EUR 850.00 For Business Accounts Only

Morningstar | Best Idea Update: Decent 2018 Close and Prospects for NN

NN Group reported an operating result of EUR 343 million for the fourth quarter with a full-year operating result of EUR 1,626 million. The net result has been hit quite hard by an impairment of goodwill on the back of the Delta Lloyd acquisition, but operating numbers look healthy. The Solvency II ratio remains strong at 230%; in line with this, management announced a EUR 500 million share buyback for the next 12 months commencing March 1 as the company still is holding cash of EUR 2 billion. A final dividend of EUR 1.24 per share is being proposed, taking the full year to EUR 1.90, a 5% yield. We maintain our EUR 48 fair value estimate and no-moat rating.

Within the business segments, we are quite pleased with the result from Netherlands life. Within income, results were better across the board with a close to EUR 30 million increase in the investment margin for the full year. This brought the margin closer to our expectation. Fee and premium-based revenue also looked better as outflows began to normalise. Management continues to work through cost reductions, and this is coming through in the cost/income ratio. Below-the-line items were flattish to down slightly, which is encouraging for the core result. Withdrawals on the Netherlands Life policyholder provisions declined dramatically from over 30% to 8%. Withdrawals on traditional provisions looked a little elevated but only marginal.

The Netherlands nonlife divisions show there is still some work to do, but the situation is improving. While the spending coming out of costs is a bit light, we think the claims environment is showing steady improvement. We essentially saw a 160-basis-point drop in the claims ratio over the quarter and a 260-basis-point drop for the full year. We attribute this to a combination of some pricing improvements starting to run through, a stabilisation of the claims environment in bodily injury, and an improving claims environment with disability and accident linked to the business cycle and income protection. This is borne out by the numbers. There is still work to do in motor, and we think improvements will be forthcoming, but the result of this particular line of business is looking a lot more stable.

We think, aside from the impairment, that this was a pretty decent close to the year for NN and shows some encouraging signs in both of the core Netherlands-based businesses.