"We welcome the support of investors for the rights issue, which brings us now within our target range of 140 - 180%. The sharp fall in interest rates in the quarter adversely impacted the capital position. This was partly mitigated by progress on our capital management actions. The commercial momentum with our clients in Life and General Insurance continues. We are focussed on further unlocking the value of the franchise by improving commercial and operational performance and we will make sure that all product lines deliver acceptable returns."
|(in millions of euros, unless otherwise stated)||3M 2016||3M 2015||% Change|
|Solvency II Life value new business||22||n/a||n/a|
|Solvency II NAPI||132||132||1%|
|GWP General Insurance||465||434||7%|
|Solvency II Standard formula (SF) ratio||127%||131% *||-4pp|
|Solvency II Standard formula (SF) pro forma ratio after rights issue||154%||n/a||n/a|
|Shareholders' funds (IFRS) after non-controlling interests||2,805||2,569 *||9%|
|Pro forma Shareholders' funds (IFRS) after rights issue||3,454||n/a||n/a|
* compared to year-end 2015
Overview of first three months of 2016
During the first quarter, we executed the rights issue, which was an important step in the overall capital plan to reach the targeted SII ratio range of 140 - 180%. The pro forma SF ratio, after the rights issue, was 154%. The effect of the completed rights issue will be reported at our half year results. During the first quarter, net capital generation and management actions added to our capital position, partly mitigating the effect of adverse market conditions. Subject to market conditions, the sale of the shareholding in Van Lanschot by way of a marketed offering is expected to have an 8% points increase in the SF ratio. The implementation of a Partial Internal Model by 2018, another important aspect of the capital plan, is developing as planned.
We have an ongoing commitment to product profitability and cost efficiency through our focus on margin over volume. In Life new business, we reported good margins at 3.7% and the SII NAPI amounted to € 132 million, which provided a positive contribution to capital generation. In General Insurance, the COR was slightly higher (up 0.4% points to 97.0%), but still better than our target of 98%. In this segment, the overall margin is solid, but we need to focus on areas of underperformance. To do so, we initiated a performance improvement programme.
We continuously strive to improve the quality of service to our customers and we actively respond to new market developments such as the introduction of the general pension fund APF. Delta Lloyd APF will offer company pension funds a solution to the growing administrative and regulatory burden.
We expect to receive a license from the Dutch regulator for the newly introduced Delta Lloyd APF general pension fund in the coming months. We already see a clear interest from potential APF clients.
During the first quarter, the SF ratio decreased by 4% points to 127%. Net capital generation delivered c. 2% points increase. The run off regarding the equity transitionals resulted in c. 2% points decrease during the quarter. Market movements had a c. 10% points negative impact on the SF ratio. The latter was partly mitigated by realised management actions, with a positive effect on the SF ratio of c. 6% points. Realised management actions include reduced equity, currency and credit spread exposures as well as modelling enhancements in Belgium. More management actions are planned for the remainder of 2016.
The negative impact of adverse market conditions of c. 10% points mainly consisted of:
At end of March, Shareholders' funds (IFRS) had increased by € 236 million to € 2.8 billion (year-end 2015: € 2.6 billion), due to a favourable credit spread development between the Collateralised AAA curve and the swap curve.
Transition to Solvency II metrics
The year 2016 marks the start of Solvency II, which for Delta Lloyd as well as other insurers, requires a further evolution of reporting metrics to further align with Solvency II requirements. In particular VNB together with respective volumes and margins have been impacted. In 2016 Delta Lloyd will report on both old and new regimes in order to provide clarity on key trends. The old regime was applicable in 2015 (and prior to 2015) and the new regime applies as of 2016.
Specifically for VNB, a number of changes to the methodology were implemented during the first quarter to further align with Solvency II requirements. Main changes include the application of Solvency II contract boundaries, the removal of frictional costs and the replacement of cost of non-hedgeable risk with risk margin. Furthermore, look-through benefits are not included.
The application of contract boundaries also impacts new business volumes. New business under the old regime included new contracts and extensions to existing contracts. New business under the new regime includes new contracts and renewals of existing contracts, whereas extensions are recognised as existing business. These changes are reflected in our New Annualised Premium Income (NAPI). In the first quarter NAPI is higher under the new regime which is due to a higher NAPI for renewals than NAPI for extensions to existing contracts.
Life SII VNB was € 22 million and taking into account a capital strain of € 13 million, the net capital generated due to new business sales was € 9 million. The corresponding SII NBM was 3.7% and was driven by Belgian protection products and profitable DB pension renewals.
SII VNB was slightly lower than VNB under the old regime, reflecting a negative impact of contract boundaries for DC Pension, partly offset by a positive contribution of DB Pension renewals.
For the quarter, VNB and NBM under the old regime showed an increase mainly due to the Belgian protection products, partly offset by a reduction for DC Pension which largely reflected a model correction. The impact of this model correction was a decrease of VNB of around € 4 million.
SII NAPI was stable at € 132 million (3M 2015: € 132 million), the increase in SII NAPI for DB products is due to the fact that renewals are now included in this number. SII NAPI for DC increased by 8%.
Overall, the COR was better than target. The COR in Income & protection decreased by nearly 6% points to 73.3%, reflecting some prior year reserve releases and lower commissions. The COR in Property & Casualty (P&C), increased by 1.3% points to 101.8%, reflecting adverse large claims experience in the quarter. In the coming months we are reviewing the performance of all of our general insurance product lines, to ensure that each delivers an acceptable return. For example, we expect the COR of personal general insurance products to be positively affected by the strategic partnership with service provider Voogd & Voogd we announced in March. The increase of GWP in General Insurance is mainly attributable to increased premium production at Authorised Agents.
In the Asset Management segment, there was a net outflow on third party base (€ -354 million) due to an outflow of one large mandate and outflows in retail funds. In asset management, we plan to concentrate more on institutional clients.
In the first quarter, the production of new mortgages increased, supported by the recovering Dutch housing market. The portfolio of Bank Annuity and savings products stabilised, reflecting our focus on margin over volume. There is a continued focus on improving operational efficiency and client satisfaction, also by developing new services such as Instant Payment. This is a service which allows customers to instantly transfer money from their savings account to their bank account at another bank.
We will continue to execute the capital plan that we announced with the rights issue. We are progressing with the sale of our shareholding in Van Lanschot by way of a marketed offering in the course of 2016. Further Asset & Liability Management (ALM) actions will be executed to release capital and reduce volatility. Including the benefit of actions already implemented, the programme of ALM actions will deliver a total of 10-15% points uplift. After this, we expect to reach a solvency position in the top half of our target range, which gives us a solid foundation from which to execute our strategy and deliver customer-focused and profitable new business.
We are committed to operational cost discipline and our focus is on improving the operational performance by an ongoing review of the business lines. We are on track to meet our target for operational expenses of € 610 million for 2016.
In February 2016, alongside the rights issue we presented our strategy and capital plan including targets. During our Investor Day on 27 May 2016, we will provide a further update and details regarding the progress of our strategy execution and our capital plan.
|Financial calendar 2016|
|19 May 2016||Annual General Meeting|
|27 May 2016||Investor Day|
|17 August 2016||Publication of half-year 2016 results|
|16 November 2016||Publication of Interim management statement first nine months of 2016|
Interim Management Statement audio call on 18 May 2016
On Wednesday 18 May 2016 at 09.30 am (CET) Delta Lloyd will host a conference call for analysts, which can also be followed via audiocast on our website.
Conference call: 18 May 2016, 09.30 am (CET)
+31 20 716 84 27 (English language), PIN code 31026636#
This press release is also available at www.deltalloyd.com .
Investor Day 2016
Our Investor Day will take place on Friday 27 May in London. All presentations are in English and will be webcasted on the Delta Lloyd website ( www.deltalloyd.com ). The presentations will be available on our website on 27 May 2016 from 07.30am (CET).
 New Annualised Premium Income, 10% of new single premium, 100% of new annual premium
 Excluding terminated and run-off activities and market interest movements
 Excluding terminated and run-off activities