926 million (+1%), of which:
- Netherlands Life: EUR 494 million (-6%)
- Netherlands Non-life: EUR 111 million (+32%)
- Insurance Europe: EUR 133 million (-5%)
- Japan Life: EUR 138 million (+17%)
- Asset Management: EUR 74 million (-3%)
- Banking: EUR 80 million (+33%)
- Others: EUR -104 million (1H2019: -88)
- New sales (APE): EUR 620 million (-48%)
- Value of new business (VNB): EUR 122 million (-48%)
- Administrative expenses: EUR 1,043 million (+1%)
- Operating capital generation: EUR 543 million (-22%)
- Solvency II ratio: 221% (+3 pp.)
- Net result: EUR 587 million (-47%)
The operating result of Asset Management was broadly stable at EUR 74 million in the first half of 2020. The impact of COVID-19 was EUR -8 million due to the volatile markets which put pressure on fee income.
The administrative expenses of the business units in the scope of the cost reduction target decreased by EUR 21 million in the first half of 2020, bringing the administrative expense base down to EUR 1,589 million on a last 12-months basis. Total cost reductions achieved to date amount to EUR 381 million compared with the full-year 2016 administrative expense base of EUR 1,970 million.
Total new sales (APE) were EUR 620 million (-48.6%, on a constant currency basis). New sales at Netherlands Life were EUR 178 million (1H2019: 328). As from 2020, new sales related to defined contribution (DC) accumulation contracts are no longer reported as insurance new sales but are reported as part of the DC assets under management. At JapanLife, new sales were down 77.1% from the first half of 2019, excluding currency effects, reflecting strong sales in the first quarter of 2019 ahead of the implementation of the revised tax regulations of COLI products, as well as COVID-19 restrictions. New sales at Insurance Europe were down 6.1% on a constant currency basis, mainly due to lower life and pension sales across the region as a result of COVID-19 restrictions.
Value of new business was EUR 122 million (1H2019: 236), decreasing due to strong sales in Japan in the first quarter of 2019 ahead of the implementation of the revised tax regulations of COLI products, as well as lower sales in Japan and Insurance Europe in the first half of 2020.
Cash capital position at the holding decreased to EUR 1,315 million (4Q2019: 1,989), reflecting cash outflows of EUR 1,132 million, the redemption of EUR 300 million senior debt and the repurchase of own shares. First half of 2020 includes an interim dividend of EUR 2.26 per ordinary share or approximately EUR 705 million, which comprises the amount of the suspended final dividend plus the regular interim dividend amount. Operating capital generation decreased to EUR 543 million (1H2019: 697), reflecting lower interest rates and the impact of COVID-19 restrictions.
The NN Group Solvency II ratio decreased to 221% (4Q2019: 224%), mainly reflecting the proposed 2020 interim dividend and the EUR 183 million share buybacks executed in the first half of 2020, the acquisition of VIVAT Non-life, the impact of the UFR reduction from 3.90% to 3.75% and unfavorable market impacts.
On 11 July 2020, the Dutch Central Bank (DNB) published new regulations in which the required approach to calculating the Solvency II ratio was revised. As from 31 December 2020, NN Group will be required to include NN Bank in the calculation of its Solvency II ratio. The pro forma NN Group Solvency II ratio including NN Bank is 211% as at 30 June 2020.
The net result in the first half of 2020 decreased to EUR 587 million (1H2019: 1,118). The effective tax rate in the first half of 2020 was 29.5%, reflecting a relatively high tax charge on the investment income, amongst others due to impairments and negative revaluations on tax-exempt investments.
"Despite the current turbulent economic environment, we present a solid set of results for NN Group today. We were able to respond quickly to the COVID-19 pandemic by ensuring continuity of our business and adapting to the changing needs of our customers, employees and other stakeholders. (...)
The decision to suspend the 2019 final dividend and share buyback programme in April followed the recommendations of the European and Dutch regulators in response to the COVID-19 crisis and the uncertainty about how that would develop. (...)
Our focus is now on operating capital generation (OCG) and our commitment to grow OCG to mid-single digit over time. The OCG in the first half of 2020 was EUR 543 million, reflecting the impact of low interest rates and COVID-19. (...)
With our priority to maintain a strong balance sheet, and the strategic actions we are taking to achieve resilient and growing long-term capital generation, we are well-positioned to navigate through volatile markets, drive profitable growth and deliver attractive capital returns going forward."